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Jerry Brown should revisit Prop. 13 implementation—A Commentary by Michael Gervais ’11 and Dontae Rayford

The following commentary was published in the San Francisco Chronicle on January 2, 2011.

Jerry Brown should revisit Prop. 13 implementation
By Michael Gervais ’11 and Dontae Rayford

When Gov.-elect Jerry Brown takes office Monday for his third term, Californians will have little interest in what he accomplished 30 years ago when he first served as governor. Instead, constituents anxiously await his plan to save California's runaway budget train from imminent derailment. In what could be one of the finer feats of coming full circle in political history, Brown has an opportunity to correct his shortsighted handling of Proposition 13's implementation in the summer of 1978.

Brown's campaign hinted at his willingness to revisit Prop. 13. During a debate with Republican candidate Meg Whitman, Brown, asked about the initiative, confidently stated, "There's no sacred cows over the long term." He declared his intention to do the "utmost to return authority and decision-making to the locals." Yet, directly attacking Prop. 13, which strictly limits property tax, is unlikely.

Fortunately, the inability to sack Prop. 13 does not leave Brown without options. He need not look further than the hurried plan that he and legislators concocted in a frenetic response to the initiative's passage. Brown's mission should be to revisit the framework that contributes to the financial pitfalls that ensnare California annually.

The 1978 response had two components:

First, the state emptied its coffers of rainy-day funds and distributed nearly $5.7 billion worth of relief to cities, counties and special districts. The bailout saved local governments that faced the loss of a main funding source - and an immediate shortfall of $6 billion - with the initiative's passage.

The second component transformed a one-time bailout into a systematic dependency. The state dictated how property tax revenues were shared among cities, counties and special districts. Per the Legislature's response, monies are pooled at the county level and distributed across all governmental entities within the county based on a historical funding formula. For example, if prior to Prop. 13 the city of Sausalito in Marin County received 10 percent of property tax funds collected at 2.5 percent of a homeowner's assessed property value, it continues to receive 10 percent of property tax funds collected at the new capped rate of 1 percent set by Prop. 13.

The enactment of Prop. 13, however, led to unintended consequences separate from the initiative itself.

First, local governments struggle to address the changing needs of their residents. The spoon-feeding of local governments prevents local officials from assigning property tax revenues as needed. The loss of local control is amplified by Sacramento's reliance on outdated information. Administering revenue based on needs from 30 years ago does not relate to present demands. For example, in 1978, Orange County received a relatively low share of property tax revenue collected within its borders. If, in 2011, residents wish to increase overall county services, they must do so through alternative means. The result is a greater overall level of taxation; it is easier for a local government to impose special taxes or fees than to reallocate funds to new purposes.

Second, local agencies' reliance on alternative funding sources spurred the "fiscalization" of land use. In efforts to generate revenue, cities and counties zone for retail development rather than new housing because of the value of sales tax. Single-family homes aren't worth what they used to be, at least not in the eyes of municipalities.

Third, taxpayers struggle to understand their tax bills. The state's response complicated the local budget process. Introducing greater clarity would lead to more honest discussions of spending priorities with Californians. Show taxpayers what they pay for and how those revenues affect their communities, and you create a paradigm shift.

With limited options to explore, revisiting the legislative response to Prop. 13 is overdue. Restoring local autonomy is paramount. If that is done correctly, Brown can provide taxpayers greater insight into where their tax dollars go while also making the budget process more efficient. The governor should:

Defund special districts: The state's inclusion of special districts as direct recipients of property tax revenue obscures the budget process for taxpayers and indexes service levels to outdated needs.

Given the potential for special districts to have varied revenue streams (such as fees and service charges), those generating revenue should be stripped of property tax funding. Portions of this funding could be channeled back to special districts on an as-needed basis by local elected officials.

The flexibility will allow local leaders, and the people they represent, to have greater authority to determine services deserving funds. This would be a positive step for a state in desperate need of more local input and control.

Create regional property tax boards: The state should restore local autonomy over tax allocation by creating regional property tax boards. This leaves in place the property tax cap set by Prop. 13.

Control of the revenue generated, however, would shift from the state to the local level. Orange County would have the option of expanding county services by allocating a greater amount of its tax share to the county government. Regardless of the boundaries of a property tax board - whether county or electoral districts - they should be assembled periodically to reassess funding shares based on the evolving needs of entities in their jurisdiction.

There are no magic bullets in play. Special districts could suffer greatly without guaranteed funding, and regional property tax boards are likely to have internal power struggles. Nevertheless, these options are potentially effective approaches to an age-old dilemma.

The decline of local control and stability caused by Prop. 13's implementation is inefficient, impairs good governance and prevents local governments from responding to the needs and priorities of their jurisdiction. While Prop. 13 might continue undisturbed into perpetuity, the way we live with the measure cannot. Despite the other pressing issues confronting our state, Brown must make revising the implementation of Prop. 13 a priority and restore powers stripped from local agencies during the Dog Days of 1978.

Michael Gervais and Dontae Rayford were participants in the Jesse Marvin Unruh California State Assembly Fellowship in 2007-08. Both took up an interest in California's flawed property tax allocation system.