Speaker's Commission
State Seal
December 7, 1999
San Francisco, California

Updated Policy Options Agenda
(Reflects actions taken on 11/27/99)

Guiding Concepts

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

  1. In order to avoid dependence 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.
  2. 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. Discussion of Guiding Concepts

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

    Objective: Neutralize the effects of the local sales tax on local land use decisions by reducing the reliance on the sales tax and increasing reliance on 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 backfill 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. The 1% property tax is currently levied countywide and allocated to agencies within the county by statute. Under this proposal the county and each city 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 and/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 a share of the property tax that is attributable to the growth in assessed value within their jurisdiction (see remaining issue).
  3. The property tax would be shifted from either K-12 school districts or community college districts. The reduction in property tax going to these districts would be replaced with an equivalent amount in state aid. Within each county the K-12 school share of the property tax would be allocated on a per student basis. The "basic aid" districts (those school districts that receive a minor amount of state aid and receive most of their funding from the property tax) would be held harmless for the change from a situs based property tax to one where the schools’ share of the countywide property tax is distributed on a per student basis to school districts within the county.

    Status: Adopted

    Remaining Issues: Allocating the property tax growth.

    There are several options to allocating the growth in the property tax.

      1. The pro rata shares of the property tax of each jurisdiction would determine the share of the growth. This is consistent with existing law. For example, if a city received 15% of the property tax it would receive 15% of the growth.

      2. The growth could be allocated to the city depending on the services provided. (Refer to the attachment submitted by Mike Coleman.) For example, a city that provided a full range of municipal services would receive a larger share of the property tax than a city that has some services provided by a special district receiving a share of the property tax.

      3. The growth could be allocated based on the type of new development. (Commission discussion.) For example, a larger share of the growth in the property tax attributable to new residential construction could be allocated to the city providing services to those new residences.

      4. In order to provide for greater equity a per capita cap could be placed on the amount of property tax allocated after the swap. The amount of property tax over the cap could be reallocated to cities that are at the lower end of the distribution.

Agenda Item #3Bb 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.

    Proposal: Revenue equal to _ of the growth in revenue from .5 % local sales tax will go into the pool each year.

    Status: General agreement on the following (but no official disposition – item continued for further discussion):

      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). A specific pool could be established in an area less that the county with the agreement of affected agencies if it does so through the formation of a council of governments or the utilization of an existing council of governments.

    Remaining issues to be discussed:

    1. Criteria for distribution of the pool.

      3) Specific land use decisions made by the local government. These decisions could include higher residential densities and more compact development.
      4) Increasing the supply of low and moderate-income housing.
      5) Progress toward "fair share" of the region’s demand for low and moderate-income housing.
      6) A statutory formula that considers the level of per capita revenue received by the local agency.

    2. Provide additional resources to the pool.

      a. Additional state matching funding under specific circumstances, including pooling the growth at the regional level, increasing the supply of low and moderate income housing.
      b. Allow a portion of the growth to accumulate so that the pool will grow larger over time.
      c. Use other local revenue growth for the pool, including a portion of the growth in the property tax.

Agenda Item #3Bc 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 would lose 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.

    Status: Not Recommended

Agenda Item #3Bd 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 Model" for the state county relationship. Each state/county partnership service program would be governed by a common, bilaterally written compact that would spell out roles, responsibilities, duties, work programs, finances, community outcomes, performance indicators, and evaluation systems. For each state program where the county acts as an agent of the state a compact would cover the program. (See Attachments)

    Status: Adopted

Agenda Item #3Be The 1992 and 1993 Property Shift

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

    Proposal: Conduct an accounting of the fiscal relief to local governments provided since the property tax (ERAF) shift.

    Status: Approved in concept.

Agenda Item #3Bf 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" taxing authority would be moved into the constitution so that voters, upon their approval, would have the assurance that the resultant revenues could not be used to supplant state spending. The allocation of proceeds of the tax could be based on local agreement.

    Status: Approved

Agenda Item #3Bg Property Tax Allocation reporting requirement

    Objective: Increase public understanding of which local agencies receive the property tax and for what the revenues are used.

    Proposal: Require the county auditor to report annually the amount and relative share of the property tax revenues for each agency receiving them in the county.

    Status: Approved

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

    Objective: Apply the sales tax to retail activities transacted via catalogues and the Internet.

    Proposal: Urge the state to pursue these revenues (see attached memo from Norm King).

    Status: Not Recommended

Agenda Item # 3Bi County budgets

    Objective: Within county budgets, distinguish countywide services from "urban service" responsibilities for unincorporated areas of the county.

    Proposal: Urge the Legislature to encourage counties to investigate the implementation of county budgets that, to the extent feasible, distinguish the role of the county in providing countywide services from its "urban service" responsibilities for unincorporated areas of the county.

    Status: Continued for further discussion

Agenda Item # 3Bj Gas tax revenues

    Objective: Stabilizing the gas tax to keep pace with inflation and/or miles driven.

    Proposal: Urge the state legislature to study the most efficient and reasonable methods to stabilize the revenue from the gas tax within the current rate structure.

    Status: Continued for further discussion.

Agenda Item #3Bk Enhance local government Home Rule

    Objective: Provide constitutional protection to locally levied taxes.

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

    Status: Approved in concept and continued for further discussion of final language.

Agenda Item #3Bl 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)

    Status: Not recommended

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

    Objective: Insure that citizens are able to measure in a systematic way the efficiency and results (the "outcomes") of the efforts of local agencies to provide services.

    Proposal: Require all local agencies to develop (via a public process) performance measures for their community and a system for the community to evaluate the agency's performance based on outcomes.

    Status: Adopted

Agenda Item #3Bn 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. These 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.

    Status: Continue for further discussion.

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Speaker's Commission on State/Local Government Finance
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