Which California cities will be Germany or Greece under Prop 31?

Sept. 6, 2012

By Wayne Lusvardi

Carles B. Warren, a real estate economist and appraiser in Pleasant Hill, California, asks: “In the Los Angeles region, who will be Greece and who Germany” if California voters approve Proposition 31 on the November ballot?

Warren once was a visiting professor at Istanbul Technical University in Turkey. He was referring to the European Union, where solvent Germany has been bailing out the overspending of Greece, Italy and other countries.  After more than a dozen years of regionalized money and shared taxes, the European Union is coming apart. Many countries are going bankrupt.

Something similar would eventually happen in California under Prop. 31, where the regionalization of taxes would just postpone the inevitable.

Prop. 31 is a Coercive Tax-Sharing Scheme

Prop. 31 is apparently intended for large public works projects such as the California Bullet Train.  Under Prop. 31, taxes could be pooled regionally to help fund large public works projects.  Under Prop. 31, environmental regulations and clearances could be drastically reduced or circumvented to overcome delays, lawsuits, and obstructionism.  But Prop. 31 could also be used for smaller local projects or the bailouts of insolvent cities or school districts.

Under the tax-sharing provisions of Prop. 31, suburbs could be coerced to “voluntarily” share a portion of their state road, school, and vehicle license tag revenues or forfeit them.  Unelected regional committees called Strategic Area Plans could divert the shared or forfeited taxes to plug budget and pension deficits in big cities and big school districts.

SAP committees would add an extra layer of government and its members would not be elected. They would not be authorized to raise new taxes. But they could shake down wealthy suburbs to pay for financially strapped cities and school districts.  And they could pledge confiscated tax revenues to pay for bond issues for public projects.

City councils, county boards of supervisors, and school districts mostly in the suburbs would lose home rule over zoning, transportation, housing, and even a portion of their property and income taxes for public schools. Unelected committees would determine spending priorities and how much money would be spent on affordable housing and where.

Additionally, such super committees could recapture a portion of property and income taxes from wealthy school districts that approved supplemental school parcel taxes and divert them to struggling school districts. A prime example would be wealthy school districts in Carlsbad or La Jolla in San Diego County sharing their property taxes with the Poway Unified School District and its $1 billion deferred interest on “capital appreciation bonds.”

Mostly wealthy school districts in Northern California that approved school parcel taxes could likely have an offsetting share of their property and income taxes diverted to “poor” school districts in Southern California.  Northern Californians that don’t like their water flowing to Southern California would end up having their share of school taxes flow south, too.

The above is not far-fetched speculation and hysteria. Former State Assembly Speaker Robert Hertzberg is the co-chairperson of California Forward, the sponsor of Prop. 31. In 2002, Hertzberg spearheaded a study, “The New California Dream: Regional Solutions for 21st Century Challenges,” proposing the financial regionalization of local governments by way of a voter-approved constitutional amendment.  Prop. 31 is the culmination of what that report inferred was Hertzberg’s “dream.”

Diluted Government and Voting

As Warren puts it, Prop. 31 would result in the “dilution of representative government, the dilution of voter power, decisions made regionally rather than locally, and the redistribution of tax revenue beyond what is already built into the system.”

Why? “Because some cities and school districts, usually in older central areas, can’t control spending, pensions being a salient example. Prop. 31 is basically a covert bailout initiative.”

Warren points out that this problem has been around for decades.  He says, “Even before President Lyndon B. Johnson’s War on Poverty in the 1960’s, government has attempted to solve problems in central cities without success, but at great expense.  The literature promoting regional government goes back at least to the 1950s. Greater expense is unlikely to yield greater success. In fact history suggests that top-down decision making is more likely to spread high priced failure.”

Numbers Transposed: Prop. 31 is Prop. 13 in Reverse

Proposition 13, the 1978 tax limitation initiative, has served as a circuit breaker against both monetary inflation and falling property values. Warren points out that, under Prop. 13, property tax revenues have grown faster than inflation.  Moreover, since the 2008 Mortgage Market Meltdown and Bank Panic, property tax revenue has fallen more slowly than property values.

But Prop. 31 would be Prop. 13 in reverse, both numerically and fiscally.  This is because Prop. 31 would circumvent the supermajority vote requirements of Prop. 13 by tapping taxes from other cities without any requirement for voter approval.  No new taxes would be raised. Suburbs would just have a share of their existing taxes siphoned elsewhere.

Suppose Santa Monica Thinks It Will Be Switzerland

Like Prop. 31, the European Union involves fiscal regionalization, while leaving existing political boundaries and governments in place.

According to Warren, it is the opinion of the Economist magazine that the weakness of the European Union has been the enforcement of fiscal discipline on the Southern and other high-spending governments.  That is because fiscal regionalization — tax sharing — creates what is called the “free rider” problem, where weaker economies have no incentive to grow and only want to live off the wealthier economies.

The way Warren puts it: “Voila! — Greece.” In the pre-European Union era, the Drachma, Greece’s currency, had higher interest rates than the German currency, the Deutsche mark, to capitalize currency depreciation. The same things happened with Italy and, to an extent, France.  Locking them all together without enforceable means of controlling their taxation and spending only worked in good economic times, however. We’re now seeing the consequences.

