HomeMy WebLinkAbout2001-04-03 City Council (5)TO:
City of Palo Alto
City Manager’s Report
HONORABLE CITY COUNCIL
ATT:FINANCE COMMITTEE
FROM:CITY MANAGER DEPARTMENT:ADMINISTRATIVE
SERVICES
DATE:APRIL 3, 2001 CMR: 182:01
SUBJECT:UPDATE ON STATE REVENUE AND TAX LEGISLATION
This is an information report and no Council action is required.
BACKGROUND
The purpose of the attached legislative update is to provide Council with a report on current
state budget and legislative proposals that could potentially have revenue and taxation
impacts on the City.
DISCUSSION
Some recent positive developments include:
¯ Continued legislative effort to limit the Educational Revenue Augmentation Fund
(ERAF) property tax shift.
¯Another attempt to close the loophole that allows a company with stores in California
to establish a Web-based subsidiary and thus avoid sales tax obligation for sales,
which occur over the Internet.
¯Legislative proposals to address both energy conservation and power siting issues.
Potential adverse developments include:
¯ Legislative effort to increase the service retirement benefits for local public safety
workers from 85 percent to 90 percent of final compensation. This represents an
unfunded state mandate on local governments.
CMR: 182:01 Page 1 of 2
:Tlae Legislative Analyst’s Office has recommended suspension of various one-time
ftmd~g.commitments to. 1,ocal governments in fiscal year 2001-02 budget until the
.state’s revenue commitment demanded by the energy crisis allows for additional
spending. For fiscal year 2000-01 and 1999’00, Palo Alto received one-time funding
of $179,000 and $189,000 respectively.
The California Supreme Court rejectedreview of the Sonoma County Educational
Revenue Augmentation Fund (ERAF) case. The Supreme Court refused to grant
review of the appellate court’s decision in favor of the state. This was the case in
which counties argued that the state’s ERAF shift of property tax revenues to fund the
state’s Proposition 98 responsibilities constituted a shift in financial responsibility. As
such, it created a reimbursable mandate.
Summary of these and other legislation is provided in the attached report.
ATTACHMENTS:
A)Update on State Legislation affecting City finances and other bills and development
of interest.
PREPARED BY:
TARUN N~AN
Senior Financial Analyst
DEPARTMENT HEAD APPROVAL:
~~EAAd~:ive S~rvices
CITY MANAGER APPROVAL:
SON
Assistant City Manager
CMR: 182:01 Page 2 of 2
THE FOLLOWING ARE SUMMARIES OF SOME
LEGISLATIVE BILLS ON REVENUE AND TAXATION OF
INTEREST TO CITIES.
AB 3 and AB I00 PROPERTY TAX SHIFT LIMITATION
Summary:
¯Would cap the growth on Educational Revenue Augmentation Fund (ERAF) shift.
¯Allow local governments to retain any growth in property tax, while t~eezing at last year’s level
any amount of property tax contribution to the ERAF shift.
¯The escalation on property tax shift is projected to zrow by $330 million in fiscal year 2001-2002.
¯In comparison, fiscal relief allocated to local government in last year’s state budget was $212
million.
¯Statewide, the current value of the shifted property taxes is $4.2 billi0n, while for Palo Alto it is
$19.3 million (cumulative total since 1992). -
Status:
¯In Committee (Assembly Local Government)
Financial Impact to CPA:
¯Positive
AB 81 SALES AND USE TAX
Summary:
¯ Reintroduction of a bill to level the playing field between "Clicks and Mortar" retail
establishments.
¯Would clarify the responsibility to pay sales tax on any electronic retail purchase, including
telephone sales.
¯A number of businesses (e.g. Barnes and Noble) have established affiliate dot com organizations
located outside of California, thereby allowing them to disclaim obligations to collect sales and
use tax. However, the parent organization recognizes the related Internet sales in accepting returns
and exchanges.
Status:
¯In Committee (Assembly Revenue and Taxation)
Financial Impact to CPA:
¯Positive
AB 227 TRANSPORTATION FUNDING
Summary:
¯ Permanently shift the sales tax on gas from the State General Fund to the Transportation
Investment Funds.
¯Provide a predictable, stable, and dedicated revenue source to fund transportation needs, including
local street and road improvements.
¯In fiscal year 2001-02, $2.6 billion (22% of the transportation budge0 is budgeted for programs
that assist local governments in constructing and operating highway, road and transit systems.
Status:
¯In Committee (Assembly Appropriations)
Financial Impact to CPA:
¯Positive
AB 70 FIREFIGHTING
Summary:
¯ Appropriated $25 million from the General Fund to the Office of Thermal Imaging within the
Office of Emergency Services.
¯Require the Thermal Imaging Office to acquire fire fighting thermal imaging equipment on behalf
of local agencies that provide fa’e suppression services.
