Orange County Supervisor Takes A FRESH Approach To State Fiscal Reform

Supervisor Norby, you have recently begun speaking out about reform of California's state- local fiscal arrangements. Why? What's the source of your policy concerns?

The source of the concern is 18 years as a Fullerton City Councilman. The source of the concern is seeing neighboring cities come into our city, take away our auto dealerships by bribing them away with public money. The source of the concern is one year after a Costco, then a Price Club, came to our city with a lot of public subsidy, they threatened to go across the street to Anaheim because Anaheim was going to give them more money. Cities are being routinely shaken down by big-boxes, auto dealers, and at the broader level, NFL teams, for ever greater subsidies. This is a distortion of the free market, and it has grossly distorted local government finance, and that's why we need reform. That's why we need structural changes.

Advocates for fiscal reform, especially elected officials, have often concluded that its too complex a policy discussion for their constitutents. More often than not debate is focused on raising or lowering taxes. How successful have you been in advancing your ideas about structural reform? Who is your audience?

Well, on a broader level, the NFL has done us a great service: people understand the shake down. The Raiders come from Oakland to L.A., they go back to Oakland, now they want to come back to L.A. The Chargers are now shaking the tax payers down for more money. I think people understand the concept of corporate welfare because there are so many great examples. The examples include not just financial giveaways but property rights abuses. A church in Cypress has condemned its property to give to a Costco. And so I think people understand there is something wrong with this system.

Is this a partisan issue? Is this a bi-partisan issue? How do you get the gravitas necessary to get structural reform of our state/local fiscal system?

It's very much a bi-partisan issue. Republicans believe in a free market; they believe in limited government. So they can't believe that government has the role of subsidizing and directing private development. On the other hand, Democrats want public money to go for social programs and not to be diverted into private development projects. Also, we all want housing at a reasonable cost. We all believe cities should value people as residents, not just as consumers. We should value people as producers, not just as buyers of things. The current system is biased in favor of retail; it discriminates against the homebuilder and the factory owner. And I think we can all agree it's a system that's broken. There's so much wrong with it that whether you're a liberal democrat or a Republican you can see a lot that is wrong with it.

Elaborate on your reform proposal.

Fiscal reform: equity, stability, harmony: F-R-E-S-H. Fiscal reform, equity: make sure every city and every county gets the same share of their local property taxes. Stability: property taxes are a much more stable source of revenue for local government. This will also stabilize the sales tax, because when the sales tax goes to the state, the state will get all of that sales tax to spend on classrooms, not Costcos. The state isn't going to give the sales tax away to locate businesses within the state. Right now cities have to give up a lot of the sales tax as incentives for a lot of the big-boxes to locate there. Sales tax also tends to go up and down a lot in cities. If the K-Mart goes under in Barstow, you're stuck with a huge sales tax loss, but overall, it's much more stable in terms of the state. Also, when you get into issues like who's going to tax the internet and how are we going to tax sales that might come in one city because there's a corporate headquarters? The state will be much more able to regulate this and have a uniform system throughout the state because you're not arguing among 500 different jurisdictions as to who gets the sales tax.

Harmony: the schools say "It's our money, the city shouldn't take it," the cities say "It's our money, the schools shouldn't take it." The counties blame everybody and we all blame the state. We're all in this together. Whether it's a prison guard who makes money keeping the bad guys out of our backyard or the school teacher that teaches our kid or the city that pays the cop to patrol your street or the local library district that stocks your libraries or the county, which runs your parks or pays for your DA, all of us are served by all these different layers of government, and these layers shouldn't be fighting each other. They get the money from the same stores, they serve the same people. The idea of us having to hire government lobbyists to fight other public entities is ridiculous. All that will go with this because it will be a clear, rational, understandable system.

Give us the formulation.

