Support for Proposition 1A, “Protection of Local Government Revenues”

DATE: August 17, 2004
TO: Board of Supervisors
SUBJECT: Support for Proposition 1A, “Protection of Local Government Revenues”

SUMMARY:
Overview
The passage of the California State Budget for FY 2004-2005 included a payment of $1.3 billion of local government property taxes to the state each year for two years in exchange for the Governor and the Legislature’s agreement on a package of bills that provide unprecedented protection for local government services in the future. The passage of Senate Constitutional Amendment (SCA) 4 offers cities, counties and special districts the hope of long-term protection of local government funds from continued state raids.

This long sought after agreement among Republicans, Democrats, local government leaders, public safety officials, healthcare, business and labor advocates, taxpayers and community leaders places SCA 4 on the November 2, 2004 ballot for California voters as Proposition 1A, “Protection of Local Government Revenues.” If approved by the voters, Proposition 1A would enact sweeping changes to the state/local fiscal relationship and restore predictability and stability to local finances.

The passage of Proposition 1A would prevent the State Legislature from taking and using local government funds that the County of San Diego relies on to provide the most critical services that our residents depend on, including public safety, public health, environmental protection, public assistance, parks and libraries.

RECOMMENDATION (S):
SUPERVISOR GREG COX AND SUPERVISOR BILL HORN

  1. Adopt a resolution in support of Proposition 1A, “Protection of Local Government Revenues” on the November 2, 2004 ballot.
  2. Direct the Chief Administrative Officer to express this Board of Supervisors’ support for Proposition 1A, “Protection of Local Government Revenues” to San Diego County’s legislative representative in Sacramento.

Fiscal Impact
There is no fiscal impact associated with approving these recommendations. However, the passage of Proposition 1A would mean significant positive changes for the County of San Diego’s finances in the form of additional long-term stability in revenue.


BACKGROUND:
The passage of the California State Budget for FY 2004-2005 included a payment of $1.3 billion of local government property taxes to the state each year for two years in exchange for the Governor and the Legislature’s agreement on a package of bills that provide unprecedented protection for local government services in the future. The passage of Senate Constitutional Amendment (SCA) 4 offers cities, counties and special districts the hope of long-term protection of local government funds from continued state raids.

This long sought after agreement among Republicans, Democrats, local government leaders, public safety officials, healthcare, business and labor advocates, taxpayers and community leaders places SCA 4 on the November 2, 2004 ballot for California voters as Proposition 1A, “Protection of Local Government Revenues.” If approved by the voters, Proposition 1A would enact sweeping changes to the state/local fiscal relationship and restore predictability and stability to local finances.

First and foremost, Proposition 1A provides that the state may never again permanently shift property taxes away from local governments to relieve the state of its own obligation to fund schools. In FY 2003-2004 San Diego County paid more than $237 million in local property taxes to fill the State’s budget holes through this so-called “ERAF shift” reducing funding available for local services. Since ERAF was instituted, more than $1.9 billion in local property taxes has been paid in local tax dollars to the State.

Proposition 1A does allow for the state to suspend the protection against transfers to schools under the following conditions:

  • It must follow a declaration of a state financial hardship by the Governor.
  • It must be passed as an urgency statute with a 2/3rds vote of the Legislature.
  • It must be a loan, not a raid, and it must be repaid within 3 years, with interest.
  • It cannot occur more than twice in a decade.
  • It cannot occur until at least 2008-09.
  • It cannot occur until after the Vehicle License Fee (VLF) Gap Loan is fully repaid.
  • New loans cannot occur until previous loans have been repaid.

Furthermore, Proposition 1A increases the threshold for reallocating property taxes among local governments within a county from a majority vote to a 2/3 vote. It also includes protection for the additional property tax that counties and cities will receive as a result of eliminating the VLF backfill.

In addition to the possibility of ending the state’s “shift and shaft” of local property tax revenue, Proposition 1A provides protection for sales tax revenues received by cities and counties. Also if passed, VLF revenues will continue to be dedicated to cities and counties. While the Legislature would be prohibited from permanently altering property tax or sales tax revenues or allocations, Proposition 1A allows local agencies to voluntarily exchange sales tax revenues for property tax revenues with a 2/3 vote of the Legislature.

Most significantly, Proposition 1A contains important provisions relating to state-local mandates, a key concern for the County of San Diego which endures the impact of reduced state funding for state-mandated programs and services every year in areas such as the collection of child support, and care for people with mental health disorders. Proposition 1A provides that the Legislature must appropriate funds for state reimbursable mandates or suspend the provisions of those mandates. Additionally, the state may not reallocate property tax revenues among local agencies within a county to fund state mandated programs. Proposition 1A also contains language that expands the definition of reimbursable mandate to include cost shifts for shared state-local programs.

We firmly believe that the passage of Proposition 1A would prevent the State Legislature from taking and using local government funds that the County of San Diego relies on to provide the most critical services that our residents depend on, including public safety, public health, environmental protection, public assistance, parks and libraries.

These recommendations would declare the County of San Diego’s support for Proposition 1A, “Protection of Local Government Revenues.” and express that support to San Diego County’s legislative representative in Sacramento.

We urge your support for this measure.

Respectfully submitted,


GREG COX
Supervisor, District 1

BILL HORN
Supervisor, District 5