In the midst of a $15.2 billion state budget crisis — the document is now nine weeks overdue — local agencies are wary that Capitol legislators may decide to raid property tax revenues as a funding solution that avoids hiking taxes or cutting state services.
The threat hinges on whether state lawmakers decide to suspend Proposition 1A, a 2004 ballot initiative that protects the property taxes for county, city and special agencies.
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Vu says the first major instance of the state taking local property revenues was in 1992, when the newly passed Proposition 98 mandated that California had to spend at least 40 percent of its budget on education. At the time, the state simply could not afford to do so.
“The state government didn’t have enough in budget, so they took property tax revenues and used that amount to backfill Proposition 98 funds that the state otherwise would’ve had to fund themselves,” Vu said.
Vu says the state government claimed they would pay back the money when the economy turned better.
“But when the economy’s better, they didn’t pay us back,” Vu said. “Special districts were very bitter. We exist to provide services for the community, but if you cut 50 percent of the budget, they can’t operate —they close facilities, parks, swimming pools.”
Unlike the state, which has a long tradition of negotiating late budgets, most service agencies promptly agree to a new budget each June at the beginning of the new fiscal year. But in the past, the Legislature has undermined the prepared budgets of local agencies by sapping property tax revenues that the small services rely on.
Kathryn Slater-Carter, a member of the Montara Water and Sanitary District board, vividly remembers how the state ravaged her district in the past.
“We simply had to make up what we lost by increasing service rates,” Slater-Carter said. “It’s been going on for decades, and there’s no penalty if they don’t refund the money.”
Coastside County Water District board President Everett Ascher estimates that his district could lose as much as $700,000 if the state seeks to take local funds.
“If we did nothing to ameliorate that loss, it would lead to a 14 percent rate increase,” Ascher said. “But it’s clear that we don’t know the magnitude of what will happen.”
Suspending Proposition 1A would require a two-thirds vote from the Legislature. If suspended, the state would legally be committed to paying back the borrowed money within three years.
Many powerful state politicians, including Senate President Pro Tem Don Perata and Gov. Arnold Schwarzenegger have publicly rejected the idea of borrowing funds to solve the state budget crisis.
But Coastside agency officials still say they are wary of what measures the state will use to dig itself out of its huge debt.
“This is a hidden tax on ratepayers,” said Ascher. “By taking money out of special districts, it forces utilities to get their money back by raising rates. It’s putting a finger in the dike, it’s not fixing the leak.”
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