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Californians of all political stripes are convinced that state government is broken and it is time for local governments to take charge. At a time when Sacramento's partisan battles stymie the search for solutions to serious problems, it is an understandable view.

In a December Public Policy Institute of California poll, Californians were in agreement that the state government wastes too much of our tax money, is "pretty much run by a few big interests looking out for themselves," and can be trusted "only some of the time" to do what is right. State elected officials are generating low approval ratings for their job performance.

Not surprisingly, then, residents are eager to have someone else in charge of governing California. Large majorities of residents favor a shift of tax dollars and service responsibilities from state to local government. Support is fueled by the public's relatively positive views of their local governments and a belief that local officials are in the best position to deliver services to residents. Californians express confidence that their local governments are up to the challenge.

With the state budget facing a multibillion-dollar deficit into the foreseeable future, state officials are more than happy to oblige. Last fall the state began to shift some convicted felons from prisons to county jails. The governor's new budget proposal makes clear that he would like to build on this first step. Dismantling the state government bureaucracy—and letting tax money flow directly to local governments—is an idea gaining favor in policy circles.

Yet history tells us that effectively changing the state and local balance of power is easier said than done. After the approval of Proposition 13 in 1978, state government made up for a sharp decline in local property taxes by taking on more responsibility. When the economy hit the skids in the early 1990s, state government asked local governments to provide more services. This shift—which occurred without the financial resources or political structure in place to get the job done—caused severe fiscal strain on cities, counties, schools and special districts as they were asked to do more with less.

Before going too far with today's realignment plans, we need to change the state's rules for governing localities or we are doomed to repeat the failures of past. These five changes are at the top of my list:

• More flexibility: Local governments need to have more control in spending and raising local money. For starters, let's seriously consider providing block grants from the state to local governments, with no strings attached. At the same time, expand the ability of local governments to ask their voters if they want new taxes—so that local residents can determine if they want to live in a place with high taxes and high services or low taxes and low services.
• Greater accountability: The local government structure is too fragmented for the voters to know where the buck stops—and the state-local finance system is so convoluted that only a few experts can follow the money. Local governments need a centralized power structure so that the local voters know who is in charge when it comes to budget issues. County governments and city governments should have mayors elected at large, and urban school districts should be the responsibility of big-city mayors.
• Increased certainty: The state must create simple, transparent and reliable ways to provide local funding. Many local officials lack the deep knowledge and experience for effective budgeting. The state controller should play an active role in the annual oversight of local government budgets and the state treasurer should advise on long-term issues such as public employee pensions and debt obligations. Important ideas to pursue include returning local property taxes to local governments, targeting vehicle license fees to transportation-related purposes and creating a more stable local sales tax base for local governments.
• More regionalism: Local officials must recognize that Californians live, work, travel and play in geographic regions larger than the political boundaries of their localities. The state should make it easy for local governments to actively coordinate and cooperate between—and within—counties, so that local public services, such as transportation, can be delivered in the most efficient, effective and equitable manner. Local governments have thousands of branches, and the state should enact laws to encourage more mergers, consolidations and joint operating agreements.
• Greater engagement: As local officials take on greater responsibilities, local elections will carry higher stakes. But voter turnout is lowest in municipal elections. When local voters make big decisions at the local ballot box, a small and unrepresentative slice of the population should not decide the future of localities. We need to move more local elections to November in presidential years, and find ways to use the Internet and mobile phones to expand the voter pool and turnout in local elections.

California is poised to make a dramatic shift from state control to local government power. Change of this scope will not be easy. But with proper groundwork, a state and local realignment in the 2010s can provide a solid foundation to engage all Californians in reinventing their government.

It may seem too simplistic to fault Proposition 13 for the tensions between the state and local governments. Yet the fact is that California’s landmark ballot measure capping local property tax rates also—by necessity—inserted the state into decisions that once were the purview of local governments. Proposition 13 required the state to take on responsibilities previously entrusted to local governments and school districts, particularly in the area of public education. It did so by dramatically reducing the resources available for local services. But perhaps even more important, it gave state lawmakers the power to allocate local property tax revenues and changed the requirement for increasing state tax revenues from a majority to a two-thirds vote of the legislature. Subsequent measures—including those sponsored by the proponents of Proposition 13—curtailed the ability of local governments to respond to local needs and residents’ preferences by requiring voter approval for any tax increase and locking in the allocation of local revenues based on outdated formulas.

Proposition 13 and its aftermath thus not only obscured the flow of tax dollars, but also made the lines of authority overly programmatic and budget decisions less transparent. The Public Policy Institute of California’s own public opinion research documents the fact that a significant majority of Californians lack the most basic knowledge about how state lawmakers spend their tax dollars. These findings suggest that very few voters probably understand that seven out of every 10 cents spent through the state’s General Fund flows to local governments, individuals, or health-care providers. Yet voters are routinely asked to weigh in on ballot measures that earmark portions of California’s severely limited tax dollars. And they are asked to freeze pre-1978 revenue allocation formulas that have profound implications for budgets at all levels of government, yet are so complex that even experts can’t agree on their meaning.

