In his final weeks on the job, Ma’s predecessor as treasurer – John Chiang
– announced that he no longer believed the Cannabis Banking Working Group that he chaired for two years could come up with a solution to a basic problem: Most banks do not want to provide services to marijuana growers, delivery services and shop owners until federal regulators or Congress and President Donald Trump approved changes in federal policy. Though more than 30 states have legalized the medicinal and recreational use of cannabis, under federal law, it remains a Schedule 1 – meaning very serious – illegal drug.

“[The federal government] must either remove cannabis from its official list of banned narcotics or approve safe harbor legislation that protects banks serving cannabis businesses from prosecution,” Chiang said at a Dec. 27 public meeting of the Cannabis Banking Working Group.

But with the recreational marijuana industry off to a much-slower start than expected since 2016’s Proposition 64 began allowing recreational sales on Jan. 1, 2018, state elected officials are under pressure to help the industry. While other lawmakers have focused on reducing taxes and regulations and making it easier to get permits, Hertzberg and Ma see providing basic financial services as crucial to normalizing legal recreational cannabis and to limiting the corruption and employee safety risk of having a multi-billion-dollar cash-only industry.

That’s why Hertzberg introduced Senate Bill 51, which would let individuals or companies in the private sector seek state charters that would allow them to create credit unions and banks of limited scope specifically for the cannabis industry. The special banks could provide checking services allowing marijuana companies to “open and use checking accounts, make or receive electronic payments, or accept credit or debit cards.”

Oversight of the new banks would be assigned to the newly created Cannabis Limited Charter Bank and Credit Union Advisory Board, whose board would include the state treasurer and controller.

Last year, Hertzberg offered Senate Bill 930, a similar measure that easily passed the state Senate and two Assembly committees before dying in murky circumstances in the Assembly Appropriations Committee. Ma co-sponsored that measure while still serving as a state senator.

In a recent Capitol Weekly story, Hertzberg’s spokeswoman suggested that SB 930 failed because of then-Gov. Jerry Brown’s tacit opposition.

“The bill itself this year is probably going to be extremely similar to last year, but a few outside aspects have changed,” said Katie Hanzlik. “We guessed that there wasn’t quite as much of an appetite in the previous administration, so the good thing on that front is that we have a new administration, and it’s our understanding that Gov. Newsom is really open to this whole field of cannabis and making this industry work in the state.”

While lieutenant governor, Newsom was perhaps the highest-profile supporter of Proposition 64.

The first legislative hearing on SB 51 has not yet been scheduled.

Actually, nearly half of the state’s personal income tax revenue comes from the top 1 percent of earners — 150,000 individual tax returns. And personal income tax revenue is 65 percent of total revenue, which means the One Percent provides 33 percent of the state’s total revenue. 

Besides volatility of the revenue stream — the One Percent’s personal income comes largely from capital gains, which are generally tied to the stock market — what happens if a Mark Zuckerberg or a Larry Ellison — #6 and #7 on Forbes’ list of wealthiest people in the world — leaves the state?

In New Jersey, another top-heavy state, one billionaire relocated to Florida, leaving as much a $140 million hole in the budget. 

Few in California dispute the over-reliance on top earners is an issue. It’s in Gov. Jerry Brown’s budget summary and even the credit rating agencies Moody’s and Standard & Poor’s have warned against it. However, there is conflicting opinions of what needs to be done. 

There could be tax reform, but is that a flattening of the tax code? Or a shift to sales tax on services? Higher property taxes? Would the solution be revenue neutral, meaning tax increases in one area are offset with decreases elsewhere? And what are the new consequences that might come with new tax dependencies? 

What requires a frank discussion has so far drawn only whispers. Many on the left feel that while this is a problem, the state is on a good path, with reduced debt, a growing reserve fund, increased education spending and moves to address the state’s unfunded liabilities.

Republicans, on the other hand, lose sleep over the more than $400 billion in debt (including unfunded liabilities), the warnings from credit agencies and outside groups saying the state will falter in an economic downturn and a proposed 12-year extension of a “temporary” tax imposed on the wealthiest of residents that they see as only perpetuating the problem. 

