Part 5: Can California Cities Survive the Virus?
People throughout the country have a greater affection for their cities than any other level of government. They may not know their mayor or council members by name, but they most positively embrace the services and value that these local-est of governments provides.
And this affection is not unwarranted. People feel that they can get more done at the local level.
Even Thomas Jefferson noted this as he said, “The government closest to the people serves the people best.”
But a big question that will come out of this COVID-19 crisis is whether our cities will survive. I don’t mean to be a scaremonger, but cities went into this crisis already in fragile shape. Revenues are restricted, expenses continue to grow, and pension debt compounds. All of this leads to budget pressures at the local level. That is why you have seen so many cities across the state and right here in Orange County, ask their voters to raise local taxes to fund general city services.
Just over the last two election cycles, seven of the 34 Orange county cities raised their sales tax, with Santa Ana pushing the envelope to establish the highest local tax increase to 9.25%, up another 1.5%.
Where do cities get their money? Most Orange County cities get their funding from a small portion of the property tax, a penny of the sales tax on purchases made in that city, and other small revenues from places like business fees, cable fees and the like.
Some cities have the luxury to have great revenues from a hotel bed tax. Anaheim, Huntington Beach, Laguna Niguel and others see this source as a powerful funder of local services. But this leads me to my point – what happens when these revenues slow, drop or STOP?
When people stop staying at hotels in Anaheim, the city budget suffers. When people don’t go to the beach, Huntington Beach takes it in the shorts. When South Coast Plaza closes down for a month, Costa Mesa crashes.
When the recovery begins and grows, these monthly shortfalls will begin to correct. But the loss will not be backfilled. Those dollars to fund police and fire and parks and roads, will be gone for good.
That is why I think this is the time for the state to step up to help cities, not just for the one-time infusion, but permanently.
During the recessions of the 1990’s and the early 2000’s, the state took action to suck funding from those pots that had traditionally been city revenue sources.
Even though the state is suffering, too, the state has built a reserve, not due in small part to the funding streams that got pulled out of city coffers over the last 30 years.
State leaders should consider shifting back percentages of property taxes that were shifted away in the 1990’s. The state also should direct more of the state’s sales tax dollars, and particularly sales taxes that comes through taxes on online purchase to cities – and further, change those distribution formulas to per capita basis, so cities with the most residents get the most funding.
These are tough decisions for the state leaders who face growing revenue shortfalls and limited reserve funds. But if the state doesn’t step up and look at how to ensure long-term funding realignments for cities, they will certainly face an even larger number of municipal bankruptcies in the years ahead.