Disentangling the complex relationship between the state and local governments requires an understanding of local government and school finance, both before and after the passage of Proposition 13. Prior to voters’ approval of the measure in 1978, each city, county, school district, and special district independently established a property tax rate to raise the revenues needed to support the upcoming year’s budget. Local elected officials were accountable to voters—for whom those dollars were spent— for the amount of tax paid. In response to Proposition 13's dramatic reduction in local property taxes—collections were slashed by 60 percent overnight—the state stepped in, assumed a larger share of the cost of funding our public schools, and divided the remaining much smaller pot of property tax dollars among counties, cities, and special districts.

This worked reasonably well until the 1990s, when the state experienced what was then the most severe budget crisis since the Great Depression. In 1993, state lawmakers used the powers granted by Proposition 13 to shift more of the cost of schools back onto the local property tax. To help close state budget gaps, property taxes were reallocated from cities, counties, and special districts to schools. This shift reduced the amount of money the state was required to provide to schools under Proposition 98. Thus, an increase in the share of funds provided from local resources reduced the state’s obligation to schools on a dollar-for-dollar basis, albeit at the expense of local governments.

As it stands today, local governments craft budgets with one hand tied behind their backs, responsible for allocating resources among competing spending priorities but lacking the authority to raise the revenues to pay for them. While proponents of lower taxes argue that strict limits on taxing authority lead to fiscal responsibility and accountability, California’s experiences over the past several decades suggest that just the opposite may be true.

The explosive growth of redevelopment after the passage of Proposition 13 provides an excellent case in point. A considerable body of research—including that done by PPIC— suggests that redevelopment is often inefficient and fails to generate significant growth. Prior to Proposition 13, a city council that diverted property tax dollars to redevelopment would likely increase the property tax rate to maintain funding for police, fire, and other essential local services. This gave voters a clear incentive to ensure that redevelopment dollars were spent prudently and at the same time, forced policymakers to directly weigh the tradeoffs between competing uses of resources. After Proposition 13, local governments—primarily cities—could "export” most of the cost of redevelopment to the state because of the interrelation with the Proposition 98 funding guarantee. As a result, voters have little incentive to monitor how redevelopment dollars are spent, while the complex financial relationships and perverse incentives and disincentives make it virtually impossible for voters to understand how their tax dollars are spent or to hold policymakers accountable.

By severing the link between the authority to raise taxes and the authority to spend them, Proposition 13 also lessened the incentive for voters to watch over school and local government budget deliberations because spending decisions no longer translated into higher tax bills. And, as state lawmakers assumed a larger share of responsibility for financing local services—particularly schools—they felt entitled to exert more direction over programs and priorities. After all, whoever pays the piper gets to call the tune.

The solutions to this problem are at once simple and complex. Simple since it would take just a three-word change in the state’s Constitution to allow legislators to raise state taxes by majority vote, lessening the incentive to balance state budgets by shifting costs to local governments in bad budget years. Similarly, deleting a few dozen words from the state’s Constitution would restore locally elected officials’ power to increase revenues.

The far more complex and politically challenging task would be to "unlock” budget lock-ins and realign outdated allocation formulas. These were enshrined in the Constitution in the wake of Proposition 13—often at the behest of local governments seeking to prevent state policymakers from shifting dollars or responsibilities to ease the state’s repeated budget crises.

Allowing California’s elected officials to raise revenues by majority vote would go a long way toward removing the incentive for the state to balance its budget on the back of local governments. In the ideal world, this change would be accompanied by a realignment of revenues and responsibilities premised on two basic commitments: to ensure that all Californians have access to good schools and quality services, and to promote transparency and accountability with respect to fiscal and programmatic decision-making.

Transparency may provide the path to greater transparency. Until voters understand the complex relationship between the state and California’s local governments, they are likely to view major changes with understandable skepticism. Let’s hope that three decades of patchwork policymaking can be undone in fewer years than it took to create.

A subtler, but very important, factor is that Proposition 13’s impacts hit the Capitol at the precise moment when its occupants were undergoing a cultural implosion, becoming more overtly partisan and career-minded and less interested in policy for its own sake.

That change of orientation made the Capitol a target-rich environment for special interest groups with money to spend on lobbyists and campaign contributions. And local governments, schools and—most importantly—the unions that represented their employees quickly became, collectively, the largest and most influential special interest bloc in town.

The collegial, pre-Proposition 13 relationship between Sacramento and the locals quickly evolved into an exercise in power politics. The Capitol became an arena in which the locals jousted with the state over money and in which local disputes, especially those involving money, were taken for political resolution. Local officials and their employees’ unions, for instance, have often clashed in the legislature.

Moreover, Sacramento politicians quickly grasped that their power of the purse would allow them to influence local government and education matters by specifying how aid money was to be spent. An early example occurred in the 1980s when the Los Angeles County Board of Supervisors acquired a 3–2 Republican majority and the county’s Democratic legislators used the state budget to force the board into doing things it didn’t want to do.

When a severe recession hit the state in the early 1990s, thanks to severe cutbacks in Pentagon spending, the state-local relationship became overtly contentious. Schools had persuaded voters to enact a sweeping, and extremely complex, education finance measure in 1988—aimed at creating an inviolable floor under state school aid—and when the recession-battered state budget couldn’t meet its education obligation, then-Governor Pete Wilson and the legislature forced local governments to shift billions of dollars in property taxes into school coffers.

