No Decision yet on Proposal to Borrow Local Property Taxes

Budget activities in the Capitol ended for the week with devastating news to local governments when the Budget Conference Committee approved taking two years of local Highway User Tax Account (HUTA) funds. This amounts to $986 million in FY 2009-10 and $750 million in FY 2010-11. The vote was party-line: Democrats "Aye", Republicans "No." The action by the Budget Conference Committee, if sustained by the legislature, will directly contradict limits placed on the legislature's use of HUTA funds in Proposition 5 in 1974 and Prop. 2 in 1998. The action also has tremendous implications for city budgets which have relied on this stable source of revenue for important transportation projects since the 1970s. The League will be delivering the Governor and Legislature an authoritative legal opinion questioning the constitutionality of the HUTA raid.

The committee rejected a Legislative Analyst's Office (LAO) proposal to borrow Prop. 42 (sales tax on gas) funds. The committee also approved the release of $700 million in remaining Prop. 1B local street and road funds, of which $258 million remains available for cities. No action has yet been taken by the committee on the Governor's proposal to borrow local property taxes under Prop. 1A. The committee also left open an LAO proposal to take half of the VLF money dedicated to local public safety.

In Friday's Budget Conference Committee meeting, members received new trailer bill language from DOF that proposes to borrow the funds through an ERAF shift to get around the maintenance of effort requirements. Because the members received the trailer bill language within minutes of the discussion beginning, the committee closed down the meeting and continued the discussion on borrowing property taxes until some time over the weekend or Monday.

The committee meetings this week follow a great deal of activity by the League and city officials to fight proposals to borrow local property taxes as well as take these funds.

LAO had proposed borrowing local HUTA revenues for one year, which is authorized by the Constitution, but this proposal was rejected during the discussion. While these funds go to transportation projects, if the state takes them, it will have implications beyond what they traditionally support. The "Big City" mayors told Gov. Arnold Schwarzenegger on Tuesday that loss of these funds would impact public safety because cities would have to supplement transportation project needs from the General Fund.

Another ripple effect of the state taking or borrowing HUTA is the potential violation of city storm water National Pollutant Discharge Elimination System (NPDES) permits. A number of cities use their HUTA funds for street sweeping and street maintenance. In addition, many of the city storm water NPDES permits specifically state that the city must sweep the street a specified number of times per week and list specific maintenance projects in the permits.

If HUTA funds are taken, cities would be forced to backfill the funds required to do street sweeping and maintenance from other sources. Without the ability to fund street sweeping or maintenance, cities could fall out of compliance with their NPDES permit fairly quickly.

A large transportation coalition sent the Governor a letter on Friday, June 5, calling the proposal to divert and/or borrow gas taxes to close the budget gap fiscally reckless. The League joined this coalition and has posted a copy of this letter on the League's Web site.

While Thursday's action by the Conference Committee will have many severe consequences on local street and road programs, several things could alter this course:

1. The budget fight may bog down on other provisions, giving local government, transportation groups, affected local employees and local residents time to rally opposition to change or reverse this proposal.
2. The Republicans have the ability to hold out with the two-thirds vote, but some Republicans on the committee indicated that they would support a one-year grab of these funds.
3. Big-Five discussion may alter shape of the final deal (there has been some discussion of the need to increase state fees or gas taxes.)
4. The League's legal opinion on the unconstitutionality of this proposal will be shared soon with the Governor, and may change his mind about the viability of this proposal.
5. A lawsuit could be filed to seek an injunction while the courts review the constitutionality of this proposal.

League Officers Meet with Governor

A majority of the League's executive officers came to Sacramento on Wednesday to meet with the Governor. Present at the meeting was President and Rolling Hills Estates Mayor Judy Mitchell, Second Vice President and Modesto Mayor Jim Ridenour, Immediate Past President and former San Diego City Council Member Jim Madaffer, Executive Director Chris McKenzie and Legislative Director Dan Carrigg.

It was a good meeting and the officers reiterated our strong opposition to a budget based on borrowing as well as proposals to take Highway User Tax Account (HUTA), or gas tax, from cities as a revenue source for the state budget.

Executive Director McKenzie told the Governor that DOF's proposal to take the local share of HUTA is unconstitutional and that the League would provide him with an authoritative legal opinioin on the matter in the near future (see above). The Governor seemed very interested in receiving the legal analysis the League has completed on this matter. The Governor also noted the growing opposition to the Prop. 1A borrowing by Senate Republican Leader Dennis Hollingsworth (R-Murrieta) and Senate President Pro Tem Darrell Steinberg (D-Sacramento). This caused him to wonder if the Legislature is open to other cuts or steps to avoid it. The Governor said that he does not want to implement policies that would cause permanent harm to local government.

President Mitchell and Executive Director McKenzie delivered a memo to the Governor on June 10 outlining the impact of the proposed borrowing of Prop. 1A and the unconstitutional HUTA raid. A copy of that letter has been posted on the League's Web site .

Big City Mayors Meet with Governor

On Tuesday, a number of the "Big City" mayors met with the Governor, continuing their efforts from last week to lobby on budget issues. Wednesday's meeting included Sacramento Mayor Kevin Johnson, Los Angeles Mayor Antonio Villaraigosa, San Diego Mayor Jerry Sanders, Fresno Mayor Ashley Swearengin and Santa Ana Mayor Miguel Pulido. The mayors again told the Governor how cities would be devastated if the state borrows or takes local revenues for the state's budget.

Mayor Villaraigosa said that Los Angeles would be forced to lay off approximately 1,400 police officers if his city loses 8 percent of property taxes. San Diego, Mayor Sanders said, would have to cut an additional $75 million from the city budget beyond the $180 million they've already cut, if the state takes these local funds.

Save Your City Campaign

The League has been working against the proposal to borrow 8 percent of cities' share of property tax since it emerged. Fighting this borrowing proposal was the impetus behind the launch of www.SaveYourCity.net several weeks ago. The Web site's momentum has been tremendous with close to 400 video testimonials uploaded on the Web site.

This week, Assembly Member and Local Government Committee Chair Anna Caballero (D-Salinas) came out against borrowing local revenues and posted her own video communicating her stand. As former mayor of Salinas, the Assembly member knows first hand how this proposal would impact cities. Assembly Member Caballero is the first Democratic legislator to come out against borrowing.

Senate Republican Leader Dennis Hollingsworth (R-Murrieta) also posted a video on www.SaveYourCity.net this week saying that the Senate Republican Caucus is against borrowing Prop. 1A and that this is one of the worst kinds of borrowing because it affects public safety and vital services at the local level.

When Senate President Pro Tem Darrell Steinberg (D-Sacramento) announced his budget plan on Tuesday, June 9, he also said that he and his fellow Democrats were against the Governor's proposal to borrow the almost $2 billion in local property taxes for the state's deficit. The Senate President Pro Tem proposes using the state's $4.5 billion reserve to close the $24 billion deficit.

Cities across California have continued to pass resolutions declaring a state of severe fiscal hardship. Since May 11, 236 cities have taken this action to communicate the devastation of proposals to borrow or take local government revenues would have on cities.

Assembly Speaker Outlines Revenue Generating Ideas

Assembly Speaker Karen Bass (D-Los Angeles) said on Wednesday that she's seeking new revenue sources to help balance the budget without decimating programs. However, as reported in the Sacramento Bee on June 11, the Speaker did not comment on the specific options included in her proposal.