May 5, 2004 - From the March, 2003 issue

Asm. Darrell Steinberg Offers A Bold, Bi-Partisan Fiscal Reform Bill–AB 1221

Last year, Asm. Darrell Steinberg (D-Sacramento) sponsored AB680, an attempt to shift the local government incentive structure in favor of building housing. AB680 was defeated, but Asm. Steinberg is back again this session with a new bill aiming to swap property and sales tax revenues between the state and the cities and re-introduce housing as a viable addition to cities. MIR is pleased to present this interview with Assemblyman Darrell Steinberg in which he discusses this new legislation.

Darrell Steinberg

Co-author Assemblyman Campbell and you have teamed to introduced a very significant bi-partisan bill to restructure state-local finance. Elaborate on your bill's goals and how receptive the capitol is to entertaining any serious fiscal reform legislation.

Well, there are a number of goals. First and foremost, I start from the belief that the state-local government finance relationship is dysfunctional. The local government is overly reliant on the sales tax, housing, in many cases, does not pay for itself. So what Assemblymember John Campbell and I are proposing is to swap half of the local sales tax to the state in exchange for equal dollar value of property tax. We believe it does two things: one, it mitigates or reduces the fiscalization of land use on the retail side and encourages housing, and we know that given our increases in population and projected population that there is going to continue to be a great demand for housing, including affordable housing. So that's the substance of the bill.

In this very difficult environment where there are huge ideological differences between Democrats and Republicans over how to solve the budget crisis, the second thing I hope this bill accomplishes is a spirit of cooperation. I think it's important that we reach out as Democrats and Republicans to try to find substantive issues that we can work together on. This is a major issue of structural reform, and John Campbell and I, though we see the world differently in many ways, committed ourselves last year to try and find something significant we could work on together. We found an issue, and I hope that it serves to encourage others in the Legislature to pair up. We need different pairings that people don't expect if we're going to find creative solutions to the budget problem.

With respect to state-local fiscal reform, last year you carried AB680 (tax reform at the county/ regional level) and you learned all too well that there are many alligators out there. How do you propose to assemble a strong enough coalition to survive the opposition that will surely arise with this year's legislation?

Well, this is very different in a couple of respects. First, we begin with a bipartisan approach here-I'm not doing this alone. In John Campbell, I have as a joint and equal author one of the top Republican leaders in the Legislature and the head of their budget committee. Second, we start out with the support of the Building Industry Association, the Business Properties Association, and the Chamber of Commerce-I've got some very strong institutional support. Third, and this may seem counterintuitive, the fact that this bill offers a statewide approach, as opposed to the regional approach proposed in AB680, makes it a different debate. One of the complaints with AB680 was that we were picking one region to do this experiment. This bill is not a new idea. It has been recommended consistently by the various restructuring and governance commissions that have been called upon to make recommendations over the past decade. Applying it on a statewide basis, people will see it for exactly what it is: a real effort at needed fiscal reform.

How else does the new statewide fiscal reform bill differ from AB680?

There's one other difference between this bill and AB680, aside from the fact that it's a statewide approach and we have very good support from important interests. There's no revenue sharing involved in this bill. With 680, one of the complaints was that you were transferring wealth from one jurisdiction to another. I still believe that that approach was appropriate because there are real issues of equity inherent in the way we currently finance the system. But this bill does not confront that very difficult issue-it is pure fiscal reform. This bill mitigates the disincentive to build housing. It mitigates the incentive to over-build retail. And, as one columnist said recently, it has very little downside, if any. And we ought to move forward and begin to make the changes we all know are necessary.

One of the alligators that challenged AB680 last year was the California League of Cities. What's their posture likely to be with this new bill? Elaborate on local government's concerns and what explains their suspicion of the state.


Well, we're hoping to work with the League and we've had a couple of meetings. Thus far, their public comments have not been over the top, which I've appreciated. Their basic argument is that you can't trust the state-if local government gets some portion of the state property tax, the cities will be subject to the state taking that revenue at some point down the line.

I'm not saying they should trust the state, but I would submit the following: first, if the state wanted to solve the budget crisis by taking the local sales tax away, it could do so. The cities are no more at risk by virtue of this kind of sensible fiscal reform than they are under the current system. The other thing is, perhaps by virtue of the influx of legislators who served in local government, that there's a strong consensus in the Legislature not to hurt local government disproportionately in this budget crisis.

Look at the VLF debate. Unanimously, the Legislature said, "We should not cut $4 billion from local government." Now, we went about it in different ways-Democrats want to trigger the VLF back up to its 1998 level and Republicans don't want to cut the backfill. Regardless, there's a strong consensus that we can't decimate local government-that's the place where the most basic, and often the most important, services are provided to people.

One of your colleagues, Senator Peace, is now the finance director for the governor. What will be his role re fiscal reform and your bill's chances of adoption?

We don't have a formal position on the bill from the administration at this point, but Senator Peace has been a leader in trying to raise the importance of restructuring, and not just this year-he's been on that cause for many years. I'm confident that we'll work with Steve and we'll work with the administration to get something positive done here. I said this during the 680 debate, that the whole notion of restructuring is very popular to talk about-it sounds good and everyone likes to talk about reform. But, we have to really begin taking the pieces of reform, push them forward, and show that we can translate the talk into action understanding how difficult it is, how it forces change and how it upsets the status quo. The status quo should be upset because it's not working for California. And so I'm looking forward to the debate. I think it will be very different debate than what I went through with AB680, and I'm hopeful in the end that we can accomplish something significant for California.

Lastly, are there any State Senate colleagues who view a tax-swap between locals and the State as a good solution?

I haven't had the opportunity yet to talk to too many senators. Last year, there were a number of senators who were interested in the 680 concept, but couldn't quite get it out of the senate local government committee because of its composition. This year, however, it's not just me out there trying to stoke the change. It is a bipartisan approach. Politics makes strange bedfellows. John and I could not be more different in many respects and yet we think that together we can create a bipartisan majority that will be good for California on this particular issue.


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