A Recent Budget Alert from the California State Association of Counties

“It appears that legislative leaders and the governor are very close to resolving the state’s $26+ billion budget deficit.  Local government proposals are among the outstanding issues yet to be finalized.  Here is what we know are potential options: 

“Proposition 1A suspension: Estimated $2B suspension with the option to securitize the state’s repayment.”

(Editor’s Note: This was a proposal made by the governor in his revised budget in May and initially rejected by lawmakers, Democrat and Republican. Under the terms of Prop 1A, the money would have to be repaid within two years.)

“HUTA (Highway User Tax Account) funds.  Discussions of securitizing the state’s share of HUTA or a 5-cent tax dedicated to debt service payments have all but ended. 

“Redevelopment agencies: Numerous rumors as to various proposals in combination, including 10- or 30-year voluntary extensions of RDAs (redevelopment agencies) with a portion of new tax increment revenues dedicated to the stategGeneral fund, a one-year take of $1+ billion of RDA low- and moderate-income housing funds with a one-year extension, and a one- or two-year modified shift of revenues from RDAs to ERAF (Educational Revenue Augmentation Fund) of $350 million annually.” 

(Editor’s Note: ERAF is the acronym for the pot of local property tax revenue the state rakes off to pay part of its cash obligation to public schools. The state sought to further reduce its obligation by forcing redevelopment agencies to pay $350 million. A court found with the redevelopment agencies and the attempt to take the money was re-crafted and was one of three bills that Democrats said needed to be signed into law before June 30, the end of the previous fiscal year.) 

“As for your immediate action, we ask counties to contact their legislative delegations to communicate their concerns with these proposals immediately:” 

(Editor’s Note: The talking points follow. Emphasis added.)

Proposition 1A 

“Without an ironclad guarantee that the state will make good on its repayment obligation, local agencies will have tremendous difficulty securitizing a Prop 1A loan. 

“Given the state’s chronic budget problems and projected out-year budget deficits, how does anyone believe that the state will be able to repay this $2 billion loan? 

HUTA 

“The loss of HUTA revenues for counties is devastating.  Four thousand public works employees will be laid off, local projects will stop, and local economies will suffer the consequences. 

“The proposal to raid local HUTA funds is unconstitutional.  Counties and cities will join to litigate this proposal to the highest levels. 

Redevelopment 

“Voluntary redevelopment extensions and subsequent securitization is about the worst loan the state can find.  Out-year obligations to schools and financial impacts to counties are tremendous.  

“All RDA proposals are legally questionable.  These proposals will most certainly be challenged in court. ?If we are to make a difference in these negotiations, counties must make their concerns known to their state representatives now. 

“Please keep us informed as to your conversations.  We are available by e-mail and phone at any time.” 

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