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Jon Coupal- Columnist

Jon Coupal is an attorney and president of the Howard Jarvis Taxpayers Association -- California's largest taxpayer organization with offices in Los Angeles and Sacramento. [go to website] [go to Coupal index]

The Windfall
A Curse or a Blessing?...
[Jon Coupal] 7/1/05

The tax revenue windfall. For local government officials, it is the major topic of conversation. They are delighted that the hot real estate market is providing billions of additional dollars to county coffers around the state. For Los Angeles, it represents a cool one billion dollars in new revenue, a nearly 10 percent increase over last year. San Bernardino County anticipates its tax receipts to double to about $320 million.

However, you'll have to pardon us if we don't join the celebration just yet.

The last time we saw government officials so excited was in the late 1990s after Gray Davis took office. Fueled by the dot.com boom, state government took in unexpected revenue over three successive years of $6 billion, $10 billion and $12 billion. It was an embarrassment of riches, but Davis and the Legislature quickly proved they had no shame.

Government watchdogs like the Howard Jarvis Taxpayers Association recommended that the state make prudent use of the windfall by returning the money to taxpayers; using it for one time expenditures like school construction (and thereby eliminating the need for costly bonds); establishing a "rainy day" fund; or a combination of the three.

However, with all this new revenue, state leaders had a major relapse with their spending addiction. Assuming these elected worthies have even taken Economics 101, their apparent euphoria made them forget that economies -- by their very nature -- are cyclical. Significant upturns and downturns are not the exception, they are the rule.

With unrestrained glee, California politicians during the Gray years took on new long-term spending commitments by expanding programs, hiring thousands of new employees and providing generous benefit increases to current workers.

Several years latter, when the Silicon Valley miracle became the "dot.bomb," the state found itself handcuffed by a structural deficit that continues to plague finances to this day. Commitments to unsustainable spending cost Davis his job, and the Herculean task of undoing the damage has eroded a good chunk of the popularity and political capital of successor Arnold Schwarzenegger. After all, those who benefited from the ill-considered binge-spending of the previous administration, mostly government employees, are not giving up without a fight. They have committed millions of advertising dollars to a campaign to undermine our reform-minded governor.

So what about our local officials who are now giddy over unexpected revenue? Have they learned anything from the disastrous conduct of their Sacramento brethren who faced a similar dilemma?

Local officials are still smarting over money first taken from them by the state during the recession of the early 1990s, funds that continued to be expropriated through good times and bad until an agreement with the governor last year placed limits on how much locals could lose.

While the state was taking local money even in good times, any shortfall was made up by imposing new local taxes, assessments, fees and charges. Those levies should be appropriately reduced now that revenue levels are escalating, or local governments will end up with an unjustified windfall at the expense of taxpayers.

Instead, many local governments are adding insult to injury by still calling for tax and fee increases even as property tax revenues are rolling in. During state government's boom times, many local officials joined the party by agreeing to lavish benefit increases for local government employees. Now that the bills are coming due, they are learning that supporting these obligations, too, is proving unsustainable, so they are thrashing about, always searching for new sources of revenue, i.e., taxes.

The budget decisions now being made by local politicians will be heavily influenced by the new property tax revenue. Taxpayers will be watching closely. We hope they pass the test by acknowledging that even in real estate there are peaks and valleys and that these major increases in tax receipts cannot be expected to continue indefinitely. CRO

Jon Coupal is an attorney and President of the Howard Jarvis Taxpayers Association.

copyright 2005 Howard Jarvis Taxpayers association

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