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HomeMy WebLinkAbout05/20/2003, - LEGISLATIVE ACTION DAYS IN SACRAMENTO 1 29 1 council mcmoizAnbum city of sanLuis osispo _ ' DATE: May 16, 2003 TO: City Council,Ken Hampian, Bill Statler, Wendy George, Jonathan Lowell FROM: Council Member Allen Settle4d SUBJECT: Legislative Action Days in Sacramento Attached you will find the resolution adopted by the League on the state budget recovery plan that was approved Wednesday, May 15. Also, a memo from Assembly Member Steinberg on his revised AB 1221 that would involve our sales tax and property tax exchanges with the state. I Spoke with Finance Director Steve Peace, and the state has a need for a 10.7 billion loan from Wall Street that would involve a .5-cent increase in sales tax to pay off the state debt for the next 7-10 years. State deficit now 38 billion, covers a two-year period. Separate loan from Wall Street may be legally challenged in court as a violation of Prop 98. VLF will automatically be increased, and the expected funds will be returned to cities. However, Tom McClintock, Republican - Santa Barbara, has threatened litigation as this would violate Prop 218, in his opinion. Wall Street loan underwriters warn the state must adopt the budget by July 1, or they will not support the governor's loan proposal. The Republican caucus still refuses to accept the May Revise, which I have brought back for each Council member. McClintock has indicated he may litigate over VLF increase and Republican caucus may litigate over the loan program by the governor as a violation of Prop 98. Steve Peace said California is losing 80 billion in lost federal aid over the last 10 years. State bonds may have an interest rate of 7-8%because the state has a reduced credit rating. State debt ratio is now 6.8%. All local governments have lost over 40 billion dollars in the last 10 years and are now at about 5 billion loss per year, especially because there is no cap on ERAF. There is, according to Senator Jim Brulte, an increased number of bills imposing new unfunded state mandates on cities. If you want details, you can call his staff at 916-323-9221. Their recommendation is to suspend compliance with all unfunded mandates, until the state balances its budget. They are also opposed to AB 1221, AB 136 and the rapid increase on workman's compensation costs. In short, neither Republicans nor Democrats are willing to compromise on the May Revise budget. And the issue is likely to be forced by the Wall Street bond underwriters and compromises at the last minute may result in bad legislation for cities, such as AB 1221 and AB 136 that would be approved at the last minute as a deal by some members of the legislature to approve the governor's budget. I will givel more details during the council comment period, and will be happy to respond to any questions you may have. This was the largest legislative action days,with well over 1,000 participating, especially from police and fire. G:\County Support&Co=p\Cily COu H ConvpoMrncc%SeWeUcgisI=i%v dys in Soc.doc S /0 1 �- 1 L, A RESOLUTION RELATING TO STATE-LOCAL FISCAL RELATIONS ANDA . STATE BUDGET RECOVERY PLAN Source: Board of Directors Recommendation to May 15,2003 Special Meeting of General Assembly: Approve as Amended. WHEREAS, the state of California faces an estimated budget deficit of$34 $38 billion or more in FY 2002-03 and FY 2003-04 (combined), and in previous state budget crises the state has showed a disturbing willingness to balance its budget by taking traditional local tax revenues that fund vital community services; and . WHEREAS, the current raid of local property tax dollars by the state(ERAF) will cost cities statewide $779 million in 2002-03, and, after payments to cities from state general fund programs and the Proposition 172 public safety sales tax are deducted, cities will provide $489 million in net subsidies to the state of California in 2002-03; and WHEREAS, the Governor's original budget proposal and many of the proposals by caucuses of the Senate and Assembly suggest that local governments make a "contribution" of increased local tax revenue to solving the state budget crisis without imposing any restrictions on the ability of the legislature to raid local tax funds in the future; and WHEREAS, city officials support state leaders who chart a responsible and balanced . course in addressing the state budget crisis and call on the Governor and other state leaders to ensure the state lives within its means and does not rely on vital local financial resources to balance the state budget; and WHEREAS, it is vital to the health of cities that the state continue to meet its constitutional obligation to adequately fund public