Last Friday morning, representatives of the City of Los Alamitos described the City’s dire budget projections to those attending the Los Alamitos Chamber networking breakfast. They came armed with alarming graphs. They urged business owners and residents to take part in upcoming workshops that will address the budget disaster.
City representatives did mention the role of the State of California in worsening budget disasters at the local level — not just in Los Alamitos, but in cities and counties statewide.
On the expense side of the ledger, ongoing increases in payments to the State public employee pension program are the main driver towards the budget cliff.
On the revenue side, cities have little flexibility in adding to their coffers besides increasing local sales or utility taxes — and tax increases must be approved by voters. A lot of voters will simply blame the city or county without realizing that much of the blame goes to the State of California.
The State could ease this budget crisis by, for example, unwinding ERAF now that the State is flush with cash. What’s ERAF? Here is a description from “Understanding the Basics of Municipal Revenues in California: Cities, Counties and Special Districts” (pdf) published in 2016 by Institute for Local Government:
What is “ERAF?”
The property tax revenues received by school districts in each county include amounts from the county “Educational Revenue Augmentation Fund” (ERAF) created by the California Legislature in 1991 as a way to reduce state general fund spending on schools. These funds receive some property tax that was previously allocated to counties, cities and special districts. Since 2004, California’s Constitution has prohibited the Legislature from increasing the amount of property tax shifted from counties, cities and special districts to ERAF or similar schemes. The state Constitution requires a two-thirds vote of the Legislature to change the allocation of property tax among the county, cities and special districts within a county
(I recommend reading the entire publication. Warning: pie charts and legal tangles!)
The Democrat-dominated California State Legislature never met a tax-related scheme that they wanted to unwind, decrease, or lessen. They always want more. After the election in November 2018, Democrats enjoy a supermajority in both houses of the State Legislature — they can vote new taxes at whim. Or approve enormous new State obligations at the request of the governor.
Don’t expect the State Legislature to unwind ERAF to provide relief to cities and counties. That would be giving State control of its tax revenue back to counties and cities.
Instead, the California State Legislature will hand Governor Gavin Newsom a victory in the new budget by approving health insurance for undocumented immigrants. According to the Sacramento Bee:
Lawmakers want to use an “extraordinary” state budget surplus to expand health care options for undocumented people while stockpiling billions of dollars in reserves in anticipation of an economic downturn, according to documents the Legislature’s Budget Conference Committee released.
The agreement marks the end of months of negotiations between Newsom and the Legislature. Lawmakers face a June 15 deadline to pass the budget, which will take effect in July.
The agreement includes funding to let young undocumented young adults under age 26 enroll in Medi-Cal, the state’s health insurance program for low-income Californians. But it doesn’t extend that eligibility to undocumented seniors, as state senators had proposed.
The expansion will take effect Jan. 1, 2020 and cost $98 million in the upcoming fiscal year. It will make California the first state to allow undocumented adults to sign up for state-funded health coverage.
The proposal also imposes an individual mandate, slapping a fine on those choosing not to purchase insurance.
To me, this says that the State of California has cities and counties right where it wants them: on the ropes.
The next time your car bottoms out in a pothole because your city or county doesn’t have enough money to fund its capital improvement projects, blame Sacramento.
If you are represented by a Democrat in Sacramento — highly likely now even in Orange County and inland areas — consider voting for a Republican in next year’s elections. The primary has been moved to March, but it’s still open. You don’t have to be a registered Republican to vote Republican in the primary, nor a registered Democrat to vote Democratic.
One political party should not be able to vote tax increases all by itself. Nor obligate the State to fund open-ended new benefits that will balloon in cost.