But with almost half of the precincts in the state reporting, the measure appeared to be heading towards a big victory late Tuesday.

For the past 12 years, in times of recession as well as fiscal health, the state has exercised its authority to shift local tax revenues to the general state treasury when the state is in financial need. The Yes on Prop 1A campaign estimates that the state has taken some $40 billion from cities, counties and special districts over that period of time.

If passed, Prop 1A would restrict the state’s ability to take tax revenue from local entities, except in limited cases of extreme financial emergency.

Supporters, among them a litany of Democratic and Republican politicians, including Governor Arnold Schwarzenegger, as well as most cities and counties in the state, say that it is imperative to stop what they call the state’s raiding of local government coffers and to stabilize the amount of money cities are able to spend on local needs such as law enforcement, parks and libraries.

Opponents, represented officially by the state Board of Equalization Chairwoman Carole Migden, who is running for State Senate as a Democrat, argue that the initiative does not provide enough oversight to ensure that local entities spend the money wisely. They are also concerned about possible cuts in education and other health and human services that the state might be forced to make if it is no longer able to take the money from local governments. The proposition is only the latest in a long line of special interest measures aimed at earmarking a piece of the state budget for a specific purpose and restricting where the state can go to for general revenue.

Prop 1A landed on the ballot as a last minute deal between local governments and the legislature and governor as an alternative to Prop 65, an earlier version of the same initiative that did not have the governor’s endorsement. In the deal that produced 1A, the local governments agreed that the state could take $1.3 billion for the next two years. After that, there will be severe restrictions on the state’s ability to take money from cities, counties and special districts.

A number of East Bay city councils recently passed resolutions supporting the initiative, including Alameda, Albany, Concord, Danville, El Cerrito, Emeryville, Hayward, Martinez, Moraga, Piedmont, Pleasant hill, Richmond and Walnut Creek.

“The deficit problem at the state level needs to be solved without taking money from local government,” said Peter Dragovich, Concord Director of City Management.
“Prop 1A would draw a fence around our revenues, so the state can’t use cities like an ATM.”

Paul Benoit, Assistant City Manager of Alameda, said the city is particularly concerned about public safety, which represents over half of the city’s general funds, as it faces a $7 million deficit. “It’s a significant responsibility and it’s hard to budget for that if we don’t know if the state will redirect revenues,” said Benoit.

City officials say that the greatest burden of the current system is its unpredictability. “We’ve been in situations where we can’t work on our budget because the state has not told us how much they’re going to take,” said Benoit. “Give us some predictability and some stability to know what our resources are.”

However, city leaders are not in uniform agreement on the matter. Even though he leads a city that stands to benefit from the initiative, Berkeley Mayor Tom Bates plans to vote against it. “It’s definitely a good thing for the city. It’s not a good thing for the state,” said Bates, a former state assembly member. “You’re taking away the ability of the state legislature to deal with problems of the state. In terms of the bigger picture, you need a state government that has the flexibility to provide services that meet the needs of residents.”

Most cities rely on property taxes, sales taxes and the Vehicle License Fee (VLF) as their primary sources of general fund revenues. The current system goes back to Prop 13, passed in 1978, which had a massive impact on local and state revenue sources. When the state ran into financial trouble in the early 1990s, Governor Pete Wilson and the legislative leadership interpreted a section of Prop 13 to mean the state had control over property taxes and could take a larger portion for the state general fund. The state continued to take the money even through the late 1990s, when it was running large surpluses.

For the League of California Cities, which represents local governments and is the primary group behind Prop 1A, the need for a change to that system was reiterated last year when the Governor cut the VLF and threatened to not reimburse cities for their significant losses. After a great deal of negotiating the state agreed to pay the cities back. However, for local governments the incident increased awareness of the importance of separating their finances from the state’s.

Jean Ross, Executive Director of The California Budget Project, a nonpartisan organization that looks at state policy issues from the perspective of low-income residents, calls that way of thinking unrealistic. “My view as a voter and as a taxpayer is that you take the totality of services that you receive from the government. You can’t separate them out. You have to look at the whole. You have to look at how everything fits together,” said Ross.

Ross said that she is concerned that Prop 1A will make it harder to balance the state budget in the future and will result in the state having to either cut spending or raise taxes to make up the difference. “It’s easier to suspend the school funding guarantee than it will be to suspend Prop 1A. So if the state is in a really bad situation and has to chose between the two, it’s more likely they will take money away from the schools,” said Ross.

Megan Taylor, Director of Communications of The League of California Cities, dismisses the idea that the initiative will hurt schools. “We worked really hard to develop a ballot measure that doesn’t take money from anybody else,” said Taylor. “Because the state has had this ability to pick the pocket of local governments, they haven’t imposed upon themselves the fiscal discipline that local government has to go through all the time of living within their means.”
Updated 11/2/04 11:15 PM