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Legislature Holds Rare Sunday Session to Meet Budget Deadline

City Programs Benefit from Various Allocations

June 16, 2014
The Legislature passed the FY 2014-15 budget Sunday evening, most of which mirrors Gov. Jerry Brown’s proposal with some revisions to reflect its priorities.
This is the fourth year in a row that the Legislature has passed an on-time and balanced budget and the first with a true surplus. 

State Continuing to Rebound
California’s economy and tax revenues continue to improve, and the FY 2014-15 budget is the largest in the state’s history, totaling $108 billion. The Democratically-controlled Legislature appeared ready to restore social programs to their previous spending levels, but the Governor urged a more cautious approach. After much negotiation, the Legislature agreed to adopt the Governor’s fiscally-conservative revenue projections. However, legislators did so only after the Governor agreed to “triggers” to spend more money if revenues come in higher than projected. 
The FY 2014-15 budget also includes several items that were heralded by both Democrats and Republicans as fiscally responsible choices: $10.6 billion to pay down old debts (including debts to cities), $1.6 billion for a rainy day fund, and a plan to fully fund the California State Teachers’ Retirement System (CalSTRS).
Good News for Cities
The passage of the budget delivers good news for cities, as outlined below in the trailer bill summaries.
Some highlights include:
  • An appropriation of $100 million for mandates incurred prior to FY 2004-05. In addition, there is trigger language to repay up to $800 million of the remaining amounts owed to local agencies for  pre-2004 mandates if revenues received are higher than currently projected; 
  • An additional $242 million investment in local streets and roads from an early loan repayment and a reallocation of State Highway Account (SHA) funds; 
  • Increasing the grant funds available for City Law Enforcement Grants from $27.5 million in FY 2013-14 to $40 million in FY 2014-15; and
  • An appropriation of $100 million for affordable housing programs.
And while not direct appropriations to cities, other programs are funded that will assist communities, including reducing recidivism and providing services to people with mental illness.
Appropriations of Cap-and-Trade Auction Revenues
Sustainable communities, transit and affordable housing included
The FY 2014-15 also marks the first real appropriations from Cap-and-Trade auction revenues. While the focus of debate centered on the Governor’s plan to use a portion of these revenues for high-speed rail, the majority of the funds will be used for projects and programs cities will benefit from. The budget takes a two-step approach for the use of Cap-and-Trade investments, with a year-one appropriation schedule and then a continuous appropriation to transit, sustainable communities’ implementation, and affordable housing beginning in FY 2015-16. The budget reserves 40 percent of Cap-and-Trade revenues for future appropriation. This approach provides stable and predictable funding for planning infrastructure investments, while allowing some flexibility for the Legislature and Governor to respond to the priorities for future budget years. 
Budget Trailer Bills
Summaries below include points that may be the most interesting to cities. For more details, bill language can be found at www.cacities.org/billsearch. The Governor has until July 1 to sign the budget.
SB 852 (Leno) — Main Budget Bill
This bill is the main budget bill and includes FY 2014-15 appropriations, including:
  • An additional appropriation of $242 million of Highway Users Taxes to cities and counties. $100 million of this amount is from an early loan repayment, and $142 million is from the SHA. 
  • $100 million for the Multifamily Housing Program and Multifamily Housing Program/Supportive Housing Component ($50 million each).
  • $40 million for City Law Enforcement Grants. Of this amount, $12.5 million may be used for targeted innovative police training designed to strengthen public confidence in the police, address community gang issues, and enhance officer competency and safety in dealing with members of the public who are mentally ill, substance abusers, or homeless.
  • $1.5 million to repay previously unmatched federal funds and to hire nine three-year limited term positions to address workload associated with the Community Development Block Grant.
  • $7.5 million to support 71.5 position for community care licensing, increase civil penalties for types of serious non-compliance, and increase licensing application and annual fees. This is in response to several high profile incidents at children and adult residential facilities licensed by the state.
  • $43 million for the Active Transportation Program (ATP), $24 million of which must be paid for Safe Routes to Schools. 
  • An increase of $3 million for community libraries, including $2 million to support library services and $1 million for adult literacy programs.
SB 853 (Comm. on Budget and Fiscal Review) — Transportation
  • Moves the deadlines for approval of the second round of funding from ATP grants from April 1, 2015 to Dec. 31, 2015. This avoids a situation where the approval of the initial round of grants and the call for projects for the second round of grants would overlap. 
  • Orders a study to determine what the appropriate level of state fuels tax revenues should be transferred to the Off-Road Highway Vehicles account. This is in response to a perception that the program is currently over-funded.   
  • Allows transfers to be made from the Local Airport Loan Account to the Aeronautics Account if there are excess funds available. Must be approved by the Department of Finance (DOF) and California Transportation Commission (CTC).
