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Budget Update, Action Needed
I. Proposition 1A Borrowing Becoming a Greater Possibility
Recently, you may have read in your local paper, rumors regarding the potential borrowing of property taxes under Proposition 1A, which was passed by the voters in 2004. You will recall that we previously worked very hard to secure the exemption in 2004 for independent special district libraries and so called "ERAF Orphan" (or county dependent) Libraries.
As of this writing, the Democratic leaders in the Senate and the Assembly say that they have no plans for borrowing property taxes, as allowed under Proposition 1A to help balance the state budget. Instead Democrats point to the Budget, as adopted by the Budget Conference Committee, which calls for additional revenues in excess of $8 billion dollars. A portion of the funds would be used to provide a modest 2.4% cost of living adjustment for schools and restore some health and human services reductions made by the Governor. The remainder of the new revenues would replace the Governor's so-called lottery "securitization" fund proposal and the accrual of August and September 2009 tax receipts that would be counted in the 2008-09 budget year ending June 30th. The latter approach by the Governor is being referred by some as a "gimmick."
However, Republicans in both houses have generally objected to any tax increases, and therein lies the dilemma. Both parties have expressed their desire to wrap up the legislative session by August 22 in order for the Democrats to attend the National Democratic Convention, and the Republican Convention follows shortly thereafter. A likely scenario is that the Legislature will resort to a number of compromises, one of which could involve borrowing property taxes under Proposition 1A, even though it is only a short-term budget fix, as the money must be repaid to local governments, with interest, within three years.
II. Where Can You Find $8 or $9 Billion Dollars?
As mentioned above, the Budget Conference Committee proposal, adopted on a 4 to 2 vote, with Republican conferees, Senator Bob Dutton, and Assemblyman Roger Niello voting "no," relies on $8.2 billion in revenues for the 2008-09 revenue year, which include reinstating the 10% and 11% income tax brackets. Democrats also propose suspending the net operating loss carryover for businesses for three years, suspending the indexing of income taxes for one year, etc. If an agreement cannot be reached on these tax increases or "revenue enhancements," where might the legislature find some alternatives?
One proposal that has been floated around, that could be permanent, would be the Legislative Analyst's alternative to "securitizing" the lottery based on current lottery sales which could generate approximately $2.6 billion, and "securitizing" a portion of redevelopment agency funds generating about $2 billion. (Short explanation: In exchange for extending current RDA laws about to expire, RDA's would shift a certain portion of property taxes to schools, thereby relieving the State General Fund of this obligation, and the funds would then be "securitized," i.e. a lump sum payment from Wall Street to be paid back over a number of years). The Governor's accrual method, mentioned above, of counting August and September revenues in June would raise another $2.1 billion. Then, there is borrowing from various sources. Proposition 1A only allows the state to borrow up to 8% of total property taxes, which would be in the neighborhood of $1.8-$1.9 billion. Borrowing from Proposition 42, the gas tax initiative passed by the voters in 2006, could generate another $1 billion or so. One of the considerations for the above options is that the funds generated would not be considered "proceeds of taxes," which unlike the tax increases under the Conference Committee proposal, would not require close to 50% of all new revenues being dedicated to K-14 education under the requirements of Prop 98, the school funding guarantee. As one policy wonk mused, some or all of these options could be used for a "get out of town budget."
III. Contact Your Legislators, Urge an Exemption For Public Libraries
On the possibility that the Legislature may ultimately opt to borrow property taxes, we have been meeting with key legislative staff, explaining that the impact that any sort of borrowing from libraries, particularly libraries largely dependent upon property taxes, would produce significant adverse consequences. We have also provided them with the language that exempted police, fire and property tax dependent libraries from the so called "take away" in 2004.
We need your help to ensure that libraries are exempted if the legislature elects to borrow property taxes via Proposition 1A. We urge you to take a moment and write to your individual Legislators as well as the "Big Four" leaders listed below and request an exemption for libraries from any Proposition 1A shift. It is important to mention in your letters the impact any borrowing would have on your library, especially if you have limited options for replacing the lost revenues, i.e. difficulty borrowing etc. Also, we recommend that you mention the Budget reductions your library has suffered as a result of the cuts to the PLF and TBR in recent years.
The leaders are:
The Honorable Don Perata
Senate President Pro Tem
State Capitol, Room 205
Sacramento, CA 95814
The Honorable Dave Cogdill
Senate Minority Leader
State Capitol, Room 3048
Sacramento, CA 95814
The Honorable Karen Bass
Speaker of the Assembly
State Capitol, Room 219
Sacramento, CA 95814
The Honorable Mike Villines
Assembly Minority Leader
State Capitol, Room 3104
Sacramento, CA 95814
Submitted by Mike and Christina Dillon, Lobbyists
Posted on July 23, 2008 12:04 PM | Permalink