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HomeMy WebLinkAbout2001-12-10 City Council (10)TO: FROM: City of Palo Alto City Manager’s Report HONORABLE CITY COUNCIL I 2 CITY MANAGER DEPARTMENT: CITY MANAGER’S OFFICE DATE: SUBJECT: DECEMBER 10, 2001 CMR: 443: 01 REQUEST FOR COUNCIL SUPPORT OF AN ACTIVE CITY ADVOCACY EFFORT TO PROTECT VEHICLE LICENSE FEE REVENUES FROM STATE BUDGET REDUCTIONS RECOMMENDATION Staff recommends that the City Council approve and the Mayor sign the attached legislative letter declaring the City’s opposition to any consideration of reducing or eliminating the State backfill of vehicle license fee (VLF) revenues to local jurisdictions. BACKGROUND In 1999, the State of California reduced the State’s vehicle license fee. The law subjected motor vehicles to a license fee based upon the vehicle’s market value. This fee generated annual revenues in excess of $3 billion dollars for the State. Typically, all of the revenues. generated from the VLF were distributed to cities and counties, with the exception of a very small administrative fee. After the reduction of the VLF to vehicle owners, the State agreed to backfill VLF funds taken from local governments with other state general fund money. A major shortcoming of this pro_p_Q.~l was the lack of an absolute guarantee that replacement funding for local services would be-’~tected in the future. In the last recession (1992-93), the State "shifted" local property tax revenue through the Education Revenue Augmentation Fund (ERAF) transfer. The loss of funds to the City of Palo Alto is $20 million and growing. Even in good economic times, the State did not return any of this property tax money to local governments. The events of September 11,2001, coupled with a weakening national economy have now placed local government revenues in a tenuous position. Governor Davis has estimated the State budget deficit at between $8 and $14 billion. This estimate assumes the State will sell $12.5 billion in bonds to pay off costs associated with the recent energy crisis. The CMR:443:01 Page 1 of 3 governor and others have talked about calling a special session prior to January 2002 to address budget concerns. Local governments are concerned that the State will attempt to take-away the VLF backfill funding and possibly other local revenue during this session in order to balance the State budget. DISCUSSION The VLF backfill provides an important funding source to Palo Alto and other cities for police, fire, library, recreation, and other valuable local services. Preservation of these funds is especially critical in light of the terrorist attacks of September 11,2001. Cities are experiencing an increase in costs associated with homeland defense and a decrease in revenues due to the recession. In Palo Alto alone, the estimated cost for police, fire, and emergency medical services to prepare for domestic terror incidents will be approximately $.5 million. Any reduction in local government funding would severely limit the City’s efforts to prepare for local security and public health needs. The City is already facing its own budget shortfall of $6 million. To address this problem, the City Manager has taken a number of initial steps to "Strengthen the Bottom Line" so that the City does not have to reduce services to the community. Without VLF backfill funds, existing City services would need to be reduced by another $2.2 million and there would be less flexibili .ty in the City’s ability to respond to community needs. In addition, the loss of VLF funds could negatively impact the implementation of the infrastructure plan. If Council approves the staff recommendation to protect vehicle license fee revenues from State budget reductions, the City of Palo Alto will join The League of California Cities in a collaborative effort to keep California cities and counties strong. RESOURCE IMPACT A VLF backfill take-away would reduce the City of Palo Alto’s revenue by an estimated $2.2 million annually. This loss accounts for nearly two percent of Palo Alto’s total General Fund budget. To provide a sense of the magnitude of such a cut, this amount represents the equivalent of 25-30 full-time City staff. At this point, no programs or positions have been identified for reduction in the event of the loss of VLF funding, although a temporary hiring freeze has been implemented as a result of the City Manager’s "Strengthening the Bottom Line" measures. While the City would make budget decisions carefully to minimize service reductions to Palo Altans, difficult choices would need to be made. POLICY IMPLICATIONS Taking a position to preserve funding for important local services is consistent with existing City policy. CMR:443:01 Page 2 of 3 ENVIRONMENTAL REVIEW This staff