The editorial angered city officials from throughout California, especially those in Riverside County where California’s four newest cities may be forced to disincorporate because the state took some $140 million in VLF from cities. In its desperate attempts to set its own fiscal house in order, the state has again shifted vital local revenues without due regard or consideration for the severe impacts of these actions on local communities and core local services. In this case, those impacts particularly affect new incorporations and annexations that have occurred since 2004
The League’s response in a letter to the editor in the Los Angeles Times ran on Aug. 8 urging the state to restore the constitutionally protected VLF funding.
Also on Aug. 8, the paper ran a response on its website forum “Blowback” from Jurupa Valley Mayor Laura Roughton, Wildomar Mayor Ben Benoit, Eastvale Mayor Jeff DeGrandpre, Menifee Mayor John Denver, Riverside Mayor Ron Loveridge and Riverside County Board of Supervisors Chair John Tavagilone. Jurupa Valley City Manager Stephen Harding’s response is on WesternCity.com.
These responses to the editorial address how the Los Angeles Times did not correctly understand the particular dependence of new cities on the constitutionally-protected VLF due to the Legislature’s own discriminatory provisions in the 2004 VLF – Property Tax swap.
The VLF has long been a major general revenue source to cities and counties and is constitutionally protected for cities and counties. In 1998, the state sought to enact a multi-billion dollar tax break from the VLF. It did so by providing a backfill from the state general fund to cities and counties to offset the reduced effective VLF rate. In 2004, the Legislature approved a “swap,” eliminating the general fund backfill and instead directing more property tax revenues to cities and counties. However, the Legislature failed to include a mechanism to provide such property tax revenues to cities that incorporate, or cities that annex new territory, after 2004.
In 2006, special allocations for new incorporations and annexations were derived from the remaining VLF revenues going to cities (AB 1602). These annual allocations were intended to compensate for the lack of higher property tax revenues that all other cities receive. The bill also provided for a start-up “bump” in the special allocation to new cities that is phased-out after five years.
But in rushed action, lacking committee review or due consideration of the fiscal or policy impacts, the Legislature took these revenues to fund a portion of its realignment of state responsibilities to locals (SB 89 2011). In shifting all remaining VLF revenues from cities to fund law enforcement grants previously paid by the state general fund, the Legislature took funds from local public safety and other vital local services in all cities. But by eliminating the special VLF allocations to incorporations, the state has put the very existence of the state’s newest cities at peril. New cities and annexed areas lost the special AB 1602 VLF allocations that were designed to compensate for the fact that they do not receive the substantially higher level of property taxes that all others do from the 2004 VLF swap.
On Sept. 23, 2011, the League filed a law suit in the Sacramento County Superior Court arguing that SB 89 and its companion bill, AB 118 (FY 2011-12 budget bill) violate Props. 22 (2010) and 1A (2004). League of California Cities v. Chiang was heard by Judge Lloyd Connelly earlier this summer. The court ordered supplemental briefing, which will be filed by Aug. 20. A ruling could be made as early as September.
A more detailed explanation of the VLF swap, SB 89 and the effects on incorporations and annexations may be found on CaliforniaCityFinance.com.