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Few Californians Understand the State's Tax System. Fact.

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A crazy-quilt of money flows that is hard to figure out

Buried in a major new poll on Californians' attitudes toward government is a finding that explains many things: Only six percent of adults can identify where the bulk of the state's money comes from, and how it is spent.

If you don't understand the tax system, or how your tax dollars are being used, you're not going to be very comfortable with tax increases, or spending cuts, or anything else politicians might do to try to solve the state budget crisis.

But you can't blame the public for not being able to follow the money. State and local finance in the state has become so byzantine that even the professionals barely understand it. Here, then, is an attempt to sort some of the myths from the facts.

Myth The state budget crisis is the result of Proposition 13's limits on property taxes, combined with spendthrift politicians and greedy public employee unions.

Fact The state budget crisis is mainly the result of a crushing fall in revenue. In the pre-meltdown days of late 2007, the state legislative analyst's five-year forecast projected that in the 2011-12 fiscal year, the state would have revenue of about $125 billion. Now, revenue for that year is projected to be $83.5 billion. The dropoff results from lower income tax and sales tax collections, which account for more than two-thirds of all state revenue.

Myth Local governments and schools are mostly financed by local property tax revenue.

Fact Proposition 13, by limiting local property taxes so dramatically, forced the state to step in as the main funder of many services. By way of example, Alameda County gets almost 30 percent of its total budget from the state, and an additional 18 percent from the federal government. Only 13 percent comes from property taxes. The city of Fremont, in Alameda County, gets about half its general fund revenue from property taxes, 16 percent from sales taxes, and the rest from a grab-bag of smaller revenue sources. (More than 75 percent of the city's budget is spent on police and fire protection.) The Fremont school district gets 29 percent of its funding directly from property taxes, with the bulk of its money coming from the state.

Myth Local officials can decide how to spend local property tax revenue.

Fact Proposition 13 established a formula for divvying up property tax revenue among counties, cities, schools and assorted special districts. This formula varies by locality, but whatever the split was in 1978, when the landmark initiative was passed, remains the split today; the rules establishing this were part of the implementation of Proposition 13.

Myth Proposition 13 has de-funded government across the board, forcing permanent, dramatic reductions in government services.

Fact California has high income and sales tax rates, and the state ranks in the upper tier nationally in overall tax burden. Both of these tax sources are much more volatile than property taxes, however, and decline much more quickly when the economy goes south.

Myth Tinkering with Proposition 13 is political poison, and there is no chance anyone will take on this issue.

Fact Proposition 13 has been tinkered with many times, mainly to expand it (by allowing low tax assessments to be passed on within a family, for example). There is growing sentiment that applying Proposition 13 to business property, and maintaining the crazy-quilt of money flows among government entities that Proposition 13 has created, should be reconsidered.

Myth Californians simply do not want to pay more taxes, routinely rejecting any ballot measure calling for tax increases.

Fact Many of the tax measures on local ballots in recent years -- especially so-called parcel taxes (a form of property tax) to bolster school funding -- have passed. The Public Policy Institute of California poll released last week found that a remarkable 71 percent of adults favor tax increases to help close the budget gap and prevent further cuts in education funding. Of course, how Californians will vote on Gov. Jerry Brown's proposal to extend a series of temporary tax increases remains to be seen.

Brown is determined to push many state government services to the local level, with the goal of creating a more direct connection between taxes paid and services received. This will take time -- but it's one key to heightening taxpayers' understanding and bringing rationality to state and local finances.

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