Politics & Government

January 10, 2003

February 18, 2003


Sacramento politicians fiddle while city halls burn

Think back to the dawn of the new millennium, just three years ago, when California's economy was riding a dot.com high and the state of California was reporting a record $12 billion budget surplus.

After years of neglect, the state finally had the resources to begin repairing and improving freeways, water systems and other public facilities to accommodate population growth and meet the challenges of a new century. But somewhere along that bridge to the next century, something went horribly wrong.

Sacramento politicians, led by Gov. Gray Davis, ignored warnings that the good times couldn't last forever, and squandered much of their capital gains-fueled riches on salary increases and other long-term budget commitments -- commitments that came back to bite them when technology companies faltered, tax revenues dropped and the governor blew more than $13 billion mismanaging the state's energy crisis.

Today, facing a state budget deficit estimated at between $26 billion to $35 billion, those same Sacramento politicians are desperately casting about for ways to stave off the biggest government bankruptcy in U.S. history.

The state budget revisions proposed last month by Gov. Davis fall far short of solving the looming catastrophe. But even his half-hearted band-aid has sent local mayors, city councils and boards of supervisors running for the barricades -- and with good reason.

Prior to 1978, most local governments -- including cities, counties and school districts -- relied primarily on revenues from property taxes, controlled with relative autonomy by local officials. But Proposition 13 changed all that. Local governments became increasingly reliant on various other taxes -- including sales and transient occupancy -- and on "fees" assessed for a variety of services, which were often resented and seen by voters as subterfuges for extracting more money from their pockets.

Denied a stable source of revenue, local governments were forced to spend a larger and larger percentage of their limited revenues on public safety and other basic municipal services, while they fell further and further behind on infrastructure maintenance and improvements.

At the same time, the state legislature discovered they could deliver more services for less money by shifting responsibility for social services and other state programs to local governments.

These so-called "un-funded mandates" put an even heavier burden on cash starved-cities and counties, as the state legislature bathed in riches flowing from rapid growth of state income tax revenues, but did nothing to restore stable revenue sources for local government.

The governor's current "plan" to fix the state's budget crisis includes shifting almost three-dozen health and social service programs from the state to the counties. He proposes to mitigate the impact of these shifts with a new round of tax increases -- but offers no guarantee that these revenues will ever get to the jurisdictions impacted by the shift.

After over two decades of state government feathering its own nest at the expense of cities and counties, it's particularly ironic for Gov. Davis' new Finance Director, Steve Peace, to talk about the need for local government to "share" the state government's pain and "break their addiction" to state aid.

The "aid" to which local governments are "addicted" is mostly backfilling for local revenues previously appropriated by state government, and subventions for programs shifted by the state to local governments.

When big city mayors (including our own Dick Murphy) traveled to Sacramento last month, they carried a message to Gov. Davis: Any additional attempts to shift revenues from local to state government will result in cuts in basic services, particularly public safety, because that's the only significant budget area over which local governments retain any discretion.

Unfortunately, the political dynamics haven't changed much from 1993, when the last major round of revenue cuts were imposed on local governments in California. Sacramento politicians are loathe to rile the special interests that benefit from state spending, so it's easier to stick it to the locals than it is to make major reductions in state programs.

The only way this dynamic will change is if local taxpayers rise up and make it clear to their state representatives that they will not tolerate additional revenue shifts from local government to Sacramento, and insist instead on real structural reforms in the state budget.

Shepard is CEO of Tom Shepard & Associates, a San Diego-based political consulting and public affairs firm. He can be contacted at tom.shepard@sddt.com.

January 10, 2003

February 18, 2003