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HomeMy WebLinkAbout7/28/2004 - STAFF REPORTS (as provided by law)within three fiscal years Protection None Legislature Yes, unless voters Protects the rate and method of may reduce rate or change distribution of the local Bradley change method of Burns sales tax and Transactions distribution Prop 57 and Use Tax Guarantees triple flip''/4 cent payment of property lax backfill sales tax not for Prop 57 sales tax Y< cent protected suspension Also guarantees return of Y< cent Bradley Burns sales tax when Prop 57 bonds retired Reallocation May be allowed Law If voters approve None unclear MANDAT F6 . Scope-- None Suspended at Statute imposing mandate is Consequence of discretion of local suspended if no slate funding Nonpayment agency except for specified employee rights and benefits Applies only to city, county, special district mandates Mandate Stale may shift Clarifies mandate definition to Definition costs to local include cost shifts from the state governments to locals without triggering reimbursement requirement V4L,U,NT,QRY R) CfPERTYI3ALES TA�'EX�HAN4ES None Legislature may approve a statutory framework for voluntary exchanges of property tax and sales tax [Revised 7/27/2004 8 47 PM] 3 7/27/2004 PROPOSED LOCAL GOVERNMENT AGREEMENT COMPROMISE Current Law Agreement VLF Rate Currently at 2% Reduced to 0.65%statutorily and property tax backfill provided between 0,65%and 2% Backfill if VLF None Backfill provided if rate reduced below 0.65% Reduced Increases in VLF Set at 2% in statute. Can Capped at 2%statutorily. Constitutionally Rate only be used for city or guarantees 0.65%for cities and counties. county purposes. VLF Gap Loan Statutorily required in 2006- Statutorily required in 2006-07. No future property Repayment 07. tax loan/suspension if unpaid. Agencies Protected None. Legislature may City,county,special district. No further protections reallocate at will to ERAF for RDA beyond existing provisions of Art. 16, Sec. and among agencies. 16 of state constitution. Reallocation Legislature can reallocate Local share (non-school/ERAF) may be reallocated Among Local by simple majority vote, by 2/3 vote to other local govts. In a county. Agencies including to ERAF or other Legislature may not reallocate to increase school or state fund. ERAF share. Reallocation of property tax may not be done to support state-mandated programs. Suspension None. May take Beginning in 2008-09, if Governor proclaims Trigger permanently at will. "significant state fiscal hardship." Suspension Vote Simple majority to take 2/3rds vote—separate bill providing for repayment. Needed permanently—no repayment. Suspension Limits None. May take --No more than 2 times in 10 years. permanently at will. --No loan until VLF Gap loan and previous suspension loan paid. --Cap of 8%of local share of property taxes ($1.3 billion today). Repayment terns No provision for repayment. Legislature must pass a statute to fully repay loan with interest(as provided by law)within three fiscal ears. Protection None. Legislature may Protects the rate and method of distribution of the reduce rate or change local Bradley-Burns sales tax and Transactions and method of distribution. Prop. Use Tax. Guarantees payment of property tax 57 triple flip Y4 cent sales tax backfill for Prop.57 sales tax Y4 cent suspension. not protected. Also guarantees return of cent Bradley Burns sales tax when Prop 57 bonds retired. Reallocation May be allowed. Law None. unclear. Scope-- None Statute imposing mandate is suspended if no state Consequence of funding except for specified employee rights and Nonpayment benefits. Applies only to city, county,special district mandates. Mandate Definition Clarifies mandate definition to include cost shifts from the state to locals. Legislature may approve a statutory framework for voluntary exchanges of property tax and sales tax. Local Government Constitution Protection (Same as SCA 9) 2/3 vote. • Places a constitutional amendment to protect local government revenues before the voters at the November 2, 2004 general election. Specifically, this measure: 1) Protects the property tax revenues of local governments (cities, counties and special districts) The measure prohibits the Legislature from enacting any law on or after November 3, 2004 that would reduce local governments' percentage share of the one-percent property tax revenue in any county below what that share would be under existing state law as of November 3rd. The effect of this protection would be that the Legislature could not, by enacting a law, shift a larger share of the one- percent property tax away from local governments to schools or community colleges (where the revenue would offset the state's funding obligation under Proposition 98). This new protection would have the following features: a) Property tax revenue shifted from K-14 education to cities and counties