Wilson $100-Million Largess to Cities: The Devil Is in AB 8

LAFAYETTE, CALIF. — Gov. Pete Wilson sure sounded magnanimous last week when he offered to route $100 million from the state’s budget to California’s cities and counties. The reaction from local governments, however, has been decidedly muted, for several reasons.

First, the $100 million won’t really go too far. With the state’s population now pushing 34 million, Wilson’s offer amounts to about $2.95 for each Californian--the cash equivalent of a bag of Doritos for every man, woman and child. Once divided among California’s 470 cities and 58 counties, the windfall is certainly not enough to pay for significant new community-policing efforts or to hire new fire-engine companies. Also, as a means of balancing its own budget, the state has, since 1992, reduced the amount of property taxes returned to cities by a cumulative $2 billion. In this light, the $100 million offer seems a little disingenuous.

A second major problem with Wilson’s new-found generosity is that the funding, small as it is, would not be permanent. There is no guarantee that the money stream would keep flowing.

Finally, it’s doubtful that the money would be split fairly among the state’s cities and counties. Currently, the Legislature is considering two bills, SB 880 and AB 95, that parallel the governor’s proposal. If passed and signed by Wilson, these bills would funnel previously lost revenues back to local governments such that some would receive a much larger share than others. More than 80 cities would receive no money at all.

Why the difference? According to the League of California Cities, Wilson’s proposal would send the $100 million to those agencies that historically have received a high proportion of the property taxes paid by their landowners. This action would thus perpetuate the state’s inequitable property-tax distribution system.

AB 8 is the law that controls how state property taxes are channeled back to cities. Adopted in 1979, it allocates the money in proportion to the share of property taxes received by the local entity before passage of Proposition 13. Local jurisdictions that imposed high property taxes before 1978 and, in a sense, helped fuel the taxpayer revolt, get--and continue to get--a relatively larger share of the property-tax revenues. Fiscally conservative districts that held the line on property taxes are perpetually penalized for their pre-Prop. 13 prudence.

The differences remain significant. According to the state legislative analyst, cities statewide receive, on average, 11% of the property taxes that their property owners pay; the rest is split among schools, counties, special districts and redevelopment agencies. Some cities, however, receive a much higher percentage, and many get upward of 20%. More than half of California’s cities, however, receive less than 10% of the property taxes paid by their residents, and 107 cities get 7% or less.

Thus, despite the fact that all California property owners now pay the same basic 1% property-tax rate, the total proceeds are distributed to cities in wildly differing amounts based upon an archaic formula institutionalized during the hectic and special legislative session following passage of Proposition 13.

Why raise the issue nearly 20 years after the fact? Because the governor’s windfall proposal would benefit the “haves”--those cities that have historically received larger property tax shares--while leaving “have not” cities with little or nothing.

Such circumstances are driving California’s cities apart. Those that would benefit are encouraging their local legislators to support the governor, while everyone else is being asked to remain silent, lest the state scrap the plan entirely and divert the surplus to Caltrans or some other needy agency.

Given this patently unfair and dysfunctional system, California’s lawmakers must stop tinkering at the margins and comprehensively reconsider how municipal services are funded. Unfortunately, California’s size and diversity, the 7,000 cities, counties, school and special districts that would be affected, and the powerful development interests at stake are formidable barriers to reform. Several attempts, including the recently disbanded Constitutional Revision Commission, have tried and failed.

Past failures and complexity, however, must not give way to a general throwing up of hands in frustration. The first step toward any solution should be to give cities incentives for more balanced development. Wilson’s plan and SB 880 and AB 95 don’t accomplish this, and thus should be scrapped. Policy-makers must focus instead on measures that would distribute sales and property taxes, to some larger extent, on a per-capita basis rather than on where the money is generated.

While well-intentioned, Wilson’s proposal for diverting windfall revenues to local government would not deliver enough, would not deliver with consistency and predictability, and, perhaps most damning of all, would not deliver fairly.