Local Government Funding

It’s common to hear concerns from local taxpayers, such as:

• “I already pay a lot in property taxes. ‘They’ should find the money elsewhere for new or improved facilities and services instead of raising my taxes.”
• “Why are ‘they’ spending money on X rather than on Y?”

These frustrations are understandable. People pay significant property taxes, yet often don’t know where that money goes. This confusion is part of why I wrote the blog post Where Do My Taxes Go? in 2018 and continue to update it regularly. Additionally, many people don’t fully understand how local government finances work, which can lead to unrealistic expectations about reallocating tax dollars between agencies or expenses. These misconceptions fuel the frustration many taxpayers feel.

Local government finances are complex, and the concerns I hear, like those mentioned above, are often rooted in a broader misunderstanding of how local government operates. Many people think of local government as a single entity with a unified funding pool. However, this is far from the truth.

Key Points About Local Government Finance

1. No Single Pot of Property Tax Dollars: There isn’t a single fund of property tax revenue controlled by one local government agency (including the county).
2. Restricted Funding Sources: Local government agencies have specific funding sources, often restricted to particular uses.  This restricted funding, which is usually the majority of a local government agencies  budget, cannot be reallocated to a different purpose.
3. Separate and Independent Entities: Local government agencies are legally and financially separate from each other, with unique missions and requirements. Revenue cannot be moved between different independent local government agencies, such as the county, school districts, or special districts.

This post aims to help readers better understand how local government agencies are organized and funded.

Most people learn about government structure in a high school civics class, which primarily focuses on the U.S. government. While this may touch on state and local government, it often leaves gaps in understanding, particularly regarding how local governments operate.

In California, local governments fall into four primary categories: counties, cities, school districts, and special districts.

Counties: Legal subdivisions of the state that provide municipal services, particularly in unincorporated areas, and serve as the local providers for many state health and human services programs. Counties are governed by a Board of Supervisors, with an appointed County Executive managing operations.

Cities: Incorporated entities within counties that provide municipal services for residents. Cities have broader authority than counties and are governed by a City Council, typically appointing a City Manager to manage operations.

School Districts: Responsible for educating students within their boundaries. They are governed by a school board, which appoints a superintendent.

Special Districts: Provide specific services within a defined geographic area. They are governed by a board of directors, which appoints a general manager.

Each of these entities operates independently, with its own legal and financial framework. For example, a county has no authority over cities or other local entities within its boundaries, such as schools and special districts.

Residents often expect local government agencies to allocate funds based on current community priorities. However, several factors influence how money is spent, including the distinction between discretionary and non-discretionary funding.

• Discretionary Funding: This type of funding can be allocated by a local government’s governing board to further any mission of that agency. Examples include a county’s share of the 1% property tax and sales tax revenue.
• Non-Discretionary Funding: This funding has restrictions on its use. When people ask why money is spent on X instead of Y, the answer often lies in the fact that non-discretionary funds must be used for specific purposes. Examples include grant funds, development impact fees, and special assessments.

State Mandates

The state requires local government agencies to provide certain services and follow specific regulations. Sometimes, the state provides non-discretionary funding to cover these services. Other times, local agencies must use their discretionary funds to comply with these mandates, which can take priority over local priorities.

Legal and Financial Independence:

As mentioned earlier, local government agencies are independent, with separate budgets and funding sources. The revenue a county receives, for example, is allocated to fulfill its specific mission and cannot be easily transferred to another agency.

Local government revenue comes from various sources, each with specific restrictions and uses:

General Taxes: These are typically discretionary within the agency that receives them, like base property and sales taxes. These funds often support public safety services.

Local examples include the county’s share of the 1% base property tax and 1% of the 7.25% base sales tax and voter passed general sales tax increases like Measure K (unincorporated Yuba County) and Measure O (City of Wheatland).

Grants: Non-discretionary funds typically used for specific infrastructure projects, often requiring a local match.

Federal/State Funding: Ongoing, non-discretionary funding provided for specific services, usually to counties and school districts.

Fees for Service: Non-discretionary revenue collected for specific services, such as building permits, which must cover the cost of providing that service.

Special Assessments: Non-discretionary funds collected from property owners to pay for specific services.

Examples of special assessments in the Plumas Lake area include the RD784 assessment that funds RD784 levee maintenance, the CSA 70 assessment that funds Yuba County law enforcement, the OPUD CFD 2005-2 assessment that funds park maintenance, and the CSA 66 assessment that funds multiple services from multiple local agencies including drainage maintenance from RD784, fire service from Linda Fire, park maintenance from OPUD, and landscaping, road, streetlight, sound wall, and landscaping maintenance from Yuba County.

Development Impact Fees: Non-discretionary funds paid by developers to cover infrastructure costs associated with new development. These fees are passed on to homebuyers through the price of the property.

For local examples, see this link.

Mello Roos: Similar to development impact fees but paid through property taxes by future homeowners. These funds are used for infrastructure needed early in the development process.

Examples of Mello Roos in Plumas Lake include the PLESD CFD to pay for local elementary schools (Rio, Cobblestone, Riverside), the OPUD 2002 CFD to pay for water/wastewater infrastructure, and the TRLIA CFD to pay for levee infrastructure.

School Bonds: Voter-approved taxes used to pay back debt incurred for building or rehabilitating schools. This funding is non-discretionary and removed from property tax bills once the debt is paid.

This post aims to clarify the structure and funding of local government, helping residents understand why local agencies make the financial decisions they do.