Turn the Tide: Send Money Back to Cities

September 08, 2003

Los Angeles Times

After Proposition 13, fiscal power migrated to Sacramento. It's time to reclaim it.

By Joel Kotkin and Robert Hertzberg

Joel Kotkin, a contributing editor to Opinion, is a senior fellow at the Davenport Institute for Public Policy at Pepperdine University. Robert Hertzberg is a former speaker of the California Assembly

September 7, 2003

Media reports to the contrary, California is neither sick nor dying. People are moving out of the state at a fraction of the rate they were in the early 1990s. Job growth statewide is on par with that in the rest of the country. Excluding the dot- com-bombed Bay Area and parts of urban Los Angeles, the state ranks among the most economically vibrant in the nation.

What's wrong with California is that its political system is broken. That much the recall has made clear. Stopgap half-measures such as making the Legislature a part-time body or instituting spending caps are not what's needed. Instead, we need to strike at the heart of the problem: the loss of local control to Sacramento. We need to give our local city halls, county seats and school boards the power and resources to shape their own futures.

One unintended consequence of Proposition 13 was that the vast majority of fiscal power migrated to Sacramento. Local governments, which once controlled stable and guaranteed revenue streams — including all property taxes — have been reduced to confederacies of paupers. In 1978, the year the property tax measure passed, local governments controlled 32.5% of all tax revenues. By 1995, that number had shrunk to 19.4%.

More recently, a series of "raids" by Sacramento on local funds has further weakened local governments. Cities and counties, largely unable to develop their own tax structures, spending priorities and regulatory climates, must turn to Sacramento for even mundane matters. Denied reliable and dependable revenue sources, local officials have become glad-handing lobbyists.

The framers of the state Constitution did not intend that the Legislature and governor supervise the minutiae of city councils, county supervisors and school boards. Even with the best of intentions, state officials cannot adequately meet the needs of a homeowner in Sherman Oaks or a machine shop in East L.A.

In order to remedy this dysfunctional state of affairs, a radical change is necessary: Power and funds must start flowing in the other direction, from Sacramento back to city and county governments. Currently the state takes more than half of all property tax dollars from local governments to fund education and other programs. By returning this money — some $14 billion — to local governments that controlled it before 1978, we can restore fiscal independence to local governments. This would not in any way tamper with the essence of Proposition 13.

At the same time, we would return to cities, counties and regions the responsibility for programs and services best managed at the local level. Almost half of the state budget is in "local assistance" — transfers of funds to local governments for locally administered programs and services. Responsibility for many of these programs can be transferred to local governments once they are receiving the funds needed to run them. Job training, drug rehabilitation and mental health services, among many others, are logical candidates for local control, under which they can be closely tailored to meet community needs.

Today, when citizens petition their county governments or stand in line at City Hall to complain, they often end up being told "it's out of my hands," that they need to talk to Sacramento. For example, as the city of L.A. debates the issue of adding more police, the decision largely rests upon how much money can be pried out of Sacramento. If funds were reallocated in the way we suggest, cities could make their own decisions about funding public safety, knowing that revenues were guaranteed even if the state's priorities changed.

There are many fields of government best funded at the state level, including health care and education. Some programs, including Medi-Cal, that are partially funded by the federal government have restrictions on who administers funds. These must be met to retain federal dollars. In education, the state has a legal obligation to ensure an equitable standard for education statewide. Special care must be taken to ensure that we do not push back the gains made in the equity of opportunity and access to both health care and education.

But even with these restrictions, the scale of this proposed devolution of resources is vast: $14 billion is more than half of the state budget outside of education, health and human services. Managing the process of transferring revenues from the state and crafting a division of responsibilities between state and local governments would require a steady hand and attention to detail.

The main logic behind such a plan rests on the desirability of shifting fiscal responsibility to the levels of government closest to the people. It would allow spending decisions to be made and priorities set by the people most affected by them. Today, when local issues are brought to Sacramento — as they so often are, given the dire shortage of funds controlled by local governments — their fate is subject to the influence of powerful statewide organizations whose hands have no place in local matters.

This is particularly important in a state such as California, with its diverse communities. The spending priorities of communities like Palo Alto and Beverly Hills are not those of Pico Rivera or Delano. One community might want to spend on building a new community center while another might focus on jobs or after-school activities for young people.

Equally important, this shift of funds will serve to make local government, now subservient to Sacramento, a power in its own right. Talented people, allowed the chance to really shape local priorities, will be attracted to serve in city and county government rather than see it as a simple steppingstone to Sacramento.

This proposal, it should be emphasized, is not a free lunch for anyone. It does not produce more revenue, only shifts who controls the purse strings. Devolution does not do away with the state government: It merely clarifies the state's responsibilities. The state, freed from the obligation to oversee and fund local matters, could focus on issues that must be addressed statewide, including infrastructure development and funding for education and health care. The state must also maintain its obligation to guarantee basic equity across localities. In areas with low property values, for example, where tax revenues are not sufficient to adequately fund local services, the state must continue to act as the final guarantor of equity.

Ultimately, the reallocation we propose would serve to enliven grass-roots democracy and improve governmental efficiency. Such a notion should appeal to both liberals and conservatives. For conservatives, the notion that governments closest to the people govern best is almost sacred, rooted in Jeffersonian principles. The most effective local governance in California, for example, is usually found today in smaller communities, such as Burbank, Ontario, Palo Alto or Azusa, where city officeholders live among, and are in daily contact with, ordinary constituents.

And there is much in this kind of radical reform that should appeal to today's liberal "progressives" as well. Today the old notion that local government is exclusively a "white man's club" has been refuted by the widespread presence of women and minorities on city councils, boards and commissions across the state. Just consider the dramatic growth in the number of Latino elected officials in California from a mere handful a few decades ago to more than 900 today.

Perhaps, though, the most important benefit of redirecting power and resources to the local level would be the restoration of common sense and practicality to the pattern of governance. As governor, Jerry Brown tended to a highly philosophical bent. But as mayor of Oakland, he has learned, with at times extraordinary effectiveness, how decisions at the municipal level have concrete consequences. Cities and counties demand practical rather than theoretical thinking. Jobs lost or gained, or districts that decay or get improved, are not abstractions but carry with them the weight of everyday reality.

When the Progressives reformed California government in the early 20th century, large bureaucracies and "professionals" seemed necessary in order to gather the data necessary to make informed decisions. Today, in the digital age, a local official or city council member in even the smallest hamlet has access to much of the same information available to the mayor of the largest city.

All these factors argue for a radical shift in state governance. In the best of all worlds, this would be enacted by the Legislature, which should be acutely aware of the system's failings. But if legislators do not surrender their power voluntarily, we may need to take this notion to the ballot box, not to create yet another blunt instrument but to help California align its role as the harbinger of cultural and technological trends with an appropriate level of political innovation.