report does not represent a project under the California Environmental Quality Act (CEQA). ATTACHMENTS Attachment A - Vehicle License Fee Letter (prepared by Tarun Narayan, ASD) Attachment B - Gergen, David. "Making Main Street Safe." U.S. News & World Report, 26 November 2001, 72. PREPARED BY: Assistant to the City Manager CITY MANAGER APPROVAL: ~Ly~,~~SON Assistant City Manager CMR:443:01 Page 3 of 3 Cityof Palo Alto Office of the Mayor and City Council December 10, 2001 The Honorable Gray Davis Govenor of the State of California State Capitol Building Sacramento, CA 95814 SUBJECT: Vehicle License Fee Backfill Dear Governor Davis, On behalf of the City Council of Palo Alto, I want to express our strong opposition to any consideration of reducing the statutory backfill of vehicle license fee (VLF) revenues to cities and counties. With your recent order for State agencies to develop 15% budget cut options for 2002-03, we are concerned that the State may once again consider taking local government revenues in order to balance the State budget. I cannot stress strongly enough how damaging a VLF take-away would be to cities and counties throughout the State, for two key reasons. First, the VLF is a major General Fund revenue source that finances critical local services such as police and fire protection. Taking VLF for State purposes will have a devastating affect on local services. The City of Palo Alto has significant budgetary problems to resolve as we deal with the same revenue shortfalls the State is experiencing. In the City of Palo Alto, VLF is a major General Fund revenue source, bringing in about $3.3 million annually of which $2.2 million is the state backfill. Public safety represents about 30% of our General Fund operating costs. In the event of a disaster like that of September 11, 2001, local police and fire protections are the first line of defense for public safety and security. Already, Palo Alto needs to spend an additional $.5 million to prepare for the new threats facing our community. With local revenue declines we are likely to experience, taking away the VLF backfill will place unacceptable stresses on our ability to fi~d critical public safety services. Secondly, given the assurances the State made when it reduced VLF rates and created the backfill, taking away this revenue for State purposes would cause irreversible damage to the State’s credibility. When the VLF rate cut was under discussion, the State was involved in a legitimate policy debate as to whether it should reduce State taxes or enhance State services. AI ]?ACHNEN2 A P.O. Box 10250¯Pato Alto, CA 94303 650.329.2477 650.328.3631 fax Cities refrained from expressing an opinion on this debate, since it was (and should be) a State issue. However, we were very clear that if the State should decide to reduce State taxes, it should reduce a State revenue, not a local one like VLF. And while the State went ahead and did exactly that, it was with the commitment that this would not adversely affect cities and counties, with the end-result of a continuing appropriation for the backfill. From a credibility perspective, taking away the VLF backfill would be much worse than the property tax shifts of the 1990’s. In the case of Educational Revenue Augmentation Fund (ERAF), there was no State commitment to reimburse cities and counties for the revenue losses. This is simply not the case for the VLF backfill: the State was clear--both in word and deed through legislation--that any future State budget problems would be its own, not local jurisdictions. In summary, we fully understand and appreciate that the State is facing tough fiscal times-- because we are facing them, too; and that you will need to make tough decisions in responding to them. But it would be unconscionable for the State to deal with them by simply shifting its fiduciary responsibilities for balancing State revenues and expenditures onto cities and counties. However difficult, the State needs to make its budget decisions with integrity. And for this reason, we urge the State to honor its commitment to the VLF backfill. Doing otherwise will result in a terrible combination of reductions in critical local services and a lasting loss of State credibility. Sincerely, SANDY EAKINS Mayor BY DAVIDGERGEN ¯ EDITOR AT LARGE Making Main Street safe i ast year there was not a single threat of a terrorist at- tack in the city of Buffalo. Since September 11, the city has received 139 such threats. All required quick ac- ~ tion. The cost for the city, says Mayor Tony Masiello, runs about $700 an hour. In Boston, Mayor Tom Menino must now pay $20,000 in additional security costs every time a tanker enters his port carrying liquefied natural gas. With winter fast ap- proaching, Menino