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Dan Walters: Will locals pay a stiff price?
By Dan Walters, Capitol Alert, April 22, 1999.

Seven years ago, as a severe recession gripped the state and tax revenues were plummeting, then-Gov. Pete Wilson and the Legislature hatched a scheme to balance the state's books by taking several billion dollars from local governments.

Thus was born the Educational Revenue Augmentation Fund or ERAF. Over two budget cycles, Wilson and lawmakers shifted more than $3 billion a year in property taxes from cities, counties and special districts to school districts, thereby saving the state that much in school aid.

Even though the state's economy has recovered fully from the recession and is now booming, the ERAF shift -- about $3.6 billion a year currently -- continues. Nearly two-thirds of the revenue loss has been made up through the imposition of a special sales tax and targeted state appropriations, so the net revenue loss now is less than $1.5 billion, but it remains a nettlesome issue with local officials.

Fiscally, even the $1.4 billion net loss is important to local officials because it's discretionary money untied to any specific purpose. ERAF has also effectively blocked local governments from benefiting from the surge in construction and rising property values that accompanied economic recovery.

Symbolically, ERAF represents the dependency relationship that developed between Sacramento and thousands of local governments in the aftermath of Proposition 13, enacted by voters in 1978. It encapsulates the post-Proposition 13 reality that local governments' finances are totally dependent on the whims of the governor and the Legislature. At any moment, they can dip into once-sacrosanct local treasuries through their control of property taxes and other major revenue sources.

Wilson, a former mayor of San Diego, was not very sympathetic to local officials' pleas. As he saw it, while he was taking the political heat for freezing or even cutting state workers' salaries during the recession-spawned fiscal squeeze, local officials were cowardly in their dealings with public worker unions.

Surely, the locals thought, Wilson's successor, no matter who he was, would be more sympathetic to their pleas for money and independence.

The successor was Democrat Gray Davis and so far, the new governor is playing it very close to the vest, as is his wont on almost any major policy issue.

Davis took a $200 million whack from state aid to counties in his initial budget. That's likely to vanish as the state's own fiscal picture improves, but Davis has not indicated that he's willing to cough up substantial additional money or even partially undo ERAF.

Although legislation to begin repealing the ERAF shift cleared the Senate Local Government Committee Wednesday, there's no administration position on it.

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