HomeMy WebLinkAbout2001-11-13 City Council (17)City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:
ATTENTION:
CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
FINANCE COMMITTEE
DATE:
SUBJECT:
NOVEMBER 13, 2001 CMR: 412:01
UPDATE ON STATE REVENUE AND TAX LEGISLATION
This is an information report and no Council action is required. The purpose of the attached
update is to provide Council with a report on approved legislation and executive actions that
have both real and potential financial impacts on the City.
DISCUSSION
The State of California has a $2.6 billion reserve, the largest in two decades. Losses in
revenue due to the declining economy, however, are expected to be far greater. The state’s
budget deficit for fiscal year 2002-03 is estimated somewhere between $8-$14 billion. This
is a result of a major decline in state revenues due to the disruptions to large segments of the
state and national economies and increased public safety expenditures since the tragic events
of September 11. The California Public Utilities Commission (CPUC) voted against a plan
to repay the $9 billion the state recently spent on power purchases. The state is working with
the CPUC on an agreement that will allow the state to issue $12.5 billion in bonds to repay
the state treasury for past power purchases and finance future energy purchases. Moreover,
Moody’s Investment Services is considering downgrading the state’s general obligation bond
rating. Such action would cost the state tens or hundreds of millions of dollars a year in
additional borrowing costs.
To address the looming deficit, Governor Davis issued two executive orders implementing
a hiring freeze and limiting state purchases. In addition, the governor set a goal of cutting at
least $150 million from operations for fiscal year 2001-02. The state legislature and the
governor are working to identify and implement additional cost cutting measures. Public
health, safety, and emergency services departments are exempt from the hiring freeze. The
legislative and judicial branches of the state government are not subject to the executive
order. However, the governor has invited these branches of government to participate in
cutbacks. Governor Davis has asked state agencies to prepare to cut their budgets by 15
percent in fiscal year 2002-03.
CMR: 412:01 Page 1 of 3
The last time the state faced a budget crisis in the early 1990’s, it balanced its budget by
shifting property tax revenues from local governments to school districts, thereby eliminating
the state’s funding responsibilities. The state may again look at local revenues, such as the
elimination of the Motor Vehicle License Fee backfill, as a means to balance the state
budget. In response to this potential threat, the League of California Cities, the California
State Association of Counties, and the California Special Districts Association has launched
an effort to place two ballot initiatives in November 2002. These initiatives would require
the state to pay back any money it takes from local governments.
Some recent developments on Internet sales tax are:
The federal moratorium on Internet taxing expired on October 21,2001. Forty-two
governors, in a letter, urged Congress not to extend a ban on Internet taxes unless
states are allowed to tax purchases from online business. The governors contend that
in order to level the playing field for main street retail businesses and to maintain
local sales tax revenues, Congress should "extend the moratorium on taxing Internet
access only with authorization for the states to streamline and simplify the existing
sales tax system". The governors promised to continue work on a "streamlined sales
tax project," which would establish a single system for determining how people who
use online commerce will be taxed. California Governor Gray Davis refused to sign
the governors’ letter.
Republicans and Democrats in Congress are trying to resolve their differences and
pass a new moratorium before adjourning for the year. States and localities are
expected to loose $13.3 billion in tax revenues from Internet sales this year, according
to the U.S. Commerce Department.
Below is a brief description of legislation approved by the Governor. Staff cannot estimate
the fiscal impact of items # 1, # 2 and # 4 below until it has some data unique to the City of
Palo Alto. Human Resources is working on quantifying the impact of item # 3.
1)Expanding the workers’ definition of presumptive injuries for lower back impairment
in police officers due to the use of "duty belts".
2)Expanding the application of the states prevailing wage requirements to public works
projects that are funded by local public agency.
3) Increasing 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.
4) Passage of bill mandating a court to award attorney’s fees and costs, except under
extraordinary circumstances, to a plaintiff or petitioner in an action where a court
finds that a local government has not made adequate findings supporting the denial
or conditional approval of a housing project.
C1VIR: 412:01 Page 2 of 3
A more detailed summary of adverse legislation is provided in the attached report.
ATTACHMENTS:
A) Update on Approved State Legislation Affecting City Finances.
PREPARED BY:
Senior Financial Analyst
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
Director, Ad~nistrative Services
EMILY HARRISON
Assistant City Manager
CMI/: 412:01 Page 3 of 3
ATTACHMENT A
THE FOLLOWING ARE SUMMARIES OF SOME
LEGISLATIVE BILLS OF INTEREST TO CITIES.
