2011 Index of Silicon Valley - Silicon Valley Community Foundation

These trends indicate that all major sources of city revenues are in decline. While sales taxes should increase again as the economy slowly
recovers, the majority of business transactions in the economy are for services that are not taxed (e.g. accounting, insurance and
personal services like hair dressing). Property taxes should also eventually increase, but homes which have lost assessed value
due to the housing market crash and economic downturn will take many years to return to pre-recession levels.
In addition to business cycle fluctuations, cities have limited options for increasing revenues because of fundamental issues with the
current tax structure. Over the past 30 years, substantial restrictions have been placed on cities and counties to control their major
fiscal resources through taxes. Most notable among these is Proposition 13, which set the general purpose property rate tax at 1 percent
of assessed value and a two-thirds vote requirement for the passage of any new taxes in California. With the passage of Proposition
26 last November, cities are now limited in terms of their ability to enact new fees. This new law stipulates that fees cannot be enacted
for anything other than a direct charge for a service, which means many current fees will be reclassified as taxes and require a twothirds
vote to be changed or extended. 7 The current revenue structure has placed local government in a very difficult position. 8
City Expenditures
Meanwhile, total city expenditures have increased 15 percent since fiscal year 2000/01, and to keep up with rising costs related to
personnel and pension services, other categories of spending are being cut back. As illustrated in Figure 2-7, personnel services,
which consist of salaries and wages, health care costs for employees and retired workers, and compensation insurance charges are
the largest category of total city expenditures. In fiscal year 2009/10, personnel services accounted for 76 percent of total city
expenditures and increased 7 percent since 2000/01. In contrast, expenditures for supplies and contractual services dropped to 11
percent of total expenditures and decreased 9 percent over the ten-year period. Expenditures in capital improvement dropped to 2
percent of total expenditures in 2009/10 despite a 0.4 percent increase from 2008/09, related in part to federal stimulus funding.
Figure 2-7
City Expenditures by Category
Silicon Valley Cities
100%
90%
80%
Debt Service
Capital Improvements
Percentage of Expenditures
70%
60%
50%
40%
30%
20%
Other
Supplies & Contractual Services
Pension Cost
(Annual required contribution)
Personnel Services
10%
0%
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10*
*Fiscal year 2009/10 is projected
Note: Only Silicon Valley cities that provided financial data for all years are included in expenditures
Data Source: Joint Venture Survey of Silicon Valley Financial Officers
Analysis: Collaborative Economics
7 Existing fees will need to meet the new requirement when considering increases or extensions. The types of fees that would now require a two-thirds majority vote by the people include new regulatory fees to pay for oil spill or hazardous
waste clean-up, health effects of cigarettes, pesticides, or alcohol, or the environmental costs of air pollution, used tires, and carbon emissions.
8 Proposition 26 also requires a 2/3 vote of the Legislature for any measure that “results in any taxpayer paying a higher tax,” such as tax enforcement and collection measures, legislative tax bills that raise some taxes and lower others,
and the state's conforming with federal tax changes. Therefore, Proposition 26 could also make it more difficult to collect taxes that are owed to state and local governments.
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