Our View: Tax coffers shrinking in soft market

On Monday, attention focused again on Sacramento as lawmakers continue grappling with the state's painful $8 billion budget shortfall. But there are hundreds of other sore spots in California's 58 counties, 478 cities, 1,301 school districts and innumerable other special districts.

Like the state, these entities can expect less revenue even as demand increases for services. Disproportionately, local agencies rely on property taxes. That's a particular problem.

The Los Angeles Times has reported that declining home values are resulting in tens of thousands of requests by homeowners for county assessors to lower their tax bills by reassessing home values downward. Although Orange County Assessor Webster J. Guillory told the Times he still expects overall growth in the county's tax base, the reality is that reassessments mean less revenue than would have flowed into the county treasury had home values increased or even held steady.

With the ripple effect of declining home values, more homeowners can be expected to join those who don't want to overpay property tax because of outdated, inflated property valuations. Already, The Times reported, 41,000 homes have been reassessed downward in Los Angeles County, resulting in an average tax savings of $660. Multiply that by tens of thousands to see the magnitude of the revenue decline.

State government disproportionately relies on personal income taxes to finance its $100-billion-plus annual spending and already has felt the effect of a down-turning economy that directly diminishes the earning power and consequent income tax liability of California workers. Similarly, the slowing economy, which some analysts believe is entering a recession, has taken its toll on home values, with sales plummeting and prices dropping, which eventually affects local agencies' property tax revenue.

There are lessons in these parallel experiences for taxing agencies throughout the state. For years, when revenues were growing, more money than was needed was collected, but elected officials much too often found inventive, new ways to spend it nevertheless. There already are loud protests from special interests like teachers unions who demand they should be immune from spending cuts necessitated by declining revenue. Lesson No. 1 is that those who have profited from soaring revenue have no legitimate claim to continue to profit when revenue declines.

Lesson No. 2 should be that lawmakers at all levels should refrain from seeking inventive, new ways to tax Californians to feed this appetite. A recent study by economist Arthur B. Laffer classified California "for the first time" as joining "has been" states because of its "redistributionist economic policies." The state's taxing policies, which Laffer described as "liberalism run amok in Sacramento," have resulted in more U.S. residents now leaving California than arriving.

"The decline of California is probably the best evidence we can present as to the impact of bad state policies on the economic pulse of a state," Laffer wrote.

Rather than remedying budget woes, high taxes to maintain high spending "precipitate this fall into the economic cellar," Laffer concluded. One sure way to prolong recession is to take more money from people, many of whom have less and less of it. Lawmakers should take heed, lest they aggravate an already worsening situation.