The New Tax Revolution

By Dan Wall

In what may prove to be the most revolutionary act in the history of California, Proposition 218 was approved by a majority of voters last November. Apart from all the pseudo-populist rhetoric about benefits of "giving the voters control" over taxes, assessments and fees, this measure profoundly changes the way California is governed.

For the last 117 years, the California Constitution has provided for a representative democracy where a significant amount of authority to solve local problems is vested in counties, cities and the other branches of local government. The notion of "local control," which allows for decisions at the level of government closest to the people and to the issues, has been a cornerstone of our form of government. The same Constitution also provides for "checks and balances" to local control in the form of a Legislature which has the power to impose statewide policies and directives on local government.

A significant departure from a purely representative democracy was enacted 85 years ago in 1911 with the enactment of a constitutional amendment giving the voters the power of the initiative and referendum. Significantly, this movement toward direct democracy also contained "checks and balances" which prevented the referendum power from being used against "urgency statutes, statutes calling elections and statutes providing for tax levies or appropriations for the usual current expenses of the state." These four exceptions were made simply and appropriately to preserve the basic elements of a representative democracy. Without these exceptions, persons elected to county boards of supervisors, city councils and the Legislature would literally be unable to effectively discharge their constitutional duty to balance their budgets because at any time the voters could eliminate the very revenues which bring a budget into balance.

Our form of government is essentially a relatively deliberative, conservative mechanism which, at its heart, invests the power to cut or increase revenues and expenditures in our elected representatives. Therefore, if any elected official wants to make the "popular" decision to reduce revenues, he or she must also make the "unpopular" decision about which services will be cut. Conversely, if elected officials wish to enjoy the "pleasure" of increasing services, they must also suffer the "pain" of raising revenues.

Proposition 218 destroys this fundamental balance of power and responsibility which is at the core of our democracy. It allows for decisions on revenues to be made by the voters while at the same time relieving them of any responsibility over which services and programs must be reduced or eliminated. Conversely, it does not alter the responsibility of county supervisors and city council members to balance their budgets and make decisions on spending for local services. In short, the already difficult job of a locally elected official has been made nearly impossible and destined for failure.

If the voters of California truly want to scrap our representative democracy, then they must also be willing to assume responsibility over spending. Our form of government depends upon the continued linkage between power and responsibility and the involvement of its citizens in the political process. The basic question regarding revenues should always be: if I vote to reduce revenue, what services am I willing to reduce or eliminate? If these two decisions remain separated, it is likely that the future will only bring more frustration with "government."

In December, San Diego became California's first major city to have its credit rating lowered largely because of Proposition 218. When the city issued $67.6 million in bonds Dec. 12 for stadium improvements, Moody's and Standard & Poor's responded by dropping the city's stellar credit rating one level. It will cost San Diego an additional $600,000 in interest payments per $10 million of a 30-year obligation bond. Since then other municipalities have been similarly downgraded.

The key reason why the California State Association of Counties (CSAC) opposed Proposition 218 was not simply the fact that some $200 million to $300 million in county revenue would be placed in jeopardy. Instead, virtually every member of our board of directors saw this measure as a huge shift in decision-making power from counties to Sacramento, and because of that it posed a direct threat on their ability to fulfill their oath of office, balance their budgets and serve their constituents.

The following are key points on Proposition 218 from CSAC's perspective:

• Loss of Local Control - Counties are somewhat unique among local governments in that fully 95 percent of their spending is controlled by either federal or state law. Therefore, Proposition 218 eliminates the very limited ability that boards of supervisors had to raise revenues and balance their budgets.
• Weighted Vote, Even for Non-Residents of the County - Fees and assessments for necessary services such as fire, police, roads and lighting will be determined by small minorities of landowners who may not live in the county.
• Allows for "Initiatives" to Reduce or Eliminate Taxes, Assessments and Fees - If this provision is upheld by the courts, it will dramatically increase borrowing costs for counties and other local governments. As enacted, Proposition 218's "initiative" language undermines the security of the streams of revenues which are essentially the "collateral" used when counties borrow funds to meet cash-flow needs.
• Substantial Increase in the Cost of Government - Proposition 218 does a number of things that will substantially increase the cost of government: all levels of government will now be required to pay assessments and property related fees, new elections and new protest procedures are mandated, the burden of proof has been moved from the person protesting an assessment to the government imposing the assessment, and it mandates extensive engineering studies to estimate and verify special versus general benefits for assessments.

   

Editor's Note: The article reflects the views of the author and his organization. Cal-Tax supported Proposition 218.