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HomeMy WebLinkAbout1986-05-06; City Council; 8604; June Ballot Proposition 46Oil OF CARLSBAD - AGEND BILL AR# P& 0 «/ MTG. 5/6/86 DEPT. CM TITLE:J JUNE BALLOT PROPOSITION 46: GENERAL OBLIGATION BONDS (ACA 5) DEPT. HD.^~ CITY ATTVSjflA CITY MQR. 2^" O LU §a:a.a. RECOMMENDED ACTION: Council review and consider taking a position on Proposition 46. If Council wishes to support Proposition 46, your action is to adopt Resolution No. <^S~3J3 . ITEM EXPLANATION: Proposition 46 is a June ballot proposition that would restore to local voters the authority to approve local government agencies' use of general obligation bonds for funding capital improvements such as schools, fire and police stations and sewers. Propositon 46 would allow exceptions to the current one percent property tax limitations only if two-thirds of the voters approve the proposed project or improvements. The League of California Cities supports this proposition. FISCAL IMPACT: None. EXHIBITS: 1. Analysis of Proposition 46 from League of California Cities. 2. Resolution No. <Ps-.?>3 • O OO League of California Cities March 1986 California Cities Work Togethei QUESTIONS AND ANSWERS PROPOSITION #46: RESTORATION OF GENERAL OBLIGATION BOND AUTHORITY TO LOCAL VOTERS 1. What is a general obligation bond? A general obligation bond is a government bond secured by the "full faith and credit" of a state or local government with the power to tax. The pledge of the full faith and credit of the borrower makes general obligation bonds the least risky kind of bond for investors to buy and/ consequently, the least expensive form of credit available to government. Yet, since the 1978 passage of the one percent limits on the property tax/ local government has been unable to issue GO bonds/ unless the taxpayers authorized sale of the bonds before 1978. This has resulted in higher construction costs and less value for the taxpayers' money. A few local governments can still use general obligation bonds because they were authorized to do so by taxpayers who voted on the issue before 1978. These bonds make it possible to compare the cost of using GO bonds versus other kinds of financing. For example/ in May of 1985 the Sulphur Springs School District used pre-1978 approved G.O. bonds to borrow money for an elementary school and is repaying the loan at a 6.5% interest rate. A few months later the San Juan School district used certificates of participation — a general obligation bond substitute — to borrow money and had to pay 7.8 percent interest. This difference occurred even though the San Juan District had an "AAA" bond rating/ a much better credit risk in the eye of the investment community than the Sulphur Springs District with an "A" rating. Other examples: In May 1984 the Whisman School District in Santa Clara County used general obligation bonds to borrow $1 million to build an elementary school. It paid 8.2 percent. In November 1984 the Newark Unified School District in Alameda County borrowed $5.1 million for the same purpose. It paid 11.45 percent interest. In September 1983 the Claremont Unified School District borrowed $3 million in construction funds at an interest rate of 6.9 percent. Three months earlier the New Haven School District in Alameda County borrowed EXHIBIT 1 CONFERENCE REGISTRATION OFFICE BOX 7005, LAFAYETTE, CA 94549 (415)283-2113 HEADQUARTERS 1400 K STREET, SACRAMENTO, CA 95814 (916) 444-5790 SOUTHERN CALIFORNIA OFFICE 1052 WEST 6TH STREET, SUITE 410 LOS ANGELES, CA90017 (213) 482-0828 ^ $9 million through lease-revenue financing and had to pay 9.7 percent interest. The savings can be significant. In fact/ the California Taxpayers Association estimates that if general obligation bond financing had made up the same share of local borrowing last year as it did eight years ago, the taxpayers would save more than $50 million on 1985 borrowing for public construction in cities, counties, schools and special districts. 2. What would Proposition #46 do? Existing constitutional law limits ad valorem property taxes to one percent of the full cash value of the property, except for property taxes to pay the interest and redemption charges on indebtedness approved by the voters prior to July 1, 1978. Proposition #46 would provide an additional exception from the property tax limitation for indebtedness approved by two-thirds of the voters voting on the tax on or after July I, 1978. It would permit local voters —" by two-thirds vote — to authorize an increase in their own local property tax rates to finance the acquisition and improvement of real property through general obligation bonds, the least expensive form of credit available to government. 