All of the sales tax goes to the state. All of the VLF goes to the state. In exchange, the cities are assured of 60-percent of all property taxes generated within their city, so the cities are giving up sales tax, and they're getting property tax. The counties will get 40-percent of property taxes generated within the incorporated cities, and 100-percent in the unincorporated areas, so all property taxes will stay within each county, divided up on a 60-40 basis between cities and the county, depending on whether it's incorporated or non-incorporated.

And part of this is to break down the wall between the redevelopment agencies and the city. Right now redevelopment agencies are state agencies created by cities, but the cities can't use redevelopment money to serve the public, they can only use it for big-box subsidies, they can only use it to incur more debt. Agencies now have $50 billion in indebtedness.

But with this plan, cities would be able to transfer agency money, redevelopment tax increment, and put it directly in city general funds, as operating budgets. They can pay their police officers and their librarians with this; they can pave streets anywhere in the city with this. But the way agencies have evolved now is cities and agencies tend to be these two different governments operating within a city. Merge them. Let cities use that money for the public good, rather than for private interests. Redevelopment could continue to exist, to pay off existing bond indebtedness, but you wouldn't have the same incentives to use it to subsidize retail. Since you're taking sales tax out of the picture-that's going to the state-the cities would have no need to use this to subsidize retail. Right now, city managers have told me, "Look, I'll take a million in redevelopment money to build a new Wal-Mart, even if I only get $50,000 in sales tax out of it. I'll throw away the rest of the money because I can't use that redevelopment money to improve my city. I'll do it to get the sales tax for the general fund." With this, they get the general fund money directly.

Supervisor, who are the stakeholders that would support this? Do you have people such as Joel Fox in support of this effort?

We've got the Joel Fox types, we have people like Darrell Steinberg and Republican John Campbell, who are sponsoring something similar to this in AB1221. We just had lunch with Zev Yaroslavsky to discuss this issue. There are a lot of things to iron out here, but there are a lot of people like that across the political spectrum that would support it.

Certainly we'd have the homebuilders that are tired of having to build their own streets and have their own assessments on new homeowners because cities see residential development as a money loser. This way homebuilders wouldn't be faced with all those fees and extra taxes. In addition, 90-percent of the cities state wide would gain revenue. Some of them would not, some that have invested all this money into big-boxes and hotels might not, but most of them would. All of the counties would win under this plan.

The big losers would be the auto dealers, the Costcos, the Wal-Marts, who are used to shaking down cities for huge subsidies. NFL team owners would lose because they would no longer have this huge source of redevelopment money to build all these new palaces and stadiums. They would now have to now compete on the open market, which is where they should compete.

Supervisor Norby, as you've mentioned, Assemblymen Steinberg and Campbell, Democrat and Republican, have put forth their own plan, a little bit more modest than yours, which would be to share a half cent tax in return for property tax. Are you supportive of their efforts as well?

I'm very supportive of that bill. It's not as clean and simple as the FRESH proposal, but it gets us in the right direction. All of us like Campbell and Steinberg, myself, many others, we're all rowing in the same boat. Our oars may be different shapes, different sizes but we're all going the same direction, and that is to make this system more fair, more rational, and to end the waste, end the diversions, end the outright grants to private interests, and make public money serve the public interests.

Is your objective with FRESH to change the state's fiscal system through state legislation. The golden rule in politics is, as you know, that he who has the gold makes the rules. If true, is the Legislature likely to pass the reforms you seek or must there be a state ballot initiative for you to realize your goals?

We can get it through the Legislature. This is an opportunity to do that. This is something that each individual legislator can actually understand: 60-40, sales tax here, property tax there. It's very simple. It is a far reaching approach, and when cities lose their breath and say "God, I'm losing my sales tax," they need to look at the bottom line-"I'm actually getting more money I can actually use." We're going to do some work on it to make sure the schools are left whole, but by concentrating school funding with the state general fund, the state will be better able to coordinate educational policy and address equity issues throughout the state, and I think everybody can benefit from this, especially the tax payer and the receiver of the services.