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Unintended Consequences” would be the appropriate title for any history of California”s fiscal politics in the latter half of the 20th century and the first decade of the 21st.
Repeatedly, voters and those they elect to office have adopted policies that conflict with or even contradict previous decrees — and when those conflicts cannot be resolved, our response is often to add still another layer of mandates.
The effect of that irrationality is a government finance system that simply cannot work, manifesting itself in perpetual fiscal crisis as politicians try, and fail, to reconcile competing priorities.
A Sacramento judge”s decision last week was a peek into the Alice in Wonderland structure of public finance in California, a place where up is down, left is right and day is night.
Superior Court Judge Lloyd Connelly, a former state legislator with an insider”s knowledge of fiscal politics, invalidated the Legislature”s decree last fall that local redevelopment agencies, most of which are controlled by city governments, transfer $350 million a year in property taxes to schools, thereby saving the state that much in school aid.
Redevelopment agencies are authorized, under a constitutional amendment approved by voters in 1952 and subsequent legislation, to retain the additional property taxes that are generated by their projects, which generally involve repackaging supposedly “blighted” urban land for developers, often with lavish subsidies.
At that time, nearly 60 years ago, local governments and school boards had the power to set property tax rates, so when redevelopment agencies kept property taxes, there was no net impact on other local government agencies.
But in 1978, voters adopted Proposition 13, which put a hard cap on property taxes, so revenues retained by redevelopment agencies were lost to other governments. Ten years later, voters adopted Proposition 98, which set minimum support levels for schools and, among other things, required the state to make up any gap between those levels and local property taxes.
The net effect of the three decrees is that redevelopment agencies annually retain some $4 billion in property taxes, about $2 billion of which the state must repay to schools. Counties or other local governments must eat the other $2 billion.
Last year”s budget sought to recover a fraction of that $2 billion, which is essentially a subsidy from state taxpayers to local redevelopment projects, many of which are of questionable utility. But Connelly ruled on extremely narrow grounds that the $350 million shift was invalid.
Redevelopment officials hailed it as a big victory, but it should be a wake-up call about overhauling California”s hopelessly tangled fiscal system, or nonsystem.
It is a reminder that when we make some new decree about taxes and spending, as we are being asked to do again May 19, it will interact with other decrees to create unintended consequences.
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