3. How would Proposition #46 impact the taxpayers and voters? — Proposition #46 would make it possible to reduce the cost of public projects by authorizing the voters to approve use of the least expansive form of financing for capital improvements. — Proposition #46 would give local voters the opportunity to ensure that the taxes they pay will be used in their own communities where they can see the results, reap the benefits, and have a say in how their money is spent. — Proposition #46 would restore to local voters the right to tax themselves to pay for facilities they — themselves — want in their communities. — Proposition #46 would make it possible for local government to be more responsive to the needs of the people it serves. Because even the voters themselves cannot raise their own property taxes, citizens who serve on the governing boards of cities, counties and special districts are increasingly forced to look to the state and federal governments to meet the needs of their communities. All too often, those needs get lost among the demands of all the other cities, counties and special districts looking to Sacramento and Washington for help. 4. Can't local governments issue General Obligation bonds now? No. With the exception of indebtedness approved by the voters before July 1, 1978, Proposition 13 limited property taxes to one percent of the market value of property. This means that no matter how much the voters want to build a school, or develop a park or construct some other much-needed public facility/ they are prevented by law from using the least expensive means of financing it. 5. Wouldn't Proposition #46 put taxpayers back in the same position they were in before Prop. 13 passed? No! Before Proposition 13 was passed/ with limited exceptions, property taxes could be raised by a majority vote of the governing board of the city/ county or special district proposing the tax. Although approval of the voters was generally required for the issuance of general obligation bonds/ the local agency could raise the tax rate to cover general operating expenses. Under Proposition #46/ the one percent property tax limit would still prevail/ unless voters/ themselves/ decide to raise their own taxes. And it would take a two-thirds vote to do it. It's very difficult to get a two-thirds vote of the electors on any issue. Even Prop. 13/ itself/ as popular as it was, received only 64.8 percent of the vote: Prop. 13 would not have passed/ if a two-thirds vote had been required. With Proposition #46 the voters would be in charge of determining their own tax rate for specific capital improvement projects. 6. Won't Prop. #46 increase taxes? No. Voters could increase their taxes only through separate elections and only if two-thirds of the voters in their city, county or special district agreed their taxes should be raised. 7. What could be financed through general obligation bonds authorized by Proposition #46? The proposition would permit the voters to use general obligation bonds only for the "acquisition and improvement of real property". "Real Property" is defined by law as land or buildings, structures/ fixtures and fences erected on or affixed to the land. 8. Could the voters use general obligation bonds to purchase furnishings or supplies for schools or government offices? No. 9. Could the voters use new general obligation bonds to pay the salaries of government employees? No. - 3 - 10. Why not finance public facilities with user fees? This is being done and will continue to be done/ regardless of whether the voters regain the authority to use general obligation bonds. Where a service is being paid for with user fees/ such as municipal water systems/ for example/ construction to expand the system would normally be paid from the fees city residents pay. Similarly/ a city might choose to rely on user fees to pay for improvements to facilities like zoos or special recreation areas that provide services which are not essential to all residents of the city. However/ approval of Proposition #46 would provide an opportunity to reduce costs associated with fee-supported construction/ as well/ if the voters agreed to pledge property taxes as a backup to fee financing. This use of general obligation bond authority would require the same two-thirds vote/ even though fees would be the actual source of the revenue to repay the bonds. Some public facilities/ however/ are of general benefit to a community and do not lend themselves to financing according to use. Examples are jails/ municipal offices/ police headquarters/ and fire stations. Who would prefer to pay no tax for fire protection and/ instead/ face a "user" charge of several thousand dollars in the event firefighters had to battle a major blaze at their homes? There is one important drawback to taxpayers when fees are used to provide government services: Property taxes are currently deductible in computing state and federal personal income taxes. Fees are not. If all else is equal/ a taxpayer is better off paying for a public improvement through property taxes than by fees. Paying through property tax means a lower income tax. Paying by fees does not. Proposition #46 restores the option of paying through property taxes. 