Speaker's Commission
State Seal
Meeting #12
December 7, 1999
Founder's Room, Public Policy Institute of California
San Francisco


1. Call to Order/Introductions: Chairperson David Abel called the meeting to order at approximately 10:05 a.m.

    In attendance:
    David Abel
    Carl Anthony
    Luis Arteaga
    Ruben Barrales
    Martha Davis
    Joel Fox
    Lee Harrington
    William Hauck
    Norman King
    Lily Lee
    John Maltbie
    Sunne Wright McPeak
    Rich Morrison
    Chuck Nathanson
    Barry Sedlik (for Robert Foster)
    Dwight Stenbakken
    Steven Szalay
    Carol Whiteside

2. Welcome: Michael Teitz, Director of Research and Senior Fellow at the the Public Policy Institute of California (PPIC) welcomed the Commission to San Francisco and PPIC. He expressed the Institute's ongoing interest in the work of the Commission.

3. Discussion: Regional Pool Sub-Committee Report: Commission Chair Abel introduced Commissioner Morrison to report on the work done since the November 29 meeting to revise the regional pool proposal (item 3Bb. on the meeting agenda). Mr. Morrison explained the results of the committee's efforts, walking through a memorandum that resulted (see item 6 below for contents of memo and further discussion).

4. Public Testimony: Ken Farfsing, City Manager, City of Signal Hill: Mr. Farfsing made a return appearance after his provocative presentation on November 29. He had had the Signal Hill finance director analyze the possible impact of the regional pool concept (as they understood it as of 11/29) on Signal Hill's finances. This analysis predicted that Signal Hill would be $1.5 million in the red by 2006 as a result of losing future growth in sales tax revenues after half of those revenues had been swapped for property tax revenues. He said this would put funding for local services very much at risk.

Subsequent discussion revealed that the Signal Hill analysis did not acknowledge the aspect of the swap concept that called for an entire county's property tax pool to be used to make sure no low property tax jurisdiction would lose money in the basic swap. Farfsing indicated that he would revisit the calculations to take this into account.

Commissioner Hauck asked Mr. Farfsing if Signal Hill's property tax revenues have been growing faster than its sales tax revenues, as has happened in most jurisdictions. Farfsing replied that the early '90s recession depressed property values sufficiently to allow sales tax revenues to outpace property tax revenues during that period but that the latter had now caught up again.

Commissioner McPeak commented that Signal Hill's pool analysis appeared to assume that it would never qualify for a pool payout. The City Manager noted that they had made very conservative assumptions and also concluded that larger jurisdictions would somehow make life difficult for small ones, as they feel has happened with the Los Angeles County Metropolitan Transportation Authority (MTA). Ms. McPeak replied that Signal Hill's aggressive housing production plan described on 11/29 would probably qualify the city for a pool payout under the kinds of criteria currently being contemplated. She added that the proposal left the development of performance standards in the hands of local governments specifically to ensure that no regional governing body could short-change the smaller jurisdictions.

Mr. Farfsing asked if, under the sub-committee's version of the pool a sub-regional Council of Governments (COG), such as the Gateway Council of Governments in South Los Angeles County, would qualify as a pooling entity. After being assured that it would, he asked to see it in writing. Commissioner Stenbakken then asked if the changes to the pool concept could elicit Signal Hill's support. Farfsing concluded by saying that his city would review the proposal further but that they are not opposed to additional fiscal stability.

5. Public Testimony: Hon. Grace Hu, Mayor of Cerritos/Arthur Gallucci, City Manager of Cerritos: City Manager Gallucci opened by providing some background on Cerritos, which he described as being 93% built-out with a population of approximately 60,000, 60% of which are minorities. The city receives almost no property tax revenues but has benefitted greatly from the sales tax revenues generated by two shopping malls and an auto mall in addition to neighborhood retail establishments. He noted that providing services for commercial interests is expensive. He added that, if Cerritos were to be forced to become more dependent on future growth in property taxes, it could be hurt by the lack of un-built land within the city. He also noted that Cerritos contracts with the County of Los Angeles for many services and thus turns over some of its revenue to the County. Cerritos, he added, needs to analyze the swap proposal further before deciding whether it could accept it.

