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Home My WebLink About05/19/2009, C9 - OPPOSTTION TO ADDED STATE TAKEA WAYS FROM CITIES AND FINDING OF SEVERE FISCAL HARDSHIP IF THIS OCCU council D� 5-19-09 j AQcnaa Repont '�".Aw c CITY OF SAN LU I S O B I S P O FROM: Bill Statler, Director of Finance& Information Technology SUBJECT: OPPOSTTION TO ADDED STATE TAKEAWAYS FROM CITIES AND FINDING OF SEVERE FISCAL HARDSHIP IF THIS OCCURS RECOMMENDATION Adopt a resolution opposing added State takeaways from cities and finding of severe fiscal hardship if this occurs. DISCUSSION Background. On May 5, 2009, the State Department of Finance announced it had proposed to the Governor that the state "borrow" over $2 billion in local property taxes from cities, counties and special districts to balance the state budget, causing deeper cuts in local public safety and other vital services throughout the State. In order to start that process, the Governor would have to issue a proclamation declaring the existence of a "severe fiscal hardship." The legislature would then have to implement the"borrowing"program by passing urgency legislation, requiring a two-thirds vote, which identifies how the"loan"will be repaid with interest. Cumulative Property Tax Losses. Cumulative property tax losses of cities statewide since the state began taking these funds in the early 1990's total $8.6 billion statewide, even after deducting payments cities receive from the Proposition 172 public safety sales tax the state COPS grant program. League of California Cities Recommendation. The League recommends that cities adopt a resolution similar to the one attached finding that a severe fiscal hardship will exist if this proposed state property tax raid is added to the pressures of the ongoing, serious revenue losses due to the economic recession. The resolution states that the idea of the state taking property tax funds from already stressed city budgets is irresponsible; and helps demonstrate that part of the reason cities are cutting there budgets today, in fact, is because of past and continuing property tax raids. FISCAL IMPACT The State Department of Finance proposal would take 8% of the City's 2007-08 property tax- related revenues. This includes the "VLF Swap" and "Triple Flip Backfill." As summarized below, this would result in a $1.2 million takeaway, on top of the $10.4 million gap that the City is working to close. C 9- / Finding of Severe Fiscal Hardship State Takes More Funds Away from Cities Page 2 Summa o State De artment o Finance Proposal on the Ci 2007-08 Property Taxes 8,792,900 VLF Swap 3,408,800 Sales Tax Triple Flip 3049,200 Total Base. 15,350,900 Revenue Loss @ 8% $1,2289100 ALTERNATIVES The Council could choose to not adopt the proposed resolution. However, given the importance of communicating to State officials and the community the significant adverse impact on the City if this proposed takeaway occurs,this is not recommended. ATTACHMENT Resolution opposing added State takeaways from cities and finding of severe fiscal hardship if this occurs. (7 k t'fe✓ i .. 9 G:Budget Folders/Financial Plans/2009-1 I Financial Plaa/State Budget Issues/Finding of Fiscal Hardship/CAR 5-19-09 C' 9— cz RESOLUTION NO. (2009 Series) A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO OPPOSING PROPOSALS BY THE STATE TO BORROW AND/OR TAKE ADDITIONAL LOCAL FUNDING AND FINDING THAT A SEVERE FISCAL HARDSHIP WILL EXIST IF ADDITIONAL LOCAL PROPERTY TAX FUNDS AND OTHER REVENUES ARE SEIZED AND ADDITIONAL UNFUNDED MANDATES ARE ADOPTED BY THE STATE OF CALIFORNIA WHEREAS, the current economic crisis has placed cities under incredible financial pressure and caused city officials to reopen already adopted budgets to make painful cuts, including layoffs and furloughs of city workers, decreasing maintenance and operations of public facilities, and reductions in direct services to keep spending in line with declining revenues; and WHEREAS, since the early 1990's the state government of California has seized over $8.6 billion of city property tax revenues statewide to fund the state budget even after deducting public safety program payments to cities by the state; and WHEREAS, in Fiscal Year 2007-08 alone the state seized$895 million in city property taxes statewide to fund the state budget after deducting public safety program payments and an additional $350 million in local redevelopment funds were seized in Fiscal Year 2008-09; and WHEREAS, in 2004 the voters by an 84% vote margin adopted substantial constitutional protections for local revenues, but the legislature can still "borrow" local property taxes to fund the state budget; and WHEREAS, on May 5 the Department of Finance announced it had proposed to the Governor that the state "borrow" over $2 billion in local property taxes from cities, counties and special districts to balance the state budget, causing deeper cuts in local public safety and other vital services; and WHEREAS, in the past the Governor has called such `-`borrowing" proposals fiscally irresponsible because the state will find it virtually impossible to repay and it would only deepen the state's structural deficit,preventing the state from balancing its budget; and WHEREAS, the Legislature is currently considering hundreds bills, many of which would impose new costs on local governments that can neither be afforded nor sustained in this economic climate;and WHEREAS, state agencies are imposing, or considering, many regulations imposing unfunded mandates on local governments without regard to how local agencies will be able comply with these mandates while meeting their other responsibilities; and WHEREAS, the combined effects of the seizure of the City's property taxes, increasing unfunded state mandates, and the revenue losses due to the economic downturn have placed the city's budget under serious fiscal pressure; and WHEREAS, our city simply can not sustain the loss of any more property tax funds or to be saddled with any more state mandates as they will only deepen the financial challenge facing our city; and 07-3 Resolution No. (2009 Series) Page 2 WHEREAS, a number of the City's financial commitments arise from contracts, including long term capital leases and debt obligations which support securities in the public capital markets, that the City must honor in full unless modified by mutual agreement of the parties. NOW, THEREFORE, BE IT RESOLVED THAT THE COUNCIL OF THE CITY OF SAN LUIS OBISPO has determined that the City will experience a severe fiscal hardship if the recommendation of the Department of Finance to "borrow" $2 billion of local property taxes is supported by the Governor and the Legislature; and RESOLVED FURTHER, that the Council strongly and unconditionally opposes the May 5 proposal of the Department of Finance and any other state government proposals to borrow or seize any additional local funds, including the property tax and the City's share of the Proposition 42 transportation sales tax; and RESOLVED FURTHER, that the Council strongly urges the state legislature and Governor to suspend the enactment of any new mandates on local governments until such time as the economy has recovered and urges the state to provide complete funding for all existing and any new mandates. RESOLVED FURTHER, that the City Clerk shall send copies of this resolution to the Governor, our state senator, our state assembly member and the League of California Cities. Upon motion of , seconded by , and on the following roll call vote: AYES: NOES: ABSENT: the foregoing resolution was adopted on May 19, 2009. David F. Romero, Mayor ATTEST: Audrey Hooper, City Clerk APPROVED AS TO FORM: Jo . Lowell, City Attorney