California's 2014 Local Tax Proposals – The Costly Alternative to Pension Reform

On November 4th, along everything else on the ballot, California’s voters will be asked to approve local tax measures. A list compiled by the California Taxpayers Association, “2014 Local Elections,” shows that across California’s cities and counties, local tax increases proposed include the following:

– Tax increases requiring only a majority vote: 5 business taxes, 11 hotel taxes, 9 marijuana taxes, 2 “property transfer” taxes, 1 vehicle tax, 1 property “anti-speculation” tax in San Francisco, at least 10 “utility users taxes,” 38 proposals to either increase sales taxes or extend sales tax increases that were set to expire, and a soda tax.

– Tax increases requiring a 2/3rd vote: 1 “miscellaneous” tax, 11 sales taxes, and 39 proposals to either increase parcel taxes or extend parcel tax increases that were set to expire, and 1 soda tax.

We don’t know why the soda tax in Alameda only requires a majority vote, while the soda tax in San Francisco requires a 2/3rds majority. There’s a lot of things we don’t know, and neither do the voters. As Jon Coupal, head of the Howard Jarvis Taxpayers Association, recently said, “it is no accident that local ballots are often bereft of opposition arguments. City councils will authorize the tax to appear on the ballot but then have very short time frames for arguments. Sometimes, taxpayers have only 3 days to gear up.”

Statewide measures, such as Prop. 30, the tax increase approved by voters in 2012, garner a lot of attention. But in California, most tax revenue is collected at the local level. A study released last year by the California Policy Center “How Big Are California’s State and Local Governments Combined?,” showed that 85% of California’s total state and local government spending is at the local level. Programs directly administered by the state only account for 15% of spending. Local government spending in California now totals well over $300 billion per year.

Adding measures to increase local government taxes at the last possible moment before the filing deadline has the practical effect of preventing a balanced ballot discussion of the merits of these tax increases. And invariably, the proponents of these tax increases are the people who will benefit from them – the public employee unions whose coffers are filled via automatic payroll deductions from taxpayer funded public workers. They are consistent advocates for higher taxes, advocacy backed up by campaign funding that dwarfs any other special interest. Even if they have the means, local merchants and developers rarely dare to challenge the public employee unions who represent the people they have to go to for permits and inspections. You can’t fight unionized city hall.

To appreciate just how effective government unions are at what amounts to perpetual campaigns to raise local taxes, take another look at the “2014 Local Elections” list from the California Taxpayers Association, and review the final results of the local tax proposals that were on the June 3rd ballot. Of the 32 parcel taxes proposed, 25 passed with a 2/3rds majority. Of the 11 sales taxes proposed, 10 passed with a 2/3rds majority. Of the 4 new fire taxes proposed, 3 passed with a 2/3rds majority. Out of 8 proposed “miscellaneous” tax increases, 7 passed, requiring only majority votes. And so on. Almost all of them passed – along with scores of local proposals enabling billions in new bond debt.

And for those handful of measures that fail, there’s always the next election. Once taxes are increased, they are very hard to repeal.

None of this is to suggest that taxes should never be increased. But voters should be aware of where most of the money is going. Another California Policy Center study, “How Much Do California’s State, City and County Workers Really Make?,” released in February 2014, using data from the State Controller’s Office, calculated the average pay plus benefits for California’s state, city and county workers. The findings (ref. Table 2) show that during 2012, in California’s cities, the average total pay plus benefits was $124,058; counties, $102,312; state agencies, $100,668. This in a state where the median household income in 2012 was $58,328.

There’s one more big piece to this story.

As documented in our UnionWatch editorial last week, one of the recently passed local sales tax increases – passed by Watsonville voters on June 3rd – is projected to raise $2.8 million per year to “replace police cars, add another team of paramedics, and hire more police officers.” But the scheduled increase to the annual required pension contribution for Watsonville is estimated at $2.4 million – using up nearly all of the proceeds from this new tax. There’s nothing unique about Watsonville’s situation. CalPERS has announced a 50% increase to their required pension contributions. Other pension funds in California, including CalSTRS, are following suit.

To distill this phenomenon into the most stark and simple terms possible – California voters are currently being asked to pay higher taxes so state and local government workers can continue to collect pensions and retirement health benefits that average well over $60,000 per year for non-safety employees, and around $100,000 per year for safety employees, after only 30 years of full-time work. The average Social Security benefit, after 45 years of work, starting at age 67, is $15,000 per year. Taxpayers may determine for themselves whether or not this is an equitable situation, or something that should be challenged.

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Ed Ring is the executive director of the California Policy Center

REFERENCES

Estimating America’s Total Unfunded State/Local Government Pension Liability (includes downloadable spreadsheet)

September 9, 2014

The Case for Adjustable Defined Benefits

July 31, 2014

Evaluating Total Unfunded Public Employee Retirement Liabilities in 20 California Counties

May 6, 2014

Evaluating Public Safety Pensions in California

April 15, 2014

How Much Do CalSTRS Retirees Really Make? (includes downloadable spreadsheet)