to replace Vehicle License Fee revenue, as proposed in the 2004-05 budget, would be included in the protection. b) The measure allows for local growth and decision making by protecting local government revenues on a countywide basis but not locking in specific percentage amounts. Specifically, the measure prohibits the Legislature from passing any law that would reduce the countywide share of the property tax allocated to local governments below the share that otherwise would occur in any fiscal year based on the state law in effect on November 3". Thus, it would preclude the Legislature from enacting new "ERAF shifts" to take property tax money away from local governments (absent suspensions, as discussed below). However, the measure does not prohibit changes in local governments' share of property tax revenues that result from circumstances or decisions that would be allowed under existing law. For example, changes in local governments' share could occur because of different rates of growth in assessed value within a county that happen to result in an increase in the school share of countywide revenue. Likewise, local decisions over the formation of local agencies and regarding redevelopment would not be restricted. The measure requires that any bill that reallocates property tax revenues among local agencies (except for voluntary local agreements) must be passed by a two-thirds vote. c) This measure would restore and protect the temporary $1.3 billion revenue reduction to local agencies proposed in the 2004-05 budget, after 2005-06. The 2004-05 budget proposal shifts $1.3 billion in property tax revenue to K-14 education in 2004-05 and 2005-06. If the budget proposal is adopted, then existing state law on November 3`d will allow this temporary shift but only for the two years. The Legislature could not (absent suspension) extend this property tax shift because doing so would reduce local governments' percentage share of property tax revenues below what they otherwise would be under existing state law in 2006-07 or subsequent years. 2) Allows suspension of the property tax protection provision for any individual fiscal year, starting with 2008-09, subject to the following requirements: a) A proclamation of severe fiscal hardship by the Governor. b) Enactment of an urgency statute by a two-thirds vote of the Legislature. c) Enactment of a statute providing for full repayment of any revenue loss, including interest, to local governments by the end of the third fiscal year following the year of suspension. d) Suspension may not result in a loss of more than 8 percent of the property tax revenues of local governments. e) No suspension may occur before a previously suspended amount has been repaid. Suspensions may not occur more than twice in any 10-year period. Furthermore, no suspension may occur until after the VLF "gap" amount has been paid ($1.3 billion of VLF backfill payments deferred from 2003-04 to be paid in August of 2006) 3) Constitutionally protects the sales tax replacement revenue that cities and counties receive while the quarter-cent suspension of the Bradley-Burns local sales and use tax is in effect. Existing law suspends a quarter-cent of the local sales tax rate and increases the state sales tax rate by the same amount until the Economic Recovery Bonds authorized by Proposition 57 have been paid off. During this "revenue exchange" period, the "Triple-Flip" mechanism provides replacement property tax revenue to cities and counties. The constitutional amendment prohibits the state from reducing, suspending, or delaying the replacement revenue during the revenue exchange period. The measure also prohibits the Legislature from extending the revenue exchange period or failing to restore the quarter-cent local tax rate after the revenue exchange period. 4) Constitutionally protects local sales tax revenues. Specifically, the measure prohibits the Legislature from restricting the authority of a city or county to impose the Bradley-Burns Uniform Local Sales and Use Tax and any local Transactions and Use Taxes. The measure also prohibits the Legislature from changing the method of distribution of these local sales taxes. This would retain in place the current "situs" basis of sales tax—the jurisdiction in which the sale occurs receives the sales tax revenue from that sale. The Legislature, however, could revise the allocation of the use tax portion of the Bradley-Burns tax if necessary to comply with federal law or an interstate compact. 5) Enables the Legislature to authorize two or more specifically identified local agencies within any county to exchange property tax and Bradley-Burns sales tax revenues with approval by a majority vote of the governing bodies of each entity. 