When state Sens. Nancy Skinner, D-Berkeley, and Holly Mitchell, D-Los Angeles, introduce a split roll property tax to increase taxes on business property, you’ll hear arguments from advocates that the tax money is for the schools and local services such as libraries and police. In actuality, the measure is a tax to fund public employee pensions and health care costs.
Public pensions continue to eat away at state, local and school budgets. A number of cities pay more than 15 percent of their general fund budgets for pensions and retiree health care. Sacramento is over 17 percent. Los Angeles is at 20 percent, up from under just 5 percent a decade-and-a-half ago.
When cities must spend so much more than they have spent historically for employee benefits, reductions have to be made in other areas. In the East Bay city of Richmond, for example, staff positions have been cut, library spending is down, after-school programs have been reduced and still city officials worry that Richmond will follow other California cities into bankruptcy. It’s easy to understand why when pension debt and health care is projected to take 41 percent of the city’s general fund in five years.
School funding has been dramatically boosted recently, especially with tax increases on the state and local levels earmarked for schools. But school officials still say they don’t have enough money, and when you look at the pension debt you understand.
A new actuarial report tabs the California State Teachers Retirement System (CalSTRS) funded at 63.7 percent with an unfunded liability of $96.7 billion. That is an eye-popping $20 billion more than the previous year.
You can see the problem play out in individual school districts. David Crane, Stanford lecturer and former Schwarzenegger administration adviser on jobs and the economy, revealed that the San Jose Unified budget for benefits that include pensions and health care soared 19 percent in one year from $58 million to $69 million.
With pension funds lowering the expected revenue received from investments, the California Public Employee Retirement System (CalPERS) and CalSTRS turn to school districts and local governments to make larger contributions to retirement funds creating deeper holes in local budgets. According to pension reporter Ed Mendel, the CalPERS and CalSTRS pension costs will have doubled in a decade.
If there are holes in California government agency budgets, they are caused by unfunded pension liability, especially after a slew of tax increases and fees passed by the Legislature and voters.
Now comes another tax plan disguised as an effort to boost government services but will use projected revenues of about $9 billion to cover unfunded liabilities.
And, the danger is the tax increase would do more harm than good by damaging the economy and costing jobs.
Businesses already have to deal with increased costs through cap-and-trade, gasoline taxes, minimum wage boosts and a plethora of other mandates from the Legislature. If a split roll tax passes, the new financial weight will cause many businesses to cut costs instead of creating jobs, which would produce additional tax revenue.
Relying on commercial property tax in an era when brick and mortar buildings are facing the revolution of digital commerce is an additional mistake as some commercial property value could stagnate and retail business, already reeling, would take another hit.
Just as supporters of the bill to increase pensions expecting the stock market would forever fund pension increases had it wrong, expecting property taxes on commercial property to bail out local budgets is also an error that would hurt the economy long-term.
Joel Fox is president of the Small Business Action Committee and co-publisher and editor of FoxandHoundsDaily.com, which carries commentaries on California business and politics. Contact him at firstname.lastname@example.org.