PURPOSE:

The purpose of this report is to seek Council�s approval of a resolution to support Proposition 1A (Prop 1A).  This proposition, if passed by the voters, would restore local control over local tax revenues by preventing Sacramento from taking or cutting funding that belongs to local governments whenever it finds itself in a budgetary bind.  In addition, it provides that state mandates must be reimbursed, or suspended if no reimbursement is provided (with exceptions for specified employee rights and benefits).

BACKGROUND/ANALYSIS:

For over ten years, the California State Legislature has been taking away increasing amounts of local tax dollars that local governments use to provide essential services such as police and fire protection, emergency and public health care, roads, parks, and libraries.

The aggregate loss to Burbank from the State�s diversion of property tax alone over the last ten years is over $30 million dollars[1].  Further, the Governor�s budget agreement, as part of the State�s Enacted Budget, permanently eliminates the State�s Vehicle License Fee (VLF) backfill (i.e., the 2 percent rate becomes .65 percent rate) and replaces it with property tax.  Local governments will contribute $350 million for two years (FY 2004-05 and FY 2005-06).  The State will be prohibited from taking any more property tax, sales tax, and the remaining VLF from local governments through a constitutional amendment.  Through the loan provision of this amendment, the State will be obligated to repay the VLF revenue lost in FY 2003-04.  Burbank�s VLF loss is expected to be between $1.5 to $1.8 million annually for the next two years, but the City�s repayment for FY 2003-04 will be $1.772 [C1] million in year three, for a net loss of $1.3 million to $1.8 million over the three year period.

In addition, the current permutation of the sales tax for property tax swaps (�triple flip with a twist�) is now involved in litigation with the City of Cerritos taking the lead and other cities, including Burbank, joining the suit.

Not only does the State�s continued rerouting of Burbank�s local revenues to balance its own budget hurt Burbank�s current and upcoming fiscal year revenue planning, but it also makes two and five year fiscal projections extremely difficult due to the uncertainty as to what the State will reimburse, or more frequently, take away.  In addition, many of the �temporary� diversions of local funds become recurring.  For example, the Redevelopment Agency�s (RDA) alleged one-time ERAF shift in FY 2003-04 is again part of the State�s budget for FY 2004-05, with the RDA contributing $2,477,103 for each of FY 2004-05 and FY 2005-06.

Prop 1A is actually a revamped version of Proposition 65 (Prop 65) (also known as the LOCAL initiative), and both will appear on the November ballot.  Prop 1A is supported by former proponents of Prop 65 as a better, more flexible approach to protecting local governments� revenue and funding.  The main difference between the two ballot measures is that Prop 1A does allow for the State to borrow funds if the Governor proclaims a �significant state fiscal hardship.�  Although this definition is rather vague, the loan can only occur under the following conditions:  (1) A separate urgency bill must be passed by a 2/3 vote of the Legislature; (2) the Legislature must pass a law to fully repay the loan with interest within three fiscal years; (3) new loans are prohibited until prior loans have been repaid; (4) no more than two loans may occur during any ten-year period; and (5) the loan is capped at 8 percent of local government property tax amounts (equivalent to approximately $1.5 million in Burbank�s current property tax dollars or $1.3 billion statewide).

If Prop 1A receives more votes than Prop 65, it supercedes Prop 65 in its entirety; and every one of Prop 65�s supporters now instead support Prop 1A.

Prop 1A (text is attached as Exhibit A) is a historic bipartisan agreement between Governor Schwarzenneger, local governments, Legislators of both parties, police, fire, paramedics, healthcare advocates, taxpayers and community leaders.  A partial list of organizations that support Prop 1A include the League of California Cities, California State Association of Counties, California Society of Municipal Finance Officers, California Special Districts Association, California Fire Chiefs Association, California Professional Firefighters, Peace Officers Research Association of California, California Association of Public Hospitals and Health Systems, California Police Chiefs Association, and California State Sheriffs� Association.

Over eighty cities publicly endorsed Prop 65 but now instead endorse Prop 1A.  Some examples of these cities that support Prop1A include Los Angeles, San Bernardino, Sacramento, San Diego, Cerritos, Long Beach, San Luis Paramount, Obispo, Tustin, Upland, Fresno, Sonoma, and Salinas.  Over a dozen counties have also publicly endorsed the ballot measure, including San Bernardino, Los Angeles, Marin, Merced, Sacramento, Santa Clara, Monterey, and Fresno.  A complete list of supporters is attached as Exhibit B.

What Proposition 1A Does:

• Restricts the State Legislature�s ability to raid local government funding, including local government share of existing sales taxes, property taxes and VLF revenues.

• Protects 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 suspend these state-mandates.  Any outstanding SB 90 loans prior to FY 2004-05 must be repaid by the State over a period of five years or less.

• Provides flexibility in a state budget emergency. Prop 1A allows the State to borrow local government revenues 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 revenues raided 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.

FISCAL IMPACT:

There is no fiscal impact by adopting a resolution supporting this ballot measure.

This ballot measure will require voter approval before the State can take away local revenue.  Supporting an effort such as this is an important way in helping to prevent increasing amounts of local tax dollars being taken away by the State, where these funds could be used by the City to continue to provide essential services like police and fire protection, paramedic services, improved roads, parks, and libraries.

RECOMMENDATION:

Staff recommends that the Council adopt a resolution to officially support this ballot measure.

Attachments:

Exhibit A:  Text of Proposition 1A / SCA 4 (Torlakson)

Exhibit B:  List of Proposition1A Supporters

Resolution OF THE Council of the CITY OF BURBANK EXPRESSING SUPPORT FOR Proposition 1A (Protection of Local Government Revenues) on the November 2, 2004, general election ballot.

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