How to pay for our future – part II

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November 3, 2013 by Omar Passons

Woman cautiously guarding limited resources - or perhaps looking for additional resources

Woman cautiously guarding limited resources – or perhaps looking for additional resources

The above photo was delivered to me by the Google, it is from this article about finding high-paying jobs (Man, the Google sure knows A LOT.)

I did an initial post to help set the stage for a conversation about how to pay for stuff in San Diego and you can read that one here.  I highly recommend reading that one first so you understand the things mentioned below. If this is your first time to the site, please check this basic explanation of why I started this blog.  It turns out, as this article cites, cities in this state have a spending AND a revenue problem.   And with that, on to thinking about how to pay for stuff.

Understanding Our Options

There are only a handful of ways we can pay for things as a city in California, and the first thing to know is that as much as we might like the cool method they came up with in San Antonio or Minneapolis to pay for something, the laws in those states are different than in California.  That means we can’t just say “well, Minneapolis has a smart way to raise money, let’s do that” without first understanding some of the things about California that make our tax policy suck make it harder to pay for things here than in some other places.

Quick aside.  This post will focus on how to have more money to pay for things.  I don’t want anyone to confuse my desire to have a rational, reasonably well-researched conversation about needing more money to pay for things with a belief that we should stop looking for ways to use our money more wisely.  Put simply, I think it’s probable that there is plenty of fat still to trim from our local government before we’ve reached municipal efficiency Nirvana.  For example, we’ve had the ability to outsource some stuff for years, it’s called Managed Competition (rear our city’s Managed Competition Guide).  Even if some of the people who support it overestimate its value, I think competition is a good thing and I’ve heard even my far left friends confess that there is probably savings to be had there.  And really, should the City be operating golf courses and small airports and landfills and such?  Maybe, but I’d love for us to invest just a tiny bit of money in that analysis so we could find out.  All this to say, just because I find it woefully inadequate to wait around for every ounce of fat to be cut from the system before raising revenue that doesn’t mean I think we shouldn’t keep the pressure on for cuts and efficiency, too.  By the way, having just enjoyed a delightful steak the other night, I can’t for the life of me understand why the go-to government waste analogy is about trimming fat.  It’s really quite delicious and, I think, unfairly scorned.  But, I digress.

Having spent way too much time introducing concepts, let’s get on to the point, shall we?  Here’s a relatively short, interesting summary of one perspective on what’s wrong with taxation in California. And the first few paragraphs of this article lay out some of the key points in a straightforward way as well.

First up, we have laws in this state that impact our ability to raise money.  If you are under 45 or don’t own a home you probably have no idea what Prop 13 is, but it’s a good place to start.  Among the many aspects of this 1978 law were two provisions that set a two-thirds voting minimum to approve tax increases.  This means that almost 7 out of every 10 people have to agree before you can raise these types of taxes.  Put in perspective, when is the last time you remember being in a room with 9 friends and having seven of you agree on where to eat, let alone something important like whether we have enough money to attract, train and equip our police force?    The theory behind this two-thirds requirement is that if our elected officials—not exactly known for frugality—want to spend more of our money they should really be sure it’s necessary.   The article I linked to above presents an argument that our tax problems aren’t tied up in the amount of taxation but how we tax ourselves.  Worth a quick read.

To bring this closer to home, the San Diego region is filled with people who do not believe in raising taxes.  Not today, not ever.  They contend that we should just have a smaller government or that we should survive off what we have or that we really don’t need whatever it is the pro-tax crowd is clamoring for.  I don’t want to get too far afield, just know that Prop 13 makes it hard to raise taxes.  There are other laws that make raising money a little challenging, but being a glass-is-half-full kind of guy, I’d rather focus on the pros and cons of various options and we can circle back on the other laws in place if there is time.

The Reason To Care About This

Before I lay out the options, the reason this is important is that we have been talking a lot about infrastructure and getting big, sexy bonds to pay for every project in every council district.  But those bonds are not allowed to be used to maintain any of the stuff that might get built so it is prudent for us to think about how we will actually maintain all those new cool things (or, ya know, old cool things that we hadn’t bothered to fix before).

I got this from Twitter following @hblackson. Lots of cool conversations in the Twitterverse

I got this from Twitter following @hblackson. Lots of cool conversations in the Twitterverse

My friend Howard Blackson tweeted the image above with a nod to Leon Krier, it helps lay out one of the big issues this discussion of money is intended to tackle: how do we make sure we can afford the stuff we build and use.

