Solving the Budget Crunch With Neighborhood Empowerment

Friday July 02, 2004

Berkeley can eliminate its budget deficit and provide better governance by shifting some of the government functions to community associations. A voluntary civic association would be formed in each council district. The association would be able to raise revenue for civic services without being bound by state laws that have put local governments in straitjackets. 

The root of the fiscal crisis in California is that the state constitution, especially Proposition 13, has cut off the natural source of local public revenue, the land value generated by civic services. Public services such as streets, parks, schools, security, and fire protection make the area a better place in which to live and work. This raises rents and land values. It is both efficient and equitable to finance city services from the land values it generates. 

The property tax prior to Prop. 13 was bad in taxing both the value of buildings and other improvements along with the land value. But instead of just exempting buildings, Prop. 13 capped the property tax. The state later added to the problem by taking away some of the property tax revenues from the cities and counties. 

But voluntary neighborhood associations are not bound by such fiscal shackles. Residential associations are free to raise their revenues as they wish. A community association may tap local land values to raise revenues for its neighborhood services. Shifting some city services to neighborhood civic associations would also bring government closer to the people and empower the local communities to provide more effective security and public works. 

A community association would be created in each council district in Berkeley. Each association would have a board of directors, which could also be called the community council. Each resident, including tenants, would have one vote, and also, each owner of a house or business property would have one vote. So an owner-occupant would have two votes, one as resident and one as owner. 

The city would then transfer authority and funding for some services to the community association. These could include street maintenance, some policing functions, and some zoning decisions. For example, a public hearing for new construction, if it is not a major project, could be done by the association, since this mostly affects the neighborhood. This would not only save the city some revenue, but also reduce the time obligations of the city council. The community association would also enable more Berkeley residents to be active in civic affairs. 

Some residents would choose to not join the association. The city would therefore create a partnership with the associations to represent non-members and share the financing and decision-making between members and non-members of the community associations. Non-members would be subject to extra city charges to help pay for the community services jointly financed by the city and the community association.  

The funding difference would be that city taxes penalize enterprise and community development, whereas association assessments could enhance jobs and housing. Berkeley's taxes on real estate fall on improvements rather than land value, so they punish developments that provide housing and jobs. In contrast, if the members of a district wish to encourage housing and employment, it would be able to tap its local land values instead of imposing added costs on construction and improvements. 

Proposition 13 has disempowered local public finance, but community associations can once again empower cities and neighborhoods. Berkeley can lead the way to better public finance and more community spirit by empowering the neighborhoods.  


Berkeley resident Fred Foldvary teaches economics at Santa Clara University.