Mayor Hu followed with some additional comments. She noted that the local share of the sales tax is the target of reform efforts every few years and that the land use decision-making brought on by the current system is often characterized as bad planning. The Mayor stated that Cerritos is striving for a balanced community but needs to retain flexibility and local control in that effort.

In her testimony, Mayor Hu raised three issues she felt should be factored into discussions of fiscal reform:

    1. The likelihood that, by FY2003, e-commerce will reduce statewide sales tax revenues by about $178 million and what, if anything, the state can do about it.

    2. The fact that the Redevelopment Reform Act of 1993 sunsets many redevelopment agencies by 2009, affecting where tax increment dollars end up and potentially impacting cities whose redevelopment agencies currently collect them.

    3. The 7% of assessed valuation limit imposed on no/low property tax cities by the AB 8 formula adopted in 1979.

Mayor Hu suggested that, instead of using growth in local sales taxes to form the regional pool, that growth in the State share of sales taxes should be looked at. She also noted that the State's large fiscal reserve and budget surplus could be considered for local government fiscal reform.

Commission Chair Abel asked if it would be appropriate for the State to shoulder the burden of dealing with the federal government on e-commerce revenue issues. City Manager Gallucci replied that members of Congress currently turn to local government issues when they discuss e-commerce taxation issues.

Regarding Mayor Hu's point #2 noted above, Marianne O'Malley of the Legislative Analyst's Office noted that the Redevelopment Reform Act does not preclude local jurisdictions from enacting new redevelopment areas if blight remains. She then opined that, in cases where this does not happen, the tax increment monies could go to the county, city and other local jurisdictions.

Commenting on the general critical thrust of the mayor's testimony, Commissioner King noted that the Commission's proposals do not penalize jurisdictions for past actions but try to incentivize changes in the future.

Commissioner Anthony asked if Cerritos was involved in regional cooperation efforts. The City Manager replied that the city's involvement with the Gateway COG was its central regional focus and that Cerritos wants and needs all of its neighbors to do well. He closed by stating that Cerritos will continue to review the proposals and report back at the January meeting.

6. General Discussion and Deliberation: Updated Policy Options Agenda:
Commission Chair Abel
called for a discussion of the Updated Fiscal Reform Options Agenda prepared by staff. He then introduced Commission consultant from PPIC, Fred Silva, to walk the Commission through the document. What follows is the latest summary of actions taken and relevant discussion, along with matters remaining for future determination.

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 in order to create a fiscal incentive for balanced land uses.

Proposal: Within each county, the county and each city would swap a portion of their locally levied sales tax with the state 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 K-14 entities (sources of these funds could be ERAF, K-12 districts, community colleges, superintendents of schools and/or county boards of education). The state, using the new revenue from the .5% of the sales tax, would backfill educational programs 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:

    a. 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 educational agencies' share would go down.

    a. 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. 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.

    a. The property tax would be shifted from educational agencies. 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

Motion: Whiteside, amended by Davis. Vote: Unanimous

Motion Content: To distribute growth in assessed property valuation on a jurisdiction-by-jurisdiction basis to cities and counties. Ask the staff to bring back an analysis of how best to address economic disparities between communities so that the Commission can forward it to the legislature.

Additional discussion: Commissioner Harrington asked if the level of service provided by a jurisdiction needed to be factored into the calculation. Mr. Silva felt that it was not. Ms. O'Malley opined that the allocation of shares inproperty tax growth could be structured to follow services, offering a change from special district to city as an example. Commissioner King asked about using the countywide growth rate and Mr. Silva acknowledged that that was an option that should be considered. Mr. King felt it should be included in the motion to be made. Commissioner McPeak felt that this would penalize cities that have favored retail under current rules. She felt that these cities' rate should reflect their own property values based on their own decisions.

Commissioner Anthony favored option #4, placing a per capita cap on the amount of property tax allocated after the swap and reallocating the remainder to cities at the lower end of the distribution. He felt it would most directly address economic inequities. Commissioner Whiteside expressed discomfort with using the term "cap" and suggested "assuring a base level" instead. Commissioner Stenbakken warned against using this concept to prop up non-viable communities. He noted that a process in place in the state of Washington has encouraged incorporation where perhaps it was inappropriate.

