29 May Update
State Cuts to Local Government

This is the latest update I received from my contacts at the League of California Cities, where I am the City of Palmdale's representative, and sit on various committees.

Steve

The Department of Finance released a list of additional $2.8 billion in proposed cuts and other proposals today see attached: http://www.dof.ca.gov/budget/historical/2009-10/may_revision/documents/HD%20MR%20Workbook%20(3).pdf

Among the proposals is a 5% pay cut for state employees. Of interest to cities are:

* A proposal to suspend all Non Prop 98 mandates (except those related to law enforcement and property taxes), and defer payments for current mandate claims.
* Redirecting $315 million in Public Transportation Account funds to pay for debt service on transit bonds.
* Include weight fees in calculation to be transferred to pay for debt service $242 million. (still trying to determine if this proposal will affect local governments)

Realizing there are lots of moving pieces over the last few weeks that makes it hard to keep track, here is my effort to capture where things stand on the other major proposals of most direct interest to cities:

* Borrowing Property Taxes under Prop 1A.

1. This proposal remains on the table. DOF has proposed an 8% across-the-board approach, but the Legislative Analyst and others are suggesting alternate formulas that suggest that enterprise special districts should lose their remaining property tax shares, exemptions should be made for hardships situations, and that the Legislature is free to come up with other means of distributing the hits.

* Highway Users Taxes:

1. DOF released a proposal Tuesday to take approximately 75% of city and county shares of these revenues ($750 million per year) ongoing to pay for transportation debt services. The League is strongly opposed to this proposal. It is outrageous for a variety of policy reasons, and we believe unconstitutional, as proposed, for a variety of reasons.

2. The Legislative Analyst (LAO) has a counter proposal to “borrow” 100% of these funds ($1.03 billion) from cities and counties, and repay them with interest within three years. Borrowing is permitted under (Article 19, Sec 6), and League attorneys are reviewing the potential legalities. The LAO also proposes to offset local impacts via the release of the remaining 700 million in Prop 1B local road funds (about $250 million of this amount is available for cities)

* Proposition 42, Sales Tax on Gas Revenues:

1. DOF has not proposed to borrow these funds.

2. LAO is proposing to borrow 80% of Proposition 42 funds for FY 2009-10, and repay these funds with interest within three years. (Proposition 1A of 2006 added identical borrowing language for these funds, as applies to local property taxes under Proposition 1A of 2004).

* COPS/Booking Fees

1. DOF has not proposed any changes. COPS, Booking Fee and other local public safety programs are currently being funded by the new 0.15 % increase (Approx $500 million per year) in the Vehicle License Fee adopted as part of the February Budget.

2. LAO has proposed taking ½ of these revenues for the General Fund.

* Emergency Response Funding:

1. Discussions continue over the details of DOF’s proposal to allocate $76 million from a new 4.8 percent surcharge on insurance policies to partially fund CAL Fire and local response agencies. Local agencies can receive reimbursement for costs incurred for responding to emergencies as part of the state’s mutual aid system.