For public officials, generosity can be the mother of invention – and not in a good way.
This is certainly so when it comes to generous pension promises to government employees. Up and down California, politicians have had to scramble for inventive ways to pay for their munificence to public-sector retirees.
Too often the funding strategies are more reckless than resourceful.
As the pothole-pocked streets in many communities show, “delayed maintenance” is one formula for freeing up money for pension costs.
Scores of California localities have also turned to risky finance in the form of “pension obligation bonds.” Either they’ve sold bonds in order to pay near-term pension bills with long-term borrowing (essentially off-loading today’s financial woes onto the next generation), or they’ve tried to master the arcane Wall Street art of arbitraging, by “investing” bond proceeds in hopes of a windfall return.
Again and again, the failed results speak for themselves.
Now, from San Ramon, comes a new clinker of a “creative” idea for helping retire retirement obligations. This Contra Costa County city has concocted a special tax that forces property owners (new-home buyers in particular) to shoulder an inordinate share of the burden.
In February, San Ramon unveiled a new “community facilities” tax district, with power to annex at least 2,500 parcels throughout the city, and to hit the owners with a special levy.
Keep in mind, this additional tax is over and above the normal property taxes that landowners already must pay.
So, what “facilities” will result from this “facilities” tax? None. There won’t be a single new park, streetlight, sewer, or cop on the beat, that wouldn’t have been produced without the new tax.
Instead of paying for new services or infrastructure, the special tax money will be used for existing municipal functions – the very operations (law enforcement, storm drainage, recreation, etc.) that ordinary property taxes are supposed to finance.
The facilities district is imposing a “pay something-get nothing” tax, as my colleague Damien Schiff, a principal attorney with Pacific Legal Foundation, branded it recently in announcing PLF’s lawsuit against the plan.
However, city officials clearly get something: Whether they admit it or not, for them it serves as a “pension tax.” By applying the revenue to the ordinary functions of government, they’re able to divert funds to help ease what one city document calls a key cause of budget stress: the “inflationary increases in … employee benefits costs.”
PLF is challenging the tax on behalf of the Building Industry Association of the Bay Area. But in a larger sense, we’re suing in defense of all existing and prospective property owners in San Ramon – particularly folks in the market for a new house. Parcels with new construction are most likely to be hit with the facilities levy in the short run, because annexation will probably take place as part of the building-permit process. So, at least to begin with, new-home buyers will be the ones paying, and receiving nothing in return.
Why is this not merely unjust, but downright illegal? Two words: Mello Roos. As PLF’s lawsuit points out, the state’s Mellos Roos Act, which governs creation of special property tax districts, requires that new taxes of this kind must fund new services for the folks who are paying them. By definition, a something for nothing tax doesn’t comply.
The state Constitution is also violated. Proposition 218, enacted by voters in 1996, says if new taxes are earmarked for general services (as in this case), they have to be approved by the electorate. But San Ramon never consulted voters on its facilities district brainstorm.
PLF is suing on your behalf, too. If San Ramon can get away with doing an end-run around voters – and with saddling new-home owners and other property owners with an employee-benefit burden they shouldn’t have to bear alone – watch for the scheme to show up in a city or county near you.
Paying for public employee benefits can be a struggle, no question. But that doesn’t justify punching potholes in the legal protections for taxpayers and for fundamental fairness.
Harold Johnson is an attorney with Pacific Legal Foundation.