Commissioner McPeak asked how jurisdiction that had made the difficult decisions that increased their property values at a faster rate could be rewarded. Commissioner Harrington opined that the swap proposal should be simple enough that jurisdictions could understand how they'll benefit from it. Commissioner Szalay urged avoidance of disincentives, preferring to reward cities for "doing the right thing."

Commissioner Barrales noted that option #1, staying with existing law that distributes property tax revenues on a pro rata basis, is the simplest, but that #3 (rewarding certain types of land uses) and #4 provided stronger incentives for changing land use decision making.

Ms. O' Malley ran through the four options briefly, noting that #1 would have the least impact on revenues, #2 (allocation based on services provided) would closely link dollars to services, #3 linked them to land use and #4 linked them to social equity. She also opined that the Commission could avoid articulating a fiscal growth allocation strategy.

Commissioner Whiteside moved a different alternative, suggesting a hierarchical combination of #1 and #4. This would keep each jurisdiction whole, reflect growth and reflect equity performance by jurisdiction. Commissioner McPeak seconded. Commissioner King opined that option #4 was infeasible until more data were available. He also asked that the motion refer to the "city or county share."

Commissioner Stenbakken suggested the "no preference" option, letting local jurisdictions decide. Commissioner Hauck supported the Whiteside motion, noting that the other options should be discussed in the final report but that the Commission would do well to express a preference.

Commissioner Nathanson asked how "equal" the Commission was proposing to make communities with this approach. Commissioner Whiteside said that was the difficult reckoning and that the State should participate in making it. Commissioner Fox expressed a concern with options 2, 3 and 4 and the notion of attaching strings to the distribution. He felt these could have unintended consequences. He repeated Mr. Nathanson's concern about what constituted a minimum level of equity. Commissioner Anthony said that he felt this was not difficult to determine and that the Whiteside motion was realistic.

Mr. Silva posed the question of how equity considerations would be triggered and where the funds to address them would come from if 100% of the revenue growth was already allocated. Commissioner Fox asked if the Commission was proposing a "Serrano for services" (referring to the school district funding equalization court decision). Commissioner Whiteside noted that what constituted full service varied widely from one jurisdiction to another. She added that jurisdictions providing a low level of service tended to have trouble attracting investment because they offered a poorer quality of life.

Commissioner Harrington suggested leaving equity out of the swap and putting it in the pool. Commissioner Hauck agreed, noting that determining the base was relatively easy but everything else becomes fairly complicated. Commissioner Barrales reiterated his interest in option #3 but acknowledged he could support option #1 if things got too complex.

Commissioner Davis suggested focusing on #1 and recommending that the equity issues should be analyzed. Commissioner Whiteside accepted that as an amendment, asking staff to show the Commission how it would work. Commissioner Szalay repeated his concern that equity is an issue that should be faced up to. Commissioner King repeated his concern that, without a full accounting of how property taxes are allocated, defining equity was impossible. He also felt the State needed to step up with revenues to address equity issues.

Commissioner McPeak agreed that the swap had not previously been a venue for dealing with fiscalization of land use issues. She also warned of unintended consequences that would provide no/low property tax cities a big windfall that exacerbated inequities. Ms. O'Malley noted that some of these would benefit greatly and some would not. She noted that addressing equity could involve a "weighting formula," with, for example, the pro rata share using 80% of the revenue growth and the equity distribution using 20%.

Commissioner Chair Abel asked if working out a formula was really required. Commissioner Anthony noted that the uncertainty being expressed confirmed the need for some kind of equity analysis and that California's diverse situations required flexibility.

The original motion, with an implication that some kind of equity formula should be included, passed with Barrales voting "no" and Fox abstaining. A clarified version asking for staff to provide an equity-related recommendation to accompany support for option #1 was later approved unanimously.

Agenda Item #3Bb Establish a pool of resources at the regional or sub regional level that will encourage and facilitate regional decision-making.

Objective: Establish a pool of resources that is allocated to local jurisdictions based on a formula that recognizes specific policy objectives.

