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CC - Item 4H - Fiscal Hardship if State Elects to Borrow City Property Taxes & Approve Unfunded ManadatesROSEMEAD CITY COUNCIL STAFF REPORT TO: THE HONORABLE MAYOR AND CITY COUNCIL FROM: MATTHEW E. HAWKESWORTH, ACTING CITY MANAGER DATE: JUNE 9, 2009 SUBJECT: STATEMENT OF FISCAL HARDSHIP IF STATE ELECTS TO BORROW CITY PROPERTY TAXES AND APPROVE UNFUNDED MANDATES SUMMARY On May 5th the Department of Finance announced it had proposed to the Governor that the state "borrow" over $2 billion in local property taxes from cities, counties and special districts to balance the state budget, causing deeper cuts in local public safety and other vital service. In order to start that process, the Governor would have to issue a proclamation declaring the existence of a "severe fiscal hardship." The legislature would then have to implement the "borrowing" program by passing urgency legislation (2/3 vote) which identifies how the "loan" will be repaid with interest. The League of California Cities has developed a draft resolution, to be modified by member cities and sent to their legislators and the Governor, finding that a fiscal hardship will exist if this proposed state property tax raid is added to the pressures of the ongoing property tax losses and the serious revenue losses due to the economic recession. Staff Recommendation Staff recommends that the City Council approve the attached Resolution, No. 2009-28 and direct the City Clerk to send copies of the resolution to the City's legislators, the Governor and the League of California Cities. ANALYSIS The attached resolution helps demonstrate that part of the reason cities are cutting their budgets today is because of past and continuing property tax raids. The attached resolution cites the cumulative property tax losses of cities statewide since the state began taking these funds in the early 1990s- which is $8.6 billion statewide. Since FY 1992-93 Rosemead's cumulative contributions to the ERAF totaled $3.1 million. APPROVED FOR CITY COUNCIL AGENDA: ITEMNUMBER: City Council Meeting June 9, 2009 Page 2 of 2 PUBLIC NOTICE PROCESS This item has been noticed through the regular agenda notification process. Submitted by: Steven Brisco Finance Director Attachment: Resolution No. 2009-28 RESOLUTION NO. 2009-28 A RESOLUTION FINDING A FISCAL HARDSHIP WILL EXIST IF ADDITIONAL LOCAL PROPERTY TAX FUNDS ARE SEIZED AND ADDITIONAL UNFUNDED MANDATES ARE ADOPTED BY THE STATE OF CALIFORNIA WHEREAS, the current economic crisis has placed cities under incredible financial pressure and caused city officials to reopen already adopted budgets to make painful cuts, including layoffs and furloughs of city workers, decreasing maintenance and operations of public facilities, and reductions in direct services to keep spending in line with declining revenues; and WHEREAS, since the early 1990s the state government of California has seized over $8.6 billion of city property tax revenues statewide to fund the state budget even after deducting public safety program. payments to cities by the state; and WHEREAS, in FY 2007-08 alone the state seized $895 million in city property taxes statewide to fund the state budget after deducting public safety program payments; and WHEREAS, the most significant impact of taking local property taxes has been to reduce the quality of public safety services cities can provide since public safety comprises the largest part of any city's general fund budget; and WHEREAS, in 2004 the voters by an 84% vote margin adopted substantial constitutional protections for local revenues, but the legislature can still "borrow" local property taxes to fund the state budget; and WHEREAS, on May 5th the Department of Finance announced it had proposed to the Governor that the state "borrow" over $2 billion in local property taxes from cities, counties and special districts to balance the state budget, causing deeper cuts in local public safety and other vital services; and WHEREAS, in the past the Governor has called such "borrowing" proposals fiscally irresponsible because the state will find it virtually impossible to repay and it would only deepen the state's structural deficit, preventing the state from balancing its budget; and WHEREAS, the Legislature is currently considering hundreds of bills, many of which Page 1 of 3 RESOLUTION NO. 2009-28 (Cont'd.) would impose new costs on local governments that can neither be afforded nor sustained in this economic climate; and WHEREAS, state agencies are imposing, or considering, many regulations imposing unfunded mandates on local governments without regard to how local agencies will be able comply with these mandates while meeting their other responsibilities; and WHEREAS, the combined effects of the seizure of the City's property taxes, increasing unfunded state mandates, and the revenue losses due to the economic downturn have placed the City's budget under serious fiscal pressure; and NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF ROSEMEAD has determined that the City will experience fiscal hardship if the recommendation of the Department of Finance to "borrow" $2 billion of local property taxes is supported by the Governor and the Legislature; and RESOLVED FURTHER, that the City Council strongly and unconditionally opposes the May 5th proposal of the Department of Finance and any other state government proposals to borrow or seize any additional local funds, including the property tax, redevelopment tax increment, and the City's share of the Prop. 42 transportation sales tax; and RESOLVED FURTHER, that the City Council strongly urges the state legislature and Governor to suspend the enactment of any new mandates on local governments until such time as the economy has recovered and urges the state to provide complete funding for all existing and any new mandates. RESOLVED FURTHER, that the City Clerk shall send copies of this resolution to the Governor, our state senator(s), our state assembly member(s) and the League of California Cities. PASSED AND ADOPTED, by the City of Rosemead City Council, County of Los Angeles, of the State of California this 9`h day of June 2009. Page 2 of 3 RESOLUTION NO. 2009-28 (Cont'd.) Mayor Approved as to Form: City Attorney ATTEST: City Clerk Page 3 of 3