Speaker's Commission on State / Local Government Finance

LAO's "Shifting Gears: Rethinking Property Tax Shift Relief"

League of California Cities (Published July 8, 1999)

The Legislative Analyst's recent report "Shifting Gears" is characteristically thoughtful, reasoned, and accurate. We are again grateful for their good work. We do have some comments and differences of opinion however.

1. The return of ERAF - net of mitigations - is not technically difficult for cities. Those cities that may be net beneficiaries are low property tax or recently incorporated cities that lost little or nothing from ERAF. Since just 6% of Prop 172 mitigation that goes to cities and those funds are tied to ERAF loss, it's essentially COPS money that makes these cities "net winners." But COPS not an ongoing program, it is a temporary annual appropriation which sunsets this year - and cities have treated it as such. So any city "winner" - is not counting on that COPS money to continue. In summary: we only have some city winners because of COPS, and COPS alone should not be a barrier to ERAF return.

2. Fines and Forfeitures return should not be credited as ERAF mitigation for cities. The only direct city benefit from trial court reform comes from fines and forfeiture funds, most of which are returns of revenues taken from cities in 1991. Unless the taking of fine and forfeiture money is included on the debit side, we object to the fine-forfeiture return being credited as mitigation.

3. We appreciate the discussion of our perspectives on earmarked mitigation, recognition of inequities in AB8, and the LAO position that pre-ERAF actions should not be considered mitigation. We hope these concerns will be fundamental to some specific reform proposals by LAO and others.

4. Cities are neither counties nor special districts. The report does not make clear the difference between cities and counties. We have witnessed this oversight before. Counties are largely arms of the state. The framers of California's constitution intended cities to be independent general-purpose municipal governments.

To best serve our citizens of California, cities need:

Tools
Reasonable tax & revenue options and limitations
Adequate $revenues with rational connection to needs/ uses
Control of all basic municipal services
Independence
Stable reliable, revenues
Autonomy in local affairs

Summary

A top priority for Cities is the return of our discretionary local revenues. We feel this is money taken from cities in tough times, not returned in better times. But our principal concern is fiscal stability, and secondarily a rational system of state and local government finance and service delivery. If the state returns money next year only to take it again two years later, we have improved nothing.

The Legislative Analyst believes we should use relief funds to reform the system of local government finance. We have continued to be faithful participants in reform efforts, but in 20 years, they have produced nothing. In the absence of viable reform, we will continue to press for 1) a return of discretionary local revenues and 2) constitutional protection of local finances.

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