California Has a Huge Surplus – So Why Are Local Governments Trying to Raise Taxes?

gutierrezBy CalTax President and Chief Executive Officer Robert Gutierrez

This column was published May 28 by CALmatters, and May 29 on Politico.

With the state and local governments posting large revenue gains under the existing tax structure, there is absolutely no reason for lawmakers to consider changing the state constitution to increase the local tax burden. But that is exactly what is happening.

Two tax increase measures have reached the floors of the Senate and Assembly. Both threaten to delete Proposition 13’s important taxpayer protections from the California Constitution.

The measures under consideration – Assembly Constitutional Amendment 1 and Senate Constitutional Amendment 5 – could result in additional sales taxes, property parcel taxes, Mello-Roos taxes, phone taxes, cable taxes, business license taxes, payroll taxes, real estate sales transfer taxes, and hotel and lodging taxes.

Put simply, these measures are taxes on California affordability.

ACA 1, pending on the Assembly floor, would allow local governments to increase special taxes with a 55 percent vote of the electorate, instead of the currently required two-thirds vote, if the revenue is earmarked for “public infrastructure” or government housing projects.

“Public infrastructure” is broadly defined in the measure to include things like parks, open space, and expansion of Internet access.

SCA 5, on the Senate floor, would allow school districts and community college districts to increase property taxes with 55 percent voter approval, rather than the current two-thirds vote.

Public opinion polling consistently shows that voters support a two-thirds vote requirement for local taxes.

A March 2018 survey by the Public Policy Institute of California showed that across all demographics, voters support the two-thirds vote requirement. The poll found that the idea of changing the vote threshold is very unpopular among Democrats, Republicans and decline-to-state voters.

Considering that Gov. Gavin Newsom this month projected that the state will have $30 billion in reserves by the end of the 2019-20 fiscal year, and the Legislative Analyst’s Office says the state has an operating surplus of $22 billion, it is surprising that anyone is still talking about tax increases.

At the local level, property tax revenue has increased steadily over the years, by an average of 7.3 percent annually for business property and 6.34 percent annually for homeowner property since passage of Proposition 13 in 1978.

These increases ensure that communities have a stable, growing source of tax revenue even as individual property owners are protected from large year-to-year increases.

Statewide, the taxable value of property increased 6.5 percent in 2018-19. The legislative analyst projects that assessment rolls will continue to grow, with a statewide average increase of 6 percent in 2019-20 and another 5.6 percent in 2020-21.

It is worth noting that even under the two-thirds vote requirement, most tax measures are approved. So far this year, 12 two-thirds-vote measures have been on local ballots, and voters approved 11.

The high passage rate is partially attributable to the fact that proponents of tax measures are allowed to write the ballot questions, and many local governments use tax dollars for “educational outreach” designed to promote the tax.

For example, see the Los Angeles Unified School District’s brazen use of public resources to campaign for a parcel tax on the June 4 ballot. In this environment, it is especially important to maintain the two-thirds vote threshold.

A two-thirds vote requirement provides protection for taxpayers, without blocking tax increases that have strong community support. This is fair for government and taxpayers alike, and should not be stripped from the constitution.

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