Proposal: The state establish a policy goal that each region is to strive to create (a) higher value job opportunities and (b) housing that accommodates all income levels, and that the jobs and housing be in proximity to each other. In achieving this policy goal, regions are to be guided by "smart growth" principles. Regions are required to develop performance standards and develop strategies to achieve the policy goal, establish performance standards and measures to tract progress, and report progress annually to the residents of the region.


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

    2) Each region creates a pool of funds, which may be derived from a variety of sources, such as:

      a. One half of the growth of the 1/2% locally levied sales tax (after the sales tax/property tax swap). The amount allocated to the pool could be done annually so that the sales tax base of the local agency will grow or a smaller percentage of the growth could go into the pool with the increase being cumulative so that the pool would grow faster.
      b. Proceeds of the currently authorized 1/2 % countywide sales tax levied at the county level, but with the proceeds flowing to the pool rather than the jurisdiction with the site of the sale.
      c. A portion of the property tax that is currently allocated to schools. The amount allocated to the pool would be replaced with state revenue.
      d. A portion of the growth in the state income tax generated within the region.

    3) 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) and the county. 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.

    4) If the pool area is coincident with Council of Governments (COG), a combination of COGs or two or more counties, the state will match the pool on a one to one basis.

      1) The goal, after including the state match should be approximately $500 million each year.

      1) Regions are to develop criteria for local government jurisdictions to share the pool. The regions shall oversee the distribution of the pool based on adopted performance standards.

      1) The pool concept would sunset after 10 years and must be reauthorized by the voters.

Status: Item continued for further discussion with Commissioners Abel and Morrison to offer additional language.

Motion: Commissioner Anthony. No vote.
Substitute Motion: Commissioner Hauck. Vote: Motion approved with Fox, McPeak, Lee and Anthony abstaining.

Additional discussion: Commissioner Morrison reviewed the pool concept developed by the sub-committee on 12/6 and opined that the State match might be the most appealing aspect of it.

Commission Chair Abel stated that the Commission had already achieved consensus on its interest in land use, regions and smart growth and that these concepts were not at issue in this discussion. He urged Commissioners to look at the merits of the proposal before them.

Commissioner Whiteside said that the pool proposal attempts to move beyond undesirable incentives and is most promising in its attempt to change the incentive structure. Commissioner Nathanson noted that several problems still stand out, including the strength of its incentivization of smart growth and the extent to which it permits local discretion.

Commissioner Stenbakken pointed out that the League of California Cities would still object to focusing solely on the growth in local sales taxes as a funding source but that including several funding options could obviate that problem. He suggested that a locally-driven planning process was also necessary to make the pool work. Commissioner McPeak expressed a preference for linking distribution of pool funds with performance standards created by local jurisdictions within State guidelines. Commissioner Morrison reminded the Commission that the proposal include a requirement for standards and compliance reports.

Commissioner Nathanson and Commissioner Arteaga asked what would happen if jurisdictions don't perform. Mr. Morrison replied that getting the State match would be dependent on being accountable.

Commissioner Harrington opined that the State has a legitimate concern in ensuring that the state's regions are competitive. He felt that the State should invest funding in this concern by using income tax revenues. Commissioner Fox repeated his preference that there not be strings attached to distribution of the funds. He also noted his ongoing concern that an unelected body would control administration of the pool. He expressed relief that the proposal acknowledged his interest in some kind of voter accountability by requiring a referendum at the 10-year mark, but wondered if that was too long to wait to make changes in the program. Finally, he also wondered if the State would ever distribute any money with no strings attached.

Commissioner Maltbie suggested consideration of a straightforward distribution formula, allocating 25% of the pool to each of four categories: jurisdictions with existing low/mod housing, jurisdiction producing new low/mod housing, jurisdictions with some sort of jobs/housing balance, and jurisdictions in need of jobs that are attracting new jobs.

Commissioner Anthony noted that California suffers from a lack of viable regional collaboration and that the differences between regions make establishing one standard very difficult. He also supported Commissioner Fox's concern about making the process accountable in sooner than 10 years.

