State postpones pain on budget State postpones pain on budget (August 06, 2003)

By David Boyce
Almanac Staff Writer

As California attempts to deal with its massive budget shortfall, cities and counties have been bleeding money, some of it in the form of transfusions to the state.

With the budget compromise from the state Legislature signed by Gov. Gray Davis on August 2, conditions appear to be stabilizing.

"We think that the losses in local revenues will be within the target we anticipated when we prepared the budget" in June, said San Mateo County Manager John Maltbie. "In the end, it's not a solution to the state's fiscal problems, it's not a solution to balancing the budget. It's simply one more gimmick that's being used to avoid the structural fiscal problems the state faces."

County's recall blues

San Mateo County still expects to trim its budget this year by $80 million to get it down to the $1.2 billion recommended by Mr. Maltbie, triggering fee increases and double-digit cuts to departmental budgets. The Board of Supervisors will approve a final budget in September.

"By choosing not to do any new taxes, by choosing to not cut programs deeply and thereby increasing the amount of debt that carried forward, [the state Legislature] made the problem even more difficult for many future years," said county supervisor Rich Gordon.

The October 7 recall election is another headache, coming as it is less than a month before the general election November 4. The county will spend an additional $1.5 million on the recall election, Mr. Maltbie said.

"We've gotten to the place, it seems to me, where every decision that's made is never final," Mr. Gordon said.

Supervisor Mike Nevin remarked that a recall election is particularly inappropriate while the state is dealing with a huge budget deficit. "This is a time to bring us together, not pull us further apart."

Slow-paying the cities

The new budget did have some bad news concerning vehicle license fees, a major source of revenue for cities and towns. The state cut the fees in 1998 and had been paying the difference to towns from its general fund. With the fees now fully reinstated, towns were expecting no loss of funding as they returned to the old way of doing things.

But there's a hitch. During the three-month gap between the DMV's mailing of registration renewals and the towns' receipt of the revenues, the state will not continue to pay the backfill but will hold onto that money until 2006.

Menlo Park will lose the use of about $365,000 under the plan, while Atherton, Woodside and Portola Valley will have delayed payments of about $85,000, $65,000 and $53,000, respectively.

"It's very frustrating," said Angela Howard, the town administrator of Portola Valley. The town "will never see that money again, I can almost guarantee it," she said.

"We'll be fine," said Woodside town manager Susan George. "We adopted a budget that had built-in a $185,000 surplus. It won't kill us." As for the state's promise to reimburse towns in 2006: "I'll believe it when I have the cash in hand," she said.

In Atherton, the town can make up the difference from its general fund reserves and will evaluate the impact at the City Council's midyear budget review, said City Manager Jim Robinson.

Other municipal impacts

The final budget brings some good news to Menlo Park's Belle Haven neighborhood. City officials had been bracing for a major state take-away of redevelopment agency property tax revenue, which is used to pay off bond debt and fund projects in the area such as new sidewalks.

In previous budget proposals, the state seemed ready to take about $900,000 in redevelopment agency revenues in 2003-04, about three times as much as in the prior year. So Menlo Park officials planned for that level of reduction in the budget passed in June.

In the final state budget, though, the take-away falls to about $478,000 for Menlo Park in 2003-04, City Manager David Boesch said.

Rather than spending the difference on new Belle Haven projects, city officials will leave it unspent, leery of further fall-out from the state budget, Mr. Boesch said.

"There's continued uncertainty going forward," he said. "Even though the state said it's a one-time take-away, they did it to us last year."

Sales-tax revenues are another area of concern for Menlo Park. Beginning in 2004-05, the state will impose a complex tax swap scheme that essentially borrows sales-tax revenues from local governments and repays them with property-tax revenues.

City and county governments get 1 percent (1 cent on the dollar) of taxable sales. Of that amount, cities gets 90 percent and counties 10 percent. The tax swap would take a half cent of cities' sales tax revenues. For Menlo Park, that represents about $3 million, using figures from 2003-04, Mr. Boesch said.

While the plan theoretically involves no losses for cities, they will lose interest income. Sales-tax revenues come in monthly while property-tax revenues arrive biennially. The delay could cost Menlo Park $15,000 to $20,000 annually, Mr. Boesch said.

Interest income on sales tax revenue is much lower in Atherton, Woodside and Portola Valley and is not as great of a concern, officials said.

Schools unsurprised

Elementary and high school districts in the southern part of the county are seeing more or less what they've been expecting from Sacramento, officials said. The final budget cuts about $2 billion from education funding statewide.

Six months ago, Sequoia Union High School District officials predicted cuts of $3 million to the 2003-04 budget, said Ed LaVigne, the assistant superintendent. Sequoia's final budget trims spending by $2.7 million and the latest state budget does nothing to change that, Mr. LaVigne said. "We're right on target."

"It could have been a lot worse for K-12 public education," said Assemblyman Joe Simitian, D-Palo Alto. "It's not a great year for K-12, but I think for the most part, we were able to protect the core of the program and I take some solace in that."

The final budget did redirect an additional $50 million to schools with fewer resources toward the goal of equalizing funding for 90 percent of public schools in the state by the 2006-07 school year. Mr. Simitian was a principal co-author of the bill.

Money for the equalization program will be taken from funding for deferred maintenance, technology, professional development for math and reading instruction, and principal training, said Bob Blattner, vice president of School Services Administration, a K-12 education lobbyist in Sacramento.

The Redwood City School District will receive about $70,500. There were no other school districts eligible for equalization funds in southern San Mateo County, according to documents provided by Mr. Simitian's office.

Andrea Gemmet, Rebecca Wallace and the Bay City News Service contributed to this report.