League Of California Cities Continues Push For State/Local Fiscal Reform

Mr. McKenzie, a great many proposals have been floated in the past decade to adjust the current state/local fiscal relationship embedded in the state constitution as amended by Prop. 13. Some of those reforms have been based on solidifying local revenue streams while others have worked within the current framework to propose a budgetary solution through specific one-time allocations. Give our readers an idea of the current proposals being pursued by the League to correct what some call a dysfunctional state-local fiscal relationship.

The number one objective for the League of California Cities is stopping the bleeding of local government revenues by stabilizing property tax revenue and constitutionally protecting our other revenue streams.

But, we haven't gotten to where we are overnight. It's taken 30 years of deliberate action and in many cases neglect to get us here. And while it shouldn't take another 30 years to correct the state-local fiscal relationship, we're definitely going to approach any solution in a very deliberate and incremental fashion.

The League's belief is that proposals highlighting those aspects will lead not only to greater stability in the system but some trust between state and local government.

What are the practical consequences for local government of the current arrangement?

Local government is constantly asking the state for resources. And when they're not provided we begin to see deferrals in infrastructure investment and a general lack of cooperation across boundary lines. Both are understandable repercussions of the current state of affairs because no one knows whether they are going to have adequate resources next year. Governments simply aren't going to make any kind of long-term commitments without a secure revenue stream.

Additionally, the current situation is amplifying the imbalance between our fiscal system and land use decisions. And that effect will continue to curb intelligent growth and the effective distribution of services until the imbalance is addressed.

It's said that the public doesn't really care who delivers the service-cities, counties, special districts, etc.-as long as their services are delivered. Give us some insight into how you cope as the point-person for the League of California Cities with bringing political intelligence to the fixing of our fiscal arrangements in California.

My belief has always been that the government closest to the public can be the most accountable to the public. Therefore, services should be delivered and decisions should be made as locally as possible. And while the public may not care who delivers it, they seem to be clamoring for someone to be accountable for those services and for the outcomes.

Right now in many cases nobody knows whom to hold accountable. The more locally based the system, the more the constituents know who is making the decisions. That is an inherently and fundamentally stronger situation than our current one.

Basically, we need a service system and land use decision making process which is locally focused but encouraged to cooperate across jurisdictional lines to provide greater economies on a regional basis.

A couple of years ago, after studying the failure of the State Constitution Revision Commission, the L.A. County Economy and Efficiency Commission noted that the unintended consequence of Prop. 13 was that it confused governmental accountability and responsibility. Again, how do we not only increase revenue to localities, but return and unite responsibility and accountability at the local level?

The League intends to pursue that charge by: 1) Working with any legislator that has an interest in pursuing it, and 2) Crafting specific proposals that will stabilize our revenues and help rebuild the trust between state and local government.

As you say, one of the unintended consequences of Prop. 13 is a lack of accountability. And the lack of a connection between land use decisions and where property tax goes is one of those "grey areas" where accountability is lacking. The current property tax system bears very little relationship to property related services and we'd like to be part of a process that helps get more property tax funding to local governments that make land use decisions.

Getting more revenue into the system may seem like its what we're asking for-it's not. We're not asking for a set of "draconian solutions." In fact, they won't be draconian if the local governments feel that they're part of the solution and can trust their state government partners more. Having said that, whenever we talk to jurisdictions about swapping revenues, the immediate reaction is "over my deadbody."

The participants in California's intergovernmental system have been traumatized by their counterparts at other levels of government. The higher you go in government the more the decision making atrophies. And that's one of the reasons the system is broken.

In an interview in last month's issue, Asm. Alan Lowenthal, Chair of the Housing and Community Development Committee stated, "Without a dedicated revenue stream that allows local government the flexibility to complete long-term planning, we will never solve the housing problem. If localities continue to rely solely on sales-tax and have no dedicated property tax stream they can only do stop gap short-term planning that only offers quick fixes." What's your take, given the state's housing crisis, of their being a new fiscal incentive for local government to do a better job providing more housing?

That's going to be one of the leading reasons that state and local policy makers come together to address this situation. But, on its own it's not going to be the reason.

We've shown a tremendous ability in California to let the disconnect between our revenue system and the needs of our growing state go on far longer then we should. But, there is interest by state officials in addressing that issue. But, unfortunately the typical approach is to simply allocate money that had previously gone to local government and create categorical programs that send it back in accordance with state preferences.

