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News from the Capitol
LEGISLATIVE LEADERS REACH A BUDGET DEAL - IMPACT ON LOCAL GOVERNMENT WILL BE SIGNIFICANT
Last night, shortly before 7 p.m., Governor Arnold Schwarzenegger and the four legislative leaders appeared outside of the Governor's chambers to announce that a deal had been reached on the State Budget. Said the Governor to reporters, "Obviously, you can see that we are very happy because we came to a basic agreement, a budget agreement that, of course, has to be ratified by the legislature and hopefully by Thursday evening....This is a Budget that will have no tax increases, a budget that is cutting spending. We deal with the entire $26 billion deficit, around $15 billion in cuts that we are making." As part of the deal reached last night, cities, counties, and special districts will all endure significant and disproportionate blows to their local budgets. You will recall from our July 16, 2009 "News From the Capitol" report that we had learned, from a credible Capitol source, that an agreement was near on a proposal to: 1) Borrow close to $2 billion in local government property taxes, as allowed under Proposition 1A (2004), 2) Take $1.7 billion from redevelopment agencies, 3) Take close to $1 billion in Highway User Tax funds from cities and counties. In what could certainly be considered the worst case scenario for local government, last night the so-called "Big 5" legislative leaders agreed to go forward with all three of these proposals to help balance the state Budget.
By way of history, Proposition 1A, approved by the voters on the November 2004 ballot, attempted to protect the legislature from borrowing property taxes from cities, counties, and special districts, in future Budget cycles. However, Proposition 1A also contained language stating that 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 approve one-time borrowing by a two-thirds vote. A cap of 8% was placed on the amount of property taxes that could be taken, and the state would have to repay local government, fully with interest, within three fiscal years. The state could not "borrow" property taxes more than two times in 10 years, and must repay the first loan before a second loan could be made. Under the agreement reached in 2004, 26 county property tax dependent libraries and 11 special district libraries, as well as fire districts, etc., were exempted from a "tax take-away" that year. Over the past several months, CLA has attempted to get these same libraries exempted from the 2009 property tax "borrowing" provisions, particularly if the fire and police special districts were also provided an exemption.
This morning we spoke to legislative staff who have been part of the Budget negotiations, and were informed that the property tax borrowing will affect all of local government – there will be no exemptions. The legislature is clearly trying to send the message that everyone must "share the pain." While there has been some discussion about Proposition 1A not being triggered if certain redevelopment agency actions occur, we have been told that there is a "zero chance" of this happening. Consequently, based on our latest information, it appears that all segments of local government will face an 8% hit. You may recall that language is also being developed that will allow local governments to borrow, if necessary, to off-set the loss, using the state's credit worthiness, such as it is, to guarantee the loans.
CAPITOL HALLS ARE QUIET
As only modest amounts of information regarding the Budget deal trickled out last night, Legislative leaders said they were purposefully holding back on releasing substantive information until the respective caucuses could be briefed today. The Capitol halls are virtually empty this morning, as most legislators are back home in their districts (where they have been since at least Friday). Upon checking, we found that the Assembly Democrats are likely to be briefed via conference call some time today and the Senate Democratic caucus is likely to be briefed tomorrow evening. Both Republican caucuses will likely be briefed Wednesday evening or Thursday morning. One member of the legislature informed us that their caucus had not been briefed on any of the details of the Budget negotiations in recent days, while the other three caucuses had been briefed regularly. Perhaps this approach is what prompted one legislator to Twitter last night, "The Big 5 negotiations keep our members in the dark as to what is going on."
Assuming that a Budget is passed later this week (potentially Thursday), the legislature would immediately adjourn to begin a three week summer recess. They will return to the Capitol to conclude any remaining session business on August 17, with the final adjournment date scheduled for September 11.
Posted on July 21, 2009 2:20 PM | Permalink