February 5, 2004
| TO: | Cla Members/ Systems/ Network Contacts |
| FROM: | Mike Dillon, Lobbyist Christina Dillon, Lobbyist |
| RE: | News From The Capitol |
I. SENATOR ALPERT INTRODUCES NEW LIBRARY CONSTRUCTION BOND BILL
Dede Alpert (D-San Diego), member of the Library Construction Bond Board and Chair of the powerful Senate Appropriations Committee, has introduced a new library construction and renovation bond. The bill, SB 1161-Alpert, will enact the California Reading and Literacy Improvement and Public Library Construction and Renovation Bond Act of 2004, for submission to the voters on the November 2004 ballot. The bond currently contains a $2 billion price tag, however, due to the state's current fiscal climate, and challenging Budget year ahead, it is not likely that the bond will stay at that high of a bond authorization amount. During 2004, discussions will take place between Senator Alpert, the legislature, and the Governor's Administration regarding what the state may be able to absorb relative to its bonded indebtedness capacity.
SB 1161, which is sponsored by CLA, is identical to the Senator's SB 40 from last year. You may recall, SB 40 was placed on the Senate Appropriations Committee "suspense file" in 2003, when Library Construction Bond Board member, State Treasurer Phil Angelides, sent all bond authors a letter, expressing his "opposition to the enactment of any new general obligation or state lease revenue bond measures, beyond those already scheduled to be placed on the ballot, until a balanced budget for fiscal year 2003-04 is in place and there is a viable plan to fix the structural imbalances in the budget." In a statement released yesterday for CLA members, Senator Alpert stated, "I am well aware of the problems associated with increasing our state's bonded indebtedness. However, I believe the library bond proposals that have come before me on the Library Board have provided an important economic stimulus for our communities as well as serving the critical educational and informational needs of our citizens. I am hopeful that SB 1161 will move forward so that we can continue the great strides we've made in improving California's public libraries."
Important features of SB 1161 include: the same 35% local match requirement as is currently found in the existing (Proposition 14) library bond, the bill provides up to $25 million to encourage the development of joint use projects between libraries and school districts or higher education, and lastly, would allow unfunded Cycle 3 applicants to get "first call" on new bond act funds without having to complete a new application. Remaining funds would be available to any additional applicants.
Senator Alpert, one of the principle authors and architects of the March 2000 bond, along with Senator Richard Rainey and Senate President pro Tem John Burton, has been very concerned over the skyrocketing need for library construction bond dollars, versus the limited amount of bond funding actually available. The bond funding process has been extremely competitive, with many worthy applicants being denied projects due to lack of funding.
SB 1161-Alpert must be in print for thirty days before it can be heard in its first committee. We will send out an announcement to the field when the bill is assigned to committee. In the meantime, you may wish to ask your own legislators to request that they be added to Senator Alpert's bill as a co-author.
II. A LITTLE HISTORY ON ERAF
Several of our readers have asked us for a simple explanation of ERAF. A "simple" explanation may be difficult, but we will do our best to explain what led to the eventual establishment of the Educational Revenue Augmentation Fund (ERAF).
Back in the late 1970s, when Proposition 13 was on the ballot, then State Treasurer Jess Unruh publicly stated that the state had an "obscene surplus." In fact, at the time, the state had a surplus of about $4 billion, which likely gave some impetus to the passage of Proposition 13, which, as you know, essentially cut property taxes in half. While a few state legislators later questioned their decision, the legislature, at the time, used most of the $4 billion in state surplus to "bail out" local governments, by replacing much of the property taxes they had lost with state funds. Since the legislature was prohibited from giving funds directly to cities, counties, and special districts, formulas were devised wherein property taxes were shifted from schools to the local governments, and the state used its surplus to replace the school funds. The legislative vehicle used to accomplish this purpose was AB 8, which became known as the "AB 8 bail-out" bill.
All was peaceful, so to speak, until the early 1990s when the state faced huge deficits. The legislature, in addition to raising some taxes, turned to local government to collectively generate more than $4 billion through what became known as the "AB 8 reversal." In effect, the legislature reversed what it had done after Proposition 13, by shifting property taxes from local government back to the schools, thereby freeing up a like amount of money in the state General Fund to be used for other purposes. To account for or track the funds shifted to the schools, the so-called "Educational Revenue Augmentation Fund (ERAF)" was established. It was important for the state to establish the ERAF account because, as the property tax value in the ERAF increases each year, it offsets the amount of money the state must pay schools under the Proposition 98 guarantee. Legislative efforts by CLA and other local government groups, over the years, to require that the growth in the ERAF be given to local governments rather than the schools, have been defeated or vetoed by the Governor. The Department of Finance argued it would result in a "cost" to the state of at least $150 million in the first year alone, as the state would have to provide an amount to schools equal to the amount shifted to local government from the ERAF account.
As we said at the beginning, there is no easy explanation of ERAF, however we hope you will find this article helpful in your understanding of the 1992-93 and 1993-94 property tax shift and its implications.