What I'm suggesting is that our system will be stronger if we create a mechanism that responds to local land use decisions by creating a stronger connection between revenue and the types of necessary land uses. Housing-as well as manufacturing- have their associated financial disincentives. And local governments naturally pay attention to them and weigh them when they make their final decisions. We need to implement a mechanism that doesn't merely incentivize housing or manufacturing, but encourages regions to overcome their disincentives by cooperating and planning wisely.

Right now the system is so terribly imbalanced you've got to be really unaware of the reality of our fiscal system to think that housing is going to generate sufficient revenue to pay for the service demand it creates.

In a companion interview last month with Julie Bornstein, the executive director of the State Department of Housing and Community Development, she asserts, "The state local fiscal relationship is being addressed by the current administration. And that the current 2-year allocation to municipalities is being viewed by government officials as significant." Are current housing proposals emanating from Gov. Davis and Julie sufficient incentive for local government to meaningfully engage in meeting the demand for new housing?

It's encouraging, but not a solution.

These folks think that because they sit in Sacramento, decide that housing is a priority and set-aside some one-time allocation, local behavior is going to change-it won't. This new allocation merely creates a system where cities can secure additional grant money to accomplish a very small portion of this overall objective.

The system has to be reformed. We need an ongoing and stable source of funding, not merely an annual or a two-year appropriation. If they think that short-term, stopgap financing is going to accomplish the objective of curing the state-local fiscal relationship, we live in different worlds. And I think they live in a different world then most local officials.

Chris, you recently testified before Speaker Hertzberg's Commission on Regionalism encouraging them to go forward with a bottoms-up approach to local autonomy in the context of regional collaboration. Elaborate on what you and representatives from CSAC and the School Board Association are hoping to see from the Regions Commission's ultimate recommendations to the Speaker.

The Speaker's Commission needs to draft some cardinal principles that would embrace the values I've articulated in terms of: 1) Securing stability in the system with an ongoing source of funding and 2) Beginning an open dialogue about the next phase.

If the commission wants to avoid the fate of previous commissions it's going to have to signal early and often that it understands that there's distrust. It understands why the distrust exists. And it wants to partner with local policymakers to fashion a system that will help us transition toward the type of long-term arrangement we need without immediately impairing all the current revenue streams that our localities rely on.

But, the initial step still needs to be the realization by the Legislature and the Governor that until they address what happened in 1991 and 1992 it's going to be very hard to reestablish any semblance of trust. And until we can foster some trust-every future study, every future commission, every future task force and every future administration is going to be faced with a lack of funding.

As the point person for the League, you've been in many meetings with CSAC, the schools boards, and the Special Districts. Where is the commonality among those 4 officialdoms of local government for change in Sacramento? Is there sufficient common ground to aid you in pushing for fiscal reforms in the Capitol?/

Initially there's more common ground among the counties, the special districts and the cities. But as we move forward, the future of the public education system will become extremely important to the strength of cities and other local government.

We're looking at many different types of approaches to address the state-local fiscal issue-none of which threaten the financial health of school districts. In fact this process needs to include ways to help school districts. But, other than expressing a tremendous sensitivity to the fact that our public education system needs continued investment the League of California Cities doesn't really represent the school community and we need to look to our school colleagues for guidance.

The current school situation is just one more example of a failing system because it is controlled largely by the state. The local elected school boards have to struggle through a maze of state laws and regulations in order to address over whatever the state's current spending priorities are. If that's the system we're moving toward with local governments, we're doomed to further centralization, less flexibility and a lack of responsiveness to a localities needs.

Chris, let's end by referring back to the Speaker's Commission on Regionalism. A Blue Ribbon report was issued in December 1960 for Governor Pat Brown on Metropolitan Problems which began with the statement that the state had a 14.5 million population projected to be 30 million by the end of the century and that local government had little capacity to manage the growth that was predicted. We now have a commission in place which commences its work with the State's population being 34 million people and with predictions that it will go to 50 million by 2020. What, in the League's opinion, is the capacity today of local government to manage this projected growth?

Local governments capacity to manage growth has been horribly strained. The financial and decision making tools that local government has at its disposal have been reduced over time by layer upon layer of state government action.

In the best of circumstances, strong cities and counties that are sure of their future can chart a cooperative course and plan and invest in partnership with local governments and the state. The current system turns that process upside down and makes it very difficult for local governments to address the growth challenges ahead. It's imperative that we find a way to alter that system.