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Speaker's Commission
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To Members of the California State Senate:
I am returning Senate Bill No. 1637 without my signature.

This bill, an urgency measure, would incrementally cap local agencies' contribution to the Educational Revenue Augmentation Fund (ERAF) beginning in 2001-02. This cap would be phased in over two years and would be fully capped beginning in 2003-04.

Capping the Educational Revenue Augmentation Fund would ignore the various measures (e.g., trial court funding, Citizen's Option for Public Safety program, and Proposition 172) that have already mitigated the property tax shift by nearly $3 billion annually. For approximately a dozen counties, the value of these mitigation measures exceeds the current value of their property tax shifts.

In addition, the Budget Act of 2000 provides significant assistance to local governments including $75 million in technology funding for law enforcement, $115 million in housing grants, $2 billion for transportation projects, and hundreds of millions more in the areas of health and human services, juvenile justice, social services, and environmental protection.

This bill also does not address the Sonoma lawsuit, with potential $15 billion in liability for the State.

Although this bill begins to address the ERAF issues, I am vetoing the bill because the State-local fiscal relationship should be approached more broadly and comprehensively and not be restricted to examination of the property tax only. I am also vetoing this bill because it would result in substantial, ongoing General Fund costs that would increase dramatically over time.

I have instructed my Director of Intergovernmental Relations and my Director of Finance to open a dialogue with local government leaders and leaders in the Assembly and Senate, which can result in a proposal for broad and comprehensive reform of the State-local government fiscal relationship.

Sincerely,

GRAY DAVIS

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