Commission Chair Abel opined that creating a framework for regional decision making and basing a funding distribution on that at the same time is a difficult undertaking. He wondered if the Commission should suggest that the next Speaker focus an effort on regional governance. Commissioner Nathanson acknowledged that the State needs to recognize the fundamental relationship between fiscal issues and regional ones. He referred back to the two rationales that motivated the pool idea, motivating better behavior and improving the rational allocation of resources. He said that a regional governance structure of some sort was required to administer the pool. He urged the Commission not to settle for a hodge-podge, because the proposal is a central notion, not a peripheral one.

Commissioner King offered that the Commission key role right now was to get the issue into the statewide debate. He added that it is a bad idea to create a regional elected body because it would give existing local elected officials an excuse to be more provincial. Commission Chair Abel reiterated his interest in doing something more than simply raising the issue, such as suggestion a follow-up commission. Commissioners Fox and McPeak expressed a willingness to support that idea (as long as they did not have to serve on the commission), with the former urging simplicity in any current recommendations and the latter calling for not using the idea of a future commission as an excuse to duck the pool issue.

Commissioner Davis outlined several issues to focus on: how locals relate to their region, moving forward with an incentive structure, and challenging locals to innovate. Commissioner Whiteside opined that this felt like the equity issue: there is consensus around its importance but not around solutions. She suggested creating a separate report urging the legislature to deal with regional governance issues. Others eventually felt that this should be expressed but that it could be done within the context of the regular final report.

Commissioner McPeak moved to amend the pool concept to emphasize the need for performance standards. Commissioner Anthony accepted the amendment. He also asked that the Commission not postpone making fiscal reform recommendations to wait for regional questions to be answered.

Commissioner Hauck moved a substitute motion to ask Commissioner Morrison and Commission Chair Abel to come up with clarifying language for the January 5, 2000, meeting in the form of an explanation of what was being proposed via the pool.

Agenda Item #3Bc Place the existing Vehicle License Fee subvention in the constitution.

Objective: Insure the continuance of the Vehicle License Fee per capita subvention after the VLF has been reduced.

Proposal: Existing law requires the State to replace the reduced fee revenue with other State resources. Create a constitutional obligation on the part of the State to maintain the per capita subvention and replace the revenue lost due to the reduction in the Vehicle License Fee.

Status: Approved

Motion: Commissioner Szalay. Vote: Unanimous

Additional discussion: Commissioner Whiteside reiterated her feeling that if the language of this item no longer linked it to the State Income Tax, then its whole point was undermined. She also warned about the legislature and governor's ability to rescind the subvention at any time under current law. She felt strongly that locals shouldn't be punished for what the State was doing.

Mr. Silva added a footnote by noting that the State had repealed subventions at least seven times in the last couple of decades. He asked if the focus should be on placing the subvention into the State Constitution. Ms. O'Malley noted that the subvention was currently at the $1.5 billion mark and could go up as high as $2-4 billion if the current legislated scenario played out.

Commissioner Hauck opined that the larger the State backfill becomes the more committed State officials will be to provide it because of the devastating effect on locals if it isn't provided. Commissioner Fox noted that placing the subvention in the Constitution was consistent with the Commission's goal of creating stability.

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 on November 29

Motion: Commissioner Stenbakken. Vote: Unanimous.

Agenda Item #3Be Settlement for the 1992-93 and 1993-94 Property tax shift

Objective: Increase the amount of discretionary revenue for countywide and other local government services.

Proposal: Return $1 billion of property taxes to counties, cities and special districts from the Education Revenue Augmentation Fund in each county or other State sources over time in annual installments of not less than $100 million, provided that the growth in any year of per capita non-proposition 98 general fund revenue exceeds the statewide consumer price index for the prior year.

Status: Approved

Motion: Commissioner Stenbakken Vote: Unanimous

Additional discussion: Commissioner Stenbakken suggested that language be included urging the State to work on this issue. Mr. Silva asked what the preferred action would be. Commissioner Szalay pointed to the eventual return of up to $1.4 billion to local governments. Commissioner Fox once again noted that, since the Prop. 13 other sources of revenue have been created, leading to the Proposition 218 regulation of assessments. He urged that they be factored in.

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 on November 29

Motion: Commissioner Szalay Vote: Unanimous

Agenda Item #3Bg Property Tax Allocation reporting requirement

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

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 on November 29

Motion: Commissioner King Vote: Unanimous

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.