  • Makes technical changes to Right of Way support to close a loophole that allowed capital expenditures to exceed their limit after being approved.  
  • Orders a study on the feasibility of a pilot program using changeable electronic signs for commercial advertising. 
  • Increases the cap on stickers than allow clean vehicles to use High Occupancy Vehicle lanes by 15,000.
SB 854 (Committee on Budget and Fiscal Review) — State and Local Government
Makes various changes to current law in accordance with the budget agreement, including:
  • Provides mandate reimbursement to cities, counties, and special districts for mandates incurred prior to FY 2004-05. The main budget bill appropriates $100 million for this purpose in FY 2014-15, and includes trigger language that would appropriate additional funds up to $800 million if state tax revenues are higher than currently projected. This determination will happen in the FY 2015-16 May Revise. DOF will be publishing a list of mandates to be repaid. 
  • Establishes a fee of $300 for each contractor that bids on public works projects to pay for enforcement activities at the Department of Industrial Relations, Public Works Compliance Unit. The fee will be imposed beginning March 1, 2015 and can be adjusted based on the balance in the State Public Works Enforcement Fund.
  • Allows the Local Agency Investment Fund to increase the cap from 5 percent to up to 8 percent to cover reasonable costs incurred in carrying out the provisions of the program.
  • Eliminates the California Housing Trust Fund and School Facilities Fee Assistance Fund. Transfers all funds to the Housing Rehabilitation Loan Fund. 
  • Allows up to $11 million of disencumbered funds in the Joe Serna Farmworker Housing Grant Program to be used for rehabilitation or construction to address the health and safety  deficiencies at the existing 24 state-owned Office of Migrant Service Centers that provide housing for farmworkers and their families.
  • Clarifies that the funds within the Victim-Witness Assistance Fund are to be used for any purpose that supports victims.  
  • Allows for the distribution of local property taxes to other local jurisdictions if the average daily attendance in the schools is deemed to be zero. Without this technical amendment, the taxes would be impounded and become “stranded.”
  • Creates a three-year State-County Assessors pilot program to be funded at $7.5 million per year, and to be administered by DOF. Limits the program to nine county assessors' offices.
  • Appropriates $2 million for the General Fund to the Governor's office of Business and Economic Development on a one-time basis to be used to draw down federal funding in support of the Small Business Development Center Network Program.
SB 855 (Committee on Budget and Fiscal Review) — Human Services
Makes various statutory changes to human services programs in the Department of Social Services, Health Care Services, Child Support Services, and Community Services and Development, including:
  • Establishes a new program, the Commercially Sexually Exploited Children Program, beginning Jan. 1, 2015 and appropriates $5 million for FY 2014-15 and $14 million in FY 2015-15 and ongoing. 
  • Creates a CalWORKs Housing Support Program for families receiving CalWORKs benefits for which homelessness or housing instability is a barrier to self-sufficiency or child well-being. Appropriates $20 million annually for these purposes. 
SB 856 (Committee on Budget and Fiscal Review) — Developmental Services
Makes various statutory changes to developmental services programs within the Department of Developmental Services (DDS), including:
  • Authorizes a pilot program to develop up to six enhanced behavioral support homes per year to provide intensive behavioral services and supports to adults and children with developmental disabilities.
  • Authorizes DDS to develop two community crisis homes (one in the north and one in the south) to serve, on a short-term basis, up to eight adults who would otherwise be at risk of admission to an acute crisis center or an out-of-state placement.
  • Authorizes DDS to create an acute crisis center at Sonoma Developmental Center (SDC) and Fairview Developmental Center.
  • Restores infant and toddler eligibility for the Early Start program to the level in place prior to FY 2009-10.
SB 857 (Committee on Budget and Fiscal Review) — Health #1
This is one of two trailer bills relating to health programs. It makes various statutory changes to programs within the Departments of Health Care Services (DHCS), Managed Health Care, and Public Health, the Managed Risk Medical Insurance Board, Mental Health Services Oversight & Accountability Commission, and the Office of Statewide Health Planning and Development, including:  
  • Authorizes DHCS to increase fees charged for licensure and certification of all residential alcohol and other drug (AOD) recovery and treatment facilities and of all outpatient AOD programs.
  • Requires local behavioral health and mental health activities to include substance use disorder services.
  • Requires local entities that receive state funding for tuberculosis control to first allocate the moneys for specified tuberculosis control activities and authorizes local health departments receiving such funding to use the funds to reimburse for the actual costs of carrying out the tuberculosis control activities.
SB 858 (Committee on Budget and Fiscal Review) — Education
Makes various changes to law related to K-12 education, independent study, and early childhood programs, including a controversial plan to cap the amount local school districts are able to carry in their reserve if the voters approve the state’s rainy day fund proposal on the November ballot. Also adjusts special education general Fund apportionments in FY 2014-15 based on an updated determination of revenues related to the dissolution of redevelopment agencies.
