Why strong property tax gains don’t solve cities’ budget woes
Local government officials throughout the state got some very good financial news when county tax assessors toted up changes in taxable property values for their 201819 budgets.
The state’s uber-strong real estate market generated a 6.51 percent increase in those values, adding another $374 billion to the property tax rolls and pushing the total to $6.1 trillion.
That increase, three times the rate of inflation, translates into $4 billion-plus more in revenue for cities, counties and other local governments. While schools also receive property taxes, they don’t directly benefit from the increase because of how state aid is structured.
The big winners are cities because, unlike counties and schools, they are almost totally dependent on local taxes and fees to finance their budgets. San Francisco, which is both a city and a county, reported the state’s strongest assessed valuation gain, 10.35 percent.
The very strong growth in property tax revenue, however, raises a pithy question: Why then are so many local governments, cities especially, complaining that they can’t balance their budgets unless local voters raise taxes?
There are 254 local tax increases on the November ballot — sales taxes, parcel taxes, utility taxes and hotel/motel taxes, mostly — according to the California Taxpayers Association, 65 percent more than there were four years ago.
The reason is that even with strong property tax gains, local governments’ pension costs are growing faster than revenues, thus putting the squeeze on their budgets.
Cities have been hit the hardest by increases in mandatory payments to the California Public Employees Retirement System (CalPERS) as it tries to shrink its large “unfunded liability.” City officials have repeatedly complained about the specter of insolvency if pension payments continue to grow and the League of California Cities has labeled the situation “unsustainable.”
With very rare exceptions, however, officials who place the tax increases on the ballot will not publicly say the extra revenue is needed to offset rising pension costs. Officials believe that telling the truth would make voters less likely to vote for the new taxes. It could also make employee unions less likely to provide money for tax campaigns.
Rather, on the advice of high-priced consultants, they say the money is needed for popular police and fire services and parks.
Unfortunately, most local news media are carelessly complicit in this conspiracy of silence, tending to accept the official reasons at face value, rather than analyze them critically. That’s true even though data about what revenue the new taxes would generate and projections of pension costs are readily available.
Over the weekend, for instance, the Sacramento Bee published a long article about proposed tax increases in Central Valley cities, quoting officials about what they hoped to do with the extra revenue, including Sacramento Mayor Darrell Steinberg, who called his one-cent sales tax hike a “game changer.”
However, the article only tersely mentioned pensions as something brought up by unnamed “critics,” even though the city’s own budget complains about pension costs and data indicate that the new taxes would largely go to pensions.
The Santa Cruz Sentinel, in a similar piece about new hotel/motel tax proposals in its region, took the opposite — and more responsible — tack by delving into how pensions are straining local budgets and driving tax hikes.
The Sentinel’s article, unfortunately, is a very rare exception. Otherwise, local officials and local media seem to believe that ignorance will be blissful.