1. The local finance system should facilitate state, regional and local conservation and development policies as well as finance local and regional services.

2. In order to avoid being dependent on one revenue source, local governments should derive their revenues from a diversity of sources, including property tax, sales tax and general purpose state subventions (financed from the personal income tax).

3. The finance base for local and regional services should be a constitutionally protected, stable, and reliable and be sufficient to assure basic services.

Agenda Item #3a Swap a portion of the locally-levied sales tax for an equivalent amount of the property tax.

Objective: Neutralize the effects of the sales tax on land use decisions by reducing the reliance on the sales tax and increasing reliance on the property tax. This will increase a city or county's interest in residential and manufacturing land uses since a city or county would receive a larger share of the property tax.

Proposal: Within each county, the county and each city would swap a portion of the locally levied sales tax for an equal amount of the property tax. The locally levied 1% sales tax rate would be reduced to .5% and the state rate would be raised by .5%. An equal amount of property tax would be shifted from either school or community college districts. The state, using the new revenue from the .5% of the sales tax, would back fill the school or community college districts through the state aid system.

Implementation: Hold each city and county harmless for the loss of the sales tax by replacing an equivalent amount of property tax. The property tax allocation for each city and county would work as follows:

1) Each city and each county would be allocated the amount of property tax it received in the prior year, augmented with the amount of the sales tax that it lost. This action would have the effect of changing each city and county's share of the property tax since the relative shares of the property tax among the jurisdictions receiving the tax would change. The city or county share would go up and the school or community college districts' share would go down.

2) Each year thereafter, the city and the county would receive the amount they received in the prior year (the adjustment for the sales tax swap is now in the base property tax) plus their new percentage share of the property tax that is attributable to the growth in assessed value within their jurisdiction.

3) The property tax would be shifted from either K-12 school districts or community college districts. The reduction in property tax will be made up for with an equivalent amount in state aid.

Agenda Item #3b Pooling the growth of the remaining .5% local sales tax

Objective: Establish a pool of resources that are derived from local retail activity and allocate it to local agencies based on a formula that recognizes specific policy objectives.

At its meeting in San Francisco on November 9, the pooling working group came to the following recommendations with something close to consensus. Some of the details have been added for the purpose of easing implementation of the proposal.

Proposal: Revenue equal to _ of the growth in revenue from .5 per cent local sales tax will go into the pool each year. The amount put in the pool is not cumulative, but is always only the previous years growth in each jurisdiction’s remaining property tax.

1) The pooled revenue going to each jurisdiction can be used for any purpose at the jurisdiction’s discretion.

2) Ordinarily, the minimum area for a pool is a county. A larger or smaller area could be a pool if approved by a majority of the cities with a majority of the population in the affected jurisdiction(s), in which case the pool would be formed as a joint powers authority.

3) If the pool jurisdiction is coincident with the jurisdiction of an existing Council of Governments constituting at least one entire county, money in the pool would be matched 1:1 with state dollars.

4) Each pool is to be allocated to cities and counties in the pool area (either within a county or a multicounty area) based on a formula to be specified in statute. Under current law, "fair share" numbers of housing units in various income categories are assigned to each jurisdiction after negotiation between the councils of government and the state. Under the proposal, the allocation of money in the pool is to be based on the portion of each jurisdiction’s fair share housing numbers in each income category that is supplied by existing housing units in that jurisdiction and by new units built there. The formula would assign weights to each category. Current fair share numbers would be revised to (a) allow credit for both existing and new units in each jurisdiction and (b) be based on smart growth principles. In order to implement this factor, smart growth principles will need to be placed in statute with sufficient specificity to determine whether a local agency does or does not meet them.

Agenda Item #3c Replace the existing Vehicle License Fee subvention with a subvention that will grow with employment and income growth.

Objective: Establish a state subvention for local government services that replaces the Vehicle License Fee subvention that will help equalize the finance base of local services and facilitate economic development and environmentally sustainable growth.

