Peter Schrag is former longtime Editor of the Sacramento Bee, now a
journalist. He is the author of an oustanding book on California state
and local finance "Paradise Lost" (The New Press 1998). The following
column appeared in today's Bee.
Peter Schrag:
Is California ready to talk tax reform?
(Published Jan. 26, 2000)
In California public life, it's pretty hard to
get
consensus on anything, much less unanimity.
That's especially true if the people in the room
include everybody from taxpayer organizations
and major business leaders to public employee
unions, minority group activists, local officials
and representatives of cities and counties.
But there is near-unanimity at the Speaker's
Commission on State and Local Government,
that the state's fiscal system is broken -- that
rather than fostering rational policies, smart
growth, public accountability and citizen
understanding, it does precisely the opposite.
The commission, which winds up its year of work
next week, will make only modest
recommendations. The most important is a
proposed swap of tax revenues between state
and local governments: Cities and counties
would give up a chunk of the sales taxes they
now collect in return for a bigger part of the
property tax, which the state now gets and
redistributes to schools. As local property tax
revenues grow in succeeding years, the locals
would get a proportional share of that growth.
The object is simple -- and it's one on which
virtually everyone on the 34-member
commission agrees. Since the property tax has,
in essence, become a state tax, the locals have
engaged in a frenzied beggar-thy-neighbor
pursuit of shopping malls, auto malls and other
retailers that offer a rising stream of sales
taxes
revenues. That means that, as Chuck
Nathanson, a San Diego community activist, put
it, "San Diego is still siting retail, not
businesses
offering high-tech jobs, despite the need for
better jobs." The same is true in Los Angeles
where, according to Lee Harrington of the Los
Angeles Development Corp., 40 percent of the
commercial space that had once been industrial
is now commercial.
The commission will also ask the Legislature to
find ways to foster what it calls "the
transparency" of local government through
performance measures and accountability
standards. It wants to clarify "the state-county
relationship so that roles and responsibility are
clearly understood"; to study ways to reduce
funding imbalances and increase parity between
have and have-not communities; and to seek
ways to encourage greater regional planning
and decision-making.
Everyone on the panel knows that their
proposals are no more than a beginning in fixing
a governmental structure that seems almost
designed to foster inefficiency and public
frustration.
Even those limited recommendations face an
uncertain future. The Legislature, Assembly
Speaker Antonio Villaraigosa told the group a
couple of weeks ago, "has a growing consensus
that something needs to be done" about
California's tangled state-local fiscal
relations.
But it's not likely that anything will happen
this
year -- or in any election year.
And yet it may be their very modesty that gives
the commission's proposals their best chance.
The other day, Sen. Steve Peace, D-El Cajon,
appeared before the group with a grand plan to
end the state's "heroin addiction to the sales
tax," whose consequences, in his view, are a lot
worse than just distorting local planning
decisions. Because individuals can't deduct the
sales taxes they pay on their federal tax
returns,
he said, they produce an unnecessary
"impoverishment of the citizenry."
Peace says it's time to "be honest about
Proposition 13," reduce the sales tax, increase
the property tax (which individuals can deduct)
and thus lower the average tax burden on
everybody. As a business person himself, he
said, he'd trade a higher property tax for a
lower
sales tax in a minute. "If we can't have a mature
conversation about Proposition 13, we'll have
failed."
Failing all else, he said, he'll go to the ballot
in
2002 and show voters "how you're getting
screwed by the sales tax."
Even if Peace's numbers worked, the chances of
having a "mature conversation" about
Proposition 13, the holy icon of the California
tax
structure, are slim. And so far, there are no
numbers. For business, sales taxes are
deductible. Property taxes, moreover, are
deductible on state income taxes as well. To the
extent they increase, the state would suffer
reductions in its income-tax receipts.
In addition, there may be much more glaring
problems within the property tax system itself.
Lenny Goldberg, a lobbyist and consultant for
labor and liberal organizations, says that
homeowners are bearing an increasingly large
share of the property tax burden. For older
businesses, increases in commercial building
and land values are never reflected in the
property tax. But new businesses pay a
disproportionate share of the business taxes
because machinery and equipment are subject
to taxation. With respect to "commercial
property, that stands good economics on its
head."
Because it's possible to talk about that problem
without raising the specter of higher property
taxes on homeowners, Peace's conversation
may be possible.
And if groups such as the speaker's commission
can show the vital link between the tax structure
and the citizen's quality of life, its modest
proposals could foster such a conversation as
well. Its own unanimity shows it's possible.
PETER SCHRAG's column appears in The
Bee on Wednesdays. He can be reached by
fax at 321-1996; by letter at Box 15779,
Sacramento, CA, 95852-0779; or by e-mail at
[EMAIL PROTECTED]
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