“I’m very concerned about where we’re at today,” said Assembly Republican Leader Chad Mayes of Yucca Valley. “You’ve got a very few people paying a vast majority of the revenue collected by the state. That doesn’t put us in a very good spot.”

A downturn is coming likely sooner than later

It’s a question of when, not if, an economic downturn will occur. In Gov. Jerry Brown’s budget introduction released earlier this year, it warned that California is in “its seventh year of expansion, already two years longer than the average recovery.”

“While the timing is uncertain, the next recession is getting closer, and the state must begin to plan for it,” the introduction continued. “If new ongoing commitments are made now, then the severity of cuts will be far greater — even devastating — when the recession begins.”

Tax reform

As a starting point, both sides agree some kind of tax-code overhaul is necessary. However, that’s about where the agreement ends. 

Senate Budget Chairman Mark Leno told CalWatchdog the state is “to a certain degree overly dependent on the highest wage earners,” and suggested increasing the vehicle licensing fee (the “car tax”) because it’s more stable, although he conceded the toxicity of the issue makes it difficult. For example, Congressman Ted Lieu, when he was in the state Senate in 2012, pitched the idea of increasing the car tax, but relented only five days later after backlash from hundreds of constituents, including his wife.

Another idea Leno, the San Francisco Democrat, pitched was extending sales tax to services, to reflect a shift in the state’s economy away from manufacturing, which he again agreed was “a difficult conversation to have.” He lauded the efforts of Sen. Robert Hertzberg, D-Van Nuys, who is sponsoring legislation to do just that. 

David Wolfe, legislative director for the right-leaning Howard Jarvis Taxpayers Association, suggested a simplified tax code — not quite a flat tax rate, but close. Wolfe said with the proper analysis sales tax on services is an idea “worth considering,” but it would require cuts elsewhere for their support.

“Of course, the overall sales tax rate would need to be lowered in order to make it revenue neutral because the base is being broadened,” Wolfe said.

Additional burdens

There are a few programs that limit the state’s flexibility, even though the individual programs may be beneficial:

• Prop. 13 capped the rate property taxes could increase annually at two percent.  
• Prop. 98 requires that a large percentage of the state’s general fund be spent on education. 
• Prop. 2, also known as the Rainy Day Fund, sets aside a certain amount of money annually to buffer the budgetary effects of an economic downturn. However, even if fully funded it would only reserve 10 percent of the general fund tax revenues.

“While a full Rainy Day Fund might not eliminate the need for some spending reductions in case of a recession, saving now would allow the state to spend from its Rainy Day Fund later to soften the magnitude and length of any necessary cuts,” according to Brown’s budget explanation. 

Prop. 30 extension

It’s likely that voters will consider a 12-year extension to Prop. 30, which is a “temporary” tax on top earners and a quarter-cent sales tax increase.

It was approved during the last downturn primarily to avoid deep cuts in education. It is set to expire in two years, but proponents saw this campaign cycle as more favorable. 

The Prop. 30 extension only perpetuates the state’s over-reliance on personal income tax, said Carson Bruno, a research fellow at Stanford University’s Hoover Institution. 

“Prop. 30 doubles down on this problem by making the income taxes even more reliant on the highest earners,” Bruno said. 

Bruno agreed Prop. 30 expiring would leave a hole in the budget, but said legislators should have been preparing for this, as it was “temporary.”

“If they haven’t been doing that then that’s kind of irresponsible,” Bruno said.

“While it was not the first hacked organization to acquiesce to attackers’ demands, the California hospital that paid $17,000 in ransom to hackers to regain control of its computer system was unusual in one notable way: It went public with the news,” Reuters reported.

Until the hospital coughed up the sum, several of its key and core functions were effectively paralyzed. “The facility was without access to email, digital patient records and some internet-connected medical devices for nearly two weeks, from Feb. 5 to 17,” according to CBC.

