How new state budget affects local governments How new state budget affects local governments (August 04, 2004)

** New protections for local funding if voters approve a constitutional amendment.

By Rebecca Wallace
Almanac Staff Writer

Signed by Gov. Arnold Schwarzenegger on July 31, the month-late $105 billion state budget includes a compromise that could provide new protections for local and county funds from state takeaways.

While local governments statewide will lose a total of $2.6 billion to the state over the next two years, a proposed state constitutional amendment would restrict how much the state could "raid" in the future.

If the amendment is approved by voters in November, the state could only borrow money from cities and counties, and could do that only twice in 10 years and only with the approval of two-thirds of the state Legislature. The state would have to pay back all borrowed money with interest, and it couldn't borrow a second time in 10 years unless it had paid back the first loan.

Furthermore, the governor would have to declare a "significant fiscal hardship," as the governor's office describes it.

Some local officials, including Menlo Park Mayor Lee Duboc and Portola Valley Town Councilman Ed Davis, said they are pleased that some protection would be given to city funds.

Ms. Duboc, though, said it doesn't appear that the protection would extend to redevelopment agency property tax revenues. That revenue is collected in the east side of Menlo Park and pays for projects there, such as housing and playgrounds. City staff will study how Menlo Park could be affected by the new budget, she said.

Mr. Davis said he found the concept of "raids on local government" distasteful: "The Legislature has no conscience."

Woodside Town Manager Susan George said the compromise is "probably the best we could hope for." Looking back, she said the state typically takes away local funding about twice every 10 years anyway.

Originally, the League of California Cities had pushed for stronger protection for local government funding, putting its own measure, Proposition 65, on the November ballot. That proposition would require voter approval -- not a two-thirds legislative approval -- for any state takeaway, league spokeswoman Megan Taylor said.

The new proposed constitutional amendment will also appear on the ballot, probably as Proposition 1A, Ms. Taylor said. There will be language in Proposition 1A to ensure that only 1A will take effect if both measures pass.

Larger concerns

Some government officials have larger concerns about the budget, which uses borrowing and budget cuts to make up for an estimated $14 billion deficit.

Mr. Davis said the state has no long-range budget planning and should have limited spending, perhaps tying it to the inflation rate.

Assemblyman Joe Simitian, D-Palo Alto, was one of the 11 Assembly members to vote against the budget. He said the plan is too reliant on borrowing, remarking that the $15 billion bond initiative approved by state voters in March simply "enabled the Legislature and the governor to avoid coming to grips with the (deficit) problem."

He added, "The only way you balance a budget like this one is to spend less, raise more, and take actions sooner (rather) than later."

Mr. Simitian praised the compromise on local government funding: "For the most part it gives local government a sense of certainty that will help them plan for the future."

But he opposed a "trailer" bill accompanying the budget that allows the state to take about $2 billion from K-12 public schools, plus community colleges. That bill suspended Proposition 98, which provided a state minimum-funding guarantee for schools.

As for higher education, the state budget deal provides rosier news for several thousand students who are eligible for the University of California or California State University systems but had been told there was not enough funding and they'd have to transfer there in their junior year. The funding has now been restored.

State Spending
Fiscal year 2004-05 state budget

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