The prickly issue of financial help for state and local governments — hammered by COVID-related dips in tax revenue — has been like rocks in the dance shoes of Democrats and Republicans as they execute the latest coronavirus-relief minuet. While Democrats want $436 billion for state and local governments, Republicans refuse to “bail out” what they call “poorly run” and “mismanaged governments,” many of which happen to be in blue states. In California, sales tax collections are down nearly 5% this year over last, according to state figures. And sales taxes are among the most important revenue sources for state and city governments — contributing nearly 20% of California’s general fund and an average 30% of city budgets, though they provide as much as 45% in some cities, according to the League of California Cities. The shutdown of local economies and the accompanying decline in tax revenues means California cities are facing a $7 billion revenue shortfall over the next two years, the league estimates. Federal help is sorely needed to protect public services, officials said. Trying to cut in on this delicate minuet are more obscure, single-issue local agencies that handle things like public health, water, sewage, mosquito control, burial of the dead and the like. “TAKE ACTION,” says a missive from the California Special Districts Association to its members championing House Resolution 7073, the “Special Districts Provide Essential Services Act,” which would require states to allocate no less than 5% of federal coronavirus relief to special districts. A similar bill in the Senate — SB 4308 — aims to do much the same. That’s rubbing some folks the wrong way. Many special districts are in a far stronger financial position than are cities, states and school districts, they say. While public health and pubic safety districts may have been on the front lines of the pandemic, many others — like water, sewer, cemetery and other “business-like” districts — can charge customers the full cost of their merchandise or services. But they don’t always have to: Thanks to Proposition 13, many also get a cut of property taxes. And many have rich reserve funds for rainy days.

“Special districts aren’t dependent on sales tax like cities are,” said Brett Barbre, general manager of the Yorba Linda Water District, who frowns on districts’ quest for more money. “Special districts are rate-based, so they can adjust their rates if they have to. It’s the cities that are hurting. If we’re going to be providing relief, it’s the cities that have lost the revenue.” While that’s true for many special districts, it’s not true for all, said a spokesman for U.S. Rep. John Garamendi, D-Walnut Grove, author of the House resolution. Public health care districts, fire and police services districts and others bear COVID-related burdens and can’t respond the way water districts can. And currently, they’re not entitled to any federal relief. The issue, said a Garamendi spokesman, is one of fundamental fairness and parity. There are 1,924 independent special districts in California, according to data from the Controller’s Office, far more than there are cities (482), counties (58) and school districts (1,037).

‘Much-needed assistance’

Chris Palmer, spokesman for the California Special Districts Association, said districts anticipate a $1.26 billion COVID-19 hit through the end of the 2020-21 fiscal year. Nearly half of districts are uncertain about, or likely to, reduce their workforce, while 22% had already done so as of July 1, he said. More than half of districts were uncertain about, or likely to, reduce services, while 36% had already done so; and impacts on districts that rely on enterprise revenue vary across the board. Several special districts told the Southern California News Group they haven’t suffered revenue losses — yet — though they have incurred costs from providing protective equipment to their workers. A survey done by the gargantuan Metropolitan Water District of Southern California, which supplies water to dozens of special districts and cities that, in turn, sell water to 19 million people, found the same, though planned rate increases have been reduced or postponed in many places.

“Most agencies report a slight impact caused by additional COVID-19 related expenditures, but these expenditures were generally minor and were often offset by other cost cuts,” says a report to MWD’s board in September. “Expenses for purchases of Personal Protective Equipment (PPE), enhanced cleaning, and costs to achieve social distancing were generally offset by reductions in travel and other expenses.” Regionally, though, water sales have been low since the drought of 2014 to 2017, when radical cutbacks in consumption were required and, largely, stuck. “Overall,” MWD’s report said, “regional retail water sales in 2020 have actually increased slightly over 2019 sales.” Though there hasn’t been much impact yet, MWD supports the bill. “(A)llowing special districts access to future Coronavirus Relief Funds would provide access to much-needed assistance for unforeseen COVID-19-related expenses,” says a letter from MWD to Garamendi.

