October 26, 2002 - From the October, 2002 issue

CA League Of Cities' President Reflects On The Demise Of Assemblyman Steinberg's AB680

In MIR last month, Assemblyman Darrell Steinberg reviewed how the tax sharing bill he authored, AB 680, failed to pass. Among the opposition to the bill was the California League of Cities. TPR is pleased to present this interview with Chris McKenzie, Executive Director of the California League of Cities, in which he discusses the reasoning behind his organization's opposition of the bill and the challenges ahead for municipal governments to meet the needs of metropolitan regions.


Chris McKenzie

Chris, MIR carried an interview last month with Assemblymember Darrell Steinberg, an autopsy of what happened to AB680. In that interview, he asserts that one of his biggest opponents was the California League of Cities (CLC). He claims that the CLC appealed to the lowest common denominator in its membership to oppose real reform in the way that revenue is shared in local government and making it more difficult to reform a system of state and local finance that many believe is dysfunctional. Your thoughts, comments, and reaction?

Well, I obviously disagree with Darrell's characterization that our position is based on the lowest common denominator. Our position was the result of extensive internal debate by elected and appointed officials who are familiar with all aspects of the state and local fiscal system. Our position was very simple. Before existing sales tax dollars are redistributed, we suggested we needed to stabilize the fiscal system so that cities that were asked to come to the table and negotiate changes on their already constrained revenues would have some assurance of long-term protection. That's going to require a change in the constitution, because we can't deal with a state legislature that changes the rules from year to year. That's not a protection, and that's not a guarantee. Once we're able to get that kind of a floor of protection and assurance, then it's going to be much more possible to talk about fine-tuning the system.

We really think that what Assemblymember Steinberg did is skip a lot of early steps in this decision-making process. We're very interested in working with it, very interested. We had a number of discussions last year about this very issue and I hope to have those discussions with him again. I think he appear1s to be open to those ideas. But, sometimes what one person calls reform is not reform to all, because they know they have no ability to control the next step in the decision-making process.

I think your comments are well said. I don't think there is much of a difference in the comments between yours and his except for the fact that most people believe the CLC is not proactive in its willingness to look at reform of the state fiscal system. Even what you are proposing as an initiative in a year or two would stabilize the status quo and protect the existing framework, which many people believe is as dysfunctional as today's system. So, doesn't Darrell have a point in saying that the League, by the very nature of its size, and the complexity of the mix of cities that make up its membership is unable to really offer the legislature a reform proposal that they can find a 50% plus one majority to support?

No, I don't think that's entirely true. I think we're all operating in an environment in which the deck is stacked and the legislature gets to set all the rules. What we're saying very simply is that we're interested in ideas that would, number one, provide assurance day in and day out, year in and year out, that cities can engage in good short-term and long-term fiscal planning. The current system doesn't guarantee it. We do not, by the way, have a specific proposal. We're in the process of discussing a number of ideas.

Our number one goal is to stabilize what we have so we can then move on to the next level of discussion. We desperately want to move to that next level of discussion. You don't negotiate when you have a gun to your head. That's exactly what the current rules in this system present us with. I'm not blaming any assemblymembers, Steinberg, for whom I have a high regard, or any legislator for that. It's the system we have. It's an absolutely untenable deal. And, until we can stabilize what we have, it's going to be very hard to talk about the refinements such as his plan.

We're prepared to talk about housing reform-putting together a housing package that is responsive to the concerns we all have about the connection between the dysfunctional fiscal system and our housing crisis. In fact, that's the framework in which we're going to talk about a lot of this stuff. I think the discussion is going to go on and on. The system has really given us no choice but to insist upon an initial amount of stability before we move on to further refinements.

Are those cities that make up the constituency of the League, particularly the ones dependent on sales tax generation and that have bet their city's future on the revenue that derives from those shopping centers and auto malls, really interested in a reform that would recreate the local source of funding from property taxes, the main source of revenue they depend on? Are they willing to do that?

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I don't think you can talk about them as if they are a monolithic group of cities. If the choices are presented as "are we going to have a higher amount of property taxes collected or not" vs. "are cities going to get a bigger share of the property tax or not," it's a different answer depending on how the question is posed. I think many of the cities that are high sales tax cities today understand that it makes sense for cities to receive a bigger share of the property tax if they are going to meet the housing demands that their cities are facing. Really, these cities, in my opinion, are behaving very rationally. They are acting according to the rules they have.

If we change the rules and create incentives, they will act in a rational way. They will maximize the interest of their cities. I don't hear any of them saying they don't want more property tax. What they're saying is, they're not willing to give up sales tax until that increase in the property tax is constitutionally guaranteed. It can't be subject to an annual decision of the state legislature.

In fairness to Assemblymember Steinberg, he tried to learn from the mistakes of the past attempts to alter state reform by avoiding a one size fits all solution, he tried to do it in his own county and his own region. What did he misunderstand?

I don't want to suggest that Assemblymember Steinberg misunderstood anything. These discussions are multi-year discussions. He's started a very interesting discussion. I think the idea that you could limit a major change in the system on a regional basis without providing constitutional protection for even the cities in that region is a major issue that's going to have to be dealt with. I can't underscore enough how fundamental this issue is. You don't ask people to give up what they have when there is no assurance they'll continue to get what you say you're going to give them. There is a complete breakdown in the system, a fundamental problem of trust. That's why we have to enshrine these ideas in the constitution so all of our successors and the people we serve will have some assurance that the service can continue.

Chris, last question. The passion in the presentation today at the state League of Cities meeting about these issues was sincere. But I hear no gubernatorial candidate talking about them. What's missing? What's the political missing ingredient that keeps gubernatorial candidates who are campaigning around the state from even talking about this issue?

That's interesting. Mr. Simon talked about it. He endorsed a constitutional amendment to protect local government revenues. If you have control over all the money, you need an incentive to give up control. It is Politics 101. That's why it's necessary to change the constitution. If cities had control over all the money, others would want to change the rules on us. This is a classic give-and-take political deal that's in the works. If we're being asked to give up something without getting something in return that is assured, it's untenable.

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