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Spread Tax Burden and Help Homeowners

Tuesday October 14, 2003

This letter from the Berkeley Budget Oversight Committee was addressed to Mayor Bates, City Manager Weldon Rucker and City Council.  


We are opposed to any increase in Berkeley’s real property tax on homeowners, and we hope that our elected city Council does not go forward with this ill-conceived March ballot measure. There are many reasons to scrap this idea and there are alternative and fairer ways to balance the city budget and preserve the most important of our worthwhile city services and jobs. 


The Gargantuan Berkeley Budget Deficit 

• Right now, the projected all-fund city deficit moves from about $9.4 million in 2004-2005 to $16.4 million in 2007-2008. If the recently-triggered Vehicle License Fee increase is somehow repealed, as threatened, the city will lose an additional $6 million annually, bringing the all-fund deficit to about $15.4 million next year and $23 million in just four years. And these figures do not account for other likely losses due to additional cuts in outside fund infusions (foundations and federal and state grants) and additional losses resulting directly or indirectly from the effects of economic recession on our taxpaying residents. 


• Clearly, we have an enormous budget problem that will require very painful actions. The city’s increased labor costs are the biggest part of the problem. Labor costs account for about 75 percent of the city budget of $250 million. Due to the recently-negotiated labor contracts, the annual increases in city labor costs are, very conservatively, about 5 percent, or about $9.375 million annually. Having examined these contracts and compared them to others, and despite being strong supporters of labor, we must assert that these contracts are excessive, that our city employees, while generally exceedingly competent, are now being overcompensated, and the labor contracts are the proximate cause of the city’s budget problem. The prior labor contracts must certainly have been the envy of beleaguered and underpaid workers at Berkeley Bowl, BOSS, the Claremont, and in our child care centers, and these new ones must seem like an unimaginable dream. 


• One could fairly state that the real estate tax increase proposed to be levied on our highly-taxed property owners will go directly into the pockets of our excellent but overcompensated city employees. 


Why New Homeowner Real Estate Taxes Are a Very Bad Idea 

• Most Berkeley homeowners are not multimillionaire corporate plutocrats who have enriched themselves at the expense of others. Rather, they are regular hardworking people who have sacrificed to buy a home and who are struggling to meet expenses. The vast majority of them of them do not have the job security, defined-benefit pension, and numerous other benefits enjoyed by our city employees. 


• Berkeley homeowners are already paying a far higher real property tax than their neighbors in Oakland, Hayward, Emery-ville, and the other pertinent jurisdictions selected by our own city Manager as comparisons. 


• Relative to the entire Berkeley community, Berkeley homeowners do not use more public services than other Berkeley groups who currently pay far less or nothing toward the cost of their upkeep. For example, many tax-exempt religious/educational establishments with multiple housing units are heavy public service users and they pay zero taxes for these services. 


• The proposed March ballot measure (purportedly for fire and police services but in reality simply a backfill to the General Fund) is but the first in a series of likely tax and fee increase measures that will, when taken together, cost the so-called average Berkeley homeowner between $1,000 and $2,000 annually. I am talking about a new BUSD measure, the Gann reauthorizations with recurring annual increases and now with a proposed 5 percent annual inflator, more money for the Berkeley Library (which has already received a substantial 14 percent increase), and likely measures for BART, East Bay Regional Parks, and our local bridge tolls. To these new homeowner costs one must add the already-approved and effective cost increases for parks and recreation, paramedic, special school taxes, clean storm water, and others. 


• There are serious and predictable consequences to further reducing the discretionary income of the homeowner segment of Berkeley’s population. These are the families that spend substantial money in Berkeley. They fix up their homes using Berkeley stores and Berkeley contractors. They buy big ticket items, such as cars, appliances, electronics, and furniture, in Berkeley. They contribute money to worthwhile causes in Berkeley, such as school fund raisers. And they patronize our local artistic establishments and better restaurants. For most of these homeowners, a hit of $1,500 will seriously impact their spending behavior and, in consequence, negatively impact our already-weakening economic infrastructure. 