Over the next two decades, governors and legislators repeatedly fiddled with the mix of property, sales and vehicle taxes going to the state, the schools and local governments. One such maneuver became known as the "triple flip.” ERAF—the Educational Revenue Augmentation Fund—became a four-letter swear word among city and county officials.

All this set in motion locals’ years-long effort to regain fiscal independence, which included two ballot measures aimed at protecting their treasuries from state raids and numerous court battles—one of which is still being fought, as the multi-billion-dollar squabble over the state’s grab of city redevelopment funds and the Orange County rebellion this month indicate.

The county was caught up in one of the state’s periodic revisions of ERAF allocations—thanks to machinations over its declaration of bankruptcy years earlier—and refused to send the property taxes to schools, saying it was being treated unfairly. Supervisors acted even though an Orange County senator had obtained a special $35 million allocation of property taxes for the county two years earlier as his price for voting for a controversial 2009–10 state budget bill.

Who’s right and who’s wrong? When it comes to the interplay of state and local finances, there is no right and wrong; there are only winners and losers. Orange County won one round in 2009 but may lose in 2011 if the state goes to court to get the $73 million.

Cities, like Orange County, are claiming victimhood because Brown and legislators agreed to end all local redevelopment programs as a way around Proposition 22, a 2010 city-sponsored ballot measure aimed at protecting municipal funds from state raids.

Abolishing redevelopment after nearly 70 years would redirect about $5 billion that redevelopment agencies skim off the top of the property tax pool each year to other local entities, thus saving the state about $2 billion because the schools would get more property taxes.

Another state law would allow the redevelopment agencies to remain in business, but only if they sent the state enough money to compensate for its school costs—an issue that’s now being fought out in the state Supreme Court.

With the state budget facing multi-billion-dollar deficits for years to come, the triangular state-local-school jousting over money shows no signs of ending, but there’s also a new wrinkle. While cities battle the state in court, the counties have become partners with the state in what Governor Brown calls "realignment” — shifting more functions, especially in criminal justice, from the state to counties, along with more than $5 billion to finance them.

It’s a way for the state to comply with federal court orders to reduce prison overcrowding, and the counties like getting the money because they think they can come out as net winners—but there’s a big caveat. With the history of ERAF and other conflicts, county officials are willing to shoulder the new responsibilities only if they have an iron-clad guarantee that the money will always be there, and that would take a constitutional amendment approved by voters that’s still to materialize.

Nor, as mentioned earlier, are the state-local conflicts always about money. One of the most cherished local powers has been land use—deciding what can be built and where. But that authority has been eroded over the years by a series of state actions, such as the adoption of specific controls over development in the coastal zone by a state commission in the 1970s and, more recently, direction from the state to adopt more transit-friendly land use policies as part of California’s effort to reduce greenhouse gases.

At the same time, however, the state has reduced its once-dominant role in transportation, especially highways, and local governments have filled the vacuum by financing and managing many highway projects with locally raised sales taxes.

What of the future?

Some visionaries—such as members of the Think Long Committee for California—believe that the bell can be unrung, that the first steps of realignment can expand into a complete reconfiguration of state and local responsibilities, along with an overhaul of the state-local tax system.

Whether that happens is uncertain, but it is certain that the relationship that has developed over the last three decades is fundamentally unhealthy, divorcing responsibility for taxing from accountability for performance. It leaves the public confused and angry and dissipates civic energy on political infighting that would be better spent delivering effective services.

Most Californians, one is certain, don’t care who does what. They’d just like for someone to do the job.

When Orange County’s Board of Supervisors rebelled in mid-November, defying a new state law by refusing to shift $73 million in property taxes from the county’s coffers to local school districts, it marked a new chapter—and perhaps a new low—in the tortured history of relations between California’s state and local governments.

Although many, if not most, of the Capitol’s politicians, including Governor Jerry Brown, have served stints in local government themselves, they tend to act as professional athletes do when traded from one team to another. Yesterday’s teammates are often today’s bitter rivals and could even be teammates in another season.

It would take a book—a long book—to adequately depict the many mileposts in the state-local relationship, but the Twitter version would be that the conflicts are usually, but not always, about money, and they began when voters passed Proposition 13 in 1978.

The landmark property tax limit measure had the direct consequence of severely limiting—virtually eliminating—the long-held power of cities, counties, school districts, and other local governments to raise revenues as they saw fit.

Arguably, it was exercising that power that led to Proposition 13’s passage. During a period of high inflation, county assessors were routinely imposing double-digit annual increases on property values and local officials were feasting on the resulting tax bounties. Presented with Proposition 13 as an antidote to their ever-rising property tax bills, voters embraced it.

One indirect consequence of Proposition 13 was to make "locals,” as they were dubbed, highly dependent on the state—especially counties and schools— and therefore subject to the whims of Capitol politics. And the fiscal burden has been, more often than not, more than the state’s own sales and income tax systems could bear, especially since the measure also made raising state taxes more difficult.