11. Why borrow at all? Wouldn't it be cheaper to pay for real property out of existing revenue sources? Yes/ it would be less expensive to pay-as-you-go. But/ like most homeowners and businesses/ few local governments have the cash on hand necessary to pay the entire cost of a major public facility. Even if present tax revenues are sufficient to fund major capital projects/ strong arguments can be made on behalf of government borrowing. For one: fairness. If a water system/ for instance/ is built to last 60 years/ why should its entire cost be borne by the taxpayers who use it during its first five years? A more equitable course is to spread the cost among taxpayers who benefit from the improvement throughout its useful life. Borrowing accomplishes this. However/ Proposition #46's requirement for a two-thirds vote also ensures that current taxpayers will not frivolously obligate the tax resources of future residents. 12. Won't the two-thirds vote requirement act as a barrier to needed capital improvements? It will be difficult for general obligation bond measures to pass/ but the decision to commit a community to long-term borrowing should not be - 4 - made lightly. Proposition 13 established a two-thirds vote requirement for local special taxes. Proposition #46 continues that policy. 13. How does Proposition #46 differ from the general obligation bond proposition the voters rejected in 1980? Proposition 4 of 1980 would have permitted the voters to authorize increases in the property tax rate to repay general obligation bonds for the purchase of expendable property/ such as fire engines or office furnishings/ in addition to real property. Proposition 146 does not permit using general obligation bonds to purchase expendable property. Proposition 4 of 1980 also would have permitted the voters to raise their property tax rates to cover general obligation bonds used to refinance earlier bond sales. Proposition §46 does not provide for the refinancing of earlier bond sales. - 5 - March 1986 REASONS OTHER GROUPS MAY SUPPORT PROPOSITION 46 (ACA 55) Proposition 46 would restore to local voters the authority to approve the use of general obligation bonds by local government agencies for the funding of capital improvements/ such as schools- fire and police stations and sewers. Proposition 46 would allow exceptions to the current one percent property tax limitations only if two-thirds of the voters approve the proposed project or improvements. Taxpayers* — Proposition 46 makes tax money go farther by permitting local government to use general obligation bonds/ which are widely accepted as the least expensive form of government borrowing. — Proposition 46 protects the taxpayer by requiring the approval of two-thirds of local voters voting in a subsequent election. Your property taxes could not be increased without a two-thirds vote of the people. — Proposition 46 only permits the sale of new general obligation bonds to purchase land and build on it. — Proposition 46 does not permit the use of general obligation bonds for expendable items like office furniture/ government automobiles/ equipment or supplies. The Proposition also does not permit the use of general obligation bonds for salaries or pensions of public officials. — Taxpayers may deduct their property tax payments on their federal income tax returns/ though special fees — often used to finance the same kind of capital improvement projects — are not deductible. Therefore/ if all else is equal/ improvements financed with GO bonds may result in a further tax savings for taxpayers. *Proposition 46 is supported by the California Taxpayers Association Chamber of Commerce members, retailers/ manufacturers* — Proposition 46 provides needed flexibility in funding public improvements - 1 -7 In many areas of the state in recent years/ economic growth has been stymied by a lack of public funding for streets and roads/ water and sewer systems and other elements of infrastructure necessary to expansion. In other areas/ increased business volume has been frustrated by outdated transportation systems/ over-crowded streets and inadequate parking facilities because local government cannot afford to improve them. That means business has gone without or had to shoulder an increasing burden of the cost of such needed improvements. Proposition 46 provides an alternative funding mechanism to support economic growth. — Proposition 46 protects business owners as taxpayers by requiring the approval of two-thirds of local voters voting in a subsequent election. Proposition 46 only permits the sale of new general obligation bonds to purchase land and build on it. Proposition 46 does not permit the use of general obligation bonds for expendable items like office furniture/ government automobiles/ equipment or supplies. The Proposition also does not permit the use of general obligation bonds for salaries or pensions of public officials. — Proposition 46 puts the voters in charge of determining whether their property taxes will be used to finance such public improvements. No property tax increase could take place without voter approval - and it will take a two-thirds vote