State action leaves unanswered: Where's money for towns, county? State action leaves unanswered: Where's money for towns, county? (December 17, 2003)

By Renee Batti
Almanac News Editor

Last week's bipartisan agreement in Sacramento to put a budgetary reform package on the March ballot was hailed by many as a victory for the state's new governor.

But the Legislature's action didn't address The Big Question being asked by pencil pushers and managers in city halls and county centers across the state: Where's our money?

Funding to city and county governments was cut dramatically as of last week as a result of Gov. Arnold Schwarzenegger's repeal of the vehicle license fee (VLF) provision of the 2003-04 budget, which tripled the fee by restoring it to the rate charged until 1998.

The repeal made many owners of expensive vehicles happy, but left cities and counties wondering how they will survive without making cuts to critical services. That's because the VLF, supplemented by the state's general fund based on a formula tied to the fee, has been a significant source of revenue for local governments. And the governor's repeal of the fee -- without restoration of the state's supplement -- means VLF revenue will be reduced by at least two-thirds unless another source is found.

Locally, town and county managers are looking at cuts in personnel and services, and digging into reserves if the revenue source disappears. Local governments receive VLF funding in monthly installments.

When state legislators return to Sacramento on January 5, they will consider two bills to restore the supplemental "backfill" that the state has paid to city and county governments since 1998, when the vehicle license fee was reduced. The backfill made up the difference in the funding lost by local governments with the fee reduction.

The Assembly's backfill restoration bill was co-authored by Assemblyman Joe Simitian, D-Palo Alto. He said the bill, whose primary author is Alan Lowenthal, D-Long Beach, doesn't identify a source for the backfill funds. "That lies on the back of the governor," he said.

That stance is prevalent in both legislative houses among Democrats, who note that two of Mr. Schwarzenegger's major campaign promises were to cut the VLF and to protect state funding to local governments.

A bill in the Senate, sponsored by Republican leader Jim Brulte, also calls for restoration of the backfill without saying where the money will come from.

"I'd be more open to that if there was also a provision proposing new revenues," said Sen. Byron Sher, D-Palo Alto.

Sen. Sher and other Senate Democrats signed a letter to the governor asking his office how the backfill will be paid for. In essence, Sen. Sher told the Almanac, the letter asks Mr. Schwarzenegger to "show us the money."

Last week's vote

Sen. Sher last week supported both bills that now must be approved by voters in March: a bill to refinance the state's debt with a $15 billion bond; and a balanced-budget amendment that includes the build-up of a rainy day reserve.

State finance analysts say that provisions in the second bill should lead to the payback of the bond debt in about nine years, Sen. Sher said.

Although Mr. Simitian supported the balanced budget/reserve measure, he voted against the bond measure. "Mortgaging the future is not a solution to the problem," he told the Almanac.

Menlo Park

For Menlo Park officials who have been working for months to pare down the city's budget, the loss of backfill funds is another challenge they don't need, City Manager David Boesch said.

While the city had expected about $1.7 million in backfill during the 2003-04 fiscal year that began in July, now it looks as though Menlo Park will receive just a quarter of that -- about $430,000, Mr. Boesch said. That means more hard decisions about services and personnel in the budget, which included about $26 million in spending when it was adopted this summer.

Officials are still tallying the results of mailed surveys that asked residents which services they'd be willing to see reduced. Community meetings will be held early next year on this topic.

Atherton

Atherton stands to lose about $300,000 in vehicle license fee backfill annually, said John Johns, the town's finance director. The fees represent about a third of Atherton's discretionary revenue, said City Manager Jim Robinson.

Atherton received about $7,000 this month in license fees -- a sharp drop from the approximately $40,000 check it got last year at this time. Mr. Johns says the drop is due not only to the loss of backfill, but also because car sales slumped recently while buyers waited to see if license fees would be rolled back.

The current fiscal year budget contains a $200,000 reserve, in addition to Atherton's $3 million reserve fund that the City Council set aside with an eye to the state's budget crisis.

Portola Valley

Portola Valley will not suffer much this time around if the state takes its time in restoring vehicle license fee revenues, Town Administrator Angela Howard told the Almanac.

While the town would lose $191,716 in VLF revenues in fiscal year 2003-04, the town saved about $320,000 in lower-than-expected bids to resurface a portion of Alpine Road during the past summer.

Portola Valley receives 6 percent of its general fund revenues from VLF fees. The town had been receiving monthly checks for more than $20,000 from the state, but since August the checks have been for much less -- about $7,000, Ms. Howard said.

Mayor George Comstock wrote a letter of protest dated December 11 to Gov. Arnold Schwarzenegger. In the letter, Mr. Comstock "implored" the governor to get the state Legislature to restore the VLF revenues, adding that failure to do so would be "highly irresponsible and damaging to the public safety and welfare of our citizens."

"It's unbelievable," Ms. Howard said. "Something's got to give. It's just not right to balance the state budget and their financial irresponsibility on the backs of the cities."

Woodside

Woodside receives about $200,000 in vehicle license fee backfill annually, said Town Manager Susan George. This month, the town's cut of the fees was $5,600 -- a significant drop.

"I've never seen us get less than $10,000 to $12,000," she said.

Woodside's $5.3 million budget for fiscal year 2003-04 includes a $185,000 surplus; it also outlines more than $100,000 in spending cuts that the town can make. At the moment, Ms. George said, she doesn't think Woodside will need to make those cuts, but the VLF situation will be the focus of the mid-year budget review in January.

San Mateo County

San Mateo County could lose more than $45 million as a result of the loss of VLF funds and other mid-year budget cuts, according to County Manager John Maltbie.

Since VLF revenues make up almost 20 percent of its general fund -- the only money it has full discretion to spend -- loss of two-thirds of that money could show up as severe cuts in county services.

Among the services that may be curtailed are the operations in the county jail and juvenile hall, criminal prosecutions, public health and prevention, and elections. There will be fewer programs to keep the elderly and disabled in their homes, to help the mentally ill, and to support the hospital and clinic system that provides medical care to the uninsured poor.

Still reeling from the news, the county has not yet decided how to respond to the loss of VLF and backfill. "The absence of this revenue almost certainly means cutting services to our neediest neighbors, and laying off employees," Mr. Maltbie said. "The county has met past revenue shortfalls by using reserves. Doing so again is a bad idea, and a $45 million draw on reserves for the next fiscal year would be irresponsible."

Supervisor Rich Gordon said the county is lobbying hard through the California State Association of Counties (CSAC). "Our key message is: You promised to protect local government. We want you to hold firm to that promise."

Staff writers Marion Softky, David Boyce, Rebecca Wallace and Andrea Gemmet contributed to this report.

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