July 27, 2004
| TO: | CLA Members/ Systems/ Network Contacts |
| FROM: | Mike Dillon, Lobbyist Christina Dillon, Lobbyist |
| RE: | NEWS FROM THE CAPITOL |
Late last night, the Governor and four legislative leaders reached an agreement on the three outstanding issues that had been holding up the Budget. You will recall from our earlier memos that the three items were:
- local government protection;
- the repeal of the "sue your boss" law signed by Governor Davis as he was leaving office; and
- the repeal of the law allowing school districts to contract out for certain services.
These issues were insisted upon by Republicans as a condition of their vote for the Budget. During a conference call over the weekend, the Governor indicated to representatives of cities, counties and special districts that he had pushed the Legislature as far as he could on a local government agreement and that patience was running thin among legislative leaders. Last week, an agreement had been reached on the "sue your boss" law and it was decided to put the school contracting issue off until after the Budget had been passed.
Legislators, including a few who attended the Democratic Convention, are being called back to Sacramento for caucuses today and tomorrow on the agreements, with a vote on the Budget and trailer bills likely scheduled for Thursday or possibly Friday. The latest proposed agreement is not too different from what we reported to you on July 21st that is contained in SCA 9-Torlakson, with the substantive details to be in a budget trailer bill once the details are finalized. The one major exception is that SCA 9 will contain a "cap" of 8% on the amount of property taxes that can be borrowed.
Fortunately, we were able to get independent special district libraries and the so-called "orphan" county libraries exempt from the property tax shift. However, we thought you might find the special district piece interesting.
PROTECTION OF PROPERTY TAXES
- City, county, special district and redevelopment agencies share of the property tax would be protected from any future ERAF shift to schools or indirectly to the State to help balance the budget.
- The local share of property taxes may be reallocated by a 2/3rd vote of the Legislature to other local governments within a county. (This is the so-called "aggregate" vs. "individual share issue" that has been discussed.)
- Beginning in 2008-09, the State may "suspend" the prohibition on taking local property taxes if the Governor proclaims a "significant State fiscal hardship" and gets the Legislature to agree by a 2/3rd vote.
- A cap of 8% ($1.3 billion in today's dollars) would be placed on the local share of property taxes that could be taken. While it is not spelled out in legislation, the discussion is that it would be taken on the same basis as under the current take-away division between cities, counties, special districts.
- The State would have to repay local government fully with interest within three fiscal years and the money would be securitized, i.e. it could be borrowed against.
The State could not "borrow" property taxes more than two times in 10 years, and must repay the first loan before a second could be made.
SPECIAL DISTRICT REALLOCATION FORMULA
The Administration's compromise proposal for special districts is as follows:
- As earlier agreed to, special districts will give up $350 million in property taxes this year and again next year. The breakdown will be $225 million from enterprise districts and $125 million from nonenterprise districts.
- Enterprise districts will give up 40% of their property taxes, not to exceed 10% of their total revenues.
- Instead of giving up 20% of their property taxes, which the Legislature felt was too high, nonenterprise districts will now give up 10% of their property taxes, but dependent districts will be included. It is estimated the dependent districts, which are virtually all county districts, will generate approximately $50 million.
- Transit districts will give up 3% of their property taxes.
- Because of the West Nile virus outbreak, the Governor and key legislators decided to exempt Mosquito and Vector Control districts from the formula. This will shift approximately $15 million to other districts, possibly enterprise districts.
- If the $350 million is not entirely raised by the proposed 40% and 10% share of property taxes, the share from enterprise districts will be increased to make up for the shortfall. The "not-to-exceed 10% of total revenues" provision will still be in place.
While the proposal is not nearly as protective as Proposition 65, nor the earlier "Governor/Local Government Deal," we doubt we could have done any better. With SEIU and the California Teachers Association already committing $4 million to fight Proposition 65 and the Governor indicating he will not be able to support it, relying on passage of Prop 65 would be a gamble, especially since the campaign consultants for Prop 65 gave us estimates of $15 to 17 million to run a strong campaign.
TELECONNECT FUND AT RISK
Last night, the Assembly Republicans gave the Democrats a list of final items in order to garner their votes on the Budget. Zeroing out the Teleconnect Fund is on their list. This means the language, plus all of the money, would come out of the Budget. One of the key staff negotiators for Assembly Republicans said the Governor was going to sign a Budget without a tax increase, and this is viewed as a tax increase. The Teleconnect Fund working group of lobbyists is arguing that the PUC is already planning to implement a small surcharge of a few pennies on phone bills and that it is really not a tax, but the consultant insists it is a tax. The proposed surcharge would raise $20 million to pay existing claims, and there will be no State General Fund impact. There is a negotiating session scheduled with the Governor and key Republicans later today. If you are close to any of your Republican legislators, will you please call them immediately and let them know that this is a program that helps school kids, after-school programs, job training, libraries and telemedicine in rural clinics. We are concerned that once this program gets zeroed out, it will likely be the end of the program.