Loading...
HomeMy WebLinkAbout2004-12-07; City Council; 17913; 2004-05 budget amendmentsAB# 17,913 TITLE: MTG. DEPT. Adopted In The 2004-05 Budget And Authorizing Payments 2004-05 Budget Amendments For Estimated Revenues As To The ERAF Fund As Directed By The State Of California. 2/07/04 FIN RECOMMENDED ACTION: DEPT.HD. !- CITY ATTY. CITY MGR City Council: Adopt Resolution No. 2004-389 adopting revised revenue estimates and authorizing changes in the 2004-05 budget resulting from the State of California’s actions. Housing and Redevelopment Commission: Adopt Resolution No. 389 authorizing payments to the ERAF fund as per the State of California mandate. ITEM EXPLANATION: The City of Carlsbad traditionally adopts its budget in the middle of June each year. The State of California is supposed to adopt its budget by the end of June but has traditionally missed this deadline. As a result, any actions contained in the State’s budget that effect Carlsbad’s budget, must come as a later adjustment to the City’s budget. This year was no exception. Carlsbad adopted its budget on June 22,2004. The State of California adopted its budget on August 5, 2004. The State’s budget has provisions in it that effect the City’s budget. In addition, there were two propositions on the November 2004 ballot that also had the potential to effect local government finance: propositions 1A and 65. Proposition ?A was passed by the citizens by an overwhelming majority. Proposition 65 did not pass. The significant terms of Proposition 1A are summarized in Exhibit 3. Now that we are able to assess the impacts of these actions with some certainty, staff is recommending that Council make the adjustments in the City’s budget to reflect the new fiscal structure. Each of the changes will be described below. Vehicle License Fees for Property Tax Shift Vehicle License fees (VLF) are paid by vehicle owners in lieu of personal property taxes. In the past, VLF was distributed mainly to cities and counties on a per capita basis. The rate paid was 2%, calculated on the basis of the current owner’s depreciated purchase price. In 1999, the State passed legislation that began decreasing the rate down to its current rate of .65% but still paying local governments for the amounts they would have received if the rate hadn’t been reduced (called “backfilling”). The legislation that authorized the rate decrease also contained a “trigger mechanism” which would increase it back up if the State ever needed the funds. Thus, in June 2003, when the State realized they had gone from surplus to deficits, the “trigger” on the VLF was pulled, therefore raising the VLF rate paid by citizens back to its previous level of 2%. At the same time, the State did not budget to backfill local governments even though the State was not able to implement the increased rate until October 1, 2003. This loss of revenue to local governments (called the “backfill gap loan”) totals approximately $1.5 million for the City of Carlsbad. Then, on November 17, 2003, newly elected Governor Arnold Schwarzenegger fulfilled his campaign promise to roll back the VLF to its pre-triggered rate of .65%, and directed the State to refund the additional amounts paid by citizens since October Is‘. This occurred and the VLF rate has remained at its lowered figure (.65%) since that time. The State has also continued to backfill local governments for the loss of VLF with the exception of the backfill gap loan described earlier. PAGE 2 OF AGENDA BILL NO. 17,913 With the adoption of the State’s 04-05 budget and the passage of Proposition IA, the fate of the VLF has been set. The VLF rate has been permanently reduced to .65%, and the remaining fees will be shared by cities and counties after certain statutory payments are made. This will effectively lower Carlsbad’s annual VLF from $5.5 million to approximately $450,000. The difference of $5 million will be made up from the State’s share of local property taxes. Thus, instead of receiving payments monthly (as with VLF), the City will receive the funds twice a year - in January and April. For fiscal year 2005-06 only, the amount will be based on the VLF the city would have received. For all fiscal years thereafter, it will effectively become property taxes (growing based on changes in assessed value ) . In addition, the State has committed to repay the VLF backfill gap loan ($1.5 million for Carlsbad) in fiscal year 2006-07. Due to the uncertainties of the State being able to fulfill this promise, the City has not recorded the receivable on its books. Triple Flip The triple flip was enacted in the State’s 03-04 budget to enable the State to issue deficit reduction bonds. It became effective with the 04-05 fiscal year. It basically shifts 25% of the City’s share of local sales taxes to the State. In return, the City will get an equal amount of property taxes. The property taxes received will be called “Sales Taxes in Lieu’’ as the amounts will be based on the amount of sales taxes the City would have received if not for the Flip. The difference will be that the City will receive Sales Tax In Lieu payments only twice a year (January and May) rather than monthly. In addition, the amounts received will be based on actual sales tax transactions from the previous year. The City will eventually receive all the sales taxes due, only on a deferred basis. Under Proposition IA, the State cannot reduce the Sales Tax In Lieu amounts and once the deficit bonds are paid off, the Flip will reverse and the City will once again receive its full amount of sales tax. Proposition 1A also restricts the State from changing the basis for allocating sales taxes or reducing the local share of sales taxes in the future. ERAF 111 ERAF stands for the Educational Revenue Augmentation Fund. This fund is the tool that the State has used to reallocate property taxes away from local governments