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HomeMy WebLinkAboutAGENDA REPORT 2004 1006 CC REG ITEM 09HMOORPARK CITY COUNCIL AGENDA REPORT TO: Honorable City Council FROM: Hugh R. Riley, Assistant City Manag r' DATE: September 24, 2004 (City Council Meeting of Oct. 6, 2004) SUBJECT: Consider a Resolution Supporting Proposition 1A- "Protection of Local Government Revenues ": Constitutional Protection for Local Government Revenues DISCUSSION Earlier this year California Cities, Counties and Special Districts were successful in their campaign to qualify an initiative for the November election ballot designed to protect local government revenues used to provide essential services. The initiative, Proposition 65, will be presented to California voters on November 2. In the time since Proposition 65 was submitted, a new and better measure, Proposition 1A, has been placed on the ballot to prevent state raids on local government funding. Proposition lA is supported by Governor Schwartzenegger, Democrats and Republicans, the League of California Cities and other local governments and public safety leaders because it is a better, more flexible approach to protect funding for vital local services. Attached is a brief comparison of existing law, Proposition 65 and Proposition IA as well as a "Question and Answer" memorandum from the League of California Cities. STAFF RECOMMENDATION Adopt Resolution 2004-. Attachment: 1. Summary Comparison of Law 2. Questions and Answers 3. Resolution No. 2004- Measures with Existing about Proposition lA PROPOSED LOCAL GOVERNMENT AGREEMENT COMPROMISE Current Law Prop 65 Agreement "P.-Op I A VLF VLF Rate Currently at 2% Currently at 2% Reduced to 0.65% statutorily and property tax backfill � provided between 0.65°1% and 2% Backfill if VLF None Backfill provided if Backfill provided if rate reduced Reduced rate reduced. below 0.65% Increases in VLF Set at 2% in statute. No change from Capped at 2% statutorily. Rate Can only be used for current law. Constitutionally guarantees city or county 0.65% for cities and counties. purposes. VLF Gap Loan Statutorily required Statutorily required Statutorily required in 2006 -07. Repayment in 2006 -07. in 2006 -07 unless No future property tax voters change. loan /suspension if unpaid. RRb>ETY TAX Agencies None. Legislature Cities, counties, City, county, special district. No Protected may reallocate at will special districts further protections for RDA to ERAF and among and RDAs beyond existing provisions of agencies. Art. 16, Sec. 16 of state constitution. Reallocation Legislature can With voter Local share (non - school /ERAF) Among Local reallocate by simple approval. may be reallocated by 2/3 vote Agencies majority vote, to other local gouts. In a county, including to ERAF or Legislature may not reallocate other state fund. to increase school or ERAF share. Reallocation of property tax may not be done to support state - mandated programs. Suspension None. May take None Beginning in 2008 -09, if I Trigger permanently at will. Governor proclaims "significant state fiscal hardship." Suspension Simple majority to Voter approval 2 /3rds vote - separate bill Vote Needed take permanently— providing for repayment. no repayment. Suspension None. May take None. - -No more than 2 times in 10 Limits permanently at will. years, - -No loan until VLF Gap loan and previous suspension loan pad. - -Cap of 8% of local share of property taxes ($1.3 billion today). ATTACHMENT 1 000247f 7/27/2004 7/2712004 6:29 PMCurrent Law Prop 65 Agreement Repayment No provision for None. Legislature must pass a statute terms repayment. to fully repay loan with interest (as provided by law) within three fiscal years. SALES TAX 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 distribution. Prop. 57 Transactions and Use Tax. triple flip % cent Guarantees payment of property sales tax not tax backfill for Prop. 57 sales tax protected. % cent suspension. Also guarantees return of % cent Bradley Burns sales tax when Prop 57 bonds retired. Reallocation May be allowed. If voters approve. None. Law unclear. 'IONflATES Scope -- None Suspended at Statute imposing mandate is Consequence of discretion of local suspended if no state funding Nonpayment agency except for specified employee rights and benefits. Applies only to city, county, special district mandates. Mandate State may shift Clarifies mandate definition to Definition costs to local include cost shifts from the state governments to locals. without triggering reimbursement requirement. VOLUNTARY PR.aPERTYISALES TA VCHANGES None. Legislature may approve a statutory framework for voluntary exchanges of property tax and I sales tax. LEAGUE F1 O T I E 1400 K Street, Suite 400 • Sacramento, California 95 814 Phone: 916.658.8200 Fax: 916.658.8240 www.eacities.org Proposition 1A — "Protection of Local Government Revenues ": Constitutional Protection for Local Government Revenues Questions and Answers Senate Constitutional Amendment No. 4 (SCA 4) enacts substantial reforms to the legislature's ability to raid the local government shares of the property tax, sales tax and vehicle license