Mission and Problem Statement

Prop. 13, passed over 20 years ago, “unintentionally” altered the State-local fiscal relationship by putting control of property taxes collected locally into the State Legislature’s hands. In the last year, many civic and political leaders have gathered to consider fixing this dysfunctional local/State relationship, and Assembly Speaker Villaraigosa formed the Speaker’s Commission on State and Local Finance, a blue ribbon citizens’ group, to study the issue.

The Mission
The mission of the Speaker’s Commission is to formulate improvements to California’s State/local fiscal system that will: 1) restore autonomy and accountability in local finance, 2) improve incentives for balanced land-use decisions, regional cooperation, environmental protection and economic prosperity and 3) make the financing of local and regional services more understandable and rational.

There are four problems that need to be addressed.
The following list of problems arises from the general recognition that the State-local finance system is dysfunctional, inequitable and incomprehensible. The local component of this system is irrational, undermines local accountability and rewards local agencies for decisions that produce unbalanced community growth. In this context the term “community” refers to places as small as a neighborhood and as large as a region.

(1) Communities have lost much of their historic control over their primary revenue sources, particularly the property and sales taxes.

(a) The lack of a stable and predictable revenue base dedicated to community services has undermined the ability of community governments to provide services and be held accountable.

(b) They have instead relied on other, perhaps less desirable taxes and service charges, which have often made the local finance system more regressive.

(c) During recessions, the State uses community revenue as a fiscal shock absorber.

(d) The tax base used to support local public services has been shrinking due to changes in the economy and the habit of the State to exempt activities from the local tax base. This is particularly true with the sales tax, property tax, gas tax and the vehicle license fee.

(2) The local tax system creates undesirable land-use incentives that foster unbalanced growth.

(a) Reliance on the sales tax leads to a greater desire for retail development.

(b) Housing and manufacturing are often seen as net fiscal losers.

(c) Localities impose heavy infrastructure costs on new development that would otherwise be borne by the community at large.

(d) There is no clearly defined State-local allocation of responsibilities and financing for infrastructure.

(e) The effect of this system is to produce uncoordinated regional growth patterns, which result in the loss of regional resources, shortages of affordable housing, long commutes, traffic congestion and an increase in the cost of infrastructure.

(f) The current system motivates competition among communities for higher tax-generating land uses and discourages collaboration at the regional level.

(3) The State and local finance system is too complex, difficult for citizens to understand, and prevents government officials from being held accountable.

(a) The local finance system lacks a logical connection between the taxes citizens pay and services they get in return.

(b) The structures for financing State/county services, including most health and welfare services, are difficult to understand.

(c) The finance system creates few incentives for governments to achieve results.

(d) There are few communities that adopt measurable standards that would assist citizens in determining progress toward a particular program goal.

(e) The relationship between the State and local governments has deteriorated substantially over the past twenty years. During this period the fiscal independence of cities, counties and special districts has been reduced. The result is a seriously strained relationship featuring distrust and acrimony. The State-local relationship needs to evolve into a partnership through better defined and balanced roles, responsibilities and mutual accountability.

(4) There are major inequities in the current State-local finance system.

(a) Major inequities exist within urban regions that frustrate efforts to protect regional resources, and increase economic prosperity, equity and social harmony within and among communities.

(b) A community’s revenue base bears little relationship to the population-based services provided by community governments.

(c) A community with high tax rates may produce the same revenue as one with low tax rates.

(d) Similarly situated communities have vastly different shares of the property tax.

(e) There is no baseline threshold that will ensure that each community is receiving an amount of resources needed for basic community services.

Guiding Concepts •

Problem #1
Communities have lost much of their historic control over their primary revenue sources, particularly the property and sales taxes.
Guiding Concept—Increase community control over the primary sources of revenue, particularly the property tax for community services, in a manner that will provide a stable and predictable revenue base for local and regional services.

Problem #2
The local tax system creates undesirable land-use incentives that foster unbalanced growth.
Guiding Concept—Establish a local and regional fiscal system that will enhance environmental protection, maximize stable economic growth, and encourage balanced land-use decisions in a regional context.

Problem #3
The State and local finance system is too complex, difficult for citizens to understand, and prevents government officials from being held accountable.
Guiding Concept—Ensure that roles and responsibilities for providing and financing services are clear, that access to information is freely available and that progress toward mutually arrived at local and regional goals can be measured.

Problem #4
There are major inequities in the current State-local finance system.
Guiding Concept—Ensure that communities have adequate authority to raise the resources needed to meet the needs of their citizens at the local and regional level, and that the State recognize its responsibility to reduce inequities.