education; and WHEREAS, the state budget recovery plan should include a proposal to the voters to constitutionally shield local general tax revenues that fund public safety, street maintenance, parks and libraries, and other vital services from state raids in the future;now,therefore,be it RESOLVED,by the General Assembly of the League of California Cities assembled in a Special Meeting in Sacramento, May 15, 2003, that the board of directors may support a state budget recovery plan in substantial accordance with the following principles and guidelines: Section 1. League Support Conditional Upon Local Revenue Protection. (a) The support of the League of California Cities for any budget recovery plan that relies on increased OVER . D "contributions"of city revenues or temporary taxes to reduce part of the budget deficit is expp e�sslV^conditioned upon the submission by the legislature to the voters of a ballot measure at the earliest possible a ection,amen ing a state cons itu ion o limit the ability of the legislature to take local government general tax revenues as described in subsection (b). S5 LgAILL- (b) The proposed constitutional amendment shetAd limit the ability of the state to seize, take, shift, divert or otherwise reduce the any property tax, sales tax, VLF (including VLF backfill) and all etheF locally approved tax revenues of local governments unless: (1) the Governor 'declares a state fiscal emergency, (2) the legislature approves such action by a super-ntajef-ity at least a two-thirds vote; and (3) the'measure authorizing the seizure of the local tax funds provides for its full reimbursement in the next fiscal year. Section 2. Balanced Budget .Recovery Plan. Any budget recovery plan should be fiscally prudent and rely significantly on cuts to state general fund (SGF) expenditures while avoiding reliance on local tax revenues to finance the current deficit or future state spending. If the btidget recovery plan also relies on the issuance of debt instruments or temporary taxes to finance part of the deficit over a period of years, strict limitations should be imposed on state general fund spending to prevent future state fiscal crises; provided, hever,the state should give high priority to public safety programs. The voters should'be asked W approve a prudent state general fund reserve requirement. CALIFORNIA LEGISLATURE STATE CAPITOL SACRAMENTO,CALIFORNIA 95815 May 13, 2003 Mr. Chris McKenzie, Executive Director League of California Cities 1400 K Street, Suite 400 Sacramento, CA 95814 Dear Mr. McKenzie: As a follow-up to our meeting today, please accept this letter as a formal offer to amend AB 1221 and introduce an Assembly Constitutional Amendment (ACA) in exchange for the League of California.Cities support for both measures. Below please find a brief explanation of our proposed amendments. We are strong supporters of cities and counties and believe that local governments deserve protection. As you recall,AB 1221 would swap%cent of each city's and county's Bradley Bums sales tax fora larger share of property tax,dollar for-dollar.. Our proposed ACA would constitutionally protect the remaining %cent Bradley Bums sales tax rate. Now,and into the future, sales tax would be guaranteed. Further, our proposal would constitutionally protect property tax revenue in the base year of the bill.The ACA would not only guarantee the property tax being swapped in AB 1221, but would also protect whatever property tax revenue local governments currently receive. The infamous ERAF shift of the early nineties could not ha.-ppen again. As many policy experts, commissions, and analysts have concluded,AB 1221 is a step in the right direction. The bill would diversify the fiscal incentives for local governments to approve a variety of land uses. Cities and Counties would be able to approve housing subdivisions and corporate job centers without incurring a revenue loss.We recognize that in order to ensure the bill accomplishes what it sets out to do,we must continue to work to make it better. We understand that there may need to be some flexibility on the base year of the bill and also to clarify how the bill relates to redevelopment We stand ready to work through these remaining issues-at your earliest possible convenience. We believe that now is a golden opportunity for the State of Califomia, cities, and counties to engage in meaningful reform that will work to improve our residents quality of life and will provide local government with revenue protection and stability.We are prepared to amend AB 1221 and introduce the ACA as soon as your are prepared to work with us to support both measures. We look forward to hearing from you. Sincerely, DARRELL STEINBE iemblyrnem AMPB L Assemblymember, a AD er, 701h AD . 