expects at least 50 tankers. In Den- ver, Mayor Wellington Webb now faces a long list of emer- gency needs, including biohazard-decontamination units, protective suits, bigger stores of antibiotics and drugs, spe- cial cameras, an anthrax detector, and a preparedness guide for every house- hold. The cost for the city: $610,000. In Baltimore, Mayor Martin OqVlalley shelled out $2 million in overtime for police and fire departments in the first three days after September 11. By year’s end, added security costs are ex- pected to hit $14 million. All across the country, stories like these are multiplying as cities scram- ble to protect their citizens against the possible danger of new terrorist at- tacks. The good news is that most of our cities have first-rate leadership on the ground, stretching from city hall Our cities shouldn’t be forced to bear the costs of new security measures by themselves. Washington needs to ante up-big time. through the police and fire departments and through their emergency preparedness teams. The bad news? Most cities simply don’t have enough money to do the job fight. A homeland in need. After the flush years of the 1990s, when cities became more livable and young couples started to nest there again, municipalities today are caught between the cruel blades of a scissors. Costs are slicing upward while revenues, driven by a weakening economy, are slicing down. And the people who could relieve the pressure, the politicians in Washington, have resumed their tired old squabbles and are offering up only a fraction of what’s needed. NewYork City provides the most grap .hi." example. Mayor- elect Mike Bloomberg stands to inherit a budget deficit of some $4 billion for the coming year, almost 10 percent of the city’s total spending. New York Gov. George Pataki can’t do much to help because the state faces a huge deficit, too. After all the promises from the White House and al! that the city has endured, including the plane crash of last week, one might expect Washington to be rushing to the city’s side. Not so. House Republicans carved substantial hunks out of the emergency funding package originally proposed for New York. Sorry, the till is running low, or so they say. As the National League of Cities argues, communities like New York will soon be forced to decide between paying for security or raiding human-service programs, many of which educate children and support the poor. Middie America will feel the crunch, too. In Tulsa, Okla., Mayor Susan Savage says she has to come up with $12 million in cuts that will hurt. It’s time for Washington to recognize that the front line in this war may start in Afghanistan, but it extends all the way to Main Street. Our military is doing a splendid job overseas, but our troops here at home need more help-a lot of it, and fast. When trouble hits, as we saw at the World Trade Center, the men and women who will be fighting at the scene won’t be from the Pentagon. They will wear city uniforms and come from streets nearby: This is a war against all of America, not against an individual city like New York or Boston or Tulsa. Defending the home- land shofi]d therefore be something we all pay for together. Just as the na- tional budget fully provides for de- fense overseas, it should provide for protection of the homeland. It is sim- ply wrong to force city and state gov- ernments to skimp on their security and public-health needs-or to force them to choose between paying the police and educating their children. For a glorious few weeks in September, politicians in Washington acted like real statesmen. How about aft en- core now? Add up the true costs of emergency security mea- sures, and send the money to the leaders on the front lines. To ensure that cities get their fair share, pass a block grant earmarked just for them. Train fire, police, and health of- ficials at the local level so they- are ready for whatever comes., Bring the local police and the FBI into a partnership s8 they can jointly hunt doom suspects. After all, the FBI has only 11,500 special agents; local police departments have 625,000 cops who are savvy and street smart and want to win this war, too. Last week brought welcome news on the battle front over- seas. But who knows when a terror cell will once again wreak havoc on Main Street? And who wants to penny- pinch protection at home because Washington says it’s now strapped for funds? If we’re going to bail out the c£Os of the airlines, we should certainly be willing to bail out our mayors-the CEOs of America’s cities. The bet here is that most Americans, if asked, would happily give up their tax cuts a couple of years down theroad to make sure their kids are safe today. ¯ 72 U.S.NE~rS & WORLD REPORT, NOVEMBER 26, 2001 ATTACHMENT B