6) Revises the dedication of Vehicle License Fee (VLF) revenues in the constitution. Currently, the California Constitution requires that ail VLF revenues above the costs of collection and refunds must be allocated to cities and counties according to statute. This constitutional amendment provides for the following uses of VLF revenues: a) First, to the Local Revenue Fund to pay for health and social services programs that are carried out by counties and several cities as part of the state-local Program realignment that was enacted in the early 1990s. These costs currently are paid out of a share of VLF revenues and General Fund backfill payments b) Second, any remaining amounts within a VLF rate of 0.65 percent (the current effective rate after offsets are applied) are dedicated to cities and counties as provided by law. This remaining amount currently is about $200 million. c) Third, the state would be required to provide for replacement revenue to local governments if the VLF rate is reduced below 0.65 percent in the future. There is no restriction, however, on the use of any additional VLF revenue, should any be available in the future. 6) Provides additional requirements for payment of state-mandated local costs. Currently, the California Constitution requires the state to reimburse local agencies for the costs of implementing a new state mandated program or higher level of service. It does not specify when or how often the costs must be reimbursed. Mandate requirements continue in force even if payment has been deferred. This measure would restrict the state's ability to defer payment as follows: a) Prohibits the Legislature, beginning in 2005-06, from deferring mandate payments by requiring that the Legislature either appropriate the full amount payable in the annual Budget Act or suspend the operation of the mandate for the fiscal year to which the Budget Act applies. The state would remain liable, however, for any past mandated costs, even in the event of suspension, as under current law. b) This requirement would not apply to: i) Education mandates. ii) Mandates that provide substantive or procedural protections, rights or benefits to local government employees or retirees. iii) Mandate costs incurred prior to 2004-05, for which payable claims have been determined prior to 2005-06 and payment has been deferred. The measure allows these deferred claims to be repaid over a period of years as provided by law. d) Specifies that reimbursable mandate costs include any shift of financial responsibility for a required program from the state to local government, including an increase in the local funding ratio for a required program that is jointly funded by the state and local government. The California Constitution requires the state to reimburse local agencies for the costs of implementing a state mandated new program or higher level of service. It does not specify the precise meaning of "new program or higher level of service." However, language the decision on the Sonoma County case indicated that simply increasing a local funding percentage in a jointly-funded program would not be result in a reimbursable mandate. e) Includes an explicit statement that the state may not use allocations of property tax revenue to pay for mandated costs. 7) Declares that this measure is a comprehensive alternative to the Local Government Property Tax Protection Act —Proposition 65 on the November 2 ballot—and that accordingly, none of the provisions of Proposition 65 would take effect if both measures pass and ACA 9 receives a larger number of affirmative votes. • This measure is consistent with the fiscal assumptions in the Governor's May Revision budget proposal and with the overall agreement on the 2004-05 budget. w I 1400 K Street, Swte 400 - Sacramento, Cal,fornia 95814 C:1F t�ALIIC PN1„? Phone 916 658 8200 Fax. 916 658 8240 tv�, tiJ wcnx+cacrhes.org FOR IMMEDIATE RELEASE—July 27,200d Page I of 2 Contact Megan Taylor, 916 658 8228 League of Califomia Cities Endorses Local Government Budget Agreement Sacramento — The board of directors of the League of California Cities today voted unanimously to support the local government protection agreement that the League and its LOCAL coalition partners negotiated with Governor Arnold Schwarzenegger and legislative leaders. "The agreement provides a breakthrough in terms of protecting local services," said League President Ron Loveridge, Mayor of the City of Riverside "It means that we will work together with the governor and legislative leaders to secure voter approval in November for a ballot measure that will significantly strengthen constitutional protections for local revenues " The agreement calls for cities, counties, special districts and redevelopment agencies to endure two years of painful revenue losses, as $1 3 billion in local funds are shifted to the state each year The cities' share of this loss will be $350 million for each of the two years. The measure will retain the existing funding shift from local governments to school districts (ERAF), currently about $5 billion