06 mom� ° wca =° wn5 d^a ca•°< 1�n• ,°o, •d fit° � m a cA C) � In 5�.m3 �e°aaSaA� pO7 CA ON c raw ooa A o $ �.e a 0 ° 7 ° N Eon m3 = o W �p r ° Q°9. SAg ° $ ro d °v .0 ° °ow a w a M;b N 0 CD w Aw W✓r'o � ° 8 mNA m.eM0w ('D rg? a Co � o �n '-yM Er�Gm N V po cn w �• 9: cy �< pr°o�CSfDRy ° ° � •. tCD C+l7obo-�•�9 r°000 rp 4' Sd o a>°�•• CF ^ cn 0.'MoMOM4;m =a� � o ^ oo�,�c� WoAmm � d° dacUC " � d. m n N..r L to oCLr 'D C1 z 17 o ay5�o r��c xco n H 3 a• S7.04 aon �° nr e w "+9 a rm ►fit w d d ^b 01 n O aAra wd CD A E.��c .rbo r�o� Cr Q m m 6too ow° 6 - .� ° oE0°o' .' TJ.N A O.L:6 0 "f,., • � O ° c� `k • mn _ O C o W a ° mQOtl w e ° C D�p . _n n E - - C V � �Z °� � 5d•as �o � E :e n �s y n C, .. o w N 'C 9 C my }o oaa Eo.y o` OG GO A P.w rr�C'^q pp 1D r7 'F•. O !1 w .C rT O O Budgeto) Guts for disabled, b1nW, softened ►CONTINUED FROM Al on the strength of the state's get solution is possible without year-to-yearshareofalegalsettle- new taxes. went with tobacco companies. "Cm extremely disappointed With many other states doing the that after everything we've done, same thing and tobacco compa- and after everything the gover- ries struggling financially, the nor has done, the Republicans deal no longer makes sense, he have not moved an inch,"s,aid As- said. sembly Speaker Herb Wesson;D- He also scaled back-from$1.5 - Culver City: billion to $680 million - the In one small indication of re-, amount he expects to get from re- ma ring tensions between the negotiating gambling compacts parties;'RepubUcarts took issue with Indian tribes.The process is with Davis' contention'that`he complex and can't be finished in had met'with legislative leaders the coming fiscal year,he said. I9 times.Their records indicated In January, Davis had pro- 11 such meetings, posed overhauling the system of Still,the Democratic governor funding school programs with adopted a strtictaglyaccommodat- separate pots of money by replac- ing Tne in presenting his chang- ing$854 million of so-called cate- es. gorical funding with block He said that he still preferred grants.After'lawmakers rejected the proposal he made in January, the idea, Davis gutted the pro- which called for erasing the defi- posal pending further discussion. cit in the coming fiscal year.But The governor admits that liis,te "unfortunately, both`pparties of visedplan wouldleadtoan$8$il- the slature decidedrthey did lion deficit'in ihe.Z004¢5&seal not dike,the one-year plan pro-. year Alter thti LegEsl1,ire p`, ses posed lshe said. ti a d' 4.. sold 1'k �hg..,;plan Davis outlid �t„should"p tio,iierest:af the year Mf e iday bears little;#e ,,� on structural reform to avoid re-A tit:�n blatsc6 to his January pro�p�al curring shortfalls. ' ; Giie as a$8.3 billion shirr¢f r � , jlis is something we must tI'o sp8&b1lities, to local,'gdl."' t,.if we vi an to right the.state s fr mg4tst:>o be funded by an array nanaat 31ip,"he said;. of tai mtreases. Davis ievisedpidoosal also re- 1t's,replaced by a_ruore modest s0646to(some concerds from. $1:8 billion 'realignment' pro- Iawnidkeis of his own*,;rty by posal. The new,""version would be bacluQ oJf Pqn part - on some „paidforbyanew10.3percentin- cuts.'h'e.V,roposed in January to: come tax bracket on annual in- health'cafe Mand social services, comes above $150,000 for indi- siic'h'as the monthly grants paid viduals and$300,000 for married to the aged;blind and disabled. couples,and a 63-cents-a-pack in- If gives $700.million more to crease .on cigarettes, phased in 1.12 schools,allowing,the state over two years. to continue funding a class-size The$10.7 billion deficit in the reduction program,and$304 mil- current fiscal year would be lion to community colleges. In wiped out by selling bonds,. January,Davis proposed increas- which would be'paid off with a ing fees at community colleges new half-cent sales tax over from$11 per unit to $24: He is ' about five,years. now pacing that to$18,. On top of that,Davis'new bud- Davis and his finance director, get proposal assumes that the ve, Steve Peace,took pains to make hicle license fee that Californians. the case that the new plan won't pay each year will be tripled un- work without taxes. der an existing law that calls for Assembly Republicans re- recent reductions to be reversed leased a plan last month that in tough budget times, That called for the deficit to be paid off would raise$4.2 billion. with existing state revenue, All told,the revised budget pro- avoiding tax increases. posal banks on about $8 billion "Their plan doesn't' pencil from increased taxes, about the out,"Davis said. same amount Davis planned in Under the GOP plan, he said, his January spending outline. "we're basically borrowing from In another change, Davis one pocket to pay another backed off from a proposal to pocket,"leaving too little money L raise$2 billion by selling bonds for all the state's obligations. it Closing the gap 2003.