to do it. ^Proposition 46 is supported by the California Chamber of Commerce Developers/ builders/ real estate investors/ real estate sales professionals — General obligation bonds have been the traditional means of financing such construction in most older areas of most cities. These elements of urban life are generally considered to benefit all the people and the society as a whole. So/ its been generally accepted that all property owners should pay their fair share of the costs. And/ since these projects represent long-term investments/ its been considered appropriate that the cost of the improvements also be spread out over the long-term. But/ in the absence of voter authority to approve general obligation bonds/ the burden of paying for such improvements has increasingly fallen to developers who wish to build in new areas. They've been forced to agree to install improvements and set aside land as sites for schools/ parks/ playgrounds/ fire stations/ etc./ as a condition of building in many areas of the state. Or/ they've had to abandon plans for development when cities have been unable to pay for construction. - 2 - It's led to increased costs of development and increased risk for developers and investors. — Proposition 46 provides an additional mechanism for financing the streets and roads/ playgrounds, police and fire stations, sewer and water systems necessary for new construction, taking pressure off developers and encouraging new projects. Additionally, the cost has been passed on to home buyers as part of their mortgage costs, inflating the price of new homes, and making it more difficult to market new projects. Parents and Teachers* — Proposition 46 provides a mechanism for funding many of the facilities most often used by children — schools, parks, playgrounds and libraries. It is these areas of public construction which have been most frequently neglected during the recent years of tight public finances. Today, hundreds of thousands of California's children are attending school in structures which are unconducive to an adequate education. Many thousands are spending much of their days being bussed miles and miles away from home just to get to a classroom with space for them. Many thousands more are housed in portable buildings originally intended only to serve as a temporary solution to a temporary problem. But many children may complete their entire public educations in crowded, inadequate structures, unless some means of financing schools are found. Yet, no matter how much a community wants to provide adequate school buildings for its children, no matter how much residents of our cities want park and recreation facilities, no matter how much the people of our communities want to enrich their lives by continuing the American tradition of accessible, free public libraries, the voters of California cannot raise their own property taxes to do so. And no matter how much the taxpayers want to make the most of the money they spend on school, park, playground and library construction, they cannot use the least expensive means of doing so — general obligation bonds. Proposition 46 will restore to the voters the right to decide for themselves whether adequate schools, better recreation facilities and more accessible library facilities are worth paying for and provide a means for making the most of the money they are willing to spend. — Some money is available from state and federal sources for construction of parks and libraries. But many of these programs require matching funds from the communities which use them. Proposition 46 would provide a means for raising matching funds for these purposes to ensure that local voters don't lose out on money they pay in taxes to Sacramento and Washington. - 3 - — *Proposition 46 is supported by the California School Boards Association Seniors Proposition 46 provides the least expensive mechanism for funding needed public facilities such as senior centers, hospitals, parks, and libraries. It is these areas of public construction which have been most frequently neglected during the recent years of tight public finances. Proposition 46 will restore to the voters the right to decide for themselves whether public buildings, recreation facilities and more accessible library facilities are worth paying for and provide a means for making the most of the money they are willing to spend. Some money is available from state and federal sources for construction of parks and libraries. But many of these programs require matching funds from the communities which use them. Proposition 46 would provide a means for raising matching funds for these purposes to ensure that local voters don't lose out on money they pay in taxes to Sacramento and Washington. Proposition 46 could be used by a community to build a new fire or police station, thereby cutting response time, which is often critical in responding to emergency calls. Proposition 46 would take some of the pressure off local government budgets, making more funds available for emergency