We Need to Face Our Budget Reality and Stop Looking for Scapegoats 

• Yes, Proposition 13 caused problems, Bush is spending excessively on the military, Enron executives are criminals who should be in jail, the State of California has taken all our money, etc. Expounding about these matters does not help us face the reality that the Berkeley budget is simply not sustainable, cuts must be made, some fair new taxes and fees assessed, and the fragile local economic ecosystem must not be further impaired. 


• The property tax hike proposed for the March ballot will not solve the underlying problem and might make it worse insofar as it re moves big money from those who might spend it more productively in our town and it deludes the community into thinking that we are addressing our budget problem in a fair and effective manner. It will promote selfish thinking on the part of many who receive services while paying little for them, it will encourage labor union recalcitrance, and it will forestall necessary financial discipline within the bureaucracy. 


Alternative Budget Balancing Measures 

• We all know that the city will have to lay off many, many city workers and severely cut city services. This scenario will be minimized if the city renegotiates the labor contracts in a manner such that all our city employees take a small hit but all get to keep their jobs and keep providing services. This alternative is, obviously, infinitely preferable and would serve the greatest good for the greatest number of persons. If our city leaders were willing to forcefully stake out this honorable position now, as have leaders in most other communities, there is no doubt that it would come to pass.  


• Many other smaller belt-tightening measures have been initiated, such as Workman’s Comp reform ($1.2 million annually if I recall correctly) and a reduced workforce by attrition. We need to make sure that these measures are not sidetracked by temporary cash infusions. 


• Many other taxes and fees have been proposed for exploration that would more equitably spread the burden of government among the entire community, including but not limited to a car tax, a resident tax, bicycle license fees, residential parking fees and fines tied to the family necessity, value, and environmental detriment of the vehicle, and luxury taxes. These fees would not only, cumulatively, add substantial revenue, but they would also promote more appreciation for our services, a better sense of community participation, and a real reciprocity in the interactions among residents and between residents and the city. In the mad rush to get a new homeowner real property tax on the ballot, the mayor’s Revenue Task Force and city staff pooh-poohed most of these ideas as difficult, time-consuming, and chump change. This strikes us as a very wrongheaded and cavalier approach. 


• Many, many residents have come to realize that institutional expansion by tax-exempt organizations threatens both our land use balance and our city budget. Apart from UC (which owns or controls 30-40 percent of Berkeley parcels according to Phil Kamlarz!), there are hundreds of exempt organizations owning land and assets worth multimillions or more. Many of these rich nonprofits are very high service users. There is also evidence that some profitmaking entities are inappropriately benefiting from the “welfare exemption” (State law appears to only permit this exemption for qualifying nonprofits with qualifying uses, or, in a few rare instances, for partnerships with qualifying uses where the Managing General Partner is a qualified nonprofit). So, before any new real property taxes are levied, we need a thorough and independent audit of each and every exempt parcel/owner to determine, first, if the exemption is legal and second, if payments in lieu of taxes are warranted for that parcel/organization. Throughout this country, there are thousands of examples of nonprofits that make a financial contribution to the governing entity for schools, parks, paramedics, and all the other city services to which they have unfettered access. Retaining an expert audit team and getting a full report in the very near future should be an immediate order of city business. And we might consider paying this audit team, as is done in similar circumstances, with a percentage of the net tax/payment revenue garnered through the audit. 


These are just a few of the thoughts we want to convey to you now in the hope of influencing you to think this situation through comprehensively, rationally, and fairly. New property taxes are a dead end: They will not solve the problem; they will make the local economic situation worse; there will be many distressed and financially-stressed homeowners; and there are other fairer ways to address the budget problem. Regardless of the results of the (flawed) Voter Survey that pandered to people’s worst fears and desire for others to pay instead of themselves, as word gets out about the magnitude of the budget problem, the magnitude of the likely cumulative cost to property owners, and the inappropriateness of the labor contracts, you may well face serious anger and outrage of the sort that shakes up political stability. We believe that this outcome is unnecessary and avoidable, only it require your courage and leadership and not conducting business (taxing) as usual. 


Barbara Gilbert and Viki Tamaradze are co-chairpersons of the Berkeley Budget Oversight Committee.