Warren adds: “To an extent our federate system shares the same problem.  State by state and region-by-region, some gain and some lose by participating in the American Union. That is not what the European Union said it intended, but it’s what it’s getting.”

California cities, counties and school districts would be subject under Prop. 31 to the same predations and free riding as those in the European Union.

Some cities might think they can remain neutral like Switzerland, which is not part of the European Union. But under Prop. 31, a city such as Santa Monica or San Francisco could opt out of regionalized “Strategic Area Plans,” but at a price. They would likely have to forfeit a share of their road revenues.  Or wealthy school districts with supplemental school parcel taxes might have to forfeit an offsetting share of their school property taxes.

This is how revenue sharing of H.U.D. Community Development Block Grant funds works now in California.  Those cities that do not meet their affordable housing quotas have their share of Block Grant funds diverted to less wealthy areas. The mechanism the state uses to confiscate such funds is the Housing Element of a city’s General Plan.

So there would be no escaping the confiscatory policies of Prop. 31 by voluntarily opting out of a Strategic Area Plan. There would be no equivalent to a neutral Switzerland in the European Union under Prop. 31.

Once again, which California cities will be Greece and which Germany under Prop. 31?

No comments

Write a comment
  1. Hondo
    Hondo 6 September, 2012, 09:34

    Wasn’t it Churchill who said that socialism is misery shared equally by everyone.
    Prop. 31, lets share the misery.

    Reply this comment
  2. Susan
    Susan 6 September, 2012, 09:37

    Very grateful to you for getting the word out about the poison that has been smuggled into the pretty package of Prop. 31.

    Reply this comment
  3. Paul
    Paul 6 September, 2012, 09:42

    Like I said, welcome to the EU-California if this passes. Nothing like robbing from Peter to give to Paul. Just start spending wisely and not over spending money you don’t have. If I ran my household like that I’d go bankrupt too! You can’t spend money you don’t have….Plain and simple….

    Reply this comment
  4. us citizen
    us citizen 6 September, 2012, 13:41

    Calif politicians were all remedial students in math

    Reply this comment
  5. Osahon
    Osahon 6 September, 2012, 13:43

    Why would anybody with California’s best interests be opposed to more transparency, unless you didn’t have California’s best interests in your heart? Prop 31 sounds fiscally responsible, and great start at the reform all of us have been clamoring for.

    There is no quick fix, and since everything will take some time, why do our politicians keep bothering with band-aid fixes like Prop 30? Let’s make some real progress. Prop 31 sounds like a good start.

    Reply this comment
  6. Janae
    Janae 6 September, 2012, 14:43

    The California budget has been a big secret for too long & it is time politicians respect California voter’s rights & allow them to have a voice in the matter of their tax dollars & how they are being spent. Prop 31 will work to stop secrecy regarding our tax payer dollars. Transperancy is one on the many things California is fighting for, Prop 31 would do us some good in that regard.

    Reply this comment
  7. Susan
    Susan 6 September, 2012, 14:51

    It’s noteworthy that the people who work the hardest to try to hide the truth from us are always screaming about “transparency.”

    Reply this comment
  8. Rosie
    Rosie 6 September, 2012, 15:02

    Look, no Proposition is perfect, but Prop 31 does a really good job of addressing the problems California faces. This article is hyperbolic, to put it lightly. Prop 31 isn’t some communist act, but REFORM. I guess maybe California has forgotten what that looks like.

    Remember the $54 million Parks department slush fund? Prop 31 requires that departments be audited every five years.

    Fed up with last- minute backroom-deal bills? Prop 31 requires that bills be made public and unchanged before they are passed.

    Sick of the constant struggle to balance our budget? Prop 31 requires that funding sources for new programs be specified.

    In short, Prop 31 is real reform: EXACTLY what California needs!

    Reply this comment
  9. goat daddy
    goat daddy 6 September, 2012, 15:24

    If I understand this correctly. The prop will take the money from my area were people work for a living and deposit in Oakland where people live on welfare? That is the dumbist thing I have ever heard! If they want better schools, police and fire protection, get jobs, pay taxes.

    Reply this comment
  10. Rex the Wonder Dog!
    Rex the Wonder Dog! 6 September, 2012, 16:17

    The California budget has been a big secret for too long & it is time politicians respect California voter’s rights & allow them to have a voice in the matter of their tax dollars & how they are being spent
    Polititicans and public employees don’t care about voters or anyone else, only themselves.

    Reply this comment
  11. Janae
    Janae 6 September, 2012, 16:42

    US Citizen:
    This is a serious issue, the only way our politicians will take our needs seriously is if we show them that we mean business! Our time to shine will happen this coming Election. Bring your sentiments to the poll, and help get CA back on track with Prop 31.