One issue that stands out in recent California budget crises has been the negative effect that state fiscal issues are having on local governments. It is clear that as governors and state legislators seek to find funds to pay for state services, the dollars that flow to local governments are opportune targets for diversion back to the state.

But local governments are dependent on these resources to carry out their functions. So as the state budget is challenged, local government budgets are also challenged because dollars from the state are the largest source of most local government funding.

Since Proposition 13 passed in 1978, local governments no longer set their own property tax rates to fund local needs. Before that, local governments relied on property taxes and the ability to annually set the tax rate. These revenues were the largest part of local government funding. Proposition 13 was a defining moment and forever changed the funding relationship between local and state governments.

This notion has become all-consuming to many. "If we could just get back to the pre-Proposition 13 days, then all would be fine” is the mantra. Some may consider those the "good ole days”—when local governments could raise taxes at will, when the cumulative effect of multiple governments raising property taxes on a struggling homeowner was not considered, and when local officials didn’t have to seek voters’ consent to raise taxes or institute new ones. However, voters made a clear choice in 1978, and polls show that they would reaffirm that position today. Today state and local leadership must accept that decision—both the protections that have been provided and the challenges that have been created.

But to those who point to Proposition 13 as the catalyst that changed local governments in California: you are right. It did change the revenue side of the equation. What some may miss is that after 1978, the legislature dramatically affected the principle of local control by further limiting local revenues and by mandating programs and services to be performed at the local level.

Not only was the revenue side of the local government equation altered, so was the expense side: the services provided, how they are delivered, and how local governments manage them. Over the last 30 years cities, counties, and school districts have all lost significant autonomy.

Therefore, in discussing the fiscal relationships of state and local governments, the first step is to understand that counties and school districts are not really local governments but "quasi-locals” in today’s definition of government in California.

For instance, urban counties in California receive the lion’s share of their annual funding from state sources for the purpose of managing programs with direct state and federal mandates for service, such as social services. Similarly, school districts have their revenues set by state legislative action, while state education standards, textbook decisions, employee benefit options, graduation requirements, and teacher staffing are restricted by state law.

In contrast, cities are the local governments that have maintained the greatest degree of autonomy from state control—despite significant state mandates. California cities are what should be preserved as true local government in this state.

Cities provide primarily property-based services that their residents want: police protection, fire protection, parks and libraries, streets and roads, and planning and development services. These services have been less battered by legislative mandates, but funding for them is still very much a creature of state government direction.

By and large cities in California today receive the majority of their operating dollars from a share of property taxes allocated to them, a share of sales taxes collected in their jurisdiction, and a share of Vehicle License Fees.

Even though these may seem like local city revenues, they are revenues that the state controls.

Each city’s share of property tax is directed by state legislative action. Most cities’ property tax share is determined by the post-Proposition 13 legislation known as AB 8, passed in 1979. Before Proposition 13, each city, county, school district, and special district would set a property tax rate, and the combined rates constituted a homeowner’s property tax bill. To implement Proposition 13, AB 8 took the newly set property tax rate of 1 percent of assessed valuation and created a distribution matrix of those to the cities and districts within each county.

However, these proceeds varied tremendously from county to county and city to city, based upon a number of circumstances—from the amount of property taxes jurisdictions collected prior to the passage of Proposition 13 to more politically inspired considerations.

In addition, AB 8 was not designed to take into account population and demographic changes, and the disparities that were part of the original 1979 formula have a tremendous impact today. For example, in the 2008-09 budget year allocation of property taxes, San Francisco received $1,114 in property taxes per resident, Los Angeles received $266, San Diego received $234, Anaheim received $97, and Santa Ana received $87. These disparities have a significant effect on how cities perform services, and AB 8’s distribution formula locks in this inequity.

Sales tax is another source of city funds. Cities retain 1 percent of the state-established 7.25 percent sales tax collected in their jurisdictions. Even though this sales tax is collected by the state, the local share—known as the Bradley-Burns share after the authors of the state law—has become an important part of city funding since it was established in the 1950s.

Cities also receive funds from the Vehicle License Fee that is collected statewide and distributed to cities on a per-capita basis. When the state legislature dramatically reduced this fee in 1998, the same state law required the state to "backfill” from the general fund those reductions to local government. And later, those backfilled dollars were funded with an increased share of the property taxes to each of the jurisdictions.

In looking at how to ensure that cities continue to maintain autonomy from the state, it would seem that local revenues should come from a source with a nexus to the service. Cities primarily provide service to property in fire protection and police protection, and enhance a community through parks and libraries, local infrastructure, and planning and development services. Therefore, cities should receive a larger portion of the property tax dollar collected on the property where services are provided. This would give cities an incentive to promote and support the highest and best use for property within their jurisdiction.

Further, a shift of property tax revenue to cities should mean that cities relinquish general tax resources like the Vehicle License Fee or even a portion of sales taxes collected within their jurisdictions. These taxes should be directed to governments that provide general government services, such as education or health and welfare services.

Some of these suggestions will stir opposition among those who defend the status quo. Many local governments have made decisions based upon the rules in place and may feel that any change would negatively affect them.

