Last month I took the LA Times to task for framing the current budget deficit as a spending problem, and wondered why nobody at the paper seemed interested in focusing on the fact that what California has had for decades is a structural, deliberate revenue shortage.

David Lazarus has taken up the challenge. In today’s column he says what many of us have been arguing for many, many years: Prop 13 must go.

It’s pretty simple, though. Either we spend less money or we raise revenue, or both.

All things considered, our friends in Sacramento aren’t going to suddenly discover the value of frugality — unless packed schoolrooms, broken bridges and crumbling levees are your idea of satisfactory quality of life.

So that means we need to get our hands on some extra cash. And like it or not, that means taxes. That’s a bad word, I know. But it’s how things work in the real world.

Proposition 13 is as good a place as any to start if we want to raise some serious coin and we want to do it soon.

“It’s terrible economics,” said Lenny Goldberg, executive director of the California Tax Reform Assn. “We have the heaviest tax on new investment and no tax on windfall.”

What he means is that Proposition 13 allows the state to reach deep into the pockets of people and businesses that buy property at market value. But it does precious little to get a piece of the action from those with long-held properties that have soared in value over the years.

Amen.

Lazarus does a good job of explaining some of Prop 13’s basic unfairness while also proposing some fixes that avoid hitting elderly and working-class Californians with unaffordable tax bills.

One proposal, which the California Tax Reform Association has already discussed, is to again assess ALL commercial property at market values, instead of giving them the same protections Prop 13 gives to residential property:

Assessing all commercial property at market values could add $5 billion more to state coffers, Goldberg estimated.

“The assessment of commercial property is the biggest hole in the state’s tax system,” he said. “It’s completely indefensible.”…

If the older portions of the Disneyland resort were assessed at the same level as newer ones, he observed, Orange County would be raking in millions of dollars more each year in revenue. This, in turn, would make the county less reliant on assistance from the state.

“It’s only fair,” Goldberg said.

Not only is it fair, but it’s fitting. This WHOLE tax and budget mess got its start not with Prop 13, but with the little-known AB 80, enacted way back in 1967. AB 80 was the Prop 13 of the commercial real estate market, limiting dramatically the ability of local government to use commercial property to pay for its services.

This began the cascading effect that brought us to Prop 13 and, ultimately, to the present crisis. Many California cities had artificially low residential property taxes in the ’50s and ’60s, using higher assessments on commercial property to fund services. When AB 80 disallowed that, the residential rates had to rise. The inflation of the 1970s saw the cost of providing services soar, and that had to come from higher residential property taxes. However, many homeowners had come to see the low taxes of the ’50s and ’60s as a kind of birthright. And so California in the 1970s was consumed by a series of property tax battles, especially at the local level. Prop 13 was the right-wing’s endgame, designed to radically settle the issue in favor of a small group of homeowners at the expense of state government and future buyers.

Even though commercial property values have already begun and will continue to fall along with the collapse of residential values, there is hardly any viable scenario that sees commercial property returning 1980 levels. In fact, at the moment, even the pessimists see real estate returning to 1998-2000 levels, maybe 1994 (the previous bottom) at worst. Assessing commercial properties at fair market value would still capture billions in new revenue even in a recession.

The Cal Tax Reform Association has a number of similar proposals that they claim can raise $17 billion, even without a direct frontal assault on Prop 13. I’ve mentioned their proposals before and will do so again later this week – it’s time we put them at the center of the conversation in California.

But on a deeper level, David Lazarus has begun a discussion that is 30 years overdue. Even if the discussion isn’t easy. Whenever anyone even mentions tweaking Prop 13, people tend to freak out – even at Daily Kos, so-called liberal Democrats in California attacked yours truly for daring mention Prop 13 reform.

The problem is that not enough Californians yet see how Prop 13 works against their interest. The savings on the property tax bill isn’t worth the lack of health care, the inaccessibility of education, and the decaying infrastructure that is starting to cripple our economy. Prop 13’s effect was to create a homeowner aristocracy in this state, where a lucky few who bought homes before, say, 1985 are able to withstand better the economic storms lashing the state, while the rest of us suffer to maintain their privilege.

Lazarus’ column was sparked by an LA Times report that Arnold planned to assess a “fee” on homeowner insurance policies to pay for fire protection. As Lazarus so aptly puts it:

A surcharge on insurance that’s based on a property’s replacement cost, and hence much of its market value. That may not be an honest-to-goodness property tax increase, but it’s about as close as you can come without getting your hair mussed.

