Feb. 5 (Bloomberg) -- California’s voter-approved tax increase, billed as a boon to schools, also will ease counties’ financial burden as they take control of thousands of inmates who had been the state’s responsibility.
Proposition 30 raised California’s highest-in-the-nation sales tax and income tax rates for top earners. It also guarantees the state will continue sending counties more than $6 billion a year for prisoners and social programs. That will help free them from the feast-and-famine cycles of state budgeting, said Jean Kinney Hurst, a senior legislative representative for the California State Association of Counties.
“These protections are fundamental,” Hurst said in a telephone interview. “They allow us to be fully on the hook and take on financial obligations ourselves, and give us the financial freedom to make long-term investments that we couldn’t do if people felt that funding was at risk.”
California is among a number of states that has responded to declining or stagnant tax revenue by shifting responsibility for law enforcement and social programs to local governments. The National League of Cities’ 2012 City Fiscal Conditions report said 19 percent of city finance officers reported they took over some state programs since 2010. Officials from 324 cities with populations of at least 10,000 responded to the survey.
In the Nov. 6 election, 55 percent of California voters approved Governor Jerry Brown’s proposal to boost the statewide sales tax rate to 7.5 percent from 7.25 percent. Taxes on annual income exceeding $250,000 were increased by 3 percentage points, for a total of 13.3 percent for income of $1 million or more. Brown, a 74-year-old Democrat, campaigned for the measure to maintain funding for public schools and colleges.
The governor spent less time touting the measure’s other feature: a constitutional guarantee that the 58 counties would continue receiving state money to pay for prison transfers, anti-drug programs, criminal probation, mental health programs, foster care and other services shifted to counties in 2011.
The transfer of responsibility was meant to save the state money and give local governments more control over care for their populations, Brown said at the time. The state prison population is being reduced by 40,000, or about one-third.
While the state gave $6 billion to counties to pay the cost, there was no guarantee it would provide the money from one year to the next. County officials expressed concern that it would be taken away in a lean year or under a new governor.
That lack of certainty, coupled with California’s fluctuating tax revenue, prompted notes of caution from ratings companies as they evaluated bonds issued by counties.
Fitch Ratings said Los Angeles County was “vulnerable to state funding reductions, realignment of potentially underfunded state functions to the county, and heavy social service expenditures” when it assigned an A+ rating to $59.2 million in lease-revenue bonds in November 2011. A+ is Fitch’s fifth-highest rating.
Under the new funding guarantee, Brown said counties will receive 1.0625 cents of California’s 7.5-cent sales tax and a share of state vehicle licensing fees. The revenue is estimated at $6 billion for the year ending June 30 and $6.3 billion for the following year, according to state budget documents.
Los Angeles County, the most populous U.S. county, is taking about 4,700 prisoners from the state, said Steve Whitmore, spokesman for Sheriff Lee Baca, who runs the county’s jails. Los Angeles County has almost 19,000 inmates, about 2,000 fewer than capacity, Whitmore said by telephone.
The state government is giving Los Angeles County about $267 million extra for the year ending June 30 for the cost of accommodating the new prisoners, Whitmore said.
Meanwhile, the county plans to replace its Men’s Central Jail, a 50-year-old facility billed as the largest jail in the U.S., and to build a new women’s facility. Those projects didn’t depend on passage of Proposition 30, Whitmore said.
While the measure’s approval provides breathing room for California counties, it doesn’t change the “inequitable” formula for distributing the tax money, said state Senator Anthony Cannella. The Republican from rural Ceres, east of San Francisco, said the funding is weighted too heavily toward counties’ overall population rather than their inmate population.
Cannella introduced a bill Jan. 30 that would provide another $819.9 million this year to counties based on how many additional prisoners they are getting.
“The passage of Proposition 30 did relieve some of the pressure, but my concern is that it’s a constitutional guarantee for inadequate funding,” Cannella said in a telephone interview. “This is still a giant experiment. I think it can work, but it needs to be adequately funded. Right now we’re not there yet.”
The California State Sheriffs’ Association, which backed Proposition 30, hasn’t taken a position on Cannella’s bill. Association President Keith Royal said counties are doing the best they can with the state revenue. Some are hiring more jail employees, while others plan to release low-level offenders from jails to daily monitoring, he said.
“We’re still going through a tough time in California,” said Royal, the sheriff in Nevada County, straddling the Sierra Nevada mountain range in Northern California. “I can build additional facilities, but I still have to deal with the costs of staffing those. The confidence of having the funding is really the issue.”
To contact the reporter on this story: James Nash in Los Angeles at Jnash24@bloomberg.net
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