-04,breakdown of"fi ace Proposed changes in solutions are Summarized in flra distribution -""'-'------ = follow ng table:In 66:ansl Revenue $38.2 ;........:. Defidtnnanm,g• General fund expenditures sour q o $34.6 ro tzlrxinsJ v�B 1.7 28% ' Tax relief$0.7 Other$4,125 .._...' / Trarders 1._S2:11; State and consumer Fund shifts $1.9 services$0.4 Tobacco tax S 111 r Resources 50.9 ,,°.. . y $ t2.9 76% Courts; 1.5 transportation lquortax$288 ......Busness, Realignments andh 5% Other$J7 4 .. yt $2.07 55% Estate tax 5437 Tr " 4.5% Youth andaduft .. correctlgnal insurance tax j1,918........... 1 Motor vehicle fees$a18 CueJsaAV $20.7 $18,9 49.4% Higher 521:1 'CarPoreaattaz57,o74 c education K-12' ethira000 ' .Sales tax$23,507 and Jan.10Y Pace cage hamar services Ernirarmental r! PWSOnal borne 4x533,456 - Note:Numbers may not add due to mwxw g Ma revision at reNsim Protertiori$0:1 :, .•:: S :State Department of Finance Tod ource570;9$4 Sacramento Bee/Val B.Mtrw adjustments, while avoiding an earlier proposal to cut grants. r `It's better, but certainly not x '-what *we would have envi. sioned,'Diaz said. Davis.reversed some cuts'he �' rrd air ` t1lf r 4 had proposed in ,health ,care, such as denying Medi-Cal cover- ` age to.working. parents who, ` 8 f made-more than 61 percent of the , federal povertylevel. ° f - But`most other health cuts ie- • `.� x ' ' main,and would indirectly deny r coverage to literally nlillions"of fi. 'Californians." said " Anthony Wright; executive 'director'of a t Health . Access, a statewide 'health-care consunieir coalition of'l0oorganizations. 'overall, the: revised budget calls for$18:8 billion in cuts and c other savings,compared to$20.7 rt bilhon'inhisJanuaryprbposal: The'state's deficit through the next fiscal year is projected wbe $38.2 billion, up'from the$34.6 Gov.Gray Davis announces his revised state bud et diol Sacramento aceledarrtiaer b*on Yd anuary. The state's 8 nga Capitol pr�sconferenfe Wednesday,whitvast differences from his Janaary'pmposal.The new version htdudes a new;bkome tax bracket ana general this.year is about sales tax boost,Bonds would be soldto eliminate the S 10:7 billion deficit bi tfie cw refit fiscal ear, 578 b Y The Legislature,in two rounds Peace said that us' current entl , of budget. cut's, has a]re m8 Y :� ,ger cuts,'hesaid.'The faster we $dY" revenue Froin the general fund,; 'Let Wall Street say;M aiahey act,the better.we do,' .; "., ed$6.9 billion. the state's main'bank account; want,"Senate Republican leader InJanuary,Davis pro"Their job is to maxi- tiposedcutt: DaW;nakera face aJtme 15 cpn would pose a host of complica- Brulte said, ng the state's share of grants to stitutiodal deadline for approv- tions. For one, the Legislature mizeprofits for their people,"not the aged, blind and disabled to Ing a budgetfor,the fiscal ygar each year would have to reappro- look out for the interests of Cali. the federal minimum. That that begins July 1. The budset priate the money,on a two-thirds fomians. would have forced grant recipi- must win two-thirds majorities in vote,to pay off the bonds—a re- Peace said the May budget revi-• ents,most of whom are disabled, each house.That means that six quirement unlikely to assure sion tries to placate all.parties so to get by on$49.1ess each month, Republicans in the Assembly and Wail Street lenders. the budget can be passed on time. said Lupe Diaz,legislative advo. two in-the'Siinate would have to . "Put yourself in the financial A late budget, he said, could tate.for the.Western:P6ter on join majorlty.Deinocrats t'op- community's perspective and cause financial markets to slash Law and Poverty. provetltespendin plan. ' you'll understand why nobody in California's credit-rating or de- Davis got rid,of that plan.But y L1 O; 0 . their right mind would lend cide not to lend money the state the governor still proposes to sus- The Bee's John Hill can be money to this state if it wasn't a needs in the next several months pend cost-of-living adjustments, reached at(916)326.5543 or new tax"separate from the gen- to avoid running out of cash. which would have added$34 to jhill®sacbee.com.Alexa Bfui(t enol fund,he said. "If we don't deal with these the monthly grants in the next and Jim Sanders 0/The Bee , But Republicans say experts things prudently, we're going to year. CaIWORKS recipients CapitolBureaucontributedto, they've consulted believe differ- have both higher taxes and big- would also not get cost-of-living this report. 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