It’s too much to hope that Arnold instinctively understands the problem of Prop 13, and in fact he has positioned himself as one of the staunchest defenders of it and its legacy. But as I explained back in October, much to the OC Register’s chagrin, the lack of fire protection is a direct consequence of anti-tax activism. If Arnold is willing to raise revenues for firefighting, he is implicitly opening a door that the rest of us should run through.

Right on, David Lazarus, for reminding us that we’re never going to get out of this budget crisis until we revisit Prop 13. At least someone at the Times gets it!

This post originally appeared at Speak Out California.

Do taxes drive California’s economy?

The governor says California is in a budget crisis.  He says we need to cut the state’s spending “across-the-board,” and the Republicans insist that tax increases and other alternatives are off the table.  The media largely seem to be going along with taking discussion of alternatives off the table, and consequently Democrats are too intimidated to bring them up.

But what they are missing is that taxes drive the economy.

Tax-cut proponents say that increasing taxes on the wealthy “takes money out of the economy.”  I wonder where they think the money goes?  Do they think it just goes up into the air and disappears?  

They don’t seem to — or pretend not to — understand that taxes come right back into the economy. It is taxes that pay the salaries of teachers and police officers and that build and maintain our roads.  Then that money circulates from those teachers and construction workers to support our stores and movie theaters and restaurants and to buy homes and cars.  

What would the effect be of a cut?  In California there are approx. 308,000 teachers.  The Governor is proposing a 10% “across-the-board” tax cut.  Imagine the economic consequences if this cut means laying off 10% of those teachers — 30,000 people? This is not the precise plan but it illustrates that spending cuts do not help the economy of California.  In fact it is spending cuts, not tax cuts that “take money out of the economy.”  

And anyway we want what our taxes buy us!  We want our teachers and firefighters and roads and courts and water & sewer systems.  Cuts are not what we want.

Borrowing more money is not the solution, either.  One result of the conservative tax-cutting fever of recent years has been massive borrowing at the state and especially the federal level.  But people have not been told that borrowing is in reality a spending increase because we have to pay interest on that debt.  California is spending $4 billion this year to pay interest on bonds and that is spending that cannot be cut.  That is a lot of spending, and we would not have such a serious deficit if we did not have to pay out that $4 billion.

So the solution to the budget shortfall has to include all the tools in our toolbox.  First, we have to close tax loopholes.  We need to restore the vehicle license fee (which the Governor calls a tax).  Then we need an oil-severance tax – we are the only state in the country that drills oil that doesn’t have one!  And we have to stop being a “donor state” to the federal government.  We send over $50 billion to the feds that we do not get back for programs or services.

Finally, we need tax increases on corporate profits and the wealthy.  Here is why: tax money is used to build the very things that ensure our prosperity.  It is used to build the economy that enables some of us to become very wealthy and stay that way.  Our tax-supported legal system enables and protects businesses and investors.  Our tax-supported economic infrastructure defines and regulates the financial system under which investment occurs to build these businesses. Taxes built the physical infrastructure (like schools and roads) that helps us all in ways that everyone understands.  But taxes also built and support the legal and economic infrastructure that is crucial for economic growth as well.  The Anderson Forecast states that the two keys to a successful economy are infrastructure and education, and that is tax dollars.  Entrepreneurs and businesses look for those qualities when determining where to set up shop.

In other words, the wealthy and businesses have benefitted the most from government investment and they have the most money as a result, so they should be contributing the most.  And middle-class taxpayers are currently being hammered by a different kind of oil tax — huge increases in gas prices at the pump while the oil companies are recording the most profits by any companies ever.  And because of previous spending cuts, the middle class, and particularly our students, are experiencing increases in fees such as college tuition while the benefits of the taxes they pay are going disproportionately to the wealthy.

Of course taxing the very wealthy and corporations might very well take some money out of the Cayman Islands’ or other tax-haven economies, bringing it back to California. (One building in the Cayman Islands is the business address of more than a thousand American corporations.)  And increasing taxes on the wealthiest might even cause someone to have to buy a slightly smaller yacht or private jet in order to be used to pay a few hundred teachers or firefighters.

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One of the dominant political developments of our time is the legislative branch’s abdication of its Constitutional responsibilities to the executive branch. What kid oakland called a “battle for governance.” It’s most pronounced in Congress, which has almost voted itself out of existence under the Bush Administration (even when Democrats control it).

