July 1, 1996

INSIDE TAXES COMMENTARY

CCRC recommendations shortchange taxpayers

After countless hours of discussion, debate and deliberation, the California Constitution Revision Commission (CCRC) has disbanded, leaving its recommendations for overhauling government structures in the hands of the state Senate and Assembly.

The Legislature now has control over the CCRC's report in the form of proposed constitutional amendments which could conceivably go on the November 5 general election ballot. A legislative conference committee will try to hammer out a compromise proposal, and it will take two-thirds votes of the Senate and Assembly to put the proposals before voters.

The Cal-Tax Board of Directors has voted to oppose the CCRC proposal unless there are amendments on key issues.

Here is why: The change contemplated by the CCRC proposal is one-sided. The CCRC proposal insulates and facilitates the work of public officials at the expense of the taxpaying public. Important opportunities to improve the performance and outcomes of expensive government agencies and programs were bypassed. A critical issue for most Californians is the poor quality return for $100 billion in state and local taxes paid each year. Remarkably, the CCRC proposal would make local tax increases easier to enact.

The proposal includes many items that weaken existing taxpayer protections, such as vote requirements on new taxes. But reforms taxpayers have pursued for many years were not considered seriously or were dropped from the draft proposal.

These are some of the major elements missing in the proposal:

• Local tax vote requirements: The proposal would allow local agencies that form community charters to adopt vote requirements for tax increases, with a minimum majority vote for some local agencies. The biggest flaw in this proposal is that charter cities would not be required to consult voters on tax increases and could continue imposing taxes without voter approval.

If taxpayers are expected to give up the two-thirds vote requirement for special taxes, they must be given a guarantee that all local taxes, including those imposed by charter cities, would be voted upon. Even that might not be enough to convince voters to relinquish their protections on local tax increase decisions.

• Competitive contracting of government services: The Commission dropped this item from its draft proposal, and Cal-Tax urges the Legislature to place it back in the proposal. California is being left behind by states and localities across the country that are finding ways to better manage their resources through competitive contracting. This single reform could save between 10% and 40% for services that are competitively bid. It is unacceptable policy to allow the state Constitution to continue to be interpreted to prohibit this vital reform.
• Civil service reform: Government employees have redundant protections under civil service rules and collective bargaining. These redundancies make it extremely difficult to adopt any change in the way the state performs its functions and manages its human resources. Reform efforts should not shy away from this policy arena, but the commission also dropped this element from its draft proposal.

Cal-Tax opposes the following provisions contained in the CCRC's recommendations:

• Property tax rate increases: The one-percent rate cap on property taxes is one of the few bright spots in California's tax structure. In 1986, Cal-Tax supported a restoration of the authority to increase the property tax rate for general obligation bonds only. At the time, voters were promised that we would not support future efforts to weaken the one-percent cap. It was appropriate to limit increases above the one-percent cap for capital financing. Cal-Tax opposes expanding that exception to allow property tax increases for operating costs.
• Majority-vote general obligation bonds: The two-thirds vote to increase property taxes is an important safeguard for property taxpayers. Because all voters are not property owners, a super-majority vote is needed so that a tax is not imposed on the strength of votes from those who will not pay the tax. This is especially true in small jurisdictions, like many school districts, where rental properties compete with nearby properties that may not be part of the taxing jurisdiction. That competition often precludes owners from passing on the tax increase in the form of increased rent.
• Majority vote on state budget: The two-thirds vote on the state budget helps to ensure that the budget receives the scrutiny that it deserves. Majority vote could lead to easier spending increases, which would exacerbate California's boom-bust budget cycles, where spending is over-committed during growth years, leading to larger deficits during recessionary times.

With the CCRC going out of business as required by statute, CCRC Chair Bill Hauck and Assemblyman Phil Isenberg spent a recent Friday packing up massive amounts of paper for shipment to the state archives.

Cal-Tax applauds their efforts, even if it cannot endorse their total product. Again, this could change if the Legislature, in dealing with SCA 39, by Senator Lucy Killea, or ACA 49 by Isenberg, makes changes that give taxpayers -- not just government bureaucrats and elected officials -- something to crow about.