On local government

On local government

by Bob Pinzler

Why are Utility User Taxes necessary?

There is one immutable law of government. It is the Law of Unintended Consequences. That is why the vote in Hermosa Beach as to whether to keep the Utility User Tax is really one of a series of votes that began in the late 1970s with the narrow approval of Proposition 13, the landmark property tax initiative that completely restructured the way local governments are financed.

The problem is that most people didn’t realize they were voting on a major redistribution of property tax dollars away from cities and into the coffers of the state government. And, not only were the dollars shifted to Sacramento by that vote, but the control over the future distribution of locally generated money back to local governments was as well. That’s because he/she who controls the money controls everything. And the state now had it all.

Next, in the late 1980s, the voters of California said that they wanted at least 40 percent of the state budget to be spent on education. That worked just great until the recession of the early 1990s when, rather than cutting their own budgets larded with special interest spending, the state took much of the money that formerly was so paternalistically returned to the cities and spent it to fill up their own leaky bucket.

The program is known as the Education Revenue Augmentation Fund, or ERAF. It is anything but that. Surprising no one, the amount of money the cities put in the state immediately took away from schools and into their own budget, to spend as they, or perhaps it would be better to say the special interests that populate the halls of the Capitol, saw fit.

Cities were closing libraries, reducing police support and leaving potholes unfilled. The Utility User Tax, as well as other user fees, helped fill in the gap. In fact, without these measures, many cities might have gone bankrupt, or would have had to shut down many of their public services the local citizens consider essential.

Despite the growth in revenues over the past few years, the problem is that that system of financial hijacking hasn’t been changed. ERAF remains in force, taking over $3 billion a year away from local governments. In fact, for most cities, every time a house is built the city loses money. Why? Because along with receiving only a limited amount of the property tax generated by that new house, the city is liable for additional ERAF, including the increased value of the property generated between sales. Meanwhile, there are more people and more property to service.

The Utility User Tax and other user fees are not the problem here. The system of financing local government is. Until the overall problem is dealt with, cities need the flexibility these locally generated revenues provide. Unilateral disarmament never won any battle. Give up the UUT only after you know where the rest of the money is going to be coming from. That’s the fight the citizens of Hermosa Beach ought to be having. ER