March 25, 2004 - From the January, 2004 issue

CSAC's Steve Szalay Analyzes The Governor's Budget Proposal & Its Impact On Counties

In Governor Schwarzenegger's 2004-05 budget proposal, there is a $1.3 billion property tax shift from local governments to education in order top meet state spending requirements. In order to shed light on the impacts of this proposed transfer, MIR is pleased to present this interview with Steve Szalay, Executive Director of the California State Association of Counties, in which he addresses the governor's proposal and the negotiating stratgey ahead for local government.

Steve Szalay

Let's begin with the Governor's proposed budget. It lives up to its promise of no new taxes with a combination of borrowing, one-time maneuvers and across-the-board cuts that he said "would put the state on track towards solvency." What's CSAC's reaction to his proposals?

It really seems like a lot of the same kind of maneuvering that's been going on in past years. There are virtually no reform ideas in the budget. They deal with local government the same tired ways. The program cuts are, for the most part, not well thought out in terms of pubic policy. They just took a whack at programs where they thought they could get away with it. I was really disappointed, because I expected the governor to at least propose some reform that would result in more efficiency. Of course, the new Administration had precious little time to draft a budget. There is still six months to improve on the theme.

Let's go directly to the proposed transfer of $1.3-billion of local property taxes to schools to offset the state's obligation to pay for education. You've been through this exercise in the early ‘90s. What's the drill? How will the negotiations play out?

It's a nonstarter from our point of view. What we want to do is send a message very quickly that this is a tired strategy. Real reform is getting more property taxes to local governments, not less. We're ready to help him restructure some kind of a local government -plan that's much more reasonable. Our position is that we want to work with him on -the budget, but the first thing he needs to do is drop the proposed ERAF Shift. Working together on a local plan would seem to be very important in light of the need for unity of support of the Deficit Bond and Spending Cap.

What will be CSAC's strategy as the proposed budget by the Governor moves through the legislative process?

The first thing we did was to reactivate the LOCAL coalition (Leave Our Community Assets Local), which is cities, counties, and special districts. We started the grassroots communication process with the Legislature and with the governor, indicating that certainly we want to participate, but this is a nonstarter – this isn't the correct approach, and here's why. Then we engage in hearings in the Legislature. Frankly, we don't think there are very many assemblymembers or senators that will actually vote for this ERAF Shift. They have been through this drill before. They don't want to do another ERAF shift.

In the meantime, we have some meetings set up this week and next with the Governor's Office to start trying to restructure some reductions on a one-time basis. The other problem with this proposal is that they portray it as ongoing and permanent. We take that as a real slap in the face, because very little else in this budget is ongoing and permanent. Our meetings with them will center on, number one, getting this cut to be considered on a one-time basis and number two, to start coming up with a proportional amount of local reductions that don't come from the property tax route.

You're well aware that former Assembly Speaker Hertzberg also plans on going to the ballot in November with a Home Rule initiative intended to return property tax to local governments. What are your thoughts about his proposal?

The more we review the measure and the more we talk to Bob's supporters, the more CSAC likes it. We're in the process right now of suggesting some amendments and, very frankly, I think our membership could become supporters. This initiative does take that first step towards reform.

Translate the upcoming budget debate into language and impacts that the average California voter will understand. What's at stake here in the way of service cuts?


The biggest service cuts likely will be in the public safety and public health areas. About 60-70% of this property tax money at the county level goes to fund public health and public safety services-from courts to district attorneys to sheriff, jail and probation on the public safety side, to the emergency medical health system, public health clinics, and a wide variety of other programs on the public health side. The other 30% are critical programs, but not as visible. They're health and human service programs where counties have to provide a specific share. That money has to come out of county property tax money as well. One example is statewide elections. Counties are mandated to conduct and finance all elections in California. Property taxes pay for election services. As a footnote, over 28 counties have yet to be reimbursed for last year's historic recall election.

Have the details, vis a vis cities' share versus counties' share of the local property tax shift become clearer?

Not really. As proposed, it sounds like it's the normal property tax allocation, in which case it would be about 20% for cities, about 70% for counties, and about 10% for special districts. Obviously, that's a problem as well.

Steve, in the last decade, you've been on just about every blue-ribbon commission on this subject. Why is it so hard to translate the bipartisan recommendations of these commissions into public policy?

There has to be a political will, created and have influential leader to commence the reform process. Because of term limits, many of the legislators nowadays have either nonexistent or very shortsighted public policy visions and agendas. They're not interested in anything that is difficult to achieve in terms of reform or public policy. This is short for them. They need credit for something very quickly, and they need campaign money. Usually, reforms aren't quick and they generate zero campaign funds.

To conclude, tie all the pieces together for our readers. A year from now, what do you think will be the result of this budget process? Will any structural reform of our fiscal arrangements be made?

Actually, I'm a real optimist. What the Governor did in his proposal is the best "poster child" for reform that I can imagine. All we have to do, if we're looking to pass something like Bob Hertzberg's Home Rule proposal, is say, "this is why we need this reform." We need some measure of predictability for local revenue. Because in any year, no matter who it is, no matter what they say, a governor or the Legislature - shift local revenue that's already prioritized and already budgeted. Frankly, either the initiative that we have been working on with the cities and/or the Hertzberg measure will pass. The Hertzberg measure is more reform oriented, while the LOCAL initiative provides solid local government predictability. So, I'm encouraged. The election in November should result in some meaningful exchange for local government.

With regard to the state budget, I believe that this Governor will engage local government and come up with a substitute plan that makes more sense.


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