SB 859 (Committee on Budget and Fiscal Review) — Education: Local Control Funding Formula
Makes various changes to the education Local Control Funding Formula calculations.
SB 860 (Committee on Budget and Fiscal Review) — Higher Education
Makes various changes to the budget for the Community College, California State University, and University of California systems.
SB 861 (Committee on Budget and Fiscal Review) — Resources
  • Provides the necessary statutory authority to transfer the drinking water program from the California Department of Public Health (CDPH) to the State Water Resources Control Board (State Water Board) including merging of loan programs on July 1, 2014.
  • Transfers any residual funds from the CDPH for grants for public water systems to address drought-related drinking water emergencies or threatened emergencies to the State Water Board for the same purposes.
  • Authorizes the Oil Spill Prevention and Administration Fund to be used for inland oil response.   Expands the Oil Spill Prevention and Administration fee of 6.5 cents per barrel of oil to all refineries, not just ports. These funds will be used for safety and emergency response programs.
  • Authorizes the California Public Utilities Commission (CPUC) to order electrical corporations to continue to administer the New Solar Homes Partnership Program, regardless of the source of funds for this program, until the $400,000,000 funding limit is reached. Allows the California Energy Commission to notify the CPUC when funding is low for the New Solar Homes Partnership.
  • Allows transfers from the Strong-Motion Instrumentation and Seismic Hazards Mapping Fund to the Alquist-Priolo seismic mapping program and increases the amount assessed on building permit fees that provide revenues to the fund. This will assist cities and counties in their planning, zoning, and building permit functions. The budget appropriates $1.4 million for these purposes.
  • Authorizes the California Coastal Commission to impose upon a person who violates public access provisions of the Coastal Act an administrative civil penalty by a majority vote of the commissioners.
  • Allows, until July 1, 2017, revenue in the Timber Regulation and Forest Restoration Fund be used for the enforcement of environmental damage from marijuana activities in forest lands.
  • Clarifies that rubberized chip seal projects are eligible for project funding, in addition to currently allowed asphalt concrete, within the tire recycling programs administered by the Department of Resources Recycling and Recovery (CalRecycle).
  • Diversifies the Local Conservation Corps funding under the CalRecycle, and creates a separate statutory section to continue the program.
  • Increases the cap on environmental justice grants from the Environmental Justice Small Grant Program distributed by the Secretary for Environmental Protection from $20,000 to $50,000 and authorizes up to $1.5 million for this purpose.
  • Extends the sunset date of the self-generation incentive program from Jan. 1, 2016 to Jan. 1, 2021. Also, makes various technical changes and program reforms to specify eligibility for incentives under the program limited to distributed energy resource technologies.
SB 862 (Committee on Budget and Fiscal Review) — Cap-and-Trade
Creates the programmatic structure for the expenditure of Cap-and-Trade auction revenues. For FY 2014-15, the main budget bill includes $832 million of Cap-and-Trade auction revenues for the following programs: (note: $40 million for water-energy efficiency was previously appropriated as part of the state’s drought response)
  • $130 for the newly created Affordable Housing and Sustainable Communities Program to reduce greenhouse gas (GHG) emissions through projects that implement land use, housing, transportation, and agricultural land preservation practices to support infill and compact development and that support other related and coordinated public policy objectives. The program will be developed and administered by the Strategic Growth Council (SGC). The SGC must coordinate with regional governments to identify and recommend projects within the region. Requires that at least half of these funds be used for affordable housing and sets a programmatic goal that 50 percent of the funds benefit disadvantaged communities.
  • $25 million for Waste Diversion, including $10 million ($5 million in FY 2014-15 and $5 million in FY 2015-16) to establish the CalRecycle Greenhouse Gas Reduction Revolving Loan Program to provide loans and grants to reduce GHG emissions by processing organics and other recyclables into new value-added products.
  • $75 million to the Department of Community Services and Development for the Low-Income Home Energy Assistance Program.
  • $25 million for the newly created Low Carbon Transit Operations to provide operating and capital assistance for transit agencies to reduce GhG emissions and improve mobility, which a priority to serve disadvantaged communities. CalTrans and the California State Air Resources Board (ARB) will determine whether proposed expenditures are eligible for funding. 
  • $25 million for the newly created Transit and Intercity Rail Capital Program to fund capital improvements and operational investments with 25 percent must be used to benefit disadvantaged communities. The program will be developed by the Transportation Agency and administered by the CTC. 
  • $250 million for High Speed Rail.
  • $200 million for Clean Vehicle Rebates.
  • $25 million for wetlands and watershed restoration.