Status:
¯In Committee (Assembly Governmental Organization)
Financial Impact to CPA:
¯Positive
AB 291 LOCAL GOVERNMENT GENERAL PLAN UPDATE AND
SUSTAINABLE
Summary:
¯ Provides $10 million from the General Fund to the Office of Planning and Research for the
purpose of making grants of up to $250,000 to cities and counties to revise and update their
general plans anti general policies.
¯Local governments accepting grants would be encouraged to Consider including various smart
growth principles and promoting a coordinated effort between land use, housing, and
transportation, agencies in devising their policies, programs, infrastructure, and program
investments for these purposes.
Status:
¯In Committee (Assembly Local Government)
Financial Impact to CPA:
¯Positive
SB 90 PUBLIC EMPLOYEES’ RETIREMENT,SAFETY
MEMBER BENEFITS
Summary:
¯ Increase the service retirement benefits for local safety members from 85 percent to 90 percent of
f’mal compensation.
Unfunded state mandate on local governments.¯
Status:
¯In Committee (Senate Public Employment and Retirement)
Financial Impact to CPA:
¯Negative
CALIFORNIA ENERGY CRISIS
Update
Governor Davis has taken a series of executive andregulatory steps to reduce energy demand. These
efforts constitute a three-pronged strategy:
¯In~reasing conservation and efficiency.
¯Adding generation capacity withinthe state.
¯Ensuring a reliable supply of electricity at.stable prices.
In continued pursuit of this strategy, the Governor’s FY 2001-02 budget includes $1 billion for programs
that will increase energy efficiency, reduces consumption, and increases the supply of electricity. Such
programs are currently being analyzed and developed in consultation with the Legislature.
Based on the analysis of the Governor’s 2001-02 budget by the Legislative Analyst’s Office (LAO), the
state energy crisis may put local government funding at risk. The energy crisis is consuming billions of
state dbllars. To date, the State has committed $1.6 billion and there are proposals to sell up to $10 billion
in revenue bonds to bridge the energy-funding gap. The LAO report concludes that with the exception of
energy-related emergency spending, the Legislature should not fund any one-time reimbursements included
in the Governors budget until after the May, 2001 revision when the corporate and personal tax returns are
finally collected and tabulated. These one-time reimbursements include $250 million in discretionary relief
for local government, local flood control subventions, beach cleanup, new housing initiatives, and law
enforcement technology grants. For fiscal year 2000-01 and 1999-00, Palo Alto received one-time funding
of $179 and $189 thousand respectively.
The two main pieces of energy related legislation that,have emerged are:
SB 28X POWER PLANT SITING
Summary: ~
¯ Streamline the siting process for repowering existing and constructing new power plants.
¯ Provides host jurisdiction of a facility with 100 percent of the new property tax resulting from the
construction of a new facility or addition to an existing facility.
Unclear how the provisions of the bill will coordinate with,the Governor’s Executive Orders
regarding power plant siting.
Status:
¯In Committee (Senate Appropriations)
Financial Impact to CPA:
¯Positive
SB 5X STATE ENERGY PROJECTS
Summary:
¯ Has emerged as the main vehicle to enact major energy conservation programs for state, local and
private electricity users.
¯Provides $1 billion to various state agencies in order to reduce peak electricity demand, to enhance
low-income energy assistance programs and to encourage energy efficiency.
¯The goal is to use grant and loan programs already in place to disseminate funding and complete
retrofits as soon as possible in order to reduce peak electricity use. The Energy Commission would
administer, grants and loans for municipal utilities and their customers.
¯These provisions sunset (expire) January 1, 2005.
Status:
¯In Senate, expected to move to Assembly shortly
Financial Impact to CPA:
¯Positive
OTHER BILLS AND DEVELOPMENT OF INTEREST
SB 424 WORKERS’ COMPENSATION
Summary:
¯ Expand the definition of presumptive injuries under the worker’s compensation law to include
lower back impairment in police officers.
¯The lower back impairment would be presumed to develop if the officer has been employed forat "
least fives years in a regular, full-time capacity and has been required to wear a "duty belt" as a
condition of employment.
¯A "duty belt" means a belt used for the purpose of holding a gun, handcuffs, baton, and other
items related to law enforcement.
Status:
¯In Committee (Senate Insurance)
Financial Impact to CPA:
¯Negative
SB 910 GENERAL PLANS HOUSING ELEMENTS
Summary:
¯ Requires a court that Finds a local government’s housing element not in substantial compliance
with the state law governing housing elements to award the plaintiffreasonable legal costs and to
.levy a penalty not to exceed $1,000 per unit of the total projected housing needs for the
jurisdiction.
¯Withhold state funding from any city or county that does not have a housing element in substantial
compliance with state law and to redistribute the withheld funds to the jurisdictions that are in
compliance.
Status:
¯In Committee (Senate Rules)
Financial Impact to CPA:
¯Negative
Information Sources:
League of California Cities
California State Legislature
California State Legislative Analysts’ Office (LAO)