III. THE GOVERNOR'S BUDGET PROPOSES ANOTHER $1.3 BILLION SHIFT TO ERAF
This year, the Governor is proposing to shift another $1.3 billion from cities, counties, and special districts into the ERAF account to free up a like amount to balance the Budget. The Governor is, in a sense, giving with one hand and taking away with the other. The current year's Budget provides $2.65 billion in Vehicle License Fee (VLF) reimbursement to cities and counties in the 2003-04 fiscal year, and $4.06 billion in 2004-05. The Administration's rationale seems to be to cities and counties -- "you only got $2.65 billion this year, we promised to repeal the car tax and give you the $4.6 billion, but we're taking away $1.3 billion through the ERAF reduction. Thus, you will net $2.65 billion, the amount you received this year." Unfortunately, cities and counties, as well as special districts, end up losing $1.3 billion in funding for police, fire, library, and other services they did not anticipate losing. Specifically, counties will lose approximately $914 million, cities $188 million, special districts $98 million, and redevelopment agencies $135 million. Several library directors have asked how to calculate the percentage loss for their special district libraries, relative to the $98 million figure. While details of the Governor's ERAF proposal are still in flux, it is rumored that the take-away will be between 8 and 9 percent for each special district.
IV. A LITTLE KNOWN 1994 LIBRARY BILL
CLA is currently working with legislative staff and specific legislators to explore options relative to a 1994 law that may prove to be fortuitous for libraries. Back in 1994, Senator Ralph Dills asked CLA if he could introduce a measure to help libraries. CLA provided the Senator with a proposal to prevent any future ERAF take-aways from libraries. Noting that libraries had been decimated by the ERAF shifts of 1992-93 and 1993-94, the Senator wanted to prevent a so-called "ERAF II," and introduced SB 1648-Dills, which would prohibit further property tax revenue reductions to county free libraries or library districts. The bill was strongly supported in a bi-partisan fashion in the legislature, and was signed by the Governor as Chapter 344, Statutes of 1994. You may recall that in 1997, then State Controller Kathleen Connell interpreted SB 1648 to mean that libraries should have never shifted money for ERAF, including in the years 1992-93 and 1993-94. She ordered a $120 million return to libraries, which was quickly thwarted by legislative leaders and staff who understood the bill's original intent -- to prevent future ERAF reductions from libraries with a prospective, not retrospective intent. Senate President pro Tem Bill Lockyer and Assembly Republican Leader Curt Pringle then introduced AB 1589-Pringle/Lockyer, which clarified Senator Dills intent (Chapter 290, Statutes of 1997). The library ERAF law is contained in Section 97.37 of the California Revenue and Taxation Code.
In light of Governor Schwarzenegger's $1.3 billion ERAF proposal, CLA has resurrected SB 1648-Dills to plead our case with some of our strongest legislator allies, particularly those who come from local government backgrounds. We are currently assembling a package of information for key Senators and Assemblymembers and will be encouraging them to uphold the 1994 law to protect libraries from future ERAF shifts. Meanwhile, several county counsels have been reviewing the language contained in both SB 1648 and AB 1589, and there are some sizeable discrepancies in their opinions of whether or not this leaves libraries protected or vulnerable. As the Governor's ERAF proposal is going to be an ongoing issue of great magnitude for all segments of local government, this issue will not be resolved until Budget discussions conclude. Recognizing that one legislature cannot bind a future legislature (SB 1648 does not guarantee there will be no shift), CLA will be working on this issue for months to come and will keep you updated as developments surface.
V. QUIET TIME IN SACRAMENTO
Early January was a busy time in the legislature as Assembly and Senate policy committees dealt with bills carried over from last year, that if not acted upon in their house of origin, were dead for the two-year session. Additionally, lobbyists scurried around the halls of the Capitol, seeking authors for proposed legislation in order to meet the January 23rd deadline of getting language to Legislative Counsel for drafting purposes. Now is a quiet time around the Capitol, as legislators wait for bills to be returned from Legislative Counsel for introduction by the February 20th deadline, at which time the bills are assigned a number and made public. Legislators, their staffs, and most lobbyists are also awaiting the release of the Legislative Analyst's review of the Governor's Budget, which is scheduled to be released Wednesday, February 18th. The quiet time will end in early March when the various Budget subcommittees in the Assembly and Senate begin hearings in earnest on the Governor's Budget. A little later in March, policy committees will begin hearing bills that have been introduced and have met the 30-day requirement of being in print for public review.
VI. SPECIAL SENATE LOCAL GOVERNMENT COMMITTEE INFORMATIONAL HEARING ON PROPOSED INITIATIVES
There are currently a number of initiatives in circulation or awaiting title and summary by the Secretary of State's office. Two of the initiatives are: "The Local Taxpayers and Public Safety Protection Act" (the LOCAL Coalition proposal), and the "California Home Rule Amendment" being initiated by former Assembly Speaker Robert Hertzberg. The Home Rule Amendment is supposedly backed by a number of business groups as an attempt to head off the so-called "split roll" initiative, which is sponsored primarily by education organizations, which is also in circulation.
The LOCAL initiative, as most of our readers are aware, is sponsored by the County Supervisors Association of California, the League of California Cities, and the California Special Districts Association, and others, and seeks to protect local governments from future raids by the state on their general funds. Essentially, it would prevent the legislature from shifting local government funds (property tax, vehicle license fees, sales tax) without a vote of the people. It also deals with state mandates. The so-called "Hertzberg Initiative," or "California Home Rule Amendment" is much more complicated. One text we have reviewed is 57 pages in length. The proposed initiative would change both the Constitution and sections of the Government Code and the Revenue and Taxation Code. The findings and declarations of the initiative are somewhat sketchy, and essentially point out the importance of "allowing local communities to keep more of their property taxes," and "making property taxes the principle source of local government revenues." There have already been four revisions to the proposed initiative and we will provide you with additional information as it is developed.
In the meantime, the Senate Local Government Committee will be holding an informational hearing on the two initiatives next Wednesday at the State Capitol from 9:30 a.m. to noon.