But we do not succeed by wishing the past never happened—as those who continue to complain about Proposition 13 do. We succeed by living in the present and addressing the challenges of the future.

Local governments throughout the state face ongoing fiscal crises caused by the state’s budget shortfalls, constraints placed on revenue by various ballot measures, supermajority voting requirements, hyper-partisanship, and other factors.

During times of fiscal hardship the relationship between the state and local governments—rather than being a symbiotic connection that helps both—is parasitic. The state cannibalizes local revenue streams while preventing localities from raising more.

For a number of years—this year being the exception—the state’s fiscal crises and supermajority voting requirements have prevented passing a balanced budget on time. Passing a budget at all has often meant employing gimmicks that relied on fund shifts—borrowing from local governments to fill state budget gaps—much to the dismay of local officials and school districts.

For example, rather than raise revenues to cover the state’s shortfall, the 2008-09 and 2009-10 budgets signed by Governor Schwarzenegger simply shifted and borrowed money from local governments as if they were the state’s piggy bank.

Further challenging the fiscal relationship between the state and local governments are the countless ballot measures that limit the ability of localities to raise or spend revenues.

Popularly known as "budgeting from the ballot box,” these measures create various obstacles. The passage of Proposition 13 in 1978 limited property taxes. Proposition 62—passed in 1986—tightened requirements to raise local general taxes. In 1996, Proposition 218 limited local governments’ ability to impose taxes and property assessments. In 2004, Proposition 1A protected local government revenues from reduction by the state. Proposition 26 expanded the definition of "taxes” in 2010.

Of those measures, the seemingly insurmountable obstacle—Proposition 13—is worth singling out. Revered by some and despised by others, it has such an effect on elected officials and voters that the mere mention of it provokes an emotional reaction.

Passed during Governor Brown’s first term, Proposition 13 makes the state legislature responsible for dividing property taxes among local entities and requires a two-thirds vote to increase such taxes.

Over the years, many have called for a suspension or repeal of Proposition 13. Just this year, the Sacramento Bee reported that Los Angeles Mayor Antonio Villaraigosa called for "taxing commercial property at higher levels, while lowering taxes on homes. The [mayor] said lawmakers, school districts and local governments should be able to raise taxes on a majority vote, rather than the two-thirds supermajority required by Proposition 13.”

The mayor clearly understands that something has to be done to preserve, protect, and defend the city’s valuable public services rather than relying on dwindling financial resources from the state or reducing and eliminating public programs and services. Los Angeles is not alone in its fiscal struggles. Other cities and counties throughout the state are facing significant shortfalls.

For local governments, the road to solutions is fraught with obstacles. For most local agencies, levying a tax for general purposes requires a two-thirds vote of its governing body and a majority vote of the electorate. A tax for specific purposes also requires a two-thirds vote of the governing body and a two-thirds requirement by the electorate. If the tax is a property assessment, a majority vote is required by the governing body and the electorate. A fee increase requires only a majority vote of the governing body. The system is not designed to be user-friendly.

Without a supermajority of either major party in the legislature or at the local government level, the likelihood of achieving the necessary thresholds is small, especially in a political environment where many elected officials hold fast to the notion that any tax increase must be opposed.

Reducing voting thresholds for local governments to raise needed revenues is one possible solution. Another, offered by Senate President pro Tem Darrell Steinberg, would have authorized the governing bodies of local governments—including school districts, county offices of education, and community college districts—to levy or increase the local personal income tax, local vehicle license fee, an additional transactions and use tax, and excise taxes on alcohol, cigarette, and tobacco products, oil severance, sweetened beverages, and marijuana.

Eliminating supermajority voting requirements and extending more authority to local governments and local school districts to pursue other avenues of finance would allow many local governments to help reduce or mitigate the detrimental effects of the current fiscal crisis and prepare for the next economic downturn.

Another potential solution is "realignment.” This year the governor enacted the first phase of realignment of specific state services. In this phase, certain services that have been performed by the state will become the responsibility of local governments. An existing source of revenues will be diverted to local governments to take on this burden.

Realignment is a move in the right direction for some programs, as it would ease a burden on the state and could ease fiscal tension between state and local governments. It is likely that many local governments, service providers, and recipients would like to see the sources of these revenues protected.

Given the severity of the fiscal crisis at the local government level, Proposition 13 should be revisited and realignment must be pursued in a thoughtful, equitable manner. It is time for elected officials, including the governor and legislature, to come out of their political comfort zones and, like the mayor of Los Angeles, take a serious look at solutions based not on stale ideologies but on what is right for California.

The ongoing fiscal crisis has placed severe strains on our institutions of governance, just as it has pushed working families to the limit. Only new thinking, coupled with an enduring commitment to a well-functioning government and a robust middle class, will get us out of this current crisis and on a path to a sustainable future.

• Listen to and support local leaders, not only elected officials but the full range of innovators and advocates of all ages and backgrounds. Look for ways to take their successful service innovations to scale within a county.
• Create and assess plans to change the provision of services in light of how they will treat the most vulnerable populations. Mandate the collection and dissemination of data that allows for the careful analysis of services and outcomes by race and other characteristics.
• Incentivize and otherwise support community-based prevention, early intervention, and other approaches that can be cost-effective, and let those savings accrue to the agencies that undertake the big changes and achieve the results, so that they can do more.
• Support a statewide movement of grassroots leaders, advocates, and experts for information-sharing, policy change, and continuous improvement in the delivery of services in all counties. Such a movement will be essential for true accountability.
  