services and personnel. Proposition 46 protects the taxpayer by requiring the approval of two-thirds of local voters voting in a subsequent election. Proposition 46 only permits the sale of new general obligation bonds to purchase land and build on it. Proposition 46 does not permit the use of general obligation bonds for expandable items like office furniture, government automobiles, equipment or supplies. The Proposition also does not permit the use of general obligation bonds for salaries or pensions of public officials. Proposition 46 puts the voters in charge of determining whether their property taxes will be used to finance such public improvements. No property tax increase could take place without voter approval - and it would take a two-thirds vote to do it. \°_ 4 - V Bond counsel/ bond buyers/ bond brokers* — By restoring the authority of local voters to approve the use of general obligation bonds/ Proposition 46 increases cities' options for meeting their financial obligations. This, in turn, strengthens the financial standing of cities overall, a major interest among those who buy or sell municipal bonds. — In time, as the voters approve the use of general obligation bonds, more funds will be available to repay bond issues, providing more business for bond sellers and bond counsel and greater choice for investors. — General obligation bonds are the most stable form of government borrowing. Their relatively low risk is reassuring to investors, making them easier for bond sellers to market. — The restoration of general obligation bonds also will increase the options available to finance professionals as they put together financing packages for large projects. — As professionals intimately involved in putting together financing for public projects, bond counsels and bond sellers are well informed about the current difficulties in paying for public construction. They know how much — or how little — money is available for meeting public needs, so they also are concerned about passage of Proposition 46 from a "good government" standpoint. *Proposition 46 is supported by the Public Securities Association. Civic Groups* — Proposition 46 protects the taxpayer by requiring the approval of two-thirds of local voters. It puts the voters in charge of determining whether their property taxes will be used to finance such public improvements. — Proposition 46 makes tax money go farther by permitting local government to use general obligation bonds, which are widely accepted as the least expensive form of government borrowing. — Proposition 46 restores local control to local voters. When the voters enacted the current property tax limitation law, they gained certainty about their tax bills, but they lost a great deal of authority and power over the future course of their communities. Because local voters don't control the purse strings, they have less and less say over how their local government agencies will be financed. That's mainly left up to the state Legislature and the federal government. - 5 - Because the voters no longer can tax themselves for the projects and programs they want/ they have less control over what goes on in their communities. And Sacramento and Washington have more and more power over what will and what won't happen in California's cities. Proposition 46 would restore local control to local voters by providing a mechanism for determining for themselves where their tax money should go. — Proposition 46 will provide the voters with a way to fund needed infrastructure for private projects which would benefit the community as a whole. The current law also has placed greater responsibility for paying for public improvements/ such as infrastructure for new developments/ on the developers/ themselves. This has shifted some of the tax burden away from the individual taxpayer and onto those who have the most to profit from such public construction/ and many would see that as a favorable impact of the law. However/ these circumstances also have had the harmful effect of increasing the likelihood that profit-making construction will take place/ while projects with little likelihood of large profits — but great probability for enhancing the public good — are stymied. — In many areas of the state/ public construction and maintenance have fallen far behind schedule during recent years. Proposition 46 would provide a way for voters to finance very high priority construction and maintenance projects to ensure the voters have the kind/ number and quality of public facilities they desire. Today/ no matter how much a community wants to provide adequate school buildings for its children/ no matter how much the residents of our cities want park and recreation facilities/ no matter how much they want to improve a city's streets and roads or build a hospital or upgrade the water system/ the voters cannot raise their own property taxes to do so/ not even by two-thirds vote. And/ no matter how much the taxpayers want to make the most of the money they spend on public construction/ they cannot use the least expensive means of doing so — general obligation bonds. If two-thirds of the local voters want a project enough to pay for it/ shouldn't they have the right to do so? *Proposition 46 is supported by the League of Women Voters of California. Public employees and public employee unions — Proposition 46 would provide additional flexibility in financing needed public construction projects/ making it possible for employees to do a better job of serving the citizenry and/ therefore/ take greater pride in their work. Proposition 46 would provide a means for financing more adequate public facilities/ ultimately resulting in more comfortable employment sites which would be more conducive to work. This would apply especially in the police and fire services/ since it is likely the voters would support bond measures for police and fire stations. By providing additional public financing where the voters have become concerned about the condition of their public structures/ Proposition 46 would in time take some pressure off current revenue sources from which public employee salaries must be paid. /3 March 1986 REASONS OTHER GROUPS HAY OPPOSE PROPOSITION 46 (ACA 55) Taxpayers on very tight fixed incomes — While Prop 46/ by itself/ would not increase property taxes/ it would enable the voters to increase taxes in a subsequent election. But/ Prop 46 requires the two-thirds approval of the voters to do so. That means a tax increase would require very strong support of the community. A two-thirds vote requirement is ample protection against tax increases which wouldn't benefit even households on fixed incomes. And/ since most homeowners on fixed incomes are seniors/ most have the option of delaying payment of property taxes until their homes are sold or their estates are settled/ so they would not be forced out of their homes by any potential tax increases. No-growth advocates/ environmentalists — Since Prop 46 provides a mechanism for funding public construction/ it could be used to finance infrastructure to support new development. However/ again/ the two-thirds vote requirement provides protection against the financing of unpopular public projects. Just one-third of the voters plus one could stop financing for any project for which new general obligation bonds would be sold. Taxpayers who never want to see the property tax increased — A small number of very conservative voters always will object to any potential for an increase in the property tax. They probably will not be swayed by any argument. However/ other relatively conservative voters who may be in the same audience will be impressed by the fact that Prop 46 requires a two-thirds vote before taxes could be increased and by the fact that Prop 46 puts the people in charge of making that decision. 1 RESOLUTION NO. 8533 2 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, IN SUPPORT OF PROPOSITION 3 46: RESTORATION OF GENERAL OBLIGATION BOND AUTHORITY TO VOTERS 4 5 WHEREAS, General Obligation bonds are the least expensive 6 form of borrowing available to local government agencies; and 7 WHEREAS, taxpayers can generally expect to save up to 0.3 8 of one percent on interest rates when General Obligation bonds, 9 rather than revenue bonds, are issued; and 10 WHEREAS, the Constitution of the State of California 11 currently prohibits the voters from approving the use of General 12 Obligation bonds based on the property tax; and 13 WHEREAS, no matter how much the voters of a community want to 14 build new schools or parks or other public construction projects, 15 they are prohibited by the State Constitution from approving an 16 increase in their own property taxes to finance such con- 17 struction; and 18 WHEREAS, the people should have the right to use the least 19 expensive form of financing available; and 20 WHEREAS, Proposition 46 would restore to the voters the right 21 to use General Obligation bonds; and 22 WHEREAS, Proposition 46 would permit the use of General 23 Obligation bonds only for the purchase and improvement of real 24 property, not for any other purpose; and 25 WHEREAS, Proposition 46 would require a two-thirds vote of 26 the people voting in a subsequent election to approve any 27 increase in their local property taxes; 28 /// 1 2 3 4 5 6 7 8 9 10 11 13 14 15 16 17 18 20 21 22 23 24 25 26 27 28 NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad, California as follows: 1. That the above recitations are true and correct. 2. That the City Council does hereby support Proposition 46, which will put the people in charge of determining any future increases in their local property taxes and restore to the people the opportunity to use the least expensive form of financing available. PASSED, APPROVED AND ADOPTED at a regular meeting of the Carlsbad City Council held on 6th day of May , 1986, by the following vote to wit: AYES: Council Members Casler, Lewis, Kulchin, Chick and Pettine NOES: None ABSENT: None MARY H. /CASLER, Mayor ATTEST : __ Aletha L. Rautenkranz, City Clerk (SEAL)