Property tax surge reveals the truth: Local tax hikes are all about pensions

Local government officials throughout the state got some very good financial news when county tax assessors toted up taxable property values for their 2018-19 budgets.

The state’s uber-strong real estate market generated a 6.51 percent increase in those values, adding $374 billion to the property tax rolls and pushing the total to $6.1 trillion. That increase – three times the rate of inflation – translates into $4-plus billion more in revenue for cities, counties and other local agencies.

While schools also receive property taxes, they don’t directly benefit from the increase because of how state aid is structured. The big winners are cities because, unlike counties and schools, they almost totally depend on local taxes and fees. San Francisco, which is both a city and a county, reported the state’s strongest assessed valuation gain, 10.35 percent.

The very strong growth in property tax revenue, however, raises a question: Why are so many cities complaining that they can’t balance their budgets unless local voters raise taxes?

There are 254 local tax increases on the Nov. 6 ballot – sales taxes, parcel taxes, utility taxes and hotel taxes – according to the California Taxpayers Association. That’s 65 percent more than four years ago.

The reason is that even with strong property tax gains, local government pension costs are growing faster than revenues, squeezing their budgets. Cities have been hit the hardest by increases in mandatory payments to CalPERS as it tries to shrink its unfunded liability. City officials have repeatedly warned about insolvency if pension payments continue to grow; the League of California Cities has labeled the situation “unsustainable.”

With very rare exceptions, however, officials who place the tax increases on the ballot will not publicly say the extra revenue is needed to offset rising pension costs. They believe that telling the truth would make voters less likely to vote for the new taxes – and could also make employee unions less likely to provide campaign money.

Rather, on the advice of high-priced consultants, they say the money is needed for popular police and fire services and parks.

Unfortunately, most local news media are carelessly complicit in this conspiracy of silence, accepting the official reasons at face value rather than analyzing them critically. That’s true even though the numbers are readily available.

Over the weekend, for instance, The Sacramento Bee published a long article about proposed tax increases in Central Valley cities, quoting officials about what they hoped to do with the extra revenue, including Sacramento Mayor Darrell Steinberg, who called his 1-cent sales tax measure a “game changer.” However, the article only briefly mentioned pensions as something brought up by unnamed “critics,” even though the city’s own budget documents highlight rising pension costs.

The Santa Cruz Sentinel, in a similar piece about new hotel tax proposals in its region, took the opposite – and more responsible – tack by delving into how pensions are straining local budgets and driving tax hikes.

The Sentinel’s article, unfortunately, is a very rare exception. Otherwise, local officials and media seem to believe that ignorance is bliss.