But you can see it to some degree here in California, at the state and even the local level. Although designed to be co-equal branches, the state legislature has often deferred to the governor’s office on major legislation. Unwilling to challenge a weakened Arnold, Democrats in 2006 cut deals with him and helped his reelection, intentionally or not. In 2007 Democrats wound up having to give into the governor’s demands for a $1.3 billion public transportation cut and adopted much of his health care proposal, including Arnold’s individual mandate plan.

So far, though, the California legislature has resisted Arnold’s other power grabs – with crucial help from progressive groups, activists, and voters in the 2005 special election, of course. Now Arnold is trying again, using his “Year of Education” as an effort to seize more control over state government. In this instance his plan is to take control of the state Department of Education from the Superintendent of Public Instruction:

Another idea on the agenda that went nowhere in 2002 was handing the governor much of the responsibility for education. That proposal was part of the California Master Plan for Education, headed by then-state Sen. Dede Alpert, a San Diego Democrat, and opposed by Jack O’Connell, who was running for state superintendent at the time. He was on the master plan committee but withdrew his name because of that proposal.

Now, Alpert is the vice chairwoman of the governor’s education committee.

On Friday, O’Connell declined to comment on the new report until its official release.

Although the Chronicle frames this as a personal spat, there is a more fundamental issue here: democratic governance of education. The Superintendent is an elected position, designed for one purpose – overseeing public education. Obviously the governor is elected as well, but to oversee a number of different subjects. In a race for the governor’s office any number of issues may determine the outcome, but in a race for the Superintendent’s office, education is the only issue.

At root is a suspicion of, even a hostility to, the role of democracy in education. More and more schools around the country are being taken over by executives, in some cases unelected, on the unproven theory that strong leadership is more important for education than democracy and inclusion.

It’s an ironic story. Schools are consistently underfunded and their surrounding communities left to rot in poverty. When students predictably fail to achieve success at the same rates as their peers in better funded, wealthier locales, the media and politicians blame the schools, blame the teachers, and eventually, blame the elected school boards for the problem. Someone, usually a mayor or a governor, proposes a takeover of the schools “to produce results.” It’s happened in Newark, Washington DC, Chicago, and was proposed for LA under Antonio Villaraigosa.

Putting an executive in charge is only a good idea to those who think that education is or should be a top-down affair. In reality education is neither top-down nor bottom-up, it’s instead a collaborative effort where students, teachers, parents, administrators, politicians, and members of the public all have a role to play. In some cases the role is primary, in other cases it’s supportive. But in all cases education is something that only works when there is a lot of involvement, not when people follow orders from the top.

As public education is a public affair, the voters have a right to their voice in the matter. Locally, the elected school board is the way that gets done, the way that democracy functions in public education. It’s not perfect, and not sufficient – there is always room for more democracy at the school level and elsewhere in education – but it is at least a way for the public to have a role in planning and administering education.

School boards are inherently controversial. There have often been efforts by wingnuts to hijack these boards for their own agenda – the Dover, PA school board that wanted to force “intelligent design” on students is a recent high-profile case, but it’s happened many times here in California as well. And sometimes progressives get a hold of school boards and actually try to use them to address things like the achievement gap. When they do, however, they’re often attacked by a business-media alliance, as they were in Seattle last year. Accused of abandoning the core mission of schools to focus on “unnecessary” issues, progressive school boards are often targeted because they have what political scientist Samuel Huntington once infamously called “an excess of democracy.” Rein in democracy, it is believed, and we can finally “get things done.”

The Superintendent of Public Education is the closest thing to a state school board we have, at least in terms of democracy. There are MANY boards, commissions, and departments that have jurisdiction over education in this state, from the Department of Education to the UC Regents – but of these, only the Superintendent is directly elected. And since 1970, when Californians threw out the far-right Max Rafferty for the progressive Wilson Riles, the nonpartisan office has been held by Democrats. In contrast, since 1900 there have only been four Democrats elected governor in California, two of whom were named Edmund G. Brown.

Arnold’s attack on the office of the Superintendent of Public Education should then be understood in that context – the larger context of an attack on educational democracy, and Arnold’s desire to take power over education away from an office held usually by Democrats.

Yesterday I explained the funding elements of Arnold’s plan – how it involves eliminating specific program funding and instead provides block grants to schools. Oversight of this process is key to its success, and unfortunately, not all districts can be trusted to handle it properly. By removing the Department of Education from the Superintendent of Public Instruction Arnold proposes to make it more difficult for the public to have a democratic oversight role, and would wind up limiting the role of democracy in public education.

Democracy is difficult. Democracy can be ugly. But it’s also crucial not just to a free society, but to an educated society, and to the public education system that undergirds them both.