fee to pay for state programs. It will appear on the November 2, 2004, general election ballot as Proposition 1A and be entitled "Protection of Local Government Revenues ". This document contains key questions and answers about this important ballot measure, which is strongly supported by the League of California Cities. PROPERTY TAX Background: Proposition 13 reduced the property tax rate to $1.00 per $100 of assessed valuation countywide. This single rate replaced the multiple property tax rates imposed by local governments prior to Proposition 13. The revenue from the $1.00 rate is shared in each county by the county, the cities, the special districts, and the schools. Each jurisdiction's share of the $1.00 rate was based originally upon the property tax rates in effect prior to Proposition 13. The shares have been modified over the years by the Legislature. 1. What's the basic protection for the property tax in Proposition 1A? Proposition 1A will end the practice of state raids on local property tax, by allowing only two loans within a 10 year period — and those may occur only if the state meets certain criteria. Specifically, Prop. 1A prevents the Legislature from reducing the combined property tax shares of cities, special districts, and the county, except to borrow the funds on a temporary basis to address a "severe state fiscal hardship ". If, for example, on November 3, 2004, the property tax shares of cities, special districts, and the county of the hypothetical "California County" equaled 60% of property taxes collected in that county, the Legislature cannot pass a law that reduces the percentage below 60% except to respond to a significant state fiscal problem. Additional restrictions are: 8/4/2004 ATTACHMENT 2 • The 2003 VLF GAP Loan must be repaid before borrowing could occur; • The loan could only occur twice within a 10 year period; • The loan ( "the total amount of revenue losses ") must be repaid with interest within 3 years, and prior loans must be repaid before borrowing could occur a second time within 10 years; • The amount of the loan is limited to no more than 8% of the total amount of property tax allocated to cities, counties, and special districts in the previous fiscal year; and • The reduction could only occur with a 213 vote of the Legislature. 2. Can the Legislature continue to reallocate property taxes on the local level? Yes, but with a significant new restriction on that ability. Since the passage of Proposition 13, the Legislature has had the power to reallocate property taxes among local governments, but its major experience with this over the last 25 years has been to allocate city, county and special district shares of the property tax to schools through ERAF and reduce state general fund support for schools. Proposition 1A would prevent future allocations of local government shares to schools (except on a temporary basis, when the funds may be borrowed, as explained in questions 1 and 4). However, the state retains the authority to transfer property taxes among cities, counties, and special districts with a 2/3 vote of the Legislature. Under current law, the state can make this type of transfer with a majority vote of the Legislature. 3. Could the state reallocate property taxes in order to fund a state mandate? No. The amendments to Section 6 of Article XIII B of the state constitution specify that, "Ad valorem property tax revenues shall not be used to reimburse local government for the costs of a new program or higher level of services." 4. Does Proposition 1A allow the state flexibility to respond to a significant state fiscal problem? Yes, by allowing the state to borrow local property tax if it first meets the criteria identified in Question #1. Beginning in the 2008 -2009 fiscal year, if the state has already paid cities and counties the amount owed from the 2003 -04 VLF Gap Loan (est. $1.22 billion), the governor may issue a proclamation that declares that there is a "severe state fiscal hardship" that requires the state to temporarily suspend Proposition 1A's basic protection for the property tax. Next, the Legislature must first adopt a statute with a 2/3 vote that contains a suspension of the basic protection for that fiscal year only. Then it must adopt a separate statute that requires the state to repay cities, counties, and special districts the total amount of property tax loss caused by the suspension within three years. 8/4/2004 2 5. What will suspension of the property tax protection in Proposition 1A allow the state to do? During the one -year period of a suspension, the state can take property taxes from cities, counties, andfor special districts ( "local agencies ") and transfer them to the schools or to some other agency that operates within the county in which the property taxes were generated. This transfer will reduce the protected property tax percentage. However, the reduction may not result in a property tax loss that exceeds 8 percent of the total amount of property tax allocated to cities, counties, and special districts in the previous fiscal year. Currently this percentage is the equivalent of roughly $1.3 billion. 