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HomeMy WebLinkAbout2004-10-05; City Council; 17823; Propositions 1A & 65 presentationm Lo c 0 -d 4J .d II) 0 1-I PI &I 0 4J 1-I 0 a 8 P Lo c .d 0 N m I cr 0 0 N c 0 -4 CI ? d . 8 2 a al 4J a 0 a a rl -4 u c ? 0 u .. z 0 F 0 J 0 z 3 0 0 a I CITY OF CARLSBAD - AGENDA BILL ~~ TITLE: - PRESENTATION ON PROPOSITIONS 1A AND 65 FOR COUNCIL CONSIDERATION DEPT. HD. CITY ATTY. CITY MGRW RECOMMENDED ACTION: Receive presentation and approve staff recommendation for a City Council position of SUPPORT for both Proposition 1A and 65 in the November 2004 election. BACKGROUND AND HISTORY: For over a decade, in both good fiscal times and bad, the state legislature has taken local tax dollars to pay for state responsibilities. This loss of Local Government revenue to the state amounts to more than $40 billion over the past 12 years statewide, of which, the City of Carlsbad has lost approximately $30 million. These lost revenues would have helped fund additional City services such as libraries, parks, fire and police protection, and recreation programs. In addition to the loss of revenue to the state, Local Governments have been forced to deal with a myriad of unfunded mandates, which in instances such as Stormwater Protection can be an annual multi-million dollar burden on the local jurisdiction. These mandates only complicate the financial mire that many local agencies find themselves in, again as a result of state action. The instability felt by Local Governments over the past decade has been compounded by repeated attempts at the State level to restructure the fiscal relationship between State and Local Governments. These attempts, while predominately unsuccessful, helped create an air of uncertainty at the local level, which has made fiscal planning quite tumultuous. In order to provide a more stable fiscal environment, to limit the impacts of unfunded mandates, and to curtail the shifting of Local Government revenue to the State, the League of California Cities (League), the California State Association of Counties (CSAC), and the California Redevelopment Association (RDA) joined together to place a Proposition before the voters in the November 2004 election. The objectives of this effort were multi-faceted, with protecting and stabilizing local government revenue at its core. The partnership between the League, CSAC, and RDA was successful, and they were able to qualify the Local Taxpayers and Public Safety Protection Act, known as Proposition 65, for the November 2004 ballot. Upon qualifying Proposition 65, several things occurred, the most significant of which was the Governor’s request to forge a compromise measure. This compromise was designed to provide many of the protections contained in Proposition 65 for local governments, but establishes forgiveness for prior State takeaways, and allows some flexibility for future shifts by the State of local revenues in times of emergencies. As part of the compromise, the Governor pledged to offer his support for the passage of the measure, which the League deemed critical to its ultimate success. The compromise was approved by the Legislature and is scheduled for the November Ballot, under the name of Proposition IA. As part of the final compromise the League PAGE 2 OF AGENDA BILL NO. 17,823 agreed to withdraw their support of Proposition 65. Below are the main points of both Proposition 1A and Proposition 65. While the League has withdrawn their support of Proposition 65, city staff believes that due to the revenue protections contained in both Propositions, it remains in the city’s best interests to SUPPORT BOTH Propositions 1 A and 65. Proposition 1A This measure amends the State Constitution to significantly reduce the state’s authority over major local government revenue sources. Under Proposition IA, the state could not: Reduce Local Sales Tax Rates or Alter the Method of Allocafion. o For example, the state could not reduce a city’s uniform or optional sales tax rate, or enact laws that shift sales taxes from a city to the county in which it is located. Shift Property Taxes From Local Governments to Schools or Community Colleges. Proposition 1A generally prohibits the state from shifting to schools or community colleges any share of property tax revenues allocated to local governments for any fiscal year under the laws in effect as of November 3,2004 o Proposition 1A prohibits the state from reducing the property tax revenues provided to cities and counties as replacement for the local sales tax revenues redirected to the state and pledged to pay debt service on state deficit-related bonds approved by voters in March 2004 Decrease VLF Revenues Without Providing Replacement Funding. o If the state reduces the VLF rate below its current level, the measure requires the state to provide local governments with equal replacement revenues. Proposition 1A provides that beginning in 2008-09, the state may shift to schools and community colleges a limited amount of local government property tax revenues if: The Governor proclaims that the shift is needed due to a severe state financial hardship A separate urgency bill must be passed by a 2/3 vote of Legislature The Legislature must pass a law to fully repay the loan with interest within 3 fiscal years New loans are prohibited until prior loans have been repaid No more than two loans may occur during any ten-year period The loan