Money needed for ‘essential services’

In a fact sheet with talking points, the California Special Districts Association says that H.R. 7073 is necessary “to meet the needs of special districts across the nation delivering essential services to their communities. Many special districts provide critical infrastructure, as defined by the U.S. Department of Homeland Security, that cities and counties do not provide to the communities they serve. Despite this, special districts are not considered eligible for direct Coronavirus Relief Fund disbursements. Many states have not released their portions of Coronavirus Relief Funds, in part intended for municipalities serving fewer than 500,000 people, to special districts. Without changes to the current law, special districts will continue facing obstacles to funding.”

Also supporting the bill is the Greater Los Angeles County Vector Control District. There are more vector control districts in the state than there are counties, dedicated to controlling disease-carrying bad guys such as mosquitoes and rats. These depend primarily on property taxes to make ends meet. “Our district is reliant on property taxes and, as of April, we received the revenue stream that we were anticipating but next year may be different because if people are not able to pay their mortgage or taxes, then there will be an impact,” said spokeswoman Anais Medina Diaz. “This is an issue for many vector control districts across the state and it’s difficult to project the impacts to our revenue stream.” The district has applied for FEMA funding to relieve some of COVID-related spending, like renting more fleet vehicles so technicians don’t have to share vehicles and purchasing a temperature screener for workers. It was notified that its application was accepted, but it’s still waiting, she said. “(W)e provide critical services to millions across Los Angeles County but the current language of the Coronavirus Relief Act doesn’t provide states the flexibility to disburse funds to special districts within their respective states.” The Orange County Sanitation District, which provides sewer service to some 2.6 million people, said that more than 85% of its revenue comes from single-family and multifamily user fees, collected through county property tax bills. “We have seen no impact at this time,” spokeswoman Jennifer Cabral said. “However, fall property taxes are not yet due.”

How it would work

Right now, 55% of coronavirus relief funding for governments flows to states, and 45% to local governments. Special districts get nothing. The bill would change that so that 50% goes to states, 45% remains with local governments and 5% is reserved for special districts.

State governments would be the guardians of the special district money, tasked with deciding which ones need it and get it. That should screen out districts on very comfortable financial footing from getting money they don’t need. “Special districts provide critical services to the communities they serve,” Garamendi said in prepared remarks when the bill was introduced. “As our nation continues to grapple with the effects of COVID-19, Congress must ensure that all local governments have the support they need to deliver the crucial quality of life services their communities rely on. “The 237 special districts I represent in Congress support the health care and public safety services that my constituents need to beat COVID-19 and maintain safety and security.” Critics remain even of California’s more than 70 health care districts, only 37 of which operate hospitals. A 2017 report by the Little Hoover Commission, California’s state watchdog, said health care districts that no longer operate hospitals “struggle to explain their relevance within the rapidly evolving healthcare industry. The Legislature, local grand juries, LAFCOs and healthcare analysts continue to question their relevance and need to exist.”

Many hospital-challenged health care districts claim they’re carving out new roles in preventative care. One of those is the Beach Cities Health District, which serves the South Bay coastal communities of Hermosa Beach, Manhattan Beach and Redondo Beach. Established in 1955, it has had no hospital since 1998 but calls itself “one of the largest preventive health agencies in the nation.” The district encourages children to walk to school, eat right and lose weight. It provides community grants, discount memberships at a district fitness center and helps older people remain living at home through personal visits and in-home care. Its “innovative Blue Zones Project branding effort also encourages healthy habits at home and work and promotes local restaurants that offer nutritious menus,” the Hoover Commission said. For this, the district got $3.9 million in annual property taxes, more than one-quarter of its $14.9 million in revenue in 2019-20, according to its audited financial statements. Special districts are big business in California. According to data from State Controller Betty Yee:

• In California, special districts took in $68.2 billion, and spent $67.4 billion in 2018, the most recent year available.
• Cities, only marginally bigger, took in $83.4 billion and spent $81 billion.
• Counties took in $92.3 billion and spent $90 billion.