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Local Governments Want State To Return Money Now That Budget Picture Is Rosy
By Jake Henshaw, Capitol Alert (Published May 30, 1999)

SACRAMENTO -- For local government, it's all about community parks, libraries, emergency services and potholes.

For the state, it's about education, prisons,state parks, trains and ferries and other public works.

At issue is the nearly $4 billion that the state takes annually in local property taxes to help balance the state budget. It just happens this is close to the estimated $4 billion surplus that the state expects in its budget.

As the state budget debate begins in earnest next week, city and county officials think now would be a good time to end this revenue raid that the state started during the recession of the early 1990s to balance its budget.

"Good economic times are the only time you can talk about this," said Pat Leary of the California State Association of Counties.

But the governor, at least, says now is the time to use surplus funds to invest in the future by upgrading the state's public works from transportation to prisons and to build up what he calls a prudent reserve for emergencies.

"This year, California must seize the special opportunity presented by our strongest economy in decades to invest in California's future without saddling future generations with spiraling costs," Gov. Gray Davis said when he updated his budget earlier this month.

These comments are the latest chapter in a debate that has intensified as the amount of property tax siphoned off by the state to help pay its education expenses has grown from less than $2 billion to an estimated $3.7 billion.

For years local officials have hired lobbyists and sympathetic legislators have introduced bills in an effort to end, phase out or at least cap this loss, which grows as property values increase. But that effort never went anywhere with Pete Wilson as governor.

Now local representatives like Leary are taking heart because both houses of the Legislature have included some relief in their two different versions of the budget, which an Assembly-Senate conference committee will begin negotiating next week.

The Assembly included $200 million. In effect, this would let cities, counties and special districts keep the growth in property taxes from increased assessed valuation that otherwise would go to the state.

But Assembly proposal is only be for one year.

The Senate decided that the property tax shift should be capped permanently at its current dollar amount. That means local governments could keep about $200 million next fiscal year and then an increasing amount as property values grow in the future.

Davis hasn't included any comparable relief in his recommendations on how to spend the estimated $4.3 billion surplus in his recommended budget. But he has directed his staff to meet with local officials on possible future proposals.

His budget staff, however, is uneasy about permanent relief, such as a cap on the amount of property taxes taken, because it could mean a billion-dollar revenue hole in the state budget in a few years, by some estimates.

"Putting a cap on this program could, in our view, result in rapidly increasing costs in future years" as the state has to look elsewhere to make up for the lost revenue, said Sandy Harrison, a spokesman for the Department of Finance.

For next year, however, the governor has included several items that he considers local relief, most notably $425 million for a so-called Infrastructure Bank. State and local agencies would be able to borrow money from this bank for public works projects.

Other Davis proposals for local governments include $61 million in grants to local law enforcement, $75 million for local transportation projects and other crime fighting aid.

While local officials appreciate such proposals, Leary complained that they are mostly one-time fixes dedicated to single program. As for the Infrastructure Bank, that only offers a loan that must be repaid.

"We need some shortterm relief and a commitment for a longterm restructuring that provides us with the (financial) stability we need to provide services," Leary said.

OPTIONAL LOCAL COMMENT: There appears to be a lot of sympathy for her view in the Capitol.

"The Legislature, as it has been in the last couple of years, is very committed to addressing this issue," Assemblywoman Kerry Mazzoni, D-San Rafael, said.

With the state enjoying a major surplus for the second year in a row, Sen. Bruce McPherson, R-Santa Cruz, said the is now able to help local governments, which, he argued, do the best job of delivering services.

"I think it's time, with two back-to-back $4 billion surpluses, that we should find $250 million to $300 million to repay cities and counties what's been taking away from them," McPherson said.

Assembly Republicans this week unsuccessfully tried to make permanent the one-time $200 million local government provision in their house's budget.

"I think the momentun is with a (property tax) cap," Assemblyman Roy Ashburn, R-Bakersfield, said despite the GOP defeat.

Senate leader John Burton, D-San Francisco, said he too would like to capg the size of the property tax shift. But Assemblywoman Sarah Reyes, D-Frenso, who supports some relief this year, isn't so sure a cap is wise.

"The jury is still out for me on that," Reyes said of a cap. "What does it mean longterm for the state? I think we have to answers those questions."

Assemblyman Jim Battin, R-La Quinta, predicted that local government property taxes along with tax cuts will be the Republicans' top priorities in the final budget negotiations with the governor.

"I think those are the things we are going to get hung up on," Battin said.

Burton, who as Senate leader will be part of those negotiations, has a special interest in the property tax issue because Marin County in his district is losing this revenue to pay for basic and special education. In the rest of the state this property tax goes only to help pay basic education costs.

Even though he wants to provide permanent relief with a cap, Burton said legislators have to recognize and respect the governor's primary duty of protecting the state treasury "from all comers foreign and domestic.

"No one is looking for a confrontation with the governor," Burton said.

Copyright © The Sacramento Bee

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