News and Commentary on the California Crackup
News and commentary on the world of California politics, policy, and governance, the California Crackup.
San Diego’s Independent Budget Analyst has released its projections of the fiscal impact of Proposition B, the pension reform initiative on the city’s June 2012 ballot. It finds that the pension reform provisions of the measure would save taxpayers exactly no money.
Read MoreI’ll be joining David Watts Barton on Capital Public Radio’s Insight, Wednesday, February 29 at 10:00 a.m. and 8:00 p.m, 90.9 FM on the Sacramento area radio dial, to talk about the arena deal and Sacramento’s fiscal crisis.
UPDATE: They switched hosts on the show; Beth Ruyak took the microphone (you can hear the podcast here). And if we needed any evidence of the stakes as I explained them, take a look at what I ran across in the neighborhood on the way home.
The police wouldn’t come
The owner lost a couple of thousand worth of tools and some new, uninstalled appliances. When he reported the crime, the police told him it’s policy not to investigate unless guns or explosives were stolen. And remember, this is before a financially strapped city spends $250 million to subsidize the NBA.
The news of a deal struck between Sacramento and the NBA for a new arena for the Kings brought “elation” to City Hall, the Sacramento Bee reports. If so, it’s the kind of cartoon elation Wile E. Coyote feels in that moment when, having run off the edge of the cliff, The Road Runner hands him an anvil.
Read MoreThe Sacramento Bee asked me for my take on the question of whether Sacramento ought to spend $200 million to subsidize a new arena for the Sacramento Kings and the National Basketball Association. You can read my answer on the Bee’s site.
The Bee gave me only 800 words, so I wasn’t able to flesh out the argument as well as I would have liked. Fortunately, we have the web for that.
If you want to understand the economics better, you can check out the longer reporting piece I wrote for the Bee when I worked there. The most accessible book on the subject is Neil deMause and Joanna Cagan’s splendid Field of Schemes: How the Great Stadium Swindle Turns Public Money into Private Profit. Neil deMause also runs a companion web site, Field of Schemes, where he tracks and analyzes the money grabs of welfare-seeking sports owners around the country.
Given more space, I would have also repeated what I wrote here last spring: The best way to limit the extortion game is for the California Legislature to prevent the billionaire sports owners and their leagues from playing city against city. It should ban any local jurisdictions from using public funds to subsidize professional sports teams.
California is at a critical moment on this issue.
The extortionists are on the attack right now all over the state: Sacramento, San Diego, Santa Clara, Anaheim, Los Angeles. But as we all know, from the news and daily life, core California public services reducing the state’s quality of life. Every public dollar extorted today steals from California’s future.
Ideally, local politicians would do the right thing. But there’s something about sports that makes them go weak in the knees and soft in the head. (My wife blames it on testosterone poisoning.) They need to be saved from themselves with a law that protects them against their worst instincts.
That law would set budget priorities right at a time when we need to be putting first things first. But it would also send a bracing message to the rest of the country. If California cities, home to one in eight Americans, can no longer be used as leverage in the extortion game, other states will gain some protection, and perhaps even be encouraged to protect their taxpayers as well as California does.
Contrary to the moans of the extortionists, that wouldn’t mean the end of pro sports. As Scott Lewis points out, at Voice of San Diego, we would then be on track to replace sports socialism with true sports capitalism. And who can disagree with that?
Over at The Reality-Based Community Matthew Kahn has a post suggesting that the Facebook IPO and the minting of a thousand new millionaires will make property tax revenues “soar” in Silicon Valley and help local schools. Matthew Yglesias picks up the theme on his blog. They both seem to forget that, in California, public finance is, well, different.
Even if the demand created by Facebook employees were to raise housing prices in the Bay Area, the effect on property tax revenues would be small. Under Prop 13, increases in the assessed value of existing homes are limited to 2 percent a year. The Facebook effect would be limited to houses at the margin—either those newly built (which Kahn sees as unlikely under the Bay Area’s restrictive housing policies) or those existing homes whose sale would not have happened in the absence of the Facebook IPO and whose new and higher value would result in a higher tax on the property.
How big would that marginal effect be?
Let’s assume all thousand Facebook millionaires buy a house and each sale (both new construction and upward assessment of an existing house) results in an increase in assessed valuation of $500,000. The resulting annual increase in property tax paid would be 1 percent of $500 million, or $5 million. (There would be some extra in jurisdictions that have passed bonds that add an increment over the basic 1 percent rate.) Even if we assume that all the Facebook millionaires buy their houses in Santa Clara and San Mateo counties, the increased property tax revenue amounts to only one-tenth of 1 percent of the roughly $5 billion a year in property tax collected by those two counties, of which about 60 percent goes to schools.
But because this in California, not even that $3 million necessarily helps the local schools. Under its Prop 13 and Prop 98 school financing system, California imposes revenue limits on school districts. Changes in local property tax revenue collections for schools are offset by increasing or lowering general state aid to districts to maintain the revenue limit. In the typical district, the increase in property tax revenue from a Facebook millionaire will flow to back to the state budget, not the local school.
The exception is for what are called “basic aid districts,” those whose local property tax revenues for schools exceed the statewide revenue limit, permitting them to spend over the limit. Because many of the school districts in Silicon Valley are basic aid districts, they would receive some of that $3 million in new revenue. Their new revenue would be dwarfed, however, by the money they have lost from the state’s new policy of reducing categorical funding for basic aid districts.
If the Facebook IPO will make for “a neat event study,” it will not be for the reasons Kahn suggests. The more interesting story here is how, under California’s strange and radical system of public finance and governance, an event so large in economic terms can have so little effect on the public finances of the local communities in which it is happening.
In California Crackup, Joe Mathews and Mark Paul provide clear and informed answers.
Their fast-paced and often humorous narrative deftly exposes the origins of our current political and fiscal problems—from the ugly 1879 constitutional convention to Hiram Johnson’s Progressive reforms to the Prop 13 tax revolt and its legacy of supermajority requirements and voter initiatives.
Mathews and Paul then furnish an uniquely California fix: innovative solutions that allow Californians to debate their choices, settle on the best ones, hold elected officials accountable for results, and choose anew if something doesn’t work.
Concise, lively, and provocative, California Crackup offers something new: a genuinely democratic operating system for the state.