Proposal: As the state reduces the Vehicle License Fee and replaces it with a subvention funded from the state general fund, the state has an opportunity to adjust the allocation rules to adopt incentives for activities of state interest. The current allocation of the VLF is made on a per capita basis. The future growth could be allocated based on a combination of factors: population, wage and salary growth, personal income, employment growth, and the provision of low and moderate-income housing.

Implementation Issues: The implementation of this proposal would include a phase in as the VLF is phased out. Additionally, a hold harmless provision would be included so that no local agency lost funds during the transition.
To the extent that cities and counties are held harmless over any loss of revenue from the VLF, only the growth in the new subvention would be subject to a new allocation.

Agenda Item #3d The state/county relationship - The Compact Model

Objective: Establish a new state/county relationship that would clearly define the responsibilities of the state and counties as agents of the state.

Proposal: Adopt a "Compact Modal" for the state county relationship. Each state/county partnership service program would be governed by a common bilateral, written compact that would spell-out roles, responsibilities, duties, work programs, finances, community outcomes, performance indicators, and evaluation systems. In each state program where the county acts as an agent of the state a compact would cover the program. (See attachment)

Agenda Item #3e The 1992 and 1993 Property Shift

Objective: Increase the amount of discretionary revenue for county and city services

Proposal: Phase in the return of up to $1.4 billion of property taxes shifted from cities and counties to the schools. The return would be in proportion to the amount shifted. (See attachment)

Agenda Item #3f Revise the existing .5 per cent countywide sales tax authority

Objective: Provide for a constitutionally protected revenue source for countywide programs.

Proposal: The existing .5% transactions and use tax would be moved into the constitution so that voters upon their approval would have the assurance that the tax would not supplant state spending. The allocation of proceeds of the tax could be based on local agreement. (See attachment)

Agenda Item #3g Property tax Allocation reporting requirement

Objective: Increase public understanding of which local agencies receive the property tax.

Proposal: Each year require the county auditor to report the amount and relative share of the property tax for each agency receiving property tax in the county. (See attached memo from Norm King)

Agenda Item #3h Sales tax on the Internet and catalogue sales

Objective: Broaden the sales tax base to include retail sales on the Internet and catalogue sales.

Proposal: (see attached memo from Norm King)

Agenda Item # 3i County budgets

Objective: Clearly distinguish the role of counties in providing countywide services from "urban service responsibilities"

Proposal: (see attached memo from Jim King

Agenda Item # 3j Gas tax revenues

Objective: Stabilize gas tax revenues

Proposal: See memo from Norm King

Agenda Item #3k Enhance local government Home Rule

Objective: Provide constitutional protection to locally levied taxes.

Proposal: Enhance the "municipal affairs" provision of the constitution by protecting locally levied taxes including the property tax from being redistributed by the state.

Agenda Item #3l Vote requirements for local taxes

Objective: Revise the vote requirements for local taxes.

Proposal: Reverse the current vote requirements for general and special taxes. Require that a local tax levied for a specific purpose (special tax) would be approved by a majority vote. Include education as a specific purpose (special tax). A tax levied for an unspecified purpose (general tax) would be approved by a two/thirds vote. (See memo from Norm King)

Agenda Item #3m Require the development of performance measure for local services

Objective: Insure that citizens are able to measure in a systematic way the outputs for the local agencies that provide services.

Proposal: Require all local agencies to develop performance measures and a system of evaluating performance.

Agenda Item #3n Growth Policy Components

Objective: Establish state objectives for the local and regional planning and development regulatory process.

Proposal: Revise the local and regional planning process to incorporate the following elements:

• Adopt state-level guidelines reflecting smart growth principles should be placed in statute.
  
  
• Local general plans should be linked to regional plans.
  
  
• Priority in the allocation of state infrastructure resources that affect growth and development should be given to rebuilding older urban areas. Transportation expenditure priority should be given to multi modal and non-automobile alternatives.
  
  
• Development should be concentrated in existing urban areas.
  
  
• Communities should include their "fair share" of affordable housing determined on a regional basis.
  
  
• Regional and local communities have a responsibility to protect environmental quality, biological diversity and open space.