6. When will local agencies be repaid if property tax is taken during a suspension period? No later than the end of the third fiscal year following the fiscal year to which the reduction applies. If the reduction applies in the 2010 -11 fiscal year, then repayment must occur no later than June 30 of 2014. Repayment will be for the "total amount of revenue losses" including interest. 7. Can the Legislature suspend the Proposition 1A protection each time there is a "severe state fiscal hardship ?" No. Suspension of the protection may only occur twice in a ten year period; and only if the VLF Gap Loan amount has been repaid; and if only any prior suspension of property tax has been repaid with interest. 8. Why was the redevelopment property tax increment not explicitly protected in the final version of SCA 4? It was the opinion of key legislators and legislative staff that Article 16, Section 16 of the state constitution, already protects the redevelopment property tax increment. Further, the Governor insisted on the inclusion of language in the ballot arguments for Proposition 1A that declares that the redevelopment increment is already protected by the state constitution. SALES TAX Background; The sales and use tax laws allow cities and counties to impose the basic 1% sales tax as well as a variety of other use taxes such as taxes for transit, jails, open space, etc. The basic 1% rate is distributed back to the jurisdiction in which it was collected. Both cities and counties may increase the sales and use tax by one - quarter cent for general governmental purposes with a majority vote. Last year the Legislature 8/4/2004 3 0 430 �5� suspended one - quarter cent of the basic 1 % sales tax until the state's fiscal recovery bonds are repaid. 1. What's the basic protection for the sales and use tax in Proposition 1A? Proposition 1A prevents the state from borrowing or taking local sales and use taxes. While the measure allows the state to borrow local property shares after meeting specific criteria, Prop. 1A does not allow the state to reduce the current funding that local governments receive from sales and use tax or require that sales tax revenues be distributed based upon population rather than the location or in any other way restrict a city or county from imposing sales and use taxes in accordance with existing law. 2. What about the current suspension of one - quarter cent of the sales tax occurring as a result of the passage of Proposition 57? Does Proposition 1A require the suspension to end when the fiscal recovery bonds are repaid? Yes. Proposition 1A prevents the state from extending the period during which the one - quarter cent is suspended; from failing to pay the property tax backfill during the period of suspension; and from failing to restore the full sales tax rate when the bonds are repaid. 3. Can the state take any action that affects the sales and use tax? Yes. It gives the Legislature the authority to authorize two or more local agencies within a county to exchange property tax and sales tax but only if the governing bodies of each of those agencies approves a locally- negotiated exchange agreement. Voter approval is not required to make the exchange. Additionally, the Legislature can change how sales tax is distributed if the change is required by federal law or to participate in an interstate agreement that addresses payment of sales tax for Internet purchases. VEHICLE LICENSE FEE Background: The constitution currently guarantees all VLF revenue to cities and counties. No particular amount of revenue is guaranteed, however, because the amount depends upon the VLF rate that is set by the Legislature. The current VLF rate is 2 %. Over the past several years, the Legislature has reduced the portion of the 2% rate paid by the taxpayer and made up the difference to cities and counties through a backfill of state general funds. During this fiscal year, cities and counties have not received a backfill of state general funds even though the taxpayer is paying only 1/3 of the 2% rate (0.65 %). Under Proposition 1A, cities and $/4/2004 4 () 0 10252 counties will receive these funds in the form of increased allocations of the property tax beginning in this fiscal year. 1. What is the basic protection for the VLF in Proposition 1A? Proposition 1A provides constitutionally guaranteed VLF revenue to cities and counties at the rate of 0.65% of the value of a vehicle. The Legislature will decide how much of the revenue pays for realignment programs and how much is distributed for general purpose local government programs. This is a significant change for cities and counties, because currently the constitution does not guarantee VLF revenues to cities and counties at any specific rate. 2. What happens if the Legislature lowers the rate below 0.65 %? Proposition 1A requires the Legislature to enact a law that provides for an allocation to cities and counties equal to the difference between the revenues received from 0.65% rate and the lower rate. 3. What will cities receive in place of the 2004 -05 states General Fund VLF backfill? Beginning in the 04 -05 fiscal year, and continuing each year thereafter, cities and counties will receive property tax, instead of VLF backfill from the state general fund, in an amount equal to the difference between revenues that would be received from the VLF if at the 2% rate and the revenue received from the VLF at the 0.65% rate. The additional property tax will be distributed by reducing each local agency's contribution to ERAF. The first receipt of this additional property tax will occur in the January distribution of the FY 2004 -05 property tax. The amounts received in subsequent years will increase at rates corresponding to the rate of increase in local property tax within a county. The entitlement to backfill is in a statute, not in the Constitution, but the new property tax has the same protections as other parts of the property tax (see Property Tax section). MANDATE REFORM Background: The Constitution requires the state to reimburse local governments for state - mandated programs. The Legislature has sometimes "suspended" the mandate, rather than reimbursing local governments. There are a group of mandates that the state has determined require reimbursement for which the Legislature has never reimbursed local governments. Finally, the Legislature has not reimbursed local governments when it transfers additional responsibility for a state program or service to local governments when the local government already had partial responsibility for that program or service. 8/412004 5 _00053 1. Does Proposition 1A strengthen the requirement to reimburse cities, counties and special districts for the costs of state - mandated programs and services? Yes. Beginning in 2005 -06, in each fiscal year's budget, the Legislature must either appropriate sufficient fund to reimburse local governments for their costs of complying with a mandate or suspend the operation of the mandate for that fiscal year. 2. Does the "fund or suspend" requirement apply to all mandates? No. There are two exceptions. The first is for employee and employee organization related mandates. The second is for costs incurred prior to the 2004 -05 fiscal year that have not been paid prior to the 2005 -06 fiscal year. These costs may be paid over a five -year period beginning in 2005 -06. The five - year period is established in statute, not in the Constitution. 3. What happens when the state transfers additional responsibility for a program or a service that the local government already had some responsibility for? Proposition 1A defines "mandate" to include a transfer of additional responsibility for a state program or service. 8/4/2004 0 900254 RESOLUTION NO. 2004- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MOORPARK, CALIFORNIA, SUPPORTING PROPOSITION lA WHEREAS, state government currently seizes more than $5.2 billion annually in local property tax funds statewide from cities, counties and special districts, costing local governments more than $40 billion in lost revenues over the past 12 years; and WHEREAS, these ongoing shifts and raids by the state of local property tax funds and other funding dedicated to local governments have seriously reduced resources available for local fire and paramedic response, law enforcement, public health and emergency medical care, roads, parks, libraries, transportation and other essential local services; and WHEREAS, these funding raids also add pressure for local governments to increase fees and taxes to maintain basic local service levels; and WHEREAS, this drain of local resources has continued even during periods when the state's budget has been overflowing with surpluses; and WHEREAS, Proposition lA is a historic measure that will appear on the November 2004 statewide ballot that would limit the State's ability to take and use local government funding; and WHEREAS, by protecting local government funding, Prop lA would protect local public safety, healthcare, and other essential local services; and WHEREAS, Prop lA will not raise taxes and, in fact, will help reduce pressure for local fee and tax increases by limiting state raids of local government funding; and WHEREAS, Prop lA does not reduce funding for schools or any other state program or service, and Prop lA was carefully written to allow flexibility in the event of a state budget emergency; and WHEREAS, Prop lA is supported by a bipartisan, diverse coalition including Governor Schwarzenegger, Democrat and ATTACHMENT 3 0, -00255 Republican legislative leaders, local government officials, public safety representatives, healthcare, business, labor and community leaders. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF MOORPARK DOES HEREBY RESOLVE AS FOLLOWS: SECTION 1. That the City Council expresses strong support for Proposition 1A, the statewide ballot initiative that will prevent the state from further taking local government revenues. SECTION 2. The City Clerk shall certify to the adoption of this resolution and shall cause a certified resolution to be filed in the book of original resolutions. PASSED AND ADOPTED this day of , 2004. Patrick Hunter, Mayor ATTEST: Deborah S. Traffenstedt, City Clerk 000256