Status: Not Recommended on November 29

Motion: Commissioner Allgood. Vote: Motion disapproved by voice vote.

Agenda Item # 3Bi Revise the County budget requirements in order for the public to distinguish the various roles of county government.

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: Approved

Motion: Commissioner King Vote: Unanimous

Agenda Item # 3Bj Review the structure of the gas tax

Objective: Understand the inability of the per gallon fuel tax system to finance future the states current and future transportation needs.

Proposal: The legislature and the governor should undertake a study of the most efficient and reasonable way in which to stabilize the revenue stream from the gas tax at its present rate.

Status: Approved

Motion: Commissioner King Vote: Unanimous

Agenda Item #3Bk 1. Enhance local government home rule powers

Objective: Establish a constitutional standard to assist the courts in distinguishing when a matter is within the sphere of local control and provide constitutional protection for locally levied taxes.

Proposal: Enhance the "municipal affairs" provision of the state constitution and protect locally levied taxes, including the property tax, from being redistributed by the State. The proposal contains the following elements.

    a. Taxes that are locally levied, including the remaining general purpose 1/2 % locally levied sales tax, the 1/4% sales tax dedicated to transportation would be constitutionally protected, all other taxes that are locally levied and the state allocated property tax would be constitutionally protected.

    b. Revise the state mandate reimbursement provisions of
    the constitution to consider the impact of State- mandated local programs the local fiscal structure.

    c. Revise the home rule provision of the constitution to
    include a standard for reviewing a challenge to an action of a city that had adopted a charter. Actions of the city would be presumed to be valid unless:

      1) The action had significant extraterritorial effects
      2) The policy interest in statewide uniformity outweighs the ordinary predisposition toward local control and
      3) Statewide uniformity is essential and critical to advance an important state policy.

Status: Continued for further discussion of final language.

Additional Discussion: Commissioner Stenbakken opined that this item deals with two primary issues, the constitutional stabilization of revenues and the erosion of local authority. He referred to SCA 6 (Rainey) as including some language with regard to these issues and distributed a League of California Cities document proposing a Constitutional Amendment to provide local financial stability.

Mr. Silva mentioned that the changes to the "municipal affairs doctrine" mentioned in the League memo derived from the work of the Constitutional Revision Commission. Commissioner Fox stated that it was hard to act on this recommendation without further reviewing the League's proposed amendment. Commissioner Barrales asked if the protection of locally levied taxes conflicted with any of the Commission's proposals and Commissioner Stenbakken opined that the swap proposal might necessitate some changes to the proposed amendment.

Commission Chair Abel asked Commissioners Barrales, Fox and Stenbakken to confer with staff before the January 5 meeting to clarify the discussion.

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 on November 29
Motion: Commissioner Scott. Vote: Motion disapproved by voice vote.

Additional discussion: Commmissioner Scott asked which taxes would be affected. Commissioner Maltbie suggested allowing each jurisdiction to set its own threshholds. Commissioner Fox opined that this would be an amendment to Prop. 13 and would lead to a loss of local control since 50% items would end up being the only ones proposed for inclusion on the ballot. Commissioner Allgood stated he was against allowing a majority vote to require a super-majority vote in the future. Commissioner Whiteside urged that the Commission's final report discuss the issue.

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 state and local agencies to provide services.

Proposal: Require the State and 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. The state should establish a similar system of performance measures to assist in the annual budget process as well as part of a continuing policy evaluation process.

Status: Adopted
Original Motion: Commissioner Anthony. Amendment (to include State): Commissioner King. Vote: Unanimous.

Additional discussion: (11/29/99) Several commissioners felt this was related to the previously adopted "compact model." Commissioner Morrison felt the motion should include reference to performance measures being based on outcomes. Commissioner Stenbakken agreed, adding that there should be a way for the community to evaluate outcomes. Commissioner McPeak urged public involvement in creating and evaluating the performance standards. Commissioner King suggested that the State should form a task force to suggest methods for evaluating performance and outcomes. Ms. O'Malley mentioned that this and some other agenda items could be construed as reimbursable State mandates. Commissioner Scott wondered how this approach could be applied to some troubled public agencies such as the Los Angeles Unified School District. Commissioners Allgood and Barrales felt that outside oversight was needed. Commissioner McPeak felt that accountability is not a mandate but rather a review of public trust. She said that this process would materially change the relationship between the public and government.

