The economy has been booming over the last decade, which has provided local governments with a windfall in sales and property taxes. Despite the economic fat times, California cities have been complaining about their dire economic straits, with some of them even fearing insolvency unless something is done to change the financial trajectory.
What explains this dichotomy? The answer is simple. The costs of public employee compensation, especially pension and retiree-medical benefits, continue to climb exponentially and are consuming ever-larger portions of local general-fund budgets. One need only look at the Transparent California website to get a sense of the eye-popping levels of pay and benefits.
Instead of addressing this well-documented problem, state and local leaders have relied on a tried-and-true method: asking local taxpayers to increase taxes on themselves. California voters will see the latest evidence of this at the ballot box during the March 3 primary. The California Taxpayers Association (CalTax) recently published a list of more than 230 tax increases that will be on local ballots.
These increases include school bonds, general-obligation bonds, parcel taxes, sales taxes and transient occupancy taxes. The proposed hikes all have limits on how the money can be spent, but money is fungible. If cities and school districts spend too much on pensions and employee compensation, that means they need to find money elsewhere.
Local governments and school districts always tout these measures as necessary expenditures to rebuild crumbling schools, maintain overused parks and provide better police services, but don’t be fooled. Every new local tax these days is, essentially, a pension tax. These governments write the ballot summaries and provide “voter information,” so they are able to sway the discussion away from the true causes of their fiscal peril.
To make matters worse, a March statewide ballot measure – known as Proposition 13, but it has nothing to do with the original tax-limiting Proposition 13 from 1978 – has a problematic provision that significantly raises the debt limits for local school districts. If it passes, local voters will see even more property-tax-raising school bonds on future ballots.
“Pension costs have crowded out and will likely to continue to crowd out resources needed for public assistance, welfare, recreation and libraries, health, public works, other social services, and in some cases, public safety,” warned former Democratic Assemblyman Joe Nation in a 2017 report for the Stanford Institute for Economic Policy Research.
The picture hasn’t gotten any better since then. State Sen. John Moorlach, R-Costa Mesa, released a report last month on the financial health of local governments and found that California municipalities have gone “from $22.7 billion in the red in 2017 to $31.5 billion in 2018. That is a 39 percent increase in these unfunded liabilities in just one year. It is also like the 40 percent increase in one year in unfunded liabilities for the state’s 944 school districts.”
No wonder local governments and school districts – backed by public-sector unions that want to keep funds flowing to benefit their members – are always pushing so many tax hikes. Nothing will force these agencies to spend their budgets more wisely, to get public-employee compensation under control or to pressure the state government for serious pension reform as long as voters keep handing them more of their hard-earned money.
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Craig P. Alexander is an attorney and former U.S. Marine who serves as general counsel to the California Policy Center. His office is located in Dana Point, California and his practice includes insurance, commercial leasing, business contracts, the California Public Records Act and HOA law and litigation. He can be reached at Craig@CraigAlexanderLaw.com. This originally appeared in the Orange County Register.