and into the schools so that the State does not have to fund as much to the schools. The latest version of this shift is called ERAF Ill, as it is the third such take of property taxes. The first 2 occurred in the early 1990’s. ERAF Ill requires cities, counties and special districts to pay a set amount of money to the State (through the ERAF fund) in fiscal years 04-05 and 05-06. For Carlsbad, the amounts are $1.8 million from the General fund and $219,285 from the Redevelopment agency for each of those two years. The City’s share will be withheld by the County from property tax receipts affecting the City’s revenue estimates. The Redevelopment Agency’s share is to be remitted to the County by May loth of each year; thus, an additional appmpriation will be needed for the Redevelopment payment. With the passage of Proposition 1A, the State will no longer be able to take property taxes from local government. The exception to this would be in a case of severe state financial hardship as declared by the Governor and approved by 2/3 of the legislature (both houses). Furthermore, if the taxes are shifted, the State All be required to repay those amounts with interest within 3 years. Bookina Fees Booking fees are amounts paid to the counties to reimburse them for booking people into the county jail. The State authorized the counties to charge these fees as a method for counties to gain back revenue when the State took taxes from the counties through the original ERAF shifts in the early 1990’s. When the State’s budget moved into a surplus condition, the legislature authorized PAGE 3 OF AGENDA BILL NO. 17,913 Total Estimated Loss reimbursing cities for the booking fees they were paying to the counties. With the adoption of the State’s 04-05 budget, the following changes to booking fees have been approved: For fiscal year 2004-05 - The counties’ authority to charge a booking fee remains unchanged and booking fee reimbursements will be paid by the State. For Carlsbad, the reimbursement totals $203,000. Beginning in 2005-06, counties will be permitted to charge one-half of their actual administrative costs associated with booking and processing of arrestees; and the State will stop paying the booking fee reimbursement. Mandates $ -2,575,965 $ - 2,278,965 The State Constitution requires the State to reimburse local governments when mandating a new local program or higher level of service. In recent years, the State has not been paying these due to its fiscal problems. The State owes local governments approximately $2 billion for prior year costs of the mandates. With the passage of Proposition IA, beginning July 1, 2005, the State must either fully fund each mandate or suspend the mandate’s requirements for the year (with the exception of certain mandates dealing with schools and employee’s rights). The State has also promised to pay the amount it owes to cities for prior years. The amount owed to Carlsbad is $250,000. Extension of the Redevelopment Area’s Plan Due to the ERAF Ill payments required from Redevelopment Agencies, the State is allowing Redevelopment Agencies to amend eligible redevelopment plans to extend the time limit on the effectiveness of the plans under certain circumstances. A recommendation to extend the effectiveness date for the Village Redevelopment Plan by an additional two (2) years will be presented to the Housing and Redevelopment Commission at a later date. The South Carlsbad Coastal Redevelopment Area is not eligible for an additional extension of time because it has longer than 20 years remaining on its effectiveness date. FISCAL IMPACT: The fiscal impacts of the 2004-05 State budget on the City of Carlsbad’s budget over the two-year period are shown below. ERAF Ill -219,285 I -21 9,285 I I PAGE 4 OF AGENDA BILL NO. 17,913 CHANGES TO ESTIMATED REVENUES Estimated Revenues As Adopted Change Revised General Fund Property Tax In Lieu $4,948,000 4,948,000 Sales Tax 26,410,000 (5,931,000) 20,479,000 Sales Tax In Lieu 5,931,000 5,931,000 Vehicle License Fees 5,080,000 (4,628,000) 452,000 Other Intergovernmental 1,140,000 230,000 1,370,000 2004-05 Property Tax $28,156,000 - $28,156,000 Net change $550,000 2 0 04-0 5 Adopted Budget Village OperationdDebt Service $ 1,530,922 $202,778 $ 1,733,70( SCCRA OperationdDebt Service 435,526 16,507 452,03: Total $ 1,966,448 $21 9,285 $ 2,185,73: The adjustments needed to the City’s 2004-05 adopted budget are shown below: Some of the changes in the General fund had been anticipated and were incorporated into the City’s 2004-05 adopted budget. Thus, the net effect to the general fund (as shown above) is an increase since the budget had already assumed that booking fees were deleted and the VLF was reduced. The “In Lieu” accounts are new and reflect the shifts that are occurring in the City’s revenue sources. The Redevelopment Agency’s payment is to be made by May 10,2005. An additional appropriation is necessary to make the payment. The payment will be split between the redevelopment areas based on estimated tax increment for the current year. The amounts will be $202,778 from the Village area and $16,507 from the South Carlsbad Coastal area. Total payment due equals $219,285. EXHIBITS: 1. Resolution No. 2004-389 Amending the Estimated Revenues As Adopted in the 2004-05 2. Resolution No. 389 Authorizing Payments to the ERAF Fund as Directed by the 3. Proposition 1A Summary Budget; State and Appropriating Funds; DEPARTMENT CONTACT: Lisa Hi ldabrand , (760) 602-2430, I h ild @ci .carlsbad . ca. us 5 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 Exhibit 1 RESOLUTION NO. 2004-389 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA AMENDING THE ESTIMATED REVENUES AS ADOPTED IN THE 2004-05 BUDGET WHEREAS, the City of Carlsbad adopted its budget on June 22,2004; and WHEREAS, the State of California adopted its budget on August 5,2004; and WHEREAS, the State of California’s budget included items that affect the amount, timing and type of revenues the City of Carlsbad will receive and thus require the City of Carlsbad to adjust its budget. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Carlsbad as follows: 1. 2. That the above recitations are true and correct. That the Finance Director is authorized to amend the estimated revenues as shown in the 2004-05 adopted budget as follows: Revenues General Fund Property Tax Property Tax In Lieu Sales Tax Sales Tax In Lieu Vehicle License Fees Other Intergovernmental Net change As Adopted Change Revised $28,156,000 $28,156,000 $4,948,000 4,948,000 26,410,000 (5,931,000) 20,479,000 5,931,000 5,931,000 5,080,000 (4,628,000) 452,000 1,140,000 230,000 1,370,000 $550,000 PASSED, APPROVED AND ADOPTED at a regular meeting of the City Council held on the 7th day of December , 2004 by the following vote, to wit: AYES: Council Members Lewis, Finnila, Kulchin, Hall NOES: None ABSENT: None ATTEST: UINE v. WOOD, City Clerk 1 I (SEAL) 6 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 Exhibit 2 RESOLUTION NO. 389 A RESOLUTION OF THE HOUSING AND REDEVELOPMENT COMMISSION OF THE CITY OF CARLSBAD, CALIFORNIA, AUTHORIZING PAYMENTS TO THE ERAF FUND AS DIRECTED BY THE STATE AND APPROPRIATING FUNDS. WHEREAS, the Housing and Redevelopment Commission adopted its budget on June 22,2004; and WHEREAS, the State of California adopted its budget on August 5,2004; and WHEREAS, the adopted legislation requires redevelopment agencies to shift property tax revenues to K-12 schools and community colleges during the 2004-05 fiscal year; and WHEREAS, in accordance with this legislation, the Carlsbad Redevelopment Agency must make a special one-time payment of $219,285, as determined by the State Director of Finance to the County of San Diego Auditor for deposit in the Education Revenue Augmentation Fund on or before May 10,2005; and WHEREAS, amendments to the Carlsbad Redevelopment Agency budget are required as a result of these actions. NOW, THEREFORE, BE IT RESOLVED by the Housing and Redevelopment Commission of the City of Carlsbad, California, as follows: 1. That the above recitations are true and correct. 2. That the Finance Director is authorized to appropriate the following amounts from the Redevelopment Agency’s Funds for the purpose of making a special payment to the County Auditor of San Diego for deposit into the Education Revenue Augmentation Fund on or before May 10,2004: Village Redevelopment Area - Debt Service South Carlsbad Coastal Redevelopment Area - Debt Service $202,778 $16,507 Ill Ill Ill Ill Ill Ill 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 a Exhibit 2 PASSED, APPROVED, AND ADOPTED at a regular meeting of the Housing and day of Redevelopment Commission of the City of Carlsbad, California, held on the 7th December , 2004 by the following vote, to wit: AYES: Commissioners Lewis, Finnila, Kulchin, Hall and Packard. NOES: None ABSENT: None &UDE wv -c/v A. LkW& Chkirpkson ATTEST: Exhibit 3 Proposition 1 A - Limitations on Legislature’s Authority to Change Local Revenues This measure amends the State Constitution to significantly reduce the state’s authority over major local government revenue sources. Under the measure the state could not: 0 Reduce Local Sales Tax Rates or Alter the Method of Allocation. The measure prohibits the state from: reducing any local sales tax rate, limiting existing local government authority to levy a sales tax rate, or changing the allocation of local sales tax revenues. 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. 0 Shiff Property Taxes From Local Governments to Schools or Community Colleges. The measure 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. The measure also specifies that any change in how property tax revenues are shared among local governments within a county must be approved by two-thirds of both nouses of the Legislature (instead of by majority votes). For example, state actions that shifted a share of property tax revenues from one local special district to another, or from a city to the county, would require approval by two-thirds of both houses of the Legislature. Finally, the measure 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. If the state reduces the VLF rate below its current level, the measure requires the state to provide local governments with equal replacement revenues. The measure also requires the state to allocate VLF revenues to county health and social services programs and local governments. The measure provides two significant exceptions to the above restrictions regarding sales and property taxes. First, 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, the Legislature approves the shift with a two-thirds vote of both houses, and certain other conditions are met. The state must repay local governments for their property tax losses, with interest, within three years. Second, the measure allows the state to approve voluntary exchanges of local sales tax and property tax revenues among local governments within a county. State Mandates The measure 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 schools or community colleges, or to those mandates relating to employee rights. The measure also appears to expand the circumstances under which the state would be responsible for reimbursing cities, counties, and special districts for carrying out new state requirements. Specifically, the measure defines as a mandate state actions that transfer to local governments financial responsibility for a required program for which the state previously had complete or partial financial responsibility. Under current law, some such transfers of financial responsibilities may not be considered a state mandate. Excerpted from: “Proposition 1A Local Government Financial Constitutional Amendment.” Issued by: Legislative Analyst Office.