As COVID-19 crushes California budgets, tax-hungry leaders must learn from the past

While the federal government is diverting trillions of dollars in an attempt to stabilize the economy and respond to the COVID-19 crisis, state and local governments across America are spreading their budgets thin with no relief in sight.

Cities have moved quickly to reallocate funds to local health departments and newly-created programs to provide direct relief to those in need, including temporary housing, food and basic services. While the relief is necessary, these expenses are a recipe for a budgeting nightmare. Coupled with rising unemployment, we will start to see unprecedented deficit projections nationally. Unlike the federal government, local governments can’t print money, which limits options for bridging these budget gaps – raising taxes, cutting services or both.

In even the most optimistic projections, our economy will come back to its former strength in bits and pieces over an extended period of time. That means the pre-COVID-19 tax revenue will not immediately flow back in to sustain local budgets. In the face of huge deficit projections, there will be growing pressure for new taxes.

Adding to this pressure cooker are the impending June and July deadlines for local governments in California to pass their budgets. Passing an effective and efficient budget is a challenge in the best of times, and in the middle of this crisis it will be nearly impossible for anyone to get this one “right.”

Most tax increases for local governments in California must be approved by the voters and with the presidential primary behind us, November 2020 is the first opportunity for that to happen.

Common sense dictates that the November election will be a prime target for revenue measures, with a high turnout of liberal voters casting their votes against President Trump. This year, however, elected officials should be wary.

Voters are not inclined to support additional taxes during a down economy, as the March primary showed us. Even before the full brunt of the COVID-19 pandemic was felt on American soil, the presidential primary in March became a cautionary tale for those seeking revenue through taxation.

Before the pandemic, elected officials and political consultants alike were positive about the prospect of passing taxes in the March primary.

On paper, it should have been a good election cycle for taxation. A competitive Democratic primary for president in California should have created a more liberal, pro-tax turnout. Additionally, statewide polling data showed Bernie Sanders leading, especially in the Bay Area, which would further drive a progressive turnout on Election Day.

By the time Election Day came, the virus had taken hold in China and Italy. News of COVID-19 reaching the Bay Area had just begun to come across our airwaves, with the virus-laden Princess cruise ship headed for San Francisco. Voters watched the Dow drop nearly 2,000 points between the end of February and Election Day, a plummet that conveyed the gravity of this crisis and likely scared voters.

As a result, California’s Proposition 13 – a relatively uncontroversial, badly-needed bond program for K-12 –schools and community colleges failed. It received just under 47 percent support.

Prop. 13 was the canary in the coal mine, signaling trouble for public finance measures throughout the state. According to the California School Boards Association, two-thirds of all school finance measures statewide, including both parcel taxes and bonds, failed in the March 2020 primary. The stand against taxation wasn’t limited to school measures. In Contra Costa County, a well-funded, self-help transportation tax that was polling in the mid-sixties just a month before the election didn’t even receive 50 percent on election day. Some 60 percent of California’s 239 revenue measures on the March 2020 ballot failed.

So, what should cash-strapped local governments do?

After the 1989 Loma Prieta earthquake, much of the Bay Area was devasted both physically and economically. Several public agencies went to the ballot to try to raise funds to rebuild, but voters were too worried about personal and economic security. The measures were defeated. The messaging used to convince voters to support the measures had not caught up with the community’s discomfort after the earthquake. The political community had to reset its rhetoric.

After a few election cycles, those pushing finance measures found that they could win by incorporating messaging on seismic safety and retrofitting. Suddenly, bonds for hospitals, transportation, schools and other infrastructure needs were passed by voters. The economic concerns of the previous years were outweighed by the fear of being unprepared for the next big earthquake.

During the 2001 and 2008 recessions, state and local governments drained their budgets and forced cuts to schools, transit systems, healthcare and social services. Every entity dependent on the state for funding was left wanting, forcing them to turn to local sources. The most effective message for these revenue measures was the promise that money raised by new taxes would stay under local control. Voters were motivated to support local funding streams that would protect them from future economic downturns.

What followed was the passage of hundreds of sales, parcel, bond and other taxes at the ballot box.

As elected officials are forced to look at new revenue measures to stave off decimating cuts, they will need to empathize with the fears of the electorate to be successful.

Voters are going to ask how taxes are going to benefit them immediately. Without an answer, large complicated transportation measures, general funding of government and general infrastructure will fail.

No one can predict what turnout will look like in November, but given health concerns it will likely be lower than previously expected. Voters who do participate will be concerned about the economy and unemployment, with growing fears about the state of our healthcare systems.

From the beginning, the messaging around these measures must focus on a connection to community recovery and preparedness for the next pandemic to have a chance of passing.

This story was originally published May 14, 2020 at 5:00 AM.