Recently, the Orange County Supervisors received the quarterly update on the budget. The budget is a troubling as any in the State, but two issues need closer examination.
The first issue is real estate valuations. One of the reasons Orange County has been prosperous is the carving up of citrus groves into homes. The taxable base of citrus groves was low. However, once the groves became individual lots for homes and the homes were built, the taxable base went thru the roof.
Due to the quirks of Prop 13, new construction has a disproportionate way of driving overall real estate valuations in the County. Assessed values on existing properties that do not change hands are not increased significantly. Any change in assessed value comes from both real estate sales of existing properties and creation of new taxable parcels. When sales prices go up, more people sell, leading to new assessments. But the big bump comes from when citrus groves become homes.
Now, the County faces a double whammy: real estate values have tanked, and there are no more citrus groves to convert to homes. (See Slide 6 in the budget presentation.) Back in the 1990's when real estate went down, there was still land to build new communities on. Now, this time when prices are down, there aren't big hunks of land waiting to be turned into houses. Even though real estate prices will eventually recover, don't expect the double digit changes in assessed valuation in the County for a long time. When this doesn't happen, expect more cuts in the budget.
The second issue is the why cuts to personnel will be used to justify further shrinking government services. County government provides social services, manages recreation areas, and oversees public works projects, among other duties. The current crisis is being used to cut staffing and pay. The reason given is the County can't afford to keep the people. However, the County says they can afford to contract out for services, which transfers public tax dollars to business owners. These business owners have no reason to provide good service, their only motive is profit. So, they will cut services to maximize their profit. Expect to see the budget used as an excuse for more contracting out, and when the budget rebounds, even more contracting out. And, when the budget rebounds, don't expect services to return to pre-crisis levels.
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