Beyond the bloody cuts

Pub date December 17, 2008
SectionEditorialSectionNews & Opinion

EDITORIAL There’s actually a bright side to the brutally depressing budget struggles in San Francisco and Sacramento. This could be the year Californians finally start to recognize that they can’t have a functioning state, with the services everyone wants, without paying taxes. It could be the end of the Republican lie that the budget problem is only on the spending side, the end of the famous no-new-taxes pledge — and the end to the requirement that two-thirds of the Legislature pass any budget, an archaic rule that is crippling California.

And with a little leadership from the new supervisors at City Hall, this could be the year San Francisco takes a serious look at how local government is financed.

This is no time for modest, cautious proposals. The budget situation is alarming. California is looking at $40 billion in cuts over the next 18 months — more than a third of the entire state budget. San Francisco is looking at $500 million in red ink — roughly half the discretionary spending from the general fund. Filling those holes with cuts alone would be devastating.

This isn’t your average budget battle, where everyone fights to save a few hundred thousand dollars here and a million there for a crucial program. This is, by all accounts, something of an order that the state and local government haven’t seen since the 1930s.

So small-time, piecemeal fixes aren’t going to work. Here’s what the state and the city need to be talking about.


The first thing that has to go is the two-thirds rule. It’s become almost a farce — a handful of Republicans, who have sworn never to raise taxes under any circumstances, are holding the world’s sixth-largest economy and a state of more than 37 million people hostage to their failed ideology. Enough talk: the Democrats need to mount a massive signature drive for a special election this summer to repeal that requirement.

There are many fair ways to raise taxes to bring in enough revenue to stave off devastating cuts. Raising the income tax levels on the highest wage earners makes the most sense. Gas prices are way down; raising the state gas tax by a few cents a gallon won’t bring prices even close to last summer’s level. We’re nervous about taxing services (medical care, for example, is a "service"), but a carefully crafted tax that exempts essentials ought to be on the table. California is the only oil-producing state that doesn’t tax oil at the wellhead; that’s a no-brainer. So is restoring the vehicle license fee; Gov. Schwarzenegger’s decision to eliminate that fee has cost the state $40 billion over the past five years.


Step one: the mayor has to recognize that there’s no way to solve a half-billion dollar shortfall with cuts alone. Step two: the mayor needs to back off from the layoffs and cuts for a few weeks until the supervisors and the community stakeholders have a chance to meet, talk, and look at all the options. Step three: some far-reaching changes have to be on the agenda, right now.

We like the idea of a city income tax. Technically, under state law, all the city can do is tax income earned within local borders, meaning that commuters would pay (good) and San Franciscans who work out of town would escape payment (bad). But overall, the concept is better than anything else out there. A local income tax that exempts, say, the first $50,000 (assuring that lower-income people pay nothing) with progressive rates skewed toward charging very high wage-earners the most could bring in significant revenue in the fairest way possible.

We’d like to see a progressive business tax — raise the rates on the biggest companies. We could live with a short-term hike in the local sales tax; frankly, we could live with most short-term revenue increases. The supervisors need to look at what new taxes make the most sense and prepare for a special election in the spring to put a revenue package before the voters. And everyone — including the mayor — needs to campaign hard for it.

The city also needs to look at the rainy-day fund, money set aside for bad economic times. Only a small amount of the close to $100 million now in that fund is available in any one year, but that rule might have to be changed.

This crisis is an opportunity — a chance to examine how the city’s current revenue sources are unfair, unstable, and unwieldy. Why are business taxes flat (big corporations and small businesses pay the same rate)? Why does San Francisco rely so much on property and transfer taxes, which shift radically with economic ups and downs? And of course, a public power system would generate enough money to cover a huge part of the deficit. The supervisors need to find an immediate revenue-based solution, but should also start creating a serious task force to overhaul the entire revenue side of the budget. Today.