Localities See Some Hope for Justice on Property Taxes

There’s more to a healthy California economy than a constant stream of tax breaks to induce businesses to move here or stay here. That fact was evident this week when a powerful group of business organizations gave enthusiastic support to a legislative initiative to begin returning state-appropriated property tax revenues to local government.

Private business wants good streets, water supplies, sewers, libraries, parks and police and fire protection. Those services are vital to business operations as well as to the lifestyles and satisfaction of employees. But the sad story of recent years has been one of cuts in city and county services because of lack of funds.

A state Chamber of Commerce official said that the pending legislation to restore property taxes to local governments “is crucial from an economic development standpoint.” Spokesmen for the residential and commercial construction industries delivered similar views.

By joining with cities, counties and special districts, the business groups have helped to create a seemingly unstoppable political force favoring an end to the state’s usurpation of $3.5 billion in local revenues annually. Under legislation signed by Gov. Pete Wilson, the state appropriated the money to itself in the early 1990s when it faced a multibillion-dollar budget deficit caused by the recession.

The recession is over now. State revenues are surging. But the state is still spending the local governments’ money--including the annual growth in the property tax take--to balance its own budget. It’s time for that to stop. The coalition is supporting legislation by Assemblyman Michael Sweeney (D-Hayward) and Fred Aguiar (R-Chino) to cap the transfer of local funds at its current level and then to reduce the state’s take by a certain percentage each year until it reaches zero.

Their measures (AB 95 and ACA 4) won the backing of the Assembly Appropriations Committee this week and will become an integral part of the state budget negotiations expected to begin soon.

A similar bill sponsored by Aguiar breezed through the Legislature last year but was vetoed by the governor. Wilson said then that “a comprehensive approach should be considered next year as a part of the budget process.” But there was no such proposal in the governor’s budget, and his Finance Department said this week it opposes the plan.

The devil is in the details of the budget. The money to ensure a balanced budget, which is required under California law, has to come from somewhere. One place is the pot of several hundred millions that Wilson set aside for successive 5% business tax cuts this year and next. Democratic leaders in both houses of the Legislature insist there will be no such cut this year. This is money that rightfully should be returned to local government, backers of the Sweeney-Aguiar bills argue.

What California ultimately needs is a sweeping constitutional reform of the fiscal relationship between the state and the 7,000 units of local government. It has become an irrational mess over the past 25 years. Until a formula to do that is devised, the best way to begin restoring property tax revenues to local government is the Sweeney-Aguiar plan. A powerful group of business organizations gave enthusiastic support to a legislative initiative to begin returning state-appropriated property tax revenues to local government is he Sweeny-Aguiar plan.