My experience as a member of the California Legislature and my subsequent role as founding CEO of Joint Venture Silicon Valley has instilled in me a keen awareness of the complexities of the fiscal relationship between state and local governments. Can we improve this relationship? Absolutely, and we must if we are to revive the potential within California.

To fundamentally change our broken system, I urge all of us to look to what is already working and to allow innovations to come from these successes. We must look at our economic regions. There, we find regional stewards implementing solutions through partnerships across sectors. Stewardship is the careful and responsible management of that with which we are entrusted. I believe that being a steward of the Golden State requires a concern not just for economic prosperity, but for environmental sustainability and social equity in the achievement of that growth.

In 2008, the California Stewardship Network (CSN) was launched as a way to connect, to network regional groups that have strong track records of collaboration within their regions. The members of CSN are proponents of what the business community calls the "triple bottom line,” which factors in natural and human capital, as well as economic, in its approach and decision-making. CSN involves regions from San Diego to the Redwood Coast and from the Monterey Coast to the Sierra Nevada. It includes eleven regions, thus far, with more to be added. CSN stewards believe that "Thriving Regions Lead to a Thriving State.”
 
These regional stewards mobilize leaders from the private, public, and civic sectors to collaborate to solve persistent problems or unlock new opportunities that no single organization can accomplish. They see opportunities for change and improvement and bring the same passion, rigor, and persistence to community problem-solving that business entrepreneurs bring to launching new ventures. And so, when I am asked to provide ideas for the challenges facing our state, I say… the solution will come from the regions.

The state of California must organize around these economic regions, promoting our economic recovery through regional strategies. We must recognize that these regions have unique economies and will require unique solutions. We must understand that while the regions’ opportunities may vary, many of their obstacles are the same: lack of a streamlined regulatory and permitting process, lack of a "front door” for business retention and expansion, lack of a skilled workforce, lack of access to capital, and an inadequate transportation infrastructure. We must recognize that we live in a state where a "one size fits all” approach to progress will fail, but a shared approach to addressing obstacles "closer to the people” will aid progress efficiently.

I ask that California state and local governments partner with regional leaders to unlock the full potential of the state’s economic regions by providing more autonomy and incentives for collaboration in return for accountability and results. Each region of California needs the necessary support to develop and implement an economic recovery strategy that reflects its own unique challenges, industry mix, and innovation assets. We must align state resources and regional efforts around comprehensive regional strategies focused on prosperity, people, and place.

Regional stewardship calls for compromise, collaboration, inclusion, trust, and the motivation to find solutions for "us” not "me.” By working together in this way, we will find solutions that address the fiscal relationship between state and local governments. Long-term solutions cannot even be conceived until we build our capacity to collaborate and think through the systems that have put us in this predicament. Let’s learn from prior Band-Aid approaches that have been well-intentioned but short-sighted. Our problems are too large and too complex for isolated solutions. We can no longer expect a top-down, one-size-fits-all approach from the state to work. The true solutions will not come easy. But if you take time to see what regional stewards are doing and learn more about their innovative ideas for the future of California, you will see that solutions to our most complex education, environmental, and economic problems are possible.

The California Stewardship Network is a nonpartisan, nonprofit organization based on the belief that Californians are up to this challenge. Regional leaders seek to be productive partners with state and local government, working together to identify and implement specific changes that will increase regional innovation, collaboration, and results. We have proven successes to share from the regions. We ask PPIC and all who care about the future of our state to learn more about our work and to support our vision of a "Thriving California.” Check with your local regional leaders listed on our website: www.castewardship.org.

I have committed much of my professional life to finding solutions that go beyond our state’s quandary—solutions that are more systemic and transformational than short-term fixes for today’s budget crises. In so doing, I have come to the conclusion that we must look to California’s unique regions for innovative solutions to the state’s most pressing economic, environmental, and community challenges. We must, nevertheless, have a collaborative relationship with our state government that doesn’t leave regions, counties, cities, and our communities in fiscal straitjackets.

Let’s all be stewards of California and work within our regions, hand in hand with other regions, to bring prosperity to a new California dream.

One of the biggest problems in the state-local relationship is that the state does not allow local governments the freedom to innovate in carrying out their duties. We need to create a 21st century government that allows locals to use all kinds of methods and strategies to get the job done.

As former New York Governor Mario Cuomo once said, "It’s not government’s obligation to provide services, but to see that they are provided.”

Local governments should be able to use different and creative methods to run efficiently and economically and get the most for taxpayer dollars.

For example, local government should be able to create their own labor agreements, use public-private partnerships, privatize services, and even use volunteers to fix up schools or other public facilities—arrangements often prohibited by labor laws.

The state’s interference in local activities continues and is made clear by a number of recent legislative actions. Consider a few of the bills passed in the last legislative session in which the power of the state would be imposed on local governments. All but one were signed into law by the governor.