annually, but would amend the constitution to prevent the legislature from increasing the amount of these shifts in future. It would allow the legislature to borrow property tax, but only if prior loans were repaid to local governments and other criteria were met Property taxes could be reallocated by the legislature, but not to pay for state programs. The current rate and method of distribution of sales tax would be protected, and state mandated programs would be suspended if the state failed to reimburse local governments "The cuts will be very difficult for many cities," said Novato Mayor Pat Eklund, First Vice President of the League "But we're willing to endure this short-term pain because this ballot measure protects our future revenues For the first time in more than a decade, we'll be able to provide police, fire and other essential services knowing that the state can't just reach down and take our funds." "This agreement would not have been possible were it not for the outstanding leadership of Governor Schwarzenegger, and the energy and dedication of our members," said League Executive Director Chris McKenzie "Our members and our coalition partners were able to collect more than 1 1 million signatures to put Prop 65 on the ballot, - more - Page 2 of 2 and that helped give us a place at the table But it was Governor Schwarzenegger's leadership and commitment that brought us together with legislators He fulfilled his commitment to California voters to unite us all towards a common purpose." McKenzie added, "I also want to express our great appreciation to Mayor Jim Hahn (Los Angeles) and Mayor Alan Autry (Fresno) for the incredible leadership they have provided to the cities of the state in this process. The League officers -- Mayor Ron Loveridge, Mayor Pat Eklund, Los Angeles Council President Alex Padilla and Oakland City Attorney John Russo — also provided untold hours of guidance and leadership. We deeply appreciate all their efforts." We still have much work ahead of us," said Loveridge. We must work to educate voters about why this constitutional measure is important to their communities. "We look forward to working with the governor and with legislators to ensure that we pass this measure in the fall and restore the accountability to state and local budgets that voters want and expect " ' for rft F�,4, cwPonx Tly�� Agreement Reached on Protecting Local Government Funds ➢ This spring, Governor Schwarzenegger and his bipartisan local government partners reached an agreement that will greatly alleviate our fiscal crisis and protect city and county revenues from future state raids. ➢ When that agreement was in jeopardy, Governor Schwarzenegger went directly to the people of California to secure their help in protecting their public safety and their essential local services. ➢ The Governor and his bipartisan partners were determined to hold fast against special interests until local governments were assured their public safety funds were protected. ➢ Today, thanks to the steadfastness of the Governor and his local partners, that agreement was accepted by legislative leaders, clearing the way for it to be put to a vote by the legislature. Key Points of Bipartisan Agreement ➢ Achieves $2.6 billion in savings for California over the next two years. ➢ Will ensure that police officers are able to patrol the streets and keep California safe, that firefighters are on the job, and that other essential local services get the funding they need. ➢ Requires the legislature to stop balancing the budget on the backs of local tax payers and live within its means. 3 taxes —the best source to fund public safety, health and other critical services because they are assessed, collected and expended locally. ➢ Maintains funding for mosquito abatement and vector control districts to combat the West Nile Virus. Protecting City and County Funds According to the Governor's agreement, local government funds will have unprecedented Constitutional protection: ➢ The state will only be allowed to borrow funds from cities and counties twice in ten years. ➢ The state is required to pay back all borrowed funds. ➢ The state may not borrow a second time in ten years unless it has paid back funds from its first loan. ➢ A significant fiscal hardship must exist and the legislature must approve by a two-thirds majority the act of borrowing from local governments. ➢ The amount the state can borrow is capped at eight percent of local governments' share of property taxes. ➢ Local governments will not be required to implement unfunded mandates. ➢ The state must pay back local governments the costs of unfunded mandates of the past, beginning in 2006. ➢ To get local governments out of the Vehicle License Fee backfills they have had to deal with in years past, the VLF rate will u" reduced from two to 0.65 percent and unreliable VLF backfill will be replaced with reliable property tax funds. 4