Speaker's Commission on State / Local Government Finance

Pay an Old Debt to the Localities

Los Angeles Times Commentary
September 7, 2000

It's rare for the state Legislature to approve a bill of any consequence by a unanimous vote, but a tax measure by Senate President Pro Tem John Burton (D-San Francisco) passed the Senate 40 to 0 and the Assembly 77 to 0. The measure, SB 1637, would return to cities and counties a fraction of the property tax revenue that was grabbed from them by the state to make up budget shortfalls in the early 1990s. It would help correct a gross inequity, yet Gov. Gray Davis is poised for a veto. Davis cloaks his opposition in fiscal responsibility; at bottom, he is just stiffing the localities.

At issue is the state's taking of nearly $4 billion from the counties, cities and special districts in the recession of 1992 and 1993 to help balance its own budget. The governor and Legislature promised to return the money when the economy got better. Billions in tax funds have been returned to others who sacrificed, including the wealthiest Californians and business. The cities and counties are still standing in front of the Capitol with their hands out.

The state has partly offset the tax grab with new aid over the past several years. But local government still suffers a deficit of about $1.5 billion a year from the property tax shift. As for the new money from the state, Sacramento dictates how it is to be spent. The counties in particular are desperate for discretionary funds to pay for local priorities such as parks and libraries as well as law enforcement.

Legislators passed bills by overwhelming margins in the final two years of former Gov. Pete Wilson's administration to return the tax funds to cities and counties. Wilson vetoed both. In his 1998 campaign, Davis promised to go to the rescue of local government, but he has not done so. Too expensive, the governor's fiscal experts said.

This year, the local governments offered a major compromise. They would settle just for the annual increase in property tax collections caused by rising home values, about $300 million a year. The state still would get $3.9 billion more than it used to; considering the state had a $13-billion budget surplus this year, this seemed to be more than modest.

Davis' finance department objected to the cost and said the state should seek a general overhaul of the tangled state-local fiscal relationship first. Such fiscal reform has been studied to death in recent years. A would-be reform bill this year was gutted and replaced with a proposed one-time grant of $212 million to local government. The guessing is that Davis will approve the $212 million and use that as cover for vetoing SB 1637.

Sacramento should stop treating local government like a stepchild and instead work with it in a full partnership. A strong beginning toward that end would be for Gov. Davis to sign SB 1637 into law.

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