‘Fungibility’ means there’s no free lunch

‘Fungibility’ means there’s no free lunch

By Dan Walters | May 26, 2019 | COMMENTARY, DAN WALTERS



Let’s talk about “fungibility” – the economic concept that one unit of a commodity may be interchangeable with another.

That’s true if the commodity involved is something like a bushel of corn or a barrel of crude oil. But in politics, the commodity is money and fungibility means that a dollar is a dollar and if it’s spent on one thing, it’s not available for another thing, no matter how it may be spun to the public.

One of countless examples is Assembly Bill 11, which would recreate city redevelopment programs that the Legislature abolished earlier in this decade. Redevelopment’s downside, which led to its demise, was that incremental property taxes generated in redevelopment projects were withheld from other local governments, such as counties, and school districts.

At its zenith, redevelopment was diverting about $5 billion per year and under the state constitution, the state had to make up the property tax losses to schools, about $2 billion a year. AB 11, which is now on hold, would direct the incremental taxes from redevelopment into low-income housing and the state, as in the past, would have to make up tax losses to schools by shifting funds from other state programs.

Measure EE, a highly controversial parcel tax measure being proposed by Los Angeles Unified School District, is also a wonderfully misleading example of fungibility.

An early version of the measure prohibited using its revenues for “funding long-term healthcare or pension liabilities,” but the wording was changed to a less specific prohibition on “funding legal settlements and liabilities.”

Regardless of the weasel words, “legal settlements and liabilities” certainly include the district’s inescapable legal obligations for pensions and other benefits. Moreover, by underwriting other district expenses, the new taxes would indirectly pay for those fast-growing benefit costs, thanks to fungibility. It’s just a semantic exercise to fool voters.

Sacramento’s city government is also in the throes of a terrific fungibility squabble.

Last year, at the behest of Mayor Darrell Steinberg, city voters passed Measure U, extending a half-cent sales tax that was due to expire and adding another half-cent to the levy.

Steinberg insisted that the extra half-cent, raising perhaps $40 million a year, would be “a real game changer” that would finance affordable housing, shelters, services for the homeless, job training in low-income communities and small business incentives.

Independent analysts, including this column, pointed out, however, that by the city’s own estimate, its mandatory payments to the California Public Employees Retirement System (CalPERS) are expected to increase from $81.6 million a year to $129 million by 2023, thus consuming the additional $40 million a year that Measure U would generate.

This year, City Manager Howard Chan, in proposing a new budget, essentially said that the money should be available to cope with rising pension costs, earning him a public tongue-lashing from Steinberg.

“If we keep the second half-cent (of new Measure U revenue) in the general fund, every penny will go to pension and salaries,” Steinberg said. “All of the money will be gone, and so will the increased public safety that we promised in this budget.” However, the mayor also acknowledged that if voters had been told that the extra taxes would be needed for pensions, they would not have approved them.

Steinberg wants to pledge the extra revenue to repay a proposed $400 million community improvement bond, but that would mean it would not be available as CalPERS demands for higher pension payments, thus requiring cuts in other city services to make up the shortfall.

That’s fungibility. There is no free lunch, despite politicians’ efforts to persuade voters otherwise.