Should voters approve new taxes without seeing the books?

As Californians head to the polls, voters statewide will be deciding on whether to approve hundreds of millions of dollars in local tax hikes and new government bonds. The problem? Over two dozen cities, counties and school districts are asking for more money, but elected officials in those jurisdictions don’t even know what their financial picture looks like.

In total, these local governments are asking voters to approve a slate of new taxes that would cost taxpayers over $118 million annually — in addition to $48.9 million in bonds — all while their Annual Comprehensive Financial Report (ACFR) for 2023 is still missing.

Local governments are required to publish an ACFR annually that provides a comprehensive overview of their financial performance and position over a fiscal year. The mandatory audits include information on revenues, expenditures, assets, liabilities and financial activities. They are essential to holding elected officials accountable for how taxpayer dollars are being spent.

But up and down the state, the same local governments that haven’t released up-to-date audits are nevertheless asking voters for more money.

In Humboldt County, voters are being asked to okay a new one percent “transactions and use tax” that will cost taxpayers $24 million annually. Likewise, the city of Woodland in Yolo County is pushing a similar transaction and use tax for governmental services that will cost taxpayers $132 million over 8 years. Yet neither Humboldt County nor Woodland have filed their ACFRs for 2023.

The problem extends to school districts. Siskiyou Union High School District in Northern California is asking voters to pass a $22 million general obligation bond to renovate outdated school infrastructure. The bond would be repaid through a property tax of $29 per $100,000 of assessed value. But the school district has not publicly reported its annual audit.

How can voters make an informed decision if they don’t know where their tax dollars are being spent and how much debt their city, county or school district is in?

California’s total state and local government debt now stands at almost $1.6 trillion, or about half the state’s GDP. When it comes to municipal finance, transparency is crucial because many cities are underwater. Too often, increasing taxes or borrowing more money via bonds is only a short-term fix to a long-term spending problem.

Due to an aging population, investment return shortfalls, and ever-increasing demands by public sector unions, many municipalities face massive obligations for pensions and retirement benefits without a strategy to pay for them. As a result, they often raise taxes to fund pensions and benefits while cutting back on essential services like road improvements, police staffing and infrastructure maintenance.

Cities may also issue pension obligation bonds in an effort to manage their unfunded pension liabilities — but because of the high level of risk involved, the Government Finance Officers Association warns against pension obligation bonds. Pew Trusts reports that “cities and towns in California issued about $7 billion in pension obligation bonds (POBs) across 2020 and 2021.”

While the goal may be to reduce unfunded pension liabilities, these bonds are ultimately debt for which taxpayers are on the hook.

School bonds are a hot topic this election. In addition to Proposition 2, which would authorize up to $10 billion in bonds for K-12 public school facilities statewide, as many as 267 school bonds are on the ballot throughout California jurisdictions.

Before voters pass more tax and bond measures, they should ask their elected officials serious questions, such as:

• What is the city’s current financial position?
  • Have you released the most recent comprehensive financial report? If not, how can you justify asking for additional taxpayer money without a clear understanding of the city’s fiscal health?
• Are there alternatives to issuing bonds or raising taxes?
  • Could city leaders reallocate existing resources or improve efficiency to meet these needs without additional taxpayer burden?
  • Can they sell off property or lease it out to other entities?
• How much debt is the city already carrying, and what is the long-term strategy to deal with debt and unfunded liabilities?
  • Will this bond or tax measure exacerbate our debt obligations?
  • How will we manage the repayment without sacrificing essential services?
• What are the impacts on taxpayers, especially those on fixed incomes?
  • Have we considered how increased property taxes or sales taxes will affect low-income families, seniors, and small businesses?
• How does this bond or tax measure align with our long-term financial goals?
  • Is this a short-term solution to a long-term problem? 
  • Will the city need to raise more taxes or issue more bonds in the future?
• Are city leaders addressing underlying structural problems, such as pension obligations?
  • Have we considered the role that growing pension liabilities play in the budget?
  • Is there a plan to address these costs?

One does not need to be a finance expert to understand these issues. An excellent and easy-to-read resource is the recently released Municipal Finance Triage Guide published by CPC’s California Local Elected Officials (CLEO) to help local elected officials better evaluate their budget practices.

To learn more about the financial status of your city, county or school district, you can visit CPC’s new interactive Local Fiscal Health Dashboard, which evaluates local governments across 10 key fiscal metrics and assigns each a letter grade based on their financial health.

If you want to know if your city, county or school district has turned in their 2023 ACFR, you can find a full list of jurisdictions that have yet to do so here. And, if you’re being asked to vote for new taxes or bonds, be sure to check out the chart here to see which jurisdictions with missing 2023 ACFRs have put new bonds and/or taxes on this year’s ballot.

Managing a sustainable budget is one of the most important roles of local elected officials. Asking voters to make up budget shortfalls year after year means your representatives aren’t doing their job. Prudent taxpayers will keep that in mind when casting their ballot.

Andrew Davenport is a Policy & Research Associate with California Policy Center.