One bill (AB 469)—ultimately vetoed by the governor—set up a series of tests that local governments must follow before a superstore could be placed in a community. Local governments already have the power to set up certain requirements and consider the value of such centers. Citizens can protest and oppose centers. In Suisan City, the mayor faced a recall over the issue. The recall was defeated, but the citizens debated the issue and had their say. The state did not need to be involved.

Another bill (AB 438) sets up hurdles for local governments to choose private companies to run public libraries. Libraries are important learning centers, but their functions will adjust as the dissemination of information continues on the course of rapid change. Like the post office, libraries will have to reconsider the most effective and cost efficient way to operate in the information age.

Much attention was paid to Project Labor Agreements (PLAs), which are often created for local infrastructure projects to discourage non-union labor from participating. Efficiency and tax savings arguments are at the core of this debate. Supporters of the agreements claim they create unified work forces at construction sites and save taxpayers money by using skilled workers. Opponents take a different view, claiming construction costs are higher under PLAs. One recent study found that school construction costs increased 13–15 percent under PLAs.

The point here is that the state wants to tell the local governments how to handle PLAs. Three bills signed by the governor—SB 922, AB 436, and SB 790—all give power to the state over these projects. SB 922 will help override local decisions on PLAs by denying state funds to any projects nullified by local governments.

It should not be surprising that the state wants to dictate to local governments. That situation has occurred since the beginning of California statehood. Framers of California’s first constitution thought local officials would be more likely to oppress the people. The trouble was that legislatures in California’s early days took up so much time with what was termed "special legislation for local governments” that insufficient time was spent on state matters.

As bills mentioned above demonstrate, legislators are still spending too much time trying to dictate to local governments.

Local governments are also responsible for the fiscal crisis that faces jurisdictions especially in the area of pension and benefits costs for their workers. This problem will become greater as time goes on.

The evidence is all around us. Los Angeles city retirement costs, which currently take up more than 10 percent of the budget, are projected to take one-third of the budget by 2015. A grand jury in San Diego said pensions could require half the general fund by 2025. A year ago, a grand jury in San Francisco reported that pension and health care costs would increase from $413 million in the fiscal year to nearly $1 billion in just five years and "threaten to move resources from other needs of the city.”

Clearly, to overcome these barriers and establish more cost-effective governments, a new paradigm must be created for government and its relationship with public sector employees.

Reforms dealing with pension and health care costs are well-known: Caps on employer contributions (perhaps to be put on par with employee contributions), increased employee contributions, 401(k) style pension plans for public sector workers and a myriad of other plans have been suggested. Those who enjoy the current system understandably resist change. However, as the vise continues to squeeze, change must come.

Local governments are already being crunched with the down economy and growing retirement obligations. As noted, projections show that the problem will only become worse.

Here again, the state wants to stick its authority into local business. Because one city chose bankruptcy to deal with its difficult financial problem, state law now undercuts the ability of locals to manage their own affairs when it comes to bankruptcy decisions.

Prohibiting the state government from interfering with local decisions and freeing up local officials’ ability to use all methods to stretch tax dollars would ease both the burden on local governments and the tension between state and local governments.

Local governments should rely on their own workers to suggest ways to deliver city services more efficiently. They know how the system works—or in many cases—how it fails to work.

The California Performance Review in the early years of the Schwarzenegger administration created a number of telephone book-length documents bearing suggestions to improve state government functions. The work was put together mostly by state employees. That model should work on the local level, as well— as long as there is follow-through to implement positive changes. That did not occur with the state project.

You hear all the time that California is the world’s eighth largest economy. You rarely hear that, if the state were a country, it would be the 35th largest in the world.

The latter statistic deserves more attention. The 34 countries larger than California govern themselves through some form of federal system, with power shared between a central government and regional governments”—states or provinces or prefectures—fitted to places that form communities by virtue of their shared geography, economy, or ethnicity.

But California is not a nation. It has no states. Instead, it has a void—between a distant, if powerful, central government and its numerous and weak local governments.

For all the fights between state and local governments over specific programs and costs, the core problem of the state-local relationship is bigger. Literally. California is too big for the state-local regime that is supposed to govern the place.

When it comes to size, the state has the worst of both worlds. On one hand, the state government in Sacramento, where fiscal power has been centralized, is too distant and unrepresentative to serve a diverse and sprawling population. On the other hand, our local governments are often scaled at the wrong size (too small, in most cases) and are deprived of the tools and flexibility necessary to solve problems—like crime and transportation and education—that cross municipal borders.

In the governmental no-man’s land between the state and local governments are California’s big regions: the Bay Area, the Los Angeles Basin, the Inland Empire, the Central Valley, the Central Coast, Greater San Diego, far northern California.

These are the real units of citizenship in California. Californians, after all, are not Badgers or Tar Heels. We may all live on a piece of ground labeled "California” on the map, but we don’t have the common traditions of cultural belonging and history that shape most other states. We share institutions of government but not a true political community. Unlike the residents of many states, we have no dominant newspaper or statewide broadcast outlets to share the news and debate our future together.