“It’s no different than if they took all the patients and held them in one room at gunpoint,” insisted state Sen. Robert Hertzberg, D-Van Nuys, Reuters reported. Hertzberg has introduced legislation “to make a ransomware attack equivalent to extortion and punishable by up to four years in prison.”

Health care hacks have spiked in recent months. “The health care industry isn’t just a top target for ransomware attacks,” CBC noted. “According to a report by security firm Trend Micro, 30 percent of identity theft-related cybercrime activity targeted health care from 2005 to 2015.”

Just this year, the San Francisco Chronicle reported, four hospitals including HPMC were hit. “Though there are no recorded patient injuries or deaths tied to cyberattacks, digital security in hospitals, and, perhaps, more importantly in medical devices such as pacemakers and MRI machines, has become a growing concern in the industry,” the paper added.

Limited measures

The Food and Drug Administration has struggled to stay ahead of the risk curve. Hospitals not only have traditional online networks to worry about; their myriad of networked devices provide hackers with a wealth of potential targets and entry points into databases. “Last summer, the FDA and Department of Homeland Security issued a warning to hospitals about a drug-infusion system with a flaw so serious that it could give hackers entree into the devices,” according to the Chronicle. “Just last month, the FDA issued draft guidance for medical device manufacturers to begin administering their own vulnerability disclosure programs — allowing outside researchers to easily flag weaknesses.”

But the HPMC attack underscored the limited power of regulations and bureaucracies to police the front line of defense for companies targeted by hackers: staff education. “According to CSO, the incident was random, likely meaning a hospital staffer clicked a malicious link or attachment that ultimately spread the malware throughout the network,” The Verge observed.

Planning for attacks

Because hackers predominantly play a numbers game, casting a wide net instead of focusing from the outset on a specific target, hospitals have wound up being targeted simply in virtue of being large, often unwieldy organizations that can’t afford to be crippled for very long. “Mostly, hacks start with mass email campaigns aiming to snare unwitting recipients. Hospitals, police agencies and other essential services fall victim because employees who have access to those networks are often busy, IT staffs are underfunded, and cybersecurity training is rare,” according to the International Business Times.

While organizations must stop or prevent every attempted breach of their network to prevail over attackers, hackers themselves often only need to breach once in order to seize data they can exfiltrate or hold for ransom. For that reason, experts have counseled that the best defense is one that expects breaches to occur and creates strategies to deal with them. “Ransomware strains are becoming increasingly complex and impossible to contain. The best way to avoid an infection is to plan on being infected anyway,” as IBT noted. “The only catch-all way to mitigate the damage is regular data backups, in the form of either cloud storage or a physical hard drive.”

Amnesty proposed

Leading the charge, Gov. Jerry Brown made instant headlines with his withering criticism of the current system. “Calling California’s traffic court system a ‘hellhole of desperation’ for the poor, Gov. Jerry Brown is proposing an amnesty program for residents who can’t afford to pay off spiraling fines and penalties that have resulted in 4.8 million driver’s license suspensions since 2006,” the Associated Press observed.

According to the terms of the amnesty, “drivers with lesser infractions would pay half of what they owe, and administrative fees would be slashed from $300 to $50,” according to the AP.

For Brown, the move represented yet another step toward broader reform of California’s justice system. The task was largely pushed onto his office by the U.S. Supreme Court, which has ruled strictly against California on the issue of prison overcrowding, and by a long series of scandals and incidents involving police misconduct and wrongful use of force.

A Brown spokesman conveyed to the AP that the governor’s amnesty plan was considered a response to a “a civil rights issue,” with discussions ongoing between the governor’s office and the U.S. Department of Justice. “It’s not clear if the Justice Department has launched an inquiry into California’s court system,” the AP added.

New legislation

In the Legislature, meanwhile, two bills aiming to bring relief to overburdened traffic violators have begun to advance. Senate Bill 405, introduced by state Sen. Robert Hertzberg, D-Van Nuys, would extend an amnesty similar to Brown’s. The bill “would restore a driver’s license if it was suspended for nonviolent offenses and if the driver agrees to a court-ordered debt collection program,” according to Capitol Weekly, working “in conjunction with Brown’s proposed Traffic Amnesty Program, which seeks to collect at least some of the estimated $10 billion in uncollected, court-ordered debt.”

