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LA Times Editorial October 27, 1999
Taxes: a State of Confusion

'Give local governments the revenue sources they need to pay for services that logically belong at the local level.'

The state of California can argue that it took the money fair and square from city and county governments in 1991 and 1992. Billions in property taxes that had been used to finance local services were transferred to the state to meet its obligation to public schools. The massive fiscal shift in the depth of the recession was approved by the Legislature and the governor to help cover a $14-billion budget deficit. Now boom times are back, but the state is reluctant to return property tax revenues to cities and counties. The volume on this issue has been turned up a notch by a Sonoma County Superior Court judge who says the transfer, which continues to the tune of $3.6 billion a year, was never legal after all. If Judge Laurence K. Sawyer's ruling in a suit brought by the counties survives appeal, the state could face a bill of $10 billion to $12 billion. However, there is no certainty that the counties will win a state appeal. Nor would that necessarily be the best thing for either state or local government.

What the court decision should do is motivate the Legislature and governor to undertake a determined effort during the 2000 legislative session to untangle the mess that has snarled the fiscal relationship between the state and local governments ever since Proposition 13 was approved by voters in 1978. The situation is complex, but the overriding effect has been the state's control of the major sources of revenue and its redistribution of the money to local government, often with strings attached. Innumerable studies have sought to bring some sense to the system. There's no magic solution, but there is a broad consensus about the goal: to give local governments the revenue sources they need to pay for services that logically belong at the local level.

Historically, the property tax was the key local source of revenue. That made sense because the tax on homeowners went to pay for services that provided a direct benefit to their property--schools, police and fire protection, street maintenance and the like. But Proposition 13 slashed property taxes. To fill the gap, cities and counties imposed new fees and levies such as the utility and hotel room taxes. A subsequent bail-out, fashioned by the Legislature, made the sales tax a major source of local government financing. That has wreaked havoc with planning in many areas as local governments engage in sometimes-cutthroat competition to build auto malls and attract giant retail outlets such as Wal-Mart to boost their sales tax receipts.

Assembly Speaker Antonio Villaraigosa (D-Los Angeles) has a task force at work on local government finance, and Senate Budget Committee Chairman Steve Peace (D-San Diego) has conducted considerable study of the issue. Among others, Gov. Gray Davis has declared his intent to become involved. The year 2000 is an appropriate time for the state to give local governments the fiscal and management tools they need to provide their residents with modern, efficient and economically stable government.

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Speaker's Commission on State/Local Government Finance
in collaboration with the
Metropolitan Forum Project
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Los Angeles, CA 90017
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