With all the talk about the property tax and who pays more, residential or commercial property owners, there is a more basic issue that is missed: Where does the money go?

In the case of the income tax, we know which government gets the money: the state. But from the property taxpayer’s perspective, it is difficult (if not impossible) to find out which of the many local governments that provide services get the money. We should care about this since the property tax is still the single largest tax we pay toward local services yet it has very little information publicly available about its dissemination. Depending on the number of local governments that provide local services, it may go to a dozen or more entities, including: the county, the city, school districts and a basket of special purpose districts.

One of the more difficult tasks is to “follow the money.” Thankfully, once again, the Legislative Analyst Office (LAO) has exposed a major weakness in the way we finance our local services. In their new report “Understanding California’s Property Taxes,” their take on following the money is this: “This complex allocation system is not well understood, transparent, or responsive to modern local needs and preferences.” To put it another way, nobody knows where their money goes.

Take a look at the tax bill you received from the county tax collector in your first installment paid in December and see if you can figure out which local agency got a piece of the 1 percent property tax rate you paid, which accounts for about $43 billion of the $55 billion in total property tax revenue paid in the 2010-11 fiscal year.  The recipients of your tax dollars are not listed on the tax bill and as such, the only person in the county who knows is the county auditor (the person responsible for divvying up your money).

Although the county auditor allocates the property tax revenue under state statutes, the amount that each agency gets varies from county to county. Of the 4,000 units of local governments that receive the property tax, the amount each gets varies widely.  In one county it is the fire district that gets a large share and the city a smaller share. In another the school district gets most of the money and the city and the county get less.

A further complication is that  the vast majority of the 1,000 school districts that receive your property tax probably get no benefit from it since each new dollar of property tax that goes to the school district translates to a dollar for dollar reduction of state aid. When a commercial property developer tells a city council that the new development project will bring more money to the schools, in reality, the property tax allocation system is set up so that the school district will not receive a dime from economic growth.

After 35 years of trying to unravel the mysteries of the property tax, it may be time to not only consider what is taxed but to also be more transparent regarding who gets the money. Before this discussion begins, required reading is the Legislative Analyst Office report Understanding California’s Property tax. You can find it here.

Crossposted on California Forward Reporting