(12/7/99) Commissioner Whiteside opined that requiring performance measures is imposing a mandate with a cost. Ms. O'Malley stated that if the requirement is part of a voter-approved measure, no State reimbursement would be necessary. Whiteside replied that this was not necessarily a constitutional amendment and that she remained uncomfortable with the wording. Commissioner Stenbakken noted that the League of California Cities memo contained language on the issue. David Booher of the California Council for Environmental and Economic Balance's "Project California Prosperity through Reform" was asked to comment by the Chair. He noted that accountability was a high priority for the public in polling done by his organization and appeared to be a threshold issue for accomplishing fiscal reform. He supported having the standards worked out at the local level. Commissioner King suggested that the State should also have to develop performance measures. Commissioner Fox wondered aloud who should do the analysis, whether it should be internal or external. Mr. Booher responded that it would only work if both the public and government were both involved and came to an agreement about what constitutes effectiveness.

Agenda Item #3n Growth Policy Components

Objective: Revise the local planning and land use decision-making process by instituting regional and state growth and development policies that embrace the three factors of sustainable development - Economy, Environment and Equity.

Proposal: Adopt in State law a "smart growth" policy as the environmentally preferred alternative for local land use decisions. At a minimum, a statewide "smart growth" policy objective should be sustainable development characterized by the interrelationship of economic, environmental and equity issues. State development policy would include the following.

    1) Maintain a healthy economy by promoting higher value job opportunities for people in each region.
    2) Accommodate housing, both supply and affordability, within each region or sub region to match population and job growth.
    3) Encourage efficient land use (which includes promoting strategies such as higher densities around transit hubs to establish transit villages, mixed-income and mixed-use projects, walkable 24-hour communities, recycling of "brownfields" and "grayfields," and "smart" conversion of closed military bases).
    4) Require local general plans, which should include involvement at the neighborhood level, be linked to regional plans.
    5) Protect vital and valuable ecosystems and natural habitats.
    6) Conserve natural resources and preserve environmental assets.
    7) Protect and conserve prime and unique farmlands.
    8) Invest in infrastructure to ensure mobility and quality of life, especially in existing urban areas.
    9) Reduce dependency on single-occupant-vehicle trips.
    10) Reduce poverty and promote greater equity.

Status: Continue for further discussion.

Additional discussion: Commissioner Morrison felt that some version of these policies should be recommended to the legislature by the Commission even if the pool concept in 3Bb did not become one of its final recommendations.

Agenda Item 3Bo Equity Analysis

Commissioner Anthony noted that the Commission had agreed in concept on November 29 to recommend that some sort of equity analysis be a part of moving forward with fiscal reform. The point was to address the concerns that reform proposal might exacerbate inequities that already exist between communities and among populations in California. He introduced Irwin Mussen of the Urban Habitat Program to distribute a descriptive memorandum and discuss the idea.

Mr. Mussen noted that what was being contemplated was the rough equivalent of a cost/benefit analysis dealing with the unanticipated consequences and potential outcomes of fiscal reform. He suggested that it might best accompany whatever legislation becomes the vehicle for fiscal reform. Mr. Silva opined that it might take up to a year to prepare such an analysis.

Mussen went on to discuss the creation of a "strategy for regional cooperation." He said this would not constitute a regional plan, but rather a blueprint for how local plans relate to regional plans.

Commissioner Anthony followed by noting that the public needs to know the implications of fiscal reform proposals as well as the current situation. He called the proposed analysis a necessary mechanism for documenting impacts and suggested that Commission staff prepare language to incorporate in the final report.

Mr. Silva asked what the appropriate indices for measuring impacts would be. Mr. Anthony suggested that concentrations of poverty could be compared with revenues and local governments' ability to fund social services. Without a vote, the Commission confirmed its prior support for this concept.

Status: Approved on November 29
Motion: Commissioner Anthony. Vote: Unanimous.

The Commission agreed to re-visit the unresolved issues at its meeting in the Capitol on January 5, 2000.

The meeting was adjourned at approximately 3:05 p.m.

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