Option 1 – Make fees for using stuff

A map of potential impact fee zones - where certain uses would be charged to pay for the impact on the community

A map of potential impact fee zones – where certain uses would be charged to pay for the impact on the community

San Diego is not the only city dealing with this sort of thing.  The above image was taken from a Kansas City article about how new development was…wait for it…impacting the financial resources of the city.  Read it here.  Before my developer friends go crazy reading this, I’m not suggesting you get stuck with the bill, just using a helpful description.  Personally, I think we do a terrible job at identifying how much building something costs the city over the long term, so there’s a more fundamental problem than always claiming to be anti-tax while also increasing these fees.  But that’s a larger problem I hope to address somewhere else.  Back to the point…

Raising fees is an option that involves having people or businesses who build stuff or are the ones using it to pay for it directly.  This is kind of what a parking meter accomplishes.  You pay to use the space on the street and in theory your payment helps cover your use of that space (note this cool article on “free” parking).  A better example might be your cable bill.  You pay a certain amount for the right to have Game of Thrones or Scandal pumped into your house.  Similarly, we could charge ourselves a fee for building certain types of property or for driving across certain roads.  One upside of this strategy is that it should make people be more careful about how much service they use if they have to pay for it directly.  The downside of this strategy is that it assigns some costs to a few people when the benefits actually are enjoyed by a larger group than the ones who pay for it.  The San Diego Independent Budget Analyst – an office whose job is basically to make sure we live within our means as a city – released a presentation about revenue options.  Here it is:

Revenue Options for the City of San Diego

This presentation is loaded with very good information in a generally easy to read way.  The good thing about the presentation is it gives a high-level view of the amount of money we raise from various sources and estimates how much more we could raise by increasing certain fees.  The big drawback is that the presentation doesn’t address the big questions about these options.  For example, if we increase a fee on new apartment buildings to pay for upgrading our stormwater system next to those buildings, what impact does that have on the cost of those apartments?  Should we compare the impact on the price of new apartments (and the increase in frequency of stormwater maintenance) if we do that type of fee against the same impacts for a general tax on everyone?  The issue in looking at revenue options isn’t (or shouldn’t be) limited to how much money it raises.  We ought to be demanding analyses that compare the costs and benefits of one type of potential revenue source with another as we search for ways to dig ourselves out of our very large infrastructure hole.

Here’s one more piece from Governing.com on the risks of relying on these types of fees to pay for stuff.

Next week (or when I have time) I will turn to the other two big options for finding money to pay for stuff – government shakedowns and plastic, baby!  Kidding.  The next two areas, raising taxes (on property or buying stuff) on the one hand and borrowing large chunks of money on the other, will come next time around.

Before I go, though, I happened upon this report

Citizens Revenue Economic Development Commission SD

It is a report of the Citizens Revenue Review & Economic Competitiveness Commission (easy for me to say).  It’s 135 pages, so I won’t expect you to read it all.  It IS football time (or hiking time or family time or, well, San Diego Beer Week is going on right now so you could go do that), so I’ll offer a few observations on the report based on my own read.

  • The forward properly acknowledges that the city should “…avoid binding future commitments that exceed resources that can reasonably be expected in a moribund economy.” (Translation: Don’t buy a car with a $600 car note if you only have $500 a month for your car payment and your income prospects are dicey)
  • The forward indicates that a survey of residents in the city suggests most people favor outsourcing and not eliminating city services.  This little nugget highlights two very important points.  First, there is NO estimate by anyone that outsourcing would even come close to covering the gap needed to avoid cutting city services.  Second, linking these two concepts suggests that at least as of 2010 when this report was written we hadn’t embraced the reality that relying on polls for policy decisions is a questionable proposition when people lack the full information. Take home point: Tell people how big the financial problem actually is and what the menu options of solutions would actually pay for before asking them to vote on which they support.
  • The report lists three revenue strategies, in this order: managed competition, increase in user fees and broad tax increases (pg. 7).  I don’t know enough about managed competition to know how well it could work.  I’ve heard it can save as much as 15% off services that aren’t done that way.  But I’d love a link on that front.
  • “Eliminating the ban on residential trash collection fees as soon as possible should be the City’s top revenue priority.” (pg 8). (Note: I didn’t make this up, it’s really in there.)
  • The top priorities identified by a 600-person citizen survey are not surprising: public safety, city streets, addressing homelessness, parks, beaches, street lighting and recycling.  (pg 15)  I’m pretty sure these would be the same priorities identified today, though hopefully with a little more emphasis on poorer communities that may have farther to go on improvements.  The point is, it doesn’t seem like we lack any knowledge about what people want, we just need more from our local and regional thought leaders on concrete solutions.  Even if some of these solutions are unpopular.  I never liked cough syrup as a kid, but sometimes you need the medicine to get better, right?

The Chargers are on so this is where I stop for now.  There is a big Mayoral debate moderated by Scott Lewis at the North Park Theatre on Tuesday.  It will be the first time I can remember where the candidates and the moderator get free reign to challenge each other on questions and policy positions.  My sincere hope is that all four candidates skip cheap potshots and character attacks and focus on policy. Billions of dollars in infrastructure problems AND tens of millions lacking in annual maintenance money to pay for stuff we build are WAY more important than school or age or party.  Thanks for stopping by.

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