As KCRA reported, most of that money comes from “unpaid traffic fines and fees.” In an effort to make up some of the lost revenue, a separate bill introduced by Assemblyman Miguel Santiago, D-Los Angeles, would authorize installment plans for drivers socked with pricey parking tickets.

But the issue forced by Hertzberg’s bill concerned the basic legitimacy of leaning so heavily for revenue on the ticketing system. “Hoping to slash court-ordered debt by some 80 percent,” Hertzberg told CBS Sacramento, he “can’t worry about” the hit to local budgets his proposed reform would entail. “Is this how we are going to fund the government?” Hertzberg asked rhetorically. “Our job is to get it right.”

Judicial pressure

Rounding out the unified front against Golden State ticketing, California’s Chief Justice recently called for “an emergency stop” to the practice of imposing charges before drivers can secure a hearing, as ABC 7 News noted. In so doing, Chief Justice Tani Cantil-Sakauye has asked the state’s judicial council to “create a new rule that will give drivers a way to plead their case before having to pay a fine.”

That drew cheers from the ACLU, which had been peppering Northern California counties with so-called reminders that “a person’s right to appear in court – even traffic court – should not depend on their ability to pay a fee.” As the ACLU noted in a release, Chief Justice Cantil-Sakauye “is also appointing a commission to take a broader look at the impact of fines, fees, and penalties on court users in California. This is an important step forward, because California counties have a history of using court fees and fines to pay for basic government functions.”

Although the impact of the turn against California’s ticketing bureaucracy has yet to be felt on state streets, no serious opposition to any of the proposed measures has been mounted.

Last June, I wrote a column forecasting which tax increase measures might be on the Nov. 2016 ballot given the conversations going on then.

Time for an update.

As is nearly always the case in the political world, situations and strategies change. What’s being discussed most heavily today is not necessarily what will be pushed to the ballot for voters to decide in 2016.

By measuring fact, rumor and innuendo, I’ll offer my reading of the top five tax possibilities for the Nov. 2016 ballot.

First, a word about those that did not make the list this time. Previously, a soda tax was on the list, but that possibility seems to have faded for the moment.  Instead, advocates are considering labeling sodas with more information about the sugar content.

There is a constant buzz about restructuring the entire tax system and that has been heightened by the introduction of Senate Bill 8, by state Sen. Bob Hertzberg, D-Van Nuys. The bill would re-do the tax system, cut some tax rates and introduce a service tax.

Hertzberg hasn’t developed the plan in full as yet. Both the Left and the Right have attacked the idea. However, he also is working closely with the Think Long Committee for California, which has the resources to qualify a measure for the ballot. As of now, the idea is not ready for consideration.

To the list, then:

5. OIL SEVERANCE TAX. Previous Ranking #3.

Whether the oil severance tax initiative moves forward depends on one man – hedge fund billionaire Tom Steyer. He said he would rather work through the legislative process, but the bill would be unlikely to pass the Legislature.

Steyer also is said to be interested in promoting an initiative that would require a two-thirds vote in local communities to approve fracking for oil. While he has the resources to do more than one measure, the odds are he would focus on just one, if any.

4. SURPLUS! NO NEW TAXES. Previous ranking: Unranked

Okay, this is obviously not a tax-increase measure. However, with the recent announcement of an unexpected $1 billion in the state treasury many experts predict the state budget will have a surplus of $2 billion dollars or more. Under such conditions, some observers suggest new taxes won’t fly with the voters, so why try?

A lot will depend on the fiscal situation heading into next year’s budget. But even if the economy holds steady and the budget is in good shape, it is hard to imagine there won’t be at least one tax-increase measure on next year’s ballot. Still, the chances are more likely today than they were a year ago that a surplus could stall the tax-increase movement.

3. SPLIT ROLL. Previous ranking: #2

There still is an ongoing grassroots effort to promote a split-roll property tax requiring business property to be taxed on a different basis than residential property. While that’s going on, big players have yet to commit to funding such an initiative.

