$6.2 Billion in New Borrowing on June 7th Primary Ballot
They are overshadowed by one of the most tumultuous Presidential primary campaigns in decades, but California’s June 7th primary ballot has local tax and bond proposals in numbers that, in aggregate, ought to be generating vigorous public debate. Next week voters will be asked to approve 46 local bond measures totaling $6.18 billion in new debt, along with 52 local tax proposals. If history is any indication, more than 80% of them will pass.
Tax activists and politicians who brand themselves as “tax fighters” often point to alarming levels of state government debt, along with state taxes that are among the highest in the nation – but when they do, they are calling attention to a surprisingly small fraction of the big picture. Because most of California’s taxes and borrowing are assessed and spent at the local level. A California Policy Center study from 2013 entitled “How Big Are California’s State and Local Governments Combined?,” using 2011 data, calculated direct state government spending at $54.0 billion. The same study calculated total local government spending at $311.1 billion, nearly six times as much. The numbers have changed over the past five years, but the proportions have remained the same.
California government borrowing follows the same pattern, as shown on the next table. Even if you don’t include the unfunded liabilities for pensions and retirement health coverage – amounts vary by several multiples depending on what return-on-investment assumptions are made – as can be seen, five years ago, the total state government bond debt was $132.6 billion, whereas the total local government bond debt was nearly twice as much at $250.3 billion.
School bond debt just keeps piling up at the local level. Because it only requires a 55% majority for approval, compared to two-thirds for most other forms of proposed government borrowing, it is the most likely to appear on the ballot, and the most likely to pass. As a 2015 California Policy Center study entitled “For the Kids – Comprehensive Review of California School Bonds” uncovered, on average, local voters have approved $10 billion in local school bond borrowing every year from 2001 through 2014. Is all of this necessary?
This year is on track to beat the average. Because these bond and tax proposals are usually concentrated on the November ballot, where they are more likely to be approved by general election voters. It is surprising to find $6.2 billion in proposed new borrowing on the ballot this June.
If you want to learn the details regarding the new taxes and bonds being voted on next week, refer to the document prepared every election by CalTax, “2016 Local Elections.” For example, you will see there are three new taxes proposed on marijuana, 20 new parcel tax proposals, 14 sales tax proposals, one hotel tax proposal, 4 utility tax proposals, 9 “miscellaneous” tax proposals, and one business tax proposal. Nearly all of these taxes are either extensions of “temporary” taxes that would otherwise be set to repeal, or tax increases, or completely new taxes. In only one case, in the Southern California city of Glendale, is a tax proposal on the ballot to repeal an existing utility tax.
The problem with repeals, or no votes of any type, is that the tax proposal just comes up again on the next election cycle. Eventually, almost all of them pass. In November 2014, as reported in the UnionWatch post “Final Results: 81% of Local Bonds Passed, 68% of Local Taxes Passed,” here’s what happened in that election: “Of the 118 local bonds, 96 were passed, and 22 were defeated. Of the 171 local tax proposals, 117 were passed, and 54 were defeated.”
If at first you don’t succeed, try, try again.
There is an alternative to more taxes and more borrowing. To avoid new taxes, revise pension benefits for existing workers so that – just from now on – the retirement benefits accrue at the lower pre-1999 rates, which are financially sustainable without new taxes. Instead of new borrowing, return control of schools to principals and parents, instead of the teachers unions, a simple step that will yield positive educational outcomes that all the new school buildings in the world cannot hope to replicate.
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Ed Ring is the president of the California Policy Center.