amount is capped at 8% of local government property tax amount (equivalent of approximately $1.3 billion in today’s property tax dollars) The financial protections outlined in Proposition 1A do not extend to Redevelopment Agencies, which is a significant difference between Proposition 1A and Proposition 65. PAGE 3 OF AGENDA BILL NO. 17,823 State Mandates Proposition 1A amends the State Constitution to require the state to suspend certain state laws creating mandates in any year that the state does not fully reimburse local governments for their costs to comply with the mandates. Specifically, beginning July 1, 2005, the measure requires the state to either fully fund each mandate affecting cities, counties, and special districts or suspend the mandate’s requirements for the fiscal year. This provision does not apply to mandates relating to employee rights. Proposition 65 Proposition 65 on the November 2004 ballot contains similar provisions as Proposition IA, however, there are some significant differences between the two, which are outlined in Attachment 1. Effect on 2004-05 State Budget. Proposition 65’s restrictions apply to state actions taken over the last year, and thus would prevent a major component of the 2004-05 budget plan (a $1.3 billion property tax shift in 2004-05 and again in 2005-06) from taking effect unless approved by the state’s voters at the subsequent statewide election. Effect on Future State Budgets. Proposition 65 allows the state to modify major local tax revenues for the fiscal benefit of the state, but only with the approval of the state’s voters. Effect on Revenue Allocation. Proposition 65 generally requires state voter approval before the state can reduce any individual local government’s revenues from the property tax, uniform local sales tax, or vehicle license fee (VLF). Local Governments Affected. Proposition 65’s restrictions apply to cities, counties, special districts, and redevelopment agencies. Mandates Proposition 65 authorizes local governments, schools, and community college districts to decide whether or not to comply with a state requirement if the state does not fully reimburse local costs. Recommendation and Options: The City Council has several options available to them in this matter. The Council could: 1. Support eithedboth Propositions 1A and 65 2. Take a No Position on eitherlboth Propositions 1A and 65 3. Oppose eithedboth Propositions ?A and 65 Based on the City Council’s adopted Legislative Platform (see Attachment 2, Section 2.B), and the financial implications of both Propositions, staff recommends that the Carlsbad City Council adopt a position of Support for Proposition 1A and Proposition 65. FISCAL IMPACT: Significant Fiscal Impact. Given the number and magnitude of past state actions affecting PAGE 4 OF AGENDA BILL NO. local taxes, both Propositions' restrictions on state authority to enact such measures in the future would have potentially major fiscal impacts on local governments. If approved, either of these Propositions would result in local government revenues being more stable and probably higher than otherwise would be the case. The magnitude of increased local revenues is unknown at this time and would vary depending on future actions by the state. Environmental Impact: None 17,823 EXHIBITS: 1. Proposed Local Government Agreement Compromise, prepared by the League of California Cities, dated July 27, 2004 2. City of Carlsbad Legislative Platform, Page 2, Section 2, which outlines the City's position on Local Government Finance. 3. Fact sheet on Proposition 1A 4. Resolution of Support for Propositions 1A and 65 (Resolution 2004-320.) DEPARTMENT CONTACT: Joe Garuba, (760) 434-2893, e-mail: jgaru@ci.carlsbad.ca.us Exhibit 1 VLF Rate 7/27/2004 Currently at 2% PROPOSED LOCAL GOVERNMENT AGREEMENT COMPROMISE Backfill if VLF Reduced Increases in VLF Rate VLF Gap Loan Repayment Current Law Prop 65 Agreement None Set at 2% in statute. Can only be used for city or county purposes. Statutorily required in 2006-07. Agencies Protected Reallocation Among Local Agencies Suspension Trigger Suspension Vote Needed Suspension Limits P None. Legislature may reallocate at will to ERAF and among agencies. Legislature can reallocate by simple majority vote, including to ERAF or other state fund. None. May take permanently at will. Simple majority to take permanently- no repayment. None. May take permanently at will. ~~ VLF Currently at 2% Backfill provided if rate reduced. No change from current law. Statutorily required in 2006-07 unless voters change. OPERTY TAX Cities, counties, special districts and RDAs With voter approval. None Voter approval None. Reduced to 0.65% statutorily and property tax backfill provided between 0.65% and 2% Backfill provided if rate reduced below 0.65% Capped at 2% statutorily. Constitutionally guarantees 0.65% for cities and counties. Statutorily required in 2006-07. No future property tax loanlsuspension if unpaid. City, county, special district. No further protections for RDA beyond existing provisions of Art. 16, Sec. 16 of state cons ti tu tion. Local share (non-schoollERAF) may be reallocated by 213 vote to other local govts. In a county. Legislature may not reallocate to increase school or ERAF share. Reallocation of property tax may not be done to support state-mandated programs. Beginning in 2008-09, if Governor proclaims “significant state fiscal hardship.” 