Our regions, however, are more cohesive. They are more like American states than the state of California as a whole. California’s economies, with well-defined labor markets and distinctive clusters of goods and services producers, are regional. So are our transportation systems. And our media. And our weather. Even our sports teams have primarily regional followings. (And regional loyalties run deep and form early. The moment my 2-year-old son, a child of Los Angeles, hears the three terrible words "San Francisco Giants” he begins booing.)

But California’s regions don’t have their own level of government. Instead, the state and local government system at once splits up each region—and pushes regions together that have little in common. The system does this because Californians have failed to reckon with the size of their state.

Put simply, California’s governments don’t fit California. The legislature was set at its current size, 120 representatives divided into two houses, in 1879, when California had fewer than 1 million people. More than a century later, California has nearly 38 million—and a legislature so small that the state has the nation’s most populous legislative districts. Assembly members represent three times as many people as do members of the Texas House of Representatives, which has the next largest lower-house districts, and about 10 times as many as the average lower-house lawmaker in other states. If Californians feel "too little acquainted” with our representatives, and they too little acquainted with us, the fault lies in the numbers and the sheer size of legislative districts.

When it comes to local governments, the problem is reversed. California suffers not from too little representation but from too much. The state is barnacled in governments. It has 58 counties, ranging in population from 1,201 (Alpine) to 10.4 million (Los Angeles). It has 482 cities and 425 redevelopment agencies. It has 72 community college boards and more than 1,000 school districts. It has 4,778 special districts, 2,998 of them independently elected or appointed, covering everything from birth (hospital districts) to death (cemetery districts).

"I currently have 22 people I elect to represent me at all levels of government, and I can’t name them—and I’m president of the California Voter Foundation,” Kim Alexander, the leader of the civic education group said in 2009.

This size mismatch between our state-local government structure—and our regional realities—breeds considerable frustration. The most entertaining expression of this frustration comes in the form of periodic proposals to split the state. However silly the proposal to break the state in thirds or carve the Central Valley away from the coast, the regional frustration is real. Regions can’t get what they need from the distant state government—and can’t bind together their myriad local governments to solve common, regional problems.

A problem of this… well… size can’t be treated merely by transferring funding for corrections from Sacramento to local counties. The governing structure itself must be transformed—and replaced by a new system that makes regions the dominant political units in California government.

This means remaking both state and local government. At the state level, this means a massive transfer of spending and taxing authority to the regions. One way to reinforce that retreat of state power would be to remake the state legislature to represent regions—instead of the current districts that divide up regions.

The new regional legislative districts would elect multiple members—not one member per district as we have today. And it wouldn’t be necessary for every district to be the same size or elect the same number of legislators. As long as the districts have equal populations per legislator elected, they would meet the constitutional requirements of equal representation.

Realignment of the relationship between state and local government just might result in better ways to achieve important common purposes: more clarity and support from the state, more flexibility to carry out community-driven solutions, and more accountability for performance from local governments. These positive outcomes could come to pass, but they are far from guaranteed. Indeed, they will not happen without a direct, consistent, and creative commitment to equity.

California’s fiscal crises have led us into a period in which a wide array of radical changes in state-local relationships are likely but the political system is incapable of carefully considering these shifts. In this tumultuous period, it can be easy to think of realignment as principally an inside game, a high-stakes and very technical negotiation among established institutional interests. But while those state and local interests would have the most direct responsibilities for implementing the changes, the true consequences will be borne by the children, youth, and families in the respective service systems, and by the residents of communities affected by the new fiscal, regulatory, and policy frameworks. Realignment could provide opportunities for California to improve some seriously deficient service systems and lead to better outcomes. But what would bring about positive results of that sort? What does it mean to turn an equity lens on the realignment strategies?

We can explore this question with reference to the discouraging and desperate conditions faced by many boys and men of color, for whom the realignment of criminal justice systems will mean large and uncertain changes. This segment of the population endures the worst educational outcomes, the highest unemployment rates, and health issues that threaten well-being and life expectancy and diminish the prospects for overcoming the other disparities. The consequences of poverty and the legacy of racism include very high rates of incarceration, in both absolute and relative terms, a process that begins with disproportionate numbers of referrals into the system. In California, African Americans make up just 7 percent of the state’s youth population, yet in 2009 they represented fully 17 percent of juvenile arrests, 26 percent of juvenile detentions, and 26 percent of juveniles admitted to state prison. Similarly, Latinos make up 47 percent of California youth in 2007, but represented 54 percent of arrests, 50 percent of juvenile detentions, and 63 percent of juveniles admitted to state prison. The failures of the corrections and parole system, combined with the poor economy, make it extremely hard for the formerly incarcerated to find work and to successfully manage their re-entry into society.

The transfer of responsibilities from the state to counties has come about just as there is a growing movement to identify solutions to the massive systemic, structural problems faced by men and boys of color in California. The new Assembly Select Committee on the Status of Boys and Men of Color in California held its first hearing in Sacramento on August 17, taking testimony from local leaders of all ages. The committee issued a report that captured the potential to infuse criminal justice realignment and a range of health, safety, education, and workforce development policy areas with an emphasis on prevention and a spirit of lifting up effective strategies that offer alternatives to incarceration and provide access to opportunity: