☆ Who needs more help: California’s government or its taxpayers?
As Californians consider hundreds of local ballot measures, they hear (and mostly believe) an underlying narrative: elected officials and staff are doing their best to provide essential services with insufficient resources. It is this narrative that not only entreats for "yes" votes on local taxes and bonds, but also for state Proposition 5, which will make it much easier for cities and counties to borrow. But is this narrative true? An Opp Now exclusive from Cato Institute's Marc Joffe.
California local governments spend $400 billion annually and owe another $400 billion to bondholders. That’s over $10,000 of yearly spending and overall debt per resident in addition to money disbursed and borrowed by the state and federal governments.
Before addressing whether these amounts are too much or too little, it is worth asking whether local governments are using money effectively. This question is difficult to answer due to a lack of standardized measures of government effectiveness. But Wallethub did its best to rank 148 U.S. cities in terms of government cost-effectiveness; and it placed San Francisco, Oakland, and Los Angeles in the bottom ten, with San Jose doing only somewhat better, ranking 111.
Beyond this ranking, we can look at anecdotal data, which is not promising.
For example, the State Auditor found that despite heavy spending on homelessness programs in San Jose, unsheltered homelessness has risen since 2015, and the city has not consistently monitored the effectiveness of its programs. In San Francisco, a joint powers authority spent $2.2 billion on a transit terminal that serves only a few thousand passengers daily. And in Santa Clara County, VTA is spending lavishly on BART and light rail extensions with long construction cycles and questionable ridership prospects.
We also see evidence of corruption. In the 2010s, ABAG’s Public Finance Director stole $3.9 million of bond funds. San Francisco’s Public Works Director Mohammed Nuru was sentenced to seven years in prison for accepting hundreds of thousands in bribes from vendors. More recently, Oakland Mayor Sheng Thao became ensnared in an FBI investigation of Oakland corruption.
And then there is the incompetence as epitomized by the Bay Area Housing Finance Authority having to pull its $20 billion bond measure after opponents found an egregious error in the 75-word ballot label. [Editor's note: An analysis on what went wrong with RM4 here.]
Finally, there’s employee compensation. State controller records show that over 1,000 city and county employees around the state collected salary and benefits exceeding $500,000 in 2023.
Collectively, these anecdotes foster skepticism about whether government officials asking voters for more money are always doing their best to serve the public. Further, the techniques they use to secure voter approval are also questionable: many local governments hire expensive opinion research firms to poll test ballot language and bond sizes to see which are most likely to pass. And the 75-word ballot labels are often deceptive, including that of Proposition 5, which does not even mention that it lowers bond approval thresholds.
By so doing, Proposition 5 would alter a provision that dates all the way back to the state’s 1879 Constitution. California’s framers required a two-thirds vote and imposed other restrictions on debt issuance after Placerville, San Diego, and Stockton defaulted on ill-conceived municipal bond issues. A prospective new round of municipal bond over-issuance and defaults could result in higher interest rates for all cities and counties as investors demand compensation for heightened risk.
While some public officials are undoubtedly trying to do their best for the public, others may be seeking bond money to fund special interests including Wall Street firms and construction companies, taking an indirect kickback for their service. This is why it should continue to be hard to pass new bonds.
Public officials asking taxpayers for more money is nothing new; it certainly makes their jobs easier. But it isn’t always clear how much these ballot measures will burden the public, which is why they should be viewed with a healthy dose of skepticism.
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