Speaker's Commission on State / Local Government Finance

Finance Commission Re-Examining Prop.13

By Kathleen Les
Capital Journal (Published March 22, 1999)

After 20 years as the crowning symbol of taxpayer revolt against escalating taxes, signs are brewing that the fortress walls around the mighty Prop. 13 may start to crumble -- even if only bit by bit.

Reviled by cities, counties and school districts around the state for curbing local revenue streams, the property tax reduction measure also reversed more than 60 years of "home rule" by putting the state, not municipalities, in charge of allocating locally-generated property tax dollars.

When Assm. Spkr. Antonio Villaraigosa (D-Los Angeles) launched his Commission on State and Local Finance earlier this year, he joined the growing chorus of local government representatives and state lawmakers, including Gov. Gray Davis, interested in lessening local dependence on sales taxes and restoring municipal control over property taxes.

"For the last 20 years Prop. 13 was like the third rail, so charged no one wanted to touch it," said David Able, chairman of the speaker's commission, who also works as a business consultant for the Los Angeles Co. Citizens' Economy & Efficiency Commission.

Now, Able and his fellow commission members are mostly in agreement about finding more reliable funding for cities and counties.

Since 1992, when former Gov. Pete Wilson steered the state out of its recession-generated financial pinch with the help of the ERAF (Education Revenue Augmentation Fund) shift, local governments have been coping with the loss of some $3.4 billion a year in property tax revenues soaked up by state coffers. Local governments have received some assistance in return -- such as state funding for trial court operations and a portion of sales tax revenues devoted to local law enforcement -- which has off-set a portion of the ERAF hit. However, cities and counties still find themselves with a $1.5 billion hole each year because of lost property tax dollars, according to the Legislative Analyst's Office.

To cope with that net loss of revenue, local governments have scrambled together other sources of funding -- sales taxes and a variety of assessment districts -- setting in place a steady cycle of new taxation ploys to fill the financial void.

Last year, when Wilson made his gubernatorial exit with a $1 billion vehicle license tax cut -- effectively robbing cities of revenues once again -- local governments pledged to fight back.

Unlike the previous Constitutional Revision Commission, which had virtually no local constituencies, or the Governance Consensus Project, which is top-heavy with Sacramento insiders, Villaraigosa has assembled a commission stacked with representatives from local groups such as the Bay Area Council, Great Valley Center, Joint Venture Silicon Valley and San Diego Dialogue that already have grappled with funding grief in their own local arenas.

Even commissioner Joel Fox, president emeritus of the Howard Jarvis Taxpayers Assn. and self-appointed guardian angel of taxpayers, concedes that some change is needed to reverse the "vicious cycle of local governments looking for more money."

"We would like local government to control the property tax money, not the state," said Fox, who acknowledges that the timing seems ripe for at least some small changes that provide more fiscal dependability for cities and counties. But Fox also cautions that voters are unlikely to go along with any change unless they see a need.

"There is a lot of consensus about the problems that flowed from Prop. 13," concurred Able, "but the real challenge is how to communicate those problems [to the public]." To be successful, says Able, the commission must get voters to understand the relationship between fiscal problems and the quality of life in local communities.

Ruben Barrales, a former San Mateo Co. supervisor and current executive director of Joint Venture: Silicon Valley, who also sits on the commission, attributes the shortage of affordable housing, for instance, to Prop. 13. "Sales tax is king for local government," said Barrales, who argues that housing is increasingly shunned as a tax burden.

Barrales says the business, civic and education leaders in his Silicon Valley collaborative are ready for the 32-member blue ribbon panel appointed by Villaraigosa to explore major tax policy changes. Silicon Valley leaders have already contemplated a tax swap that would hand over all sales taxes to the state and give cities and counties exclusive use of property taxes. And they have also considered a regional sales-tax-sharing strategy to stop the competition between cities for major retailers.

Villaraigosa came under fire by fellow Latinos when he appointed Ron Unz, sponsor of Prop. 227, the anti-bilingual education initiative, to his group. But Unz, who was rumored to be pondering a voter initiative to remedy local fiscal woes as his next project, may have the communicator's touch needed to simplify an otherwise complex issue into the catchy sound bites that attract a popular following.

The commission intends to make its legislative recommendations by the end of the year. In the meantime, some lawmakers are moving ahead at a faster pace. Assm. Scott Wildman (D-Glendale) has already introduced AB 304 to mandate an incremental ERAF reduction over a 10-year period. Davis has signaled that he also intends to weigh in with a commission addressing issues related to the fiscalization of land use sometime before the end of the year.

Counties also have their ace in the hole in case legislative efforts fail to bring about sufficient ERAF relief. Backed by the Calif. State Assn. of Counties, officials from Sonoma Co. last week filed a lawsuit against the state in Sacramento court aimed at ending the ERAF shift.

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