2l3rds vote - separate bill providing for repayment. --No more than 2 times in 10 years. --No loan until VLF Gap loan and previous suspension loan paid. --Cap of 8% of local share of property taxes ($1.3 billion today). 1 7/27/2004 Repayment No provision for None. terms repayment. Legislature must pass a statute to fully repay loan with interest (as provided by law) within three I fiscal years. SALES TAX None. ~ None. Legislature may reduce rate or change method of distribution. Prop. 57 triple flip Xi cent sales tax not protected. Legislature may approve a statutory framework for voluntary exchanges of property tax and sales tax. Yes, unless voters change. Protects the rate and method of distribution of the local Bradley- Burns sales tax and Transactions and Use Tax. Guarantees payment of property tax backfill for Prop. 57 sales tax % cent suspension. Also guarantees return of 1/4 cent Bradley Burns sales tax when Prop 57 bonds retired, None. Protection Real locat ion I May be allowed. 1 If voters approve. Law unclear. I I MANDATES Suspended at Scope- Consequence of Nonpayment N Statute imposing mandate is suspended if no state funding except for specified employee rights and benefits. Applies only to city, county, special district mandates. Clarifies mandate definition to include cost shifts from the state to locals. discretion of local agency Mandate Definition State may shift costs to local governments without triggering reimbursement requirement. VOLUNTARY PROPERTYISALES TAX E CHANGES 2 Exhibit 2 City of Carlsbad Legislative Platform space, and recreation programs. 2 (9) Support legislation that either requires citizen initiatives to comply with CEQA before placing the initiative on the ballot or exempting from this requirement a City Council initiated ballot measure dealing with the same subject matter on the same ballot. (r) Support legislation that restores the "Majority of the Quorum" decision-making in G.C. Section 36936. Local Government Finance: Support measures that implement basic structural changes in state government that result in state budget expenditures being brought into balance with state revenues. Support measures which safeguard existing revenue sources from preemption by the State or County. Support measures which would provide fiscal independence to cities. Support legislation that makes funds to support public facilities (Le. facilities, open space) more available to local municipalities. Support measures which relieve taxpayers of the burden of paying for services which could be charged directly to the service user, and which simplify the process of establishing such fees. Support legislation that would provide greater accountability on the part of counties for the distribution of funds back to municipalities, including, but not limited to, fines and forfeitures. Support measures to reinstate flexibility in the administration of Article XIII-B (The Gann Initiative). Oppose any change in revenue allocations which would negatively (current or future) affect local government, including the redistribution of sales tax, property tax, transient occupancy tax and vehicle in-lieu fees. OOppose any measure that shifts revenue from any unit of local government to other agencies. Oppose any measure that would make cities more dependent on the State for financial stability and policy direction. Support legislation to eliminate or repeal unfunded state and federal mandates and oppose measures that would impose those mandates for which there is no guarantee of local reimbursement or offsetting benefits, or would shift the cost of government services to cities. Oppose any measure that restricts or limits a public entity's ability to use tax- exempt debt for the purchase or construction of public purpose improvements. Oppose legislation that shifts State/County criminal justice costs to cities. 2 09/2 1 /2004 Exhibit 3 Proposition 1 A: Protection of Local Government Revenues Proposition 1A is a constitutional amendment on the November 2004 statewide ballot that will end the practice of the state taking funds originally committed to local government to pay for state purposes. BackQround: Over the past dozen years, in both good economic times and bad, the state Legislature has shifted more than $40 billion in property taxes to the state from cities, counties, special districts and redevelopment agencies, in order to help pay for state responsibilities. The state has also loaned itself local money over the objections of local governments, leaving local communities struggling to fund all their services, including fire protection, paramedic response, law enforcement, healthcare, parks and libraries. Proposition 1A: Prop 1A was placed on the ballot by the Legislature in August, as part of the budget package negotiated by Governor Arnold Schwarzenegger, legislators from both parties, local governments, public safety officials, healthcare advocates, taxpayers and community leaders. It will amend the state constitution to stop such shifts but will allow the state to borrow local funds during times of state fiscal crisis - but only if prior loans have been repaid, and only twice within a ten year period. What Proposition 1A Does: J J J J J J J J Restricts the State Leqislature’s abilitv to take this local aovernment funding, including local government share of existing sales taxes, property taxes and VLF revenues. Protects this funding for local services like fire and paramedic