Certainly, there would be big money spent to oppose such a measure. So both sides are considering the issue carefully. The school establishment would have to step up to support a split roll and consider how a property tax on the same ballot with an extension of the Proposition 30 taxes would play.

Also, a state school bond measure may be on the ballot, attracting attention from the school folks. A couple of sources tell me a little air has come out of the split-roll effort. So while it certainly hasn’t gone away, it drops to #3.

2. CIGARETTE TAX: Previous ranking: #4

The possibility of a cigarette tax on the ballot has moved up simply because some of the items in front of it moved down in the rankings. There really hasn’t been a change in the emphasis of a cigarette tax by proponents.

They will try the legislative route, but if unsuccessful will consider going to the ballot, where they were very close to passing a measure the last time they tried. In 2012, Proposition 29 failed, but by a narrow margin of 50.3 percent to 49.7 percent.

1. EXTENSION OF PROPOSITION 30. Previous ranking: #1

No change here. Many insiders believe Proposition 30, the $7 billion tax voters passed in 2012, would be the easiest tax to pass since it is already levied. Especially if the sales tax piece is removed, many voters would not directly feel the tax’s pinch. That would leave only the tax increases on high-incomes, including the 13.3 percent top tax on millionaires.

All the spending interests may not be happy, since schools get most of the money. But extending Prop. 30 still stands as the most likely tax measure to be on the ballot. The biggest question: What will Gov. Jerry Brown say about continuing the “temporary tax”?

Follow Joel Fox on Twitter @1JoelFox1

With the rising conversation about extending Proposition 30‘s temporary taxes, I asked state Treasurer John Chiang if he would advise that the taxes be continued. Chiang said a promise was made that the taxes would be temporary and circumstances would have to change, such as the economy tanking, to justify continuing the taxes.

A Democrat, Chiang spoke to the Town Hall Los Angeles Thursday, reviewing his actions as state controller, a post he held for eight years before being elected treasurer last November; and reporting that California went from dire fiscal circumstances to the “most robust economic recovery on the planet.”

However, Chiang said all was not rosy. Even with paying down the debt, he said current debt numbers were higher than historic norms, public sector health care and pension liabilities were issues that could not be ignored and affordable housing was important for the state’s economic health.

Last week Chiang joined Assembly Speaker Toni Atkins, D-San Diego, in support of proposals aimed at helping ease the housing crisis. The proposals call for a new fee on real estate transaction recording documents and an expansion of the low-income housing tax credit for builders.

In answer to a question, Chiang said he would study if an increase in the property tax homeowner exemption would also aid in home ownership.

No split-roll

As to business property, Chiang did not support a split-roll property tax that would tax commercial property differently from residential property “at this time.” Doing so would be a major change to Proposition 13, the 1978 tax-limitation measure. Currently, Prop. 13 treats all property the same, limiting taxes to 1 percent of assessed value, with a maximum increase of 2 percent a year.

However, he suggested reforms could be necessary in the rules on change of ownership of business property.

The state’s economy recently moved up to be ranked seventh largest in the world and last week the Fitch rating agency upgraded California’s credit rating to an A+. But Chiang warned a drop in the business cycle could suddenly produce a gap in the state’s finances.

Chiang praised voters for passing Proposition 2, the rainy-day fund measure in the last election, to cushion any revenue shortfalls. But he said more must be done to protect California’s economy. He said business regulation must be reduced and the state tax structure must be reformed.

Chiang spoke about an acquaintance who runs a shrimp company who had to deal with four or five government agencies’ regulations. That process must be streamlined, said the treasurer.

I asked Chiang if he had consulted with state Sen. Robert Hertzberg, D-Van Nuys, on his tax restructuring proposal, Senate Bill 8. It includes a $10 billion tax on services, with reductions to some other taxes.

Chiang said he had not heard from Hertzberg on the bill, but it was important the discussion generated by the Hertzberg proposal go forward; that state tax policies needed to be updated.

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?