Special to The Enterprise
Editor’s note: This is the first in a three-part series that will continue Friday and Sunday.
Spring weather is hard to predict in CaliforniaÕs Sacramento Valley. April can be hot, cold, wet or dry. One thing about April is certain, however, and that is taxes Ñ with the second property tax payment due on April 10 and income tax filing on the 15th. Then May teases us with warmer temperatures and thoughts of summer along with the governorÕs revised projection of our chronically out-of-balance state budget.
Personally, I would rather think of summer, but keep getting distracted by headlines about the condition of state and local finances going from bad to worse, by other news about dire consequences of reduced funding for the multitude of programs paid for with tax dollars, and by the predictable calls for more and higher taxes and fees to cover projected deficits.
This situation is often called a crisis, but has been going on for so long that it seems more like business as usual. Missing in most cases, however, is any discussion of how much we already pay and spend. So letÕs examine, for a moment, the overall landscape of government finance.
Who are taxpayers?
Identifying taxpayers, who are the source of nearly all government revenue (other than items like receipts from oil production, timber harvest, and mining on federal lands), seems like a logical place to start. This is both a simple and complicated scene.
From a distant vantage point, the view includes everyone, because taxes are either paid by or passed on to individuals and families through nearly all of our financial transactions. A closer look, as described below, shows a more complicated picture; but when all is said and done, you, your neighbor, co-workers, employers and anyone else with income or expenses are taxpayers.
Businesses pay taxes, too, but this complicating factor is simplified here by assuming that businesses pass their tax costs on to consumers so that government revenues ultimately come from and go to real people.
What are we paying?
Next, letÕs think about the types of taxes that are paid. The list includes: income taxes (federal, state, and some local), sales taxes (state and local), property taxes (divided between state and local), state vehicle license taxes, utility taxes (mostly local), special taxes on specific products (such as cigarettes), luxury taxes, permit fees, service fees, disposal fees, telephone fees, and the list goes on to include some part, and often several parts, from every exchange of value and permitting authority that governments have been able to identify.
Fees are being included with taxes in this list because both end up supporting the overall budgets of local, state, and federal governments. In addition, some taxes have multiple parts. For example, types of income are treated very differently in the calculation of income taxes, and property taxes can include charges based on assessed value, taxes on individual parcels or units within parcels, and bond payments.
Since the accumulated amount of these payments depends on personal circumstances, it is nearly impossible to generalize individual taxpayer totals except to say that higher income usually leads to a bigger tax bill.
How much is local government collecting and spending?
Government spending is also hard to generalize, and following the money trail gets more difficult as funds move between federal, state and local governments. School districts, for example, receive most of their funding from the state, some federal money, a portion of the local property tax, and have dedicated bond and parcel tax revenues. The amount of support for schools has been a hot topic recently that deserves some more attention.
The accompanying table summarizes operating revenue and expenditures for the Davis Joint Unified School District from 1996-97 to the present. This shows both the earlier growth in spending, with per-student spending going up about 70 percent, and the recent decline in revenue. Not included are capital expenditures for new and updated school facilities, which add substantial costs to taxpayers through both state and local bond payments.
Overall, Table 1 shows that operating funds for schools have declined recently, but remain at historically high levels after previous, large increases.
As with schools, city and county revenues come from a mixture of sources, which also include utility taxes and fees. The city of Davis, for example, collects local city services revenue through bimonthly bills paid by property owners. Summarizing changes in these bills over time provides a good case study on the proliferation of charges and the increasing costs of basic government services. Between 1980 and mid-2008, for a typical single-family home, the cost of city services has increased by 500 percent for water, by more than 1,200 percent for sanitary and storm sewer, and by 260 percent for garbage and green waste pickup.
There were no general taxes on the 1980 city services bill. A bimonthly ÒmiscellaneousÓ general tax of $4.28 was added in 1982. By mid-2008, the bimonthly general taxes had increased to $21.86, while the total city services bill had increased from $220 to $1,523 per year, for an overall increase of more than 590 percent.
Summarizing these costs was made more difficult by the addition of municipal services and safety taxes in place of the miscellaneous general tax in 1986, addition of a storm drainage tax in 1986, and use of water rate tiers in 1999. The reason this summary ends in mid-2008 is because the calculation was made even more complicated with the addition of sewer rate tiers.
Proliferation of charges is clearly apparent as the number of city service line items from which the bill is calculated increased from three in 1980, to 12 by mid-2008 and up to 14 today. Tables showing Davis city service costs over time can be found online at http://www.yolotaxpayers.org.
Now, Davis residents are faced with proposed increases of 20 percent or more in sewer and water costs to meet California Regional Water Quality Control Board discharge standards requiring lower salinity in the cityÕs discharge water than comes out of the ground in the local well water delivered for residential use.
In contrast to the cost of city services, increases in property taxes collected by the Yolo County assessor have been moderated by Proposition 13. This 1978 tax control measure was passed by California voters in response to rapidly increasing property tax bills caused by fast growth of property values without adjustment of tax rates. As a result, local governments were collecting and spending a windfall of increasing tax revenue without the bother of voter approval.
Since its passage by a large majority of voters, Prop. 13 has provided the major protection (or impediment, depending on oneÕs point of view) against tax increases by setting limits on property tax growth rates and requiring a two-thirds vote by the California Legislature for increasing most types of state taxes.
For example, the basic property tax on a Yolo County residence with a 1980 assessed value of $100,000 increased from $1,000 to $1,741 by 2008 after applying the 1 percent tax rate and annual 2 percent increase in assessed valuation allowed by Prop. 13. Based on this example, it appears that Prop. 13 has worked as intended in controlling property taxes.
Additional charges (over and above the basic property tax rate) in Davis include payments for flood district, junior college, city and school district bonds and for parcel taxes (this is not a complete list and some of these costs will vary by area of town). Including these site-specific charges causes the total tax paid on this example property to grow from $1,334 in 1980-81 to $2,430 in 2008-09, for an overall increase of 82 percent.
Without Prop. 13, the total tax bill on a similar house in 2008-09 would have been based on an assessed value of about $500,000, which, given a tax rate of 1 percent and identical site-specific charges, would lead to a total tax bill of $5,674 (133 percent more than without Prop. 13), with no assurance that the tax rate also would not be higher.
This means Prop. 13 provides an annual savings, or cost from the government point of view, of at least $3,244, which may leave something in taxpayer pockets on April 10 that can be sent to the state and federal governments on April 15. Details of this comparison are also available at http://www.yolotaxpayers.org.
The next installment of this article will continue with a discussion of revenues and spending at the state and federal government levels, which actually make the financial condition of local governments look pretty good.
Ñ John Munn of Davis is president of the Yolo County Taxpayers Association.