Jerry Brown sees state budget crisis from both sides now

By Dan Walters -- Sacramento Bee Columnist -- Sunday, July 11, 2004

As Gov. Arnold Schwarzenegger was meeting with city and county officials inside his Capitol office the other day on the sticky local government segment of the state budget, Senate President Pro Tem John Burton - who had not been invited to the session - was kibitzing with reporters outside. Someone mentioned that Oakland Mayor Jerry Brown was one of those in the meeting, pressing Schwarzenegger to stand firm on protection of local government revenues from state raids. And that touched off a characteristic Burton tirade, with Brown - the former two-term governor - as his target.

Brown, Burton exploded, "should be ashamed of himself" for seeking local finance protections since as governor from 1975 to 1983, he was largely responsible for creating the state's chronic budget problems. Burton was only partially correct, but he did underscore a central facet of the tortured relationship between state and local governments: It dates to a series of single-purpose political decisions in the late 1970s that interacted to create unintended consequences.

One was Proposition 13, which not only severely limited local property taxes, but indirectly shifted financial responsibility for schools and counties to the state. In Burton's view, Brown inadvertently helped Proposition 13 pass by sitting on what then-Treasurer Jesse Unruh termed an "obscene surplus" in the state treasury, thus giving Proposition 13's advocates a powerful argument that property taxes could be slashed without adverse effects.

In fact, the state's surplus was quickly consumed by an emergency bailout of schools and local governments - and by a whopping state tax reduction that Brown, worrying about his re-election and declaring himself to be a "born-again tax cutter," quickly pushed through the Legislature.

The bailout and the fiscally foolish tax cut put the state budget into deficit and created a more or less permanent fiscal crisis. But the local government imbroglio has other roots as well. One is another late 1970s act that Burton would applaud - the extension of collective bargaining rights to public employees. Public employee unions quickly became major, even dominant, political players in hundreds of city councils, county boards of supervisors and school boards, pressuring beholden officeholders for pay, benefits and pensions that sometimes exceeded their Proposition 13-limited local revenues.

Counties and school districts had little power to relieve the financial pressure, but cities reoriented land use policies and redevelopment programs toward auto malls, shopping centers, big box retailers and other sales tax generators - sometimes to the detriment of housing.

The friction-filled state-local relationship became openly hostile in the early 1990s when then-Gov. Pete Wilson and the Legislature dipped deeply into local coffers to relieve a state budget crisis. Utilizing an obscure provision of Proposition 13, Wilson - who openly scorned local governments as patsies for the unions - and lawmakers shifted billions of dollars of local property taxes to schools, thereby cutting state aid to school districts. In the past 12 years, more than $40 billion has been moved from local governments to the state treasury by way of the school funds swap.

The property tax grab sent city and county officials on a decade-long quest for protection against state raids. It took years to work out internal differences between the two levels of local government and more years to create a political structure strong enough to place a protective measure on the ballot. The qualification of Proposition 65 made local officials serious players in the state budget, leading to a deal with Schwarzenegger under which the state would take $2.6 billion in local funds in return for a constitutional amendment to block future raids. But Democratic legislators balked, saying the measure was too restrictive, leading to a stalemate that has stalled the state budget.

It was, indeed, ironic that Brown was inside his old office demanding that its current occupant protect Oakland and other local governments from state depredations. But since he was there at the beginning of the conflict, perhaps it was fitting that he participate in the endgame, however it may turn out.

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