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 for at
least fives years in a regular, full-time capacity and has been required to wear a "duty belt" as a
condition of employment.
¯A "dub’ belt" means a belt used for the purpose of holding a gun, handcuffs, baton, and other
items related to law enforcement.
¯Would establish a worker’s compensation lower back injury presumption without medical study or
findings, which would lead to an increase in expensive disability retirement benefit cases.
Status:
¯Approvedby Governor
Financial Impact to CPA:
¯Negative
SB 975 CALIFORNIA INFRASTRUCTURE AND ECONOMIC
DEVELOPMENT BANK
Summary:
¯ Bill expands the application of the state’s prevailing wage requirements to public works projects
that are "paid for in whole or in part with public funds" including certain payments, transfers, and
performances of work.
¯Every privately financed, privately paid for nonresidential construction between a developer and a
contractor would become a "public work" and be subject to the prevailing wage requirement when
a local public agency:
a)Pays for or waives certain city fees.
b)Pays for a public works project such as street, that is required as part of the development
project.
c) Sells land for the project to a developer for its "fair reuse value."
¯Increase project costs by 10-30 percent, by significantly expanding the application of prevailing
wages to projects that may involve unskilled labor, such as the installation of fencing, modular
cubicles, and other such projects.
¯Reduce the number of vitally needed economic development projects, such as low income
housing, on which local governments could assist, because the local govermnent agencies would
bear all the increase costs due to the state’s prevailing wage requirements.
Status:
¯ApprovedbyGovernor
FinancialImpactto CPA:
¯Negative
SB 90 PUBLIC EMPLOYEES’ RETIREMENT, LOCAL SAFETY
MEMBER BENEFITS
Summary:
¯ Increase the selvice retirement benefits for local safety members from 85 percent to 90 percent of
f’mal compensation.
¯Unfunded state mandate on local governments.
Status:
¯Approvedby Governor
Financial Impact to CPA:
¯Neg~ive
AB 369 ATTORNEY FEES TO HOUSING DEVELOPERS
Summary:
¯ Mandates a court to award attorneys’ fees and costs, except under extraordinary circumstances, to
a plaintiff or petitioner in an action where a court finds that a local government has not made
adequate findings supporting the denial or conditional approval of a housing project.
¯The bill also expands language in existing law that levies significant blame against local
government for the state’s housing shortage.
¯Does not allow a local agency and taxpayers to recover their attorney fees and costs if they prevail
over the plaintiff.
¯Provides a developer a clear incentive to litigate more local land use decisions, and use the threat
of potential damages, fees, and costs to attempt to intimidate a local government, especially a
small city or county with limited resources.
Status:
¯Approved by Governor
Financial Impact to CPA:
¯ Negative
OTHER BILLS AND DEVELOPMENTS OF INTEREST
INTERNET SALES TAX UPDATE
As the current and projected sales tax losses ~ow, it is more urgent that states and Confess enact sales-tax
simplification legislation. The moratorium on Internet taxes expired October 21,2001. Republicans and
Democrats in Congress are ti3,ing to resolve their differences and pass an extension of the moratorium
before adjourning for the year. State and local governments are trying to get federal la~nak~rs to add
provisions to future moratorium that could eventually help governments to tax Internet based sales. A 32
state coalition is also trying to simplify their sales tax system so that out of state sales, especially over the
internet, can be taxed.
States and localities will loose $13.3 billion in tax revenues this year alone per the U.S. Commerce
Department. A University Of Tennessee report estimates that state and local governments will annually
loose $54.8 billion per year by 2011 if online sales tax continues to be untaxed.
The Federal e-commerce bills being considered are:
S 512/H.R. 1410
Summary:
Bipartisan state and local-supported legislation which would extend the Internet sales tax
moratorium and would support state and local tax simplification efforts.
o Will ensure main street businesses are treated on par with Internet retailers.
H.R. 1552
Summary:
¯ Would extend the moratorium for five years (until December 31, 2006).
S. 1481
Summary:
¯ Would extend the moratorium for ~o years (until October 21,2003).
S. 1504
Summary:
¯ Would extend the moratorium by eight months (until June 30, 2002).
Information Sources:
League of California Cities
California State Legislature
California State Legislative Analysts’ Office (LAO)
SF Gate News