March 25, 2004 - From the December, 2003 issue

Hertzberg On State's Fiscal Crisis: More Than Ever, Home Rule Is Needed!

As one of his first actions as governor of California, Arnold Schwarzenegger repealed the increase in the vehicle license fee approved during this year's budget negotiations. The result of this action is that city and county governments are left with $4 billion at risk, causing an obvious budgeting challenge and grave concern over the future of locally supported programs and services. This is a recent and highly visible example that manifests local governments' inability to control their own revenue stream. To reset and realign the state and local fiscal arrangement, Former Assembly Speaker Robert Hertzberg has filed the California Home Rule Amendment for inclusion on the November 2004 ballot. MIR is pleased to present this opinion piece by Robert Hertzberg in which he argues the need for this amendment.


Bob Hertzberg

As one of his first actions as governor of California, Arnold Schwarzenegger repealed the increase in the vehicle license fee approved during this year's budget negotiations. The result of this action is that city and county governments are left with $4 billion at risk, causing an obvious budgeting challenge and grave concern over the future of locally supported programs and services. This is a recent and highly visible example that manifests local governments' inability to control their own revenue stream. To reset and realign the state and local fiscal arrangement, Former Assembly Speaker Robert Hertzberg has filed the California Home Rule Amendment for inclusion on the November 2004 ballot. MIR is pleased to present this opinion piece by Robert Hertzberg in which he argues the need for this amendment.

The principle that the members of a local community should guide the future of their city and county lies at the foundation of our democratic system. Yet, this fundamental principle of home rule has been deeply eroded by the cumulative policies of the past twenty-five years.

City and county governments have been stripped of secure and stable sources of funds and left dependent on revenues that are volatile and subject to state intervention.

With their financial ability to provide even basic local services at the mercy of the state's budget process, most local governments are unable to plan beyond each budget year.

Desperate for funding, local officials commonly plan land use to enrich city coffers, rather than to meet local needs.

Accountability has gone missing from the system--state leaders regularly balance the budget by raiding local funds and local leaders regularly blame their financial woes, rightly or not, on Sacramento.

This dysfunctional system can be repaired by strengthening local home rule. By giving local governments stable sources of revenue closely tied to the well-being of their communities and protecting local funds from state raids, we can place the control over the destinies of local communities back in the hands of local residents and voters. Working with a broad coalition of leaders from across the state, we have developed a proposal to do this--entitled the California Home Rule Amendment--and have filed it with the Secretary of State for the November 2004 ballot.

Stable and Secure Local Revenues

In recent years, local governments have become increasingly dependent on the vehicle license fee and local sales taxes. The roller-coaster path of the vehicle license fee throughout this past year is a cautionary tale of the dangers of this dependence.

The vehicle license fee, levied by the state, was guaranteed to local governments in 1986 by Proposition 47, but the fee's rate was left under state control. As a result, the revenue stream on which local governments, especially counties, grew increasingly reliant to fund local services was especially sensitive to state action. When the state cut the rate of the vehicle license fee in response to voter demands, the pain of the cut was felt not by the state, but by cities and counties now forced to adjust as their general fund revenues drop by as much as a third--cities and counties had no control over the rate of the fee and must now plead with the Legislature and governor for relief.

By replacing the revenues local governments receive from the vehicle license fee and one-half cent of their sales tax with property taxes in a dollar-for-dollar swap, the California Home Rule Amendment connects the financial well-being of local governments to the local quality of life, rather than decisions made in Sacramento. Local governments will be able to rely on a secure financial base from year to year, and plan for the long-term improvement of cities and counties.

Incentives for Healthy Communities

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Driven by the need to develop local sources of revenue, city and county officials have increasingly promoted sales-tax generators over other forms of development.

Because local governments often keep a tiny fraction of the property taxes collected within their boundaries--many only receive 15-percent, with the remainder distributed among special districts and used by the state to help fund schools--developing housing often results in a net financial loss for cities and counties. In many cases, the costs of a new housing development easily outweighs the expansion of the local tax base.

Conversely, sales-tax producing development can bring a windfall to local coffers. This skewed set of financial incentives has contributed to California's dire housing shortage and the explosive proliferation of "big box" stores, auto malls, and megalithic shopping centers across the state. City and county leaders are driven by financial pressures to ignore the needs of their communities and to disregard a healthy balance of land uses.

By increasing the share of local property taxes that cities and counties keep and reducing local reliance on sales taxes, the California Home Rule Amendment re-connects healthy local finances to a healthy balance of local land use decisions. By allowing local governments to reap the financial benefits of an improved quality of life and making a balanced approach to land use financially feasible, the Amendment gives local voters the ability to design the communities they want.

Improved State & Local Accountability

The finger-pointing circle of blame has become an all-too common sight in tight budget years: the state balances its budget on the backs of cities and counties, and avoids facing the consequences of its financial decisions; local governments, in turn, blame Sacramento, and shirk responsibility for their own choices. Voters are unable to hold anyone accountable. Bickering and distrust poison relationships between state and local officials and make cooperation difficult if not impossible.

The origin of the blame game is the state's ability to raid local property taxes, sales taxes, and vehicle license fee revenues to balance its books, and to shift the responsibility to fund programs to local governments without reimbursing them.

The California Home Rule Amendment constitutionally protects local revenues from state raids: the state is prohibited from taking, delaying, or diverting the proceeds of any locally levied fees or taxes. Furthermore, sections of the Constitution governing state-mandated local programs are strengthened to ensure that local governments are reimbursed for all new state-mandated programs by the end of each fiscal year and that loopholes that have allowed the state to shift the fiscal burden for programs to cities and counties without reimbursement are closed. The state is forced to live within its means, and cities and counties are protected against state intervention. The cycle of blame is broken: voters can hold their state and local officials accountable for the financial management of each part of government, and--with state raids on local treasuries no longer a possibility--state and local governments can forge the bonds of trust that will allow them to work together for the good of California.

The California Home Rule Amendment will strengthen local home rule by giving local governments stable and secure revenues. It will allow local officials to support the kinds of investment their residents want and need instead of what will bring in the most tax revenue, and will prevent the state from balancing its budget at the expense of basic local services.

Robert M. Hertzberg can be reached at rhertzberg@latomorrow.com. For more information about the California Home Rule Amendment, go to www.calhomerule.com.

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