Recently, California’s US Senator, Barbara Boxer, released a report entitled “The Realities of Recession in California”.
It’s a nice little report, about 80 pages long, in which she, her staff and state and county officials collaborated. It contains an executive summary, and then a page for each county summarizing local conditions of unemployment, foreclosures services, crime and other topics.
It’s interesting to compare the counties with each other. For example, San Francisco, which is a partnered city and a county government, has a foreclosure rate of only 1 in 247 homes. This is astounding. I had heard that properties in this Pacific Rim city were being swept up by internationals as the dollar fell in value the last two years. Maybe this is a contributor. In any event, it would appear that Nancy Pelosi’s hometown has escaped the bursting housing bubble.
Other counties were not so fortunate. Some of the highest in the nation, Merced and San Joaquin Counties have a 1 in 7 foreclosure rate. Riverside has a 1 in 8 rate. My county of Solano is 1 in 10.
As she so ably says, the state can be anticipated to lose over 1 trillion in housing wealth between 2007 and 2009. Since the State’s property tax revenue is limited, by the passage of Prop 13 to 1%, of the home value, the State’s income will be adjusted downward to reflect that difference.
It’s just like a big volume grocery store. You can operate off a penny margin profit for while, but if the volume goes down and you can’t raise prices you are “in the well”.
If the cap on property tax had not been enacted, the state would have been able to adjust by raising property taxes. This, I believe, would have acted as a damper to imaginary and artificial property values, while continuing to provide community services, and local jobs.
The poorest counties have never been able to services, on their own, to the level of richer counties. However, property tax revenues, distributed by the state, through various activities, funds, etc., helped to equalize this disparity.
Her second point is that the lack of liquidity in the short-term municipal bond market is putting great stress on the State and Local governments. Hmmm. This assumes that we are using real money instead of play money.
In the recent State announcement of cessation of public works projects, one caveat to the later commencement of these projects was that any possible bonds issued by the state for projects might be interest rates as high as 25%, due to a reduction in the State’s subsequent credit rating.
However, it’s clear form her report, that the wheels are already in motion, as to ideas that will be promulgated within the new year’s and new government’s agenda. The group’s recommendations are:
Investment to repair and improve existing infrastructure, including roads, bridges, transit and rail;
Increased support for federal programs that support energy efficiency in new buildings and upgrades to existing buildings, which would create jobs;
Investment in water infrastructure projects, including reclamation, reuse, and groundwater cleanup programs that could not only provide new water supplies, but create jobs;
Increased investment in the Community Oriented Policing Services (COPS) program, which awards grants to state, local and tribal law enforcement agencies so they can hire and train law enforcement officers, purchase new crime-fighting technologies, and develop innovative policing strategies;
Providing additional Community Development Block Grants, which helps states and local governments to implement plans to address local housing needs and neighborhood stabilization as a result of the foreclosure crisis; and
Increasing the percentage of funding the federal government provides to states for the Medicaid program, which provides health care services for low-income individuals.
These are good ideas, but the only explicit information I see in them, as to where the funding might arise, is from the Federal Government.
It’s time to return to what works. Get rid of the property tax limit. This will do as much as anything to improve our credit rating and allow the generation of bonds to supplement infrastructure investment.
I Own My Vote, PUMA, The Denver Group, The New Agenda
No thanks. California has one of the highest state income tax rates already and charges 7-8% on sales tax. Part of the surge in the value of homes was because the property tax was kept to a lower amount.
California has benefited for years from artificially high housing prices. The problems is the state is apparently required to spend all the money it takes in or it has to give it back to the taxpayers in the form of a rebate.
Perhaps one ongoing problem is that if a state agency goes underbudget, I think they get punished the following year by being allocated the lower budget amount. This causes everybody to spend their entire budget, whether they need to or not, because they fear they will be reduced the following year to that lower level.
I don’t know what the solution is but I believe there are mysterious financial black holes that suck out a lot of money every year out of California’s taxes.
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I strongly agree with you that Caliornia needs to eliminate Prop 13 — not just its property tax cap, but more importantly the legislative super-majority requirement for the state to raise revenue.
I also question whether the federal government should pick up the tab for California’s refusal to tax its own wealth.
I’ve recently written about this at:
I’d love to hear your comments.
Michael Fox
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