Local property tax revenue surpluses have largely been used to hire more public safety employees and to increase the salaries/benefits of those employees over the past few years, to probably unsustainable levels. San Diego is the poster child for this. Local public safety agencies statewide have been playing leapfrog with salaries and benefits for police and fire for several years. Most safety employees can retire at 50 with 3 percent of their highest salary for every year worked, plus lifetime medical benefits. Many of these employees get disability retirements due to the strenuous nature of their jobs and therefore only have to pay income tax on 50 percent of their pension income.
The state gets very little property tax, its revenues come from the “big 3”–the personal income tax, the sales tax, and corporation tax. That (among other reasons) is why the state continued to face structural deficits even when real estate was booming from 2001-2005. Income tax revenues are very volatile. The locals have been riding a gravy train since 2001 and are going to start howling soon because the revenue growth has come to a halt. The smart ones, that spent the funds on one-time purposes like infrastructure improvements or set aside rainy-day funds will be fine. But those that expanded safety employee benefits are in for some hard times, with few options for cutting costs. Trying to reduce or eliminate pension benefits from public safety “heroes” is political suicide.
