Confusion follows tax cuts

Press, 17 July 1978, Page 12

Confusion follows tax cuts

By

JOHN HUTCHISON

in San Francisco

The dust and smoke of California’s tax revolt have not fully cleared, but the shapes of the state’s badly shaken fiscal structure are emerging.

The adoption of Proposition 13, rolling rates on real property back to 197576 levels and drastically limiting the pace at which they may advance, has not brought the doomsday prophesied by opponents. Nor nas it magically reduced rents and governments payrolls, as proponents predicted. The new mandate has brought monumental confusion. angered many voters who think they voted for something different. and alarmed some people in Washington. It has also encouraged an up-urge nationwide of movement- to limit taxation. In California, county and municipal governments’ have been scrambling since the June 6 adoption to maintain budgets which have been substantially landed by property taxes. Welfare, public safety, schools, libraries, parks, sanitation and transport are among the major services usually administered and financed by such bodies. Reluctant to retrench, manv authorities have levied new or higher fees and taxes in other categories than rates, and almost all have accepted funds allocated from a huge state surplus of nearly S6OOO million g -aerated in recent years by California’s prospering business. .Much of the surplus has come from sales tax. The states levies 6 per cent on the retail price of almost every commodity and service except food for home consumption. But while governmental h. dies are striving to maintain most services (and being

criticised for ignoring the spirit of Proposition 13) there is an eagerness among polticians to appear frugal. The election at which the measure was chosen was a primary. Individuals standing then sought nomination for places in the General Election to be held next November. Those who won must face an electorate in no mood to brook extravagance. The State legislators in Sacramento are at least as sensitive as any officeholders to this atmosphere of economy. They handed Governor Jerry Brown a new "austere” budget of Sl5 200 million, including a scaleddown salary increase of 2.5 per cent for State employees. Mr Brown, who campaigned hard against Proposition 13. but who sounds now as if he invented it. used his veto powers to deny the increased salaries and he reduced the budget to $14,800 million. He was clearly startled by the June vote from the casual posture he had affected while enjoying last year’s overwhelming favour of public opinion. Now, campaigning hard, he reads voter surveys sugesting he could lose in November. More than gestures of frugality will be required of all California governments a year from now if the giant sales: tax surpluses dwindle, and. at best, it is unlikely that funds being diminished this year will be fully replenished. It was recently reported that less than 4000 of the 800.000 Californians in public employment have been sacked because of Proposition 13. but there are predictions that next year, when the crunch really comes, from 60.000 to 250,000 may be discharged. The impact would reverse ’he current economic boom

in California, according to an analysis by a Congressional study in Washington, where some fear has been expressed that a wave of tax-cutting through other states could precipitate a general depression. Fifteen other states have active movements pushing for rate limits similar to those initiated here and Mr Howard Jarvis, the 75-year-old author of Proposition 13, is shouting encouragement from the stump in several of them as well as exhorting the national Congress to take his advice. Mr Jarvis’s success with voters is in his emotional appeal to homeowners whose

house payments have been driven up rapidly by inflated values, but it is fairly clear that corporations, landlords and major owners of real estate will reap the greatest benefits. Mr Jarvis is the executive officer of a large association of California apartment house owners. Some sober analysts are expressing hope that in states where tax-cut movements are serious, measures adopted will not be as simplistic as California’s, or as difficult to amend. Proposition 13, which needed only a simple majority to win, can only be altered or repealed by a two-thirds majority.