Poli 103A California Politics The Layers of Government

1. Poli 103A California PoliticsThe Layers of Government

2. The Layers of Government • Competing Visions of Local Govt. • Local Government 101 • The Tiebout Hypothesis • Guarantees of Equality • Proposition 13 and its Aftermath • The New Incentives for Locals

3. Competing Visions of Local Govt.: Local Government 101 • Four layers of local government in CA: • 58 Counties. Ranging in size from 1,200 in Alpine to 9 million in Los Angeles, counties implement health and welfare programs, prosecute and defend crimes, build roads and plan. • 476 cities repair roads, collect trash, buy water, employ cops, and make zoning decisions either through a strong mayor or a city manager/council format.

4. Competing Visions of Local Govt.: Local Government 101 • 4800 special districts overlap with city and county borders to perform a special function ranging from running schools to buying H2O to abating mosquitoes. They’re California’s hidden governments. • A few regional bodies (ABAG, SCAG, SANDAG, SCAQMD) bring together fragmental local governments to plan transportation, air quality, etc.

5. Competing Visions of Local Govt.: Local Government 101 • Why are there so many cities in California today? • The Lakewood Plan. Starting with the city of Lakewood in 1954, cities have contracted with counties for expensive services like police and fire protection. This economy of scale allows smaller cities to incorporate, and 31 new cities formed within LA County by 1964.

6. Competing Visions of Local Govt.: The Tiebout Hypothesis • In 1956, economist Charles Tiebout set forth the following hypothesis: • People “vote with their feet” by choosing to live in an area where the package of public services (roads, schools, cops, welfare) and tax levels suits them. • Rather than waiting for the next election to change policies, people simply move.

7. Competing Visions of Local Govt.: The Tiebout Hypothesis • Implications of the Hypothesis: • Preferences are expressed through behavior, so we can learn what is good policy by looking at home prices. • People sort themselves into areas in a way that is economically efficient. • (Key) It is important to allow variation in tax rates and service packages, so that feet have a chance to vote.

8. Competing Visions of Local Govt.:Guarantees of Equality • What happens when the Lakewood Plan, secession, and voting by your feet combine to sort all of the high income/low demand residents (or businesses) into one small city? • This leaves the low income/high demand folks in a fiscally strapped city. • Variation in service packages can begin to look unfair.

9. Competing Visions of Local Govt.:Guarantees of Equality • The 1974 Serrano v. Priest decision declared local variation in school funding unconstitutional. • It specified that the per pupil funding that came from property tax revenues should be equalized, varying <$100. • This equity test grew to $350, was broken into six types of schools, and didn’t cover other revenue sources.

10. Proposition 13 and its AftermathThe Property Tax “Crisis” • State and local governments rely on four sources of income: • Income tax (collected and kept by the state in California) • Sales tax (split between state and locals) • Fees (assessed by both state and locals on specific activities) • Property tax (prior to 1978, this was locals source of income and flexibility)

11. Proposition 13 and its AftermathThe Property Tax “Crisis” • For homeowners, when property value goes up – and your property is reassessed to reflect this – your property taxes go up, even though you are not getting additional income. • Inflation in the 1970s drove up tax bills, putting money in state and local coffers but threatening those on fixed incomes, especially seniors.

12. Proposition 13 and its AftermathThe Property Tax “Crisis” • By 1977, locals thrived and the state built up a $6 billion surplus, but Gov. Jerry Brown and the Legislature couldn’t agree on a property tax cut. • Voter anger set the stage for political entrepreneurs Howard Jarvis and Paul Gann to start a nationwide tax revolt with Proposition 13.

13. Proposition 13 and its AftermathThe Initiative • 1. Limited property taxes to 1% of the assessed value of the property. • 2. Assured that properties would only be reassessed when changing owners. • 3. Sent all of the money to counties, who would then divide between layers. • 4. Required a 2/3 vote of both houses of the Legislature to raise taxes.

14. Proposition 13 and its AftermathThe Initiative • Its supporters attacked big government rather than getting bogged down in the details. • Its opponents put up the competing Prop. 8, a cut and “split roll.” • On June 6, 1978, it passed with 65% of the vote after assessments climbed.

15. Proposition 13 and its AftermathThe Aftermath • Up for reelection, Jerry Brown chose not to let voters feel the local service cuts that would have come from the $7 billion cut in property taxes. • The state sent its surplus to bail out local governments, and then took over school and Medi-Cal funding. • Locals became the state’s charity case.

16. Proposition 13 and its AftermathThe Initiative • Constraints on Local Governments: • Prop. 13 took away their ability to control their primary revenue source. • The aftermath put them at the whim of the state, which rips them off when in crisis ($2.6 billion in 1993, $1.3 post .bomb) • Effects: Equalization at a lower level, making it hard to vote with your feet.

17. The New Incentives for Locals • Prevented from raising property taxes, local governments have turned to fees and another revenue source: • Sales Tax. Cities collect a penny for every dollar spent within their borders. • It does not matter who spends the money or where the goods are made. • Cities now compete fiercely for retailers.

18. The New Incentives for Locals • This has led to fiscalization of land use: • Cities want retailers rather than manufacturers who bring good jobs. • They compete by offering cheap land and building infrastructure. • Bill Fulton argues that the “sellscape” is viewed “not as a place where people live and work and dies, but as a cash register.”

19. Discussion Section Questions • What are the assumptions required for the Tiebout Hypothesis to work? Do you think they are reasonable? • Should we mandate that local governments provide exactly the same package of taxes and services?