March 11, 2021 - From the March, 2021 issue

Feds to the Rescue, But The Peril Remains: Preventing the Next Fiscal Apocalypse

Nearly one year after the COVID-19  pandemic froze local economies and set cities on a path toward fiscal apocalypse, state and local governments across the country are breathing a sigh of relief with the passage of the American Rescue Plan Act, which provides $350 billion in aid to state and local governments. TPR interviews contributing editor and former Santa Monica City Manager, Rick Cole, on the implications of the fiscal reset on city budget, policy, and service priorities going forward. Cole asserts that the relief provides California with a unique opportunity to realign local revenue sources and rebalance the state-local fiscal relationship in order to make "government work better and cost less."


"In the four decades that have elapsed [since Prop 13], California has endured devastating recessions, earthquakes, riots, droughts and wildfires, but somehow none of that has convinced government to go back and figure out a rational way to pay for local services"—Rick Cole

The just-signed American Rescue Plan provides $350 billion in payments to state and local governments.  Republicans call it a bail-out for Blue State profligacy that predated COVID.  Democrats were only able to pass it by a single vote in the Senate.  At the outset of the pandemic, you warned against a fiscal apocalypse.  Does the bill rescue local governments from that peril?

The peril remains.

 Local governments can only be rescued if they use the money to build back better.  Stein’s Law applies here: things that can’t go on forever, don’t.  People like to pretend that California cities like Stockton and San Bernardino were outliers when they declared bankruptcy.  They were not – they were forerunners.  Look, the pandemic shook Santa Monica to its fiscal foundations – and we were one of fewer than a dozen cities in California with a AAA rating from all three national credit agencies.  If Santa Monica is vulnerable, even billions in Federal bail-out funding won’t solve the underlying fiscal problems of cities.  Sure, the pandemic was a “black swan” – but that’s what they said about the 2008 Great Recession and 9/11.  We can be Lemony Snicket and pretend the past two decades were simply a “series of unfortunate events” -- so now we can go back to normal.  Or we can be realistic and accept that we are living in a time of titanic change.  If we recognize that reality, we can’t escape the responsibility to create a better, more resilient future.

Given what we’ve been through, isn’t it natural to yearn for a return to normal?

Sure.  But that dog won’t hunt if it means local governments go back to spending money they don’t have to deliver services that don’t work.  

What’s the alternative? The services cities provide are clearly needed…

The people delivering the services clearly think so – I think the public is less convinced.  The lion’s share of local spending now goes to police and fire – and while people want to be safe, I think they are newly skeptical about the cost-effectiveness and fairness of how those services are provided today. 

Let’s take policing.  Because the rest of government doesn’t work around the clock, police have been saddled with a bewildering -- and impossible -- range of duties.  We call 911 for the police to respond to noise complaints, stolen bikes, wayward teenagers, and customer disputes at Starbucks -- not just serious crimes in progress. Police are expected to stop everything from jaywalking to broken tail lights to homeless people shouting in the alley to kids getting gunned down in the streets.  Like much of how we do local government today, the "law enforcement” model we inherited is expensive, outmoded and ill-equipped for the world we actually live in now. In the case of policing, it can also be deadly.  So, the solution to today’s fiscal stress is not more money.  The solutions involve rethinking “why” local government does what it does -- and retooling local services for the needs and resources of the 21st Century.  If the bail-out simply postpones that reckoning, Democrats nationally and locally will own the failure.   

Sounds like Rahm Emmanuel’s “never let a good crisis go to waste.”

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Precisely. At the State level, this is a once-in-a-generation opportunity.  What we in California politely call the “the State-local fiscal relationship” was cooked up in three weeks after Proposition 13 passed on June 6, 1978.  The taxpayers overwhelmingly voted to cut property taxes by 57%.  Governor Brown and the Legislature had 24 days before the July 1 fiscal year to put in place an emergency measure to keep cities, counties and school districts from imploding.  That was 43 years ago.  Yet in the fifth largest economy in the world, the backbone of fiscal support for local governments remains the stop-gap legislation enacted in haste just to keep the lights on.  In the four decades that have elapsed, California has endured devastating recessions, earthquakes, riots, droughts and wildfires, but somehow none of that has convinced government to go back and figure out a rational way to pay for local services.  So local governments have bent over backwards to subsidize shopping malls, auto dealers and big box retailers while doing nearly everything they could to avoid building housing.  Why?  Because stores and car dealers generate sales tax dollars and housing costs money to serve new residents.  Is it any wonder we now face a post-pandemic future of empty stores and soaring homelessness?  We did it to ourselves.

Today’s crisis is real. The Federal government is forking over billions to help us through it.  We should welcome their help – and use the breathing room for an overdue reset.  “Build back better,” shouldn’t be an empty slogan.  California should use this relief to make government work better and cost less.

Easier said than done.  Governor Newsom is facing an imminent recall.  Local governments are still embroiled in a public health emergency, working remotely and facing a restless public.  Who has time for strategic thinking?

The Feds have just handed us a golden opportunity.  We can squander it by “returning to normal.”  Or we can invest in creating a more equitable and sustainable future.  It’s our choice.

Look, after nearly four decades in local government, I would never pretend it is easy.  Yet there are clearly elected leaders out there who are aiming high.  Mayors like Robert Garcia in Long Beach, Darrell Steinberg in Sacramento, Libby Schaaf in Oakland, Michael Tubbs in Stockton, Meghan Sahli-Wells in Culver City – they’ve all shown courage in pushing the envelope.  We can’t re-invent government overnight.  But centering equity; investing in technology; taking a pro-active approach to housing and homelessness; reshaping public safety response; reforming civil service; taking bold action on climate resilience; ending auto-dependence; partnering with the civic and private sectors, the community and philanthropy – these are all promising paths to a better way for California.  The alternative is for elected officials to kick the can down the road.  That works for them if they are coming to the end of their term limits.  But they are kicking the can to their successors – and the problems will only grow worse. Does it make any sense to have endured this year of miserable suffering without learning any lessons or making real change?

We know the Olympics are coming in seven years.  Will Los Angeles sidewalks be filled with tents?  Will local parks and libraries be shuttered to pay for police and pensions?  Will businesses and residents have fled to places where the cost of living is lower and the quality of life higher?  Will the world come to a fancy new stadium surrounded by extremes of wealth and poverty? 

The answers lie with us.  Billions of dollars of taxpayer money are coming to rescue local governments.  Let’s not waste it.  Let’s use it to build a greater Los Angeles that will be a model for the world.

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© 2021 The Planning Report | David Abel, Publisher, ABL, Inc.