May 5, 2004 - From the April, 2003 issue

Villaraigosa Appeals For Structural Reform Of State/Local Fiscal Relationship

aIn the last decade, many decision makers and commentators have noted the significant impact Proposition 13 has had on California's fiscal affairs, both at the state and local level. In 1999, Assembly Speaker Emeritus Antonio Villaraigosa convened his Speaker's Commission on State & Local Government Finance, which clearly outlined the misalignment of state revenues and expenditures and what incentive structure that created for state and local policy. The current budget crisis prompted Governor Davis to convene the Commission on Tax Policy in the New Economy to look again at structural reform of the state's tax system. MIR is pleased to present Antonio Villaraigosa's testimony from a hearing of this commission earlier this month.


Antonio Villaraigosa

Mister Chairman and members of the commission, thank you for inviting me to appear before you.

It's a privilege for me to contribute to your work and to do my small part to keep the dialogue on fiscal reform in California moving forward.

It's also my privilege to appear before a distinguished body many of those members I call friends.

As you know, during my term as Speaker of the Assembly, I convened the Speaker's Commission on State and Local Government Finance to look at the dysfunctional fiscal relationship between the state government and the municipal and county governments up and down Claifornia.

The relationship is dysfunctional because it inspires less-than-satisfactory governance.

It is dysfunctional because it motivates inferior public policy in the areas of land use, education, transportation, housing, economic development and environmental stewardship.

It is dysfunctional because it makes enemies out of municipal neighrbors.We can see the results of all this dysfunctionality every day in every corner of the state.

When we're moving five miles an hour on freeways jammed with commuters driving too far to and from work.

When we desperately search for decent, affordable housing for our families in the face of a severe shortage.

When our under-educated children are left to fend for themselves after school because we can't afford after school programs for those hours their parents are away from home at work.

When cities turn away good, career-building, high-paying jobs to embrace low-wage retail jobs in the rush to capture one penny out of every dollar spent within their boundaries because they can't afford not to.

And when jurisdictions at every level of government are swimming in red ink, unable to provide their constituents with the services they deserve, hamstrung by laws and policies that guarantee they will never have the flexibility to do right by those tax payers.

Before I convened the Speaker's Commission late in 1998, I was generally aware of these issues. When the Commission's work was done early in 2000, I was very aware of how difficult it would be to address them.

But that Commission, skillfully chaired by David Abel, built on good work that had been done before by the Constitutional Revision Commission and others. They came up with potential solutions that continue to resonate today.

And just as importantly, the Commission was a model of bi-partisan, multi-interest collaboration and consensus-building.

In that sense, I would like to think it reflected my own philosophy of politics and governance.

This group featured representatives of the private and public sectors, business leaders, environmentalists, civic and civil rights activists, labor leaders, and representatives of cities and counties.

It included statesmen and women, worker bees and controversial lighting rods alike. They caravanned around the state, talking and listening to both experts and amateurs, people who care about the quality of life in California.

Charged by me with finding ways to "move the ball forward," they came up with good, provocative ideas that did just that. They released a report that still echoes in the halls of the State Capitol and still makes me proud to have been associated with them.

They proposed a property tax/sales tax swap, a unique way to bring property tax revenues back into the local government revenue stream without reducing local government revenues.

This would reduce the force of "fiscalization" on land use decision making and motivate more balance in planning and economic development.

They proposed more open, accountable government hat could inspire increased confidence and civic involvement amongst Californians.

And they recommend ways to reduce misunderstandings between jurisdictions about where revenues come from and where they go.

Unfortunately, that report was released just as we were beginning to feel the sting of spiking electricity and natural gas prices that would continue for more than a year. That "modest" issue made tackling any other complex problems nearly impossible.

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One could easily argue that State Government is still feeling the ripple – or should I say "tidal" – effect of those days.

In any case, the Speaker's Commission recommendations went unheeded at the time. And skeptics said, "We told you so – yet another fiscal reform effort goes down the drain."

Cities that have learned to exploit the current tax system, often at the expense of rational planning, were just fine with that.

State employees looking to retain tax dollars for future pay increases, even as they complained about deteriorating quality of life in their home, neighborhoods, were, for the time being, just fine with that.

But the ideas that came from that Commission have proven encouragingly resilient.

My successor in the Speakership, Robert Hertzberg, appointed a Commission on Regionalism that delivered a comprehensive report on a variety of crucial issues in 2002.

One of its recommendations was the very same property tax/sales tax swap I mentioned earlier.

And now, Assemblymembers Darrell Steinberg of Sacramento and John Campbell of Irvine have introduced the concept of AB 1221.

Already the usual suspects are lining up on either side of the bill to push for change or defend the status quo.

The Governor's new finance director, former Senator Steve Peace, recently pointed out that the current budget crisis could well provide an excellent opportunity to pursue structural changes in the state's tax and revenue system.

Your commission was formed a couple of years ago at the legislative urging of Senator John Vasconcellos, a visionary if there ever has been one.

But I think it's also fair to say that your presence here today underscores the increasingly widespread agreement that this is an important challenge and a critical moment in California history.

I thank you all for helping us keep our "eyes on the prize."

Let me take my final minutes to offer a suggestion or two about how you might approach the issue of tax reform in the coming months.

First, continue to examine the work done by your predecessors and determine its relevancy in these evolving economic times.

Second, the unique political environment that surrounds you – from energy insecurity to bleeding budgets to war and concerns over homeland security – can provide many distractions. Stay the course. Eventually, these crises will pass and we'll still have dysfunctional tax and revenue policies to contend with.

In politics, we are too often chasing after events and headlines instead of trying to do the best available public policy.

So, number three, give good public policy a chance. You are trying to do what no one but Jarvis and Gann have been able to do before you in recent decades: that is, change the face of fiscal policy in this state, only this time for the better.

Past commissions were generally working in times of economic and budgetary plenty. They had the comfort and luxury of being able to think expansively even as they acknowledged the need of pragmatism.

They came up with lots of good ideas. As I have noted, one of them is currently before the legislature in AB 1221. There's no need to reinvent that wheel, but it needs to be part of the context in which you do your work.

Finally, and perhaps most importantly, don't let the naysayers and disinterested bystanders get in your way or get you down. Challenge them to step up to the plate and be a part of a workable solution.

Tax and revenue policy in California has for too long been in the province of special interests and quick fixes. You have a chance to change that and you have my full support as you work to do so.

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