SACRAMENTO REPORT
By Greg McConnell, Legislative Advocate

WHAT LIES AHEAD?

Think 2003 was a crazy political year? Take a look at some of what we have ahead of us in 2004.

Governor Schwarzenegger is aggressively promoting a March 2nd, $15 Billion Bond to finance the state's humongous budget shortfall. Others are sponsoring Proposition 56, the so-called Budget Accountability Act, which would reduce the voting requirement to increase taxes from the present two-thirds vote to a majority vote of only 55 percent of the Legislature. The California Teachers Association is circulating an initiative for the November ballot that will increase the tax on residential rental income property that has an assessed value in excess of $700,000.

Meanwhile, we have the Democratic Primary with upsets in Iowa by John Kerry and John Edwards and the spectacle of Howard Dean's now infamous Iowa yell, "Yeahhaaaaaaaaaaaaa," on the night that he got whipped so badly. On the Republican side, President Bush is touting his tax cuts and strong leadership in the war on terror.

No doubt, California's fiscal crisis combined with a presidential election year sets up a very volatile political season. Here are a few thoughts that I would like to share with you about some of the upcoming fiscal campaigns.

In a series of campaign stops around the state, Governor Schwarzenegger proclaimed that if the March 2nd, $15 Billion Bond is not approved, California faces "Armageddon" cuts in programs and services. Democratic State Controller, Steve Westly, who serves as co-chair of the campaign to pass the Bond, said that the March 2nd vote is probably the most important vote Californians have ever been asked to make.

Opponents of the measure think cuts are good. They ask, "Why is it that California has a population that is twice the size of Florida yet a budget that is three times larger? Whatever happened to economies of scale?"

In response, proponents counter that the state will be unable to get its finances in order if voters reject the $15 Billion Bond. This will further erode confidence in California and hasten the exodus of business out of the state, taking with it tax revenues, jobs, etc., etc. In the end, California's fiscal crisis will only get worse.

As with all things political, the truth probably lies somewhere in the middle of the two arguments. While this column has been very high on the changes that the Governor has brought to California, at this writing we cannot recommend a position. But we urge all property owners to carefully follow the issue and vote their conscience.

This measure is supposed to end political gridlock by reducing the voting requirement for new taxes to 55%. The problem, proponents argue, is that the current requirement of a two-thirds vote is too difficult to achieve and allows a tyrannical minority of fiscally conservative Republicans to hold up the budget.

Opponents say hold on. This is not about accountability. This is a "Blank Check Initiative." If it is passed, the Democratic majority in the Legislature will be able to pass tax increases with little or no accountability to anyone.

Opponents also point out that attributing the motive of accountability to this initiative is deceptive. The initiative provides that, until a budget is passed, legislators will have their pay withheld. However, legislators will be paid retroactively as soon as the budget is approved. So, as Trevor Grimm of California Apartment Law Information Foundation asks, "where is the punishment?" And, if there is no real disincentive, where does the accountability come in?

Another significant problem with this initiative is that the Legislature, in an unholy alliance of Democrats and Republicans, created electoral districts that almost guarantee reelection of incumbents and their party followers. This means that until some major shakeup occurs, the Legislature will continue to be dominated by one party - Democrats.

I don't know about you, but I prefer a two-thirds vote requirement for new taxes. I like the idea that our Legislature has to work long and hard to come up with a compromise. In this situation, all gridlock isn't bad gridlock. At the Board of Directors meeting in January, a unanimous vote was cast for the Apartment Association, California Southern Cities to take a "No on 56" position.

We will have a lot more to say about this initiative in the coming months. (See Nancy Ahlswede's Political Perspective column in December and January.) For now, remember this, the California Teachers Association (CTA) had a choice between two initiatives that were approved for circulation. One excluded residential rental property. The one they chose to circulate includes your property.

CTA made a calculated decision that a lot more money would be available to teachers if rental property taxes were increased. But, I wonder if they fully considered that their decision promotes the possible development of a major alliance between owners and tenants against the initiative? After all, if the initiative is passed, property taxes will increase significantly and so too will rents!

Greg McConnell is a rental housing consultant and your association's legislative advocate. He represents and advises apartment associations, property management companies, and individual owners throughout California. For more information please visit www.themcconnellgroup.com