    Reply this comment
  12. Jordan
    Jordan 6 September, 2012, 17:21

    Proposition 31 provides excellent improvements to a failing California government. It increases transparency, accountability, and fiscal responsibility in Sacramento. How can that be a bad thing? It allows Californians to have a better understanding of what happens in Sacramento. With all the corruption and mismanagement of funds in Sacramento (billions of dollars wasted in bullet train fiasco, $53 million lost in the State Parks and Recreation budget, raises for senior legislative staff ALREADY making six figures) I for one feel that we NEED to make some changes. While I admit proposition 31 is not perfect, it provides an excellent starting point in which to begin a cleansing of the mess that is Sacramento. Lets get California working for US again.

    Reply this comment
  13. Janae
    Janae 6 September, 2012, 17:56

    Prop 31 give us our BEST shot at an honest Government. I am on board with that! It is sad that voters aren’t aware of what is going on in their own towns. We don’t discover things until it is far too late and the damage has already been done. Prop 31 will make sure that voters are not only aware of how their tax dollars will be spent, but they will also have opportunities for input on where those funds go! It’s about time!

    Reply this comment
  14. Stanley K.
    Stanley K. 6 September, 2012, 18:07

    To all the Prop 31 campaign workers who are endlessly posting here: Prop 31 is ITSELF neither transparent nor accountable, as the author of this article has uncovered. That fact alone should tell voters all they need to know.
    It is now obvious that the new “reformers” are no such thing but are selling the same old stuff that has been ruining the State of California for years.
    Sell it somewhere else, we’re not buying it.

    Reply this comment
  15. Rosie
    Rosie 6 September, 2012, 18:33

    Stanley: I think that requiring specified funding sources, an open-to-the-public legislative process, and required department auditing are pretty NEW to California. If we had had these sorts of rules in place before, maybe we wouldn’t be in such a mess. Prop 31 feels like reform to me!

    Reply this comment
  16. The DA
    The DA 6 September, 2012, 20:33

    Prop 31 has the sincerity, concern, and helpfulness of a kid who sprinkles the backyard with all the little treats that will attract birds while he lies in wait behind the tree with his new bb gun.

    Reply this comment
  17. Robert
    Robert 7 September, 2012, 10:07

    I am not even sure how to respond to this latest surge against Prop 31.

    Prop 31 may seem cumbersome to some, but the measure really can be summed up very simply. Prop 31 will hold government accountable, stop wasteful spending, increase transparency in the budget process, and shift decision making to local communities.

    These are not some new controversial ideas, but tried and tested reforms that have been implemented across the country with good results. YES ON 31!

    Reply this comment
  18. Wayne Lusvardi
    Wayne Lusvardi 7 September, 2012, 13:19

    The problem with many of the comments above is that voter approval is not needed for greater transparency, for a two year budget cycle, installing performance budgeting, or for identifying sources of funding before legislators vote on a bill. Those are just window dressing to get voters to fall for the other provisions that voters would be required to vote on such as greater powers for the governor to call a financial emergency to circumvent laws and the formation of unelected super committees to carry out Strategic Area Plans by siphoning funds from suburbs toward the broke big cities. I think the voters understand a Trojan Horse when they see one.

    Reply this comment
  19. Joshua Marcus
    Joshua Marcus 8 September, 2012, 10:24

    The UK has a council tax with Bands(A-I, (A) being the lowest property value and so on through the alphabet, a residence like Buckingham Palace getting an (I).) Living in Band A, you pay the least, and if you are a student living alone the tax would be waived, along with the hordes of immigrants and their families, only people who work, pay the tax and the harder you work, the more you pay. Again, California is aspiring—and for a growing number of states—to become europe. The tax payers and high earning Californians are suckered into paying for illegal Mexican Nationals and those other countries south. And then there’s the Unions who’s presidents and administrators have their own ranks believing they deserve more than the average Californian, so the death spiral of unsustainable salaries and retirement benefits continues unabated. Now Brown and his social justice minions want us working class citizens to pay for a drug infested city like East Palo Alto; gang ridden East L.A., Compton; and all the mismanagement cities like those would cause the responcible cities and towns to play mommy and feed their irresponcible child. The Conservative parts of California better consider seceding from Sacremento before Brown and his brown shirts redistribute everyone to the poor house.

    Reply this comment
  20. Richard Rider
    Richard Rider 30 September, 2012, 15:10

    The important thing to look at is who OPPOSES this measure.

    Among other left wing outfits:

    California Democratic Party
    Working Families Issues Committee (AFL CIO)
    AFSCME (city employees union)
    Californians for Clean Energy and Jobs
    California Schools Employees Association

    There’s not much money being raised against this measure (because of more important props the unions are heavily funding), but the opposition funding comes from the organizations above (except for the Democratic Party). No unions support this measure.

    Trust the unions to know what’s in their best interest. And NOT in ours.

    Reply this comment

Write a Comment

Leave a Reply

Related Articles

DeMaio, Reed team up for 2016 pension fight

The dynamic duo of California pension reform are teaming up in 2016. Former San Diego City Councilman Carl DeMaio and

Treasurer Chiang talks taxes and the economy

  With the rising conversation about extending Proposition 30‘s temporary taxes, I asked state Treasurer John Chiang if he would advise

CA Already Max Taxes Crude Oil

FEB. 1, 2012 By WAYNE LUSVARDI How “crude” of them. Tax activists in California are pushing a deceptive “oil severance