  • $25 million for sustainable forests.
  • $20 million for the Energy Efficiency Retrofit State Revolving Fund to provide loans for projects in or on state-owned buildings and facilities to implement energy efficiency retrofit projects.
  • $17 million for the newly created Timberland Environmental Impact Report for Carbon Sequestration and Fuel Reduction Program within the Department of Forestry and Fire Protection.  Allows Cap-and-Trade funds to be deposited in the fund for cost of, or grants for, the preparation of timberland environmental impact reports (PTIER) for projects that demonstrate potential to increase carbon sequestration, decrease atmospheric carbon levels, and reduce the potential for large wildland fires on land owned by smaller nonindustrial landowners. 
  • $15 million for Agricultural Energy and Operational Efficiency programs.
For FY 2015-16 and ongoing, revenues would be allocated as follows:
  • 20 percent to the newly created Affordable Housing and Sustainable Communities Program (see above).
  • 10 percent to the newly created Transit and Intercity Rail Capital Program (see above).
  • 5 percent to the newly created Low Carbon Transit Operations Program.
  • 25 percent to the High Speed Rail project.
  • The remaining 40 percent will be appropriated annually based on the priorities of the Legislature.
The FY 2013-14 budget loaned $500 million of Cap-and-Trade auction revenues to the General Fund. This bill requires that when the loan is repaid, $400 million would go to the High Speed Rail project. 
Adds two appointees to the SGC. One will be appointed by the Assembly Speaker and the other by the Senate Committee on Rules. 
ARB will develop guidance on reporting and quantification methods for agencies receiving Cap-and-Trade auction revenues.
The trailer bill adopts the definition of a disadvantaged community as used in Health and Safety Code 39711, from which CalEnviroScreen was developed.  In response to concerns raised by legislators, the ARB will develop guidance on how to identify projects that benefit disadvantaged communities.  This guidance will be developed after receiving input at a public workshop and consulting with the California Environmental Protection Agency.
AB 1468 — Public Safety
Makes changes to various public safety programs, including:
  • Provides $18 million for the newly established the Mentally Ill Offender Crime Reduction Grants program to support local investment in proven best practices, including early diagnoses, family and community-based treatment models, specialized mental health courts, and other collaborative models of intervention that have proven to be successful with mentally ill adult and juvenile offenders.
  • Provides equal authority to the Board of State and Community Corrections and the California Department of Corrections and Rehabilitation (CDCR) on Jail Construction Projects.
  • Authorizes the State Public Works Board to issue up to $500 million dollars in revenue bonds, notes, or bond anticipation notes to finance the design, construction, renovation and/or acquisition of adult local criminal justice facilities. This is in addition to the $1 billion already provided in AB 900 (2007) and SB 1022 (2012).
  • Provides that CDCR may provide programs and services, including, but not limited to, transitional housing, mental health, and substance abuse treatment to an offender who is released from the department's custody pursuant to Proposition 36 (2012) as specified.
  • Creates a presumption of split sentences for realigned offenders unless the court finds, in the interest of justice, that it is not appropriate in a particular case.
  • Establishes a statewide competitive grant program intended to fund community recidivism and crime reduction services, including, but not limited to, delinquency prevention, homelessness prevention, and reentry services. This includes $2 million for cities with the highest rate of serious crimes and $25 million for community reentry programs for mentally ill offenders.
  • Authorizes each sheriff to establish an alternative custody program (ACP) for men and women. An ACP can include home detention, residential drug treatment and mental health, transitional housing, and GPS monitoring.
  • Expands the existing incentive program, authorized by the SB678 (Leno, 2009), to include offenders serving terms on Post Release Community Supervision and mandatory supervision.
AB 1469 (Bonta) — State Teachers Retirement System
Makes changes to the CalSTRS to reduce the unfunded liabilities.  Under this plan, CalSTRS is expected to be fully funded in seven years.  
SB 865 (Committee on Budget and Fiscal Review) — Budget Act of 2013: Supplemental Appropriations
Makes several allocations to cover shortfalls in various programs in FY 2013-14.
SB 869 (Committee on Budget and Fiscal Review) — School Construction Bonds
Shifts funding in the Kindergarten-University Public Education Facilities Bond Act of 2006 from incentive grants to promote high-performance projects and career technical education projects to new construction and modernization of school facilities. 
SB 870 (Committee on Budget and Fiscal Review) — Health #2
This is the second of two trailer bills relating to health programs. It makes various statutory changes to programs within the Departments of Developmental Services, Health Care Services, and Public Health, and the Office of Statewide Health Planning and Development.  
SB 871 (Committee on Budget and Fiscal Review) — Solar Property Tax Exemption
Extends the property tax exemption for new active solar energy systems on new construction from FY 2015-16 to FY 2023-24.

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