response, law enforcement, emergency and trauma care, parks, roads, libraries, transportation and more. Requires the State to provide funding for any program or service the State forces local governments to provide. If the State fails to provide funding, Legislature must repeal these state-mandates. Provides flexibilitv in a state budaet ernerqencv. Prop 1A allows the State to borrow this local government revenue if funds are needed in fiscal emergency to support schools or other state programs. What Proposition 1A DOES NOT Do: Does not raise taxes. Prop 1A helps ensure local governments don’t have to raise taxes or fees in the future to make up for revenue taken by the State Legislature. Does not reduce funding for schools or any other state programs or services. Does not increase funding to local governments. Does not prevent the state from borrowing local funds in times of fiscal emergency, or shut the door to future reforms of the state-local fiscal relationship. For additional information, including “pro” and “con. ballot arguments and lists of supporters and opponents, please visit the State Secretary of State’s website at www.ss.ca.~ov. That website provides the following contact information for the “pro” and “con” sides: Proponents : Opponents: Yes on 1A Californians to Protect Local Taxpayers and Public Safety 1121 L Street, Suite 803 Sacramento, CA 95814 (800) 827.9086 info@vesonDroDl axom; www.yesonprop1 a.com Carol Migden, Chairwoman State Board of Equalization 601 Van Ness Ave., #E341 1 San Francisco, CA 94102 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 RESOLUTION NO. 2004-320 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, EXPRESSING SUPPORT FOR PROPOSITION 65, WHICH PROTECTS LOCAL REVENUE, IN THE NOVEMBER 2,2004 ELECTION WHEREAS, The City of Carlsbad has had more than $30 million dollars of revenue redirected by the State of California over the past 10 years, and WHEREAS, The City of Carlsbad is in favor of stabilizing revenue for more accurate budget projections, and WHEREAS, The Legislature of the State of California has repeatedly shown that they will take money designated to local government to cover their own shortfalls, and WHEREAS, the probability of this occurring in the future is significant, and WHEREAS, the results of such losses cause impacts to local services, and WHEREAS, Proposition 65 provides extensive fiscal protections for local Governments, 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 of the City of Carlsbad hereby expresses support for the passage of Proposition 65 on the November 2,2004 ballot. PASSED, APPROVED AND ADOPTED at a Regular Meeting of the City Council of the City of Carlsbad on the 5th day of October , 2004, by the following vote: 1111 1111 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 AYES: Council Members Lewis, Kulchin and Hall NOES: Council Members Finnila and Packard ABSENT: None ATTEST: (/ LO? M. WOOb, City Clerk (SE L) PC RES0 NO. -2- PROPOSITION 1A &PROPOSITION 65 PURPOSE•Stabilize and Protect Local Government Revenue •$30 million in Local Revenue lost to State over past decade•Provide financial consistency from year to year•Reduce uncertainty caused by State Action BACKGROUND PROPOSITION 65•Local Government effort to stop State “raids” on local revenue•Locks in current funding formula•Voter approval required to change formula PROPOSITION 1A•Represents compromise measure with Governor & Legislature•Proposition 1A very similar to 65•Difference is it allows for potential funding shifts at State level•Does not impact 2004 and 2005 Budgets COMPARISONS VEHICLE LICENSE FEEBackfill provided if rate reduced below 0.65%Backfill provided if rate reduced.None.Backfill if VLF ReducedReduced to 0.65% and property tax backfill provided between 0.65% and 2%Currently at 2%Currently at 2%VLF RateCurrent LawProp. 65Prop. 1A PROPERTY TAXCity, county, special district. No further protections for RDA.Cities, counties, special districts and RDAs.None. Legislature may reallocate at will ERAF.Agencies ProtectedCurrent LawProp. 65Prop. 1A PROPERTY TAXcont.--No more than 2 times in 10 years.--No loan until VLF Gap loan and previous suspension loan paid.--Cap of 8% of local share of property taxes ($1.3 billion today).None.None. Suspension Limits2/3 vote-separate bill providing for repayment.Voter approval.Simple majority to take permanently-no repayment.Suspension Vote NeededBeginning in 2008-09, if Governor proclaims “significant state fiscal hardship.”None.None. May take permanently at will.Suspension TriggerCurrent LawProp. 65Prop. 1A SALES TAXProtects the rate and method of distribution of the local sales tax and Transactions and Use Tax. Also guarantees return of ¼ cent Bradley-Burns sales tax when Prop. 57 bonds retire.Yes, unless voters change.None. Legislature may reduce rate or change method of distribution. Prop. 57 triple flip ¼ cent sales tax not protected.ProtectionCurrent LawProp. 65Prop. 1A MANDATESCurrent LawProp. 65Prop. 1AClarifies mandate definition form the State to locals.State may shift costs to local governments without triggering reimbursement requirements.None.Mandate DefinitionStatute imposing mandate is suspended if no State funding except for specified employee rights and benefits.Suspended at discretion of local agency.None.Scope –Consequence of Nonpayment WHAT HAPPENS IF PROPOSITION 1A & 65 FAIL? RECOMENDATION•Support both Proposition 1A & Proposition 65 Questions ???