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Home My WebLink About0425.092September 17, 1992 HONORABLE CITY COUNCIL Palo Alto, Calif~rnia A'M'ENTImr: FINANCE C<)!!MITTEE IPPIe: 0, 1992-93 STATE BUDGET Members of the Council: 'aPO.t ip Briet On september 2, 1992, the Governor signed the main budget bill for fiscal year 1992-9J. On September 16, 1992, he also signaa several critical -trailer" bills which will also have a significant fiscal impacts on cities. The budget contains over $L 3 billion in revenue reductions to local governments, including losses of prop~rty tax, cigarette tax, motor vehicle in-lieu fees and redevelopment increment reven~es. It also expands the definition of booking fees, allowing counties to potentially double or even triple the amounts charged to local governments fer booking prisoners at the county jail facilities. Offsetting these losses are changes to Public Employee Retirement system (PERS) rates. Staff estimates the net impact to Palo Alto to be a loss of $97,000 to $263,500 1 depending on what the county does with booking tees. Staff recommends that savings trom the switch to the PERS health care system be used to offset the reductions. Property Taz Reduction Approximately $1.1 billion in property tax revenues will be shifted permanently from cities, counties and special districts to schools. For cities, 9 percent of the 1991-92 property tax alle><;ation will be reduced. For Palo Alto, this equates to approximately $715,000. In addition, another $100 million in property tax will be taken trom cities and counties or:. a one,-time basis, offset by an increase in vehicle license fee revenue of the same amount; this "round about-approach will have no net impact on cities. CKR:425:92 2 · , ,,~.-( ;; .. -;";;5';;;»';, :'~c:;':" o Clqarett. T&x La-. In the 1991-92 budget, tJ'le State shifted 47 percent of cities' cigarette tax revenue to the state. All remaining revenue has no. been shifted ~ith the 1992-9) budqet. The City's budget was built assuming this shift wculd take place, so there is n~ impact on the budget adopted by the Council for this action. PIRS contribution Fat •• since the passage of AS 702~ the Public Employees Retirement System (PERS) has technically been ~ithout an actua~. This is because AS 702 allows the Governor to select and hire the PERS actuary, but with the approval of the Legislature, and the Assembly rejected the Governor's selection twice. However, in the new budget bill the Governor has ag1eed to accp.pt employer rates set by PERS for this fiecal year and to postpone dealing with the issue of confirmation of his own actuary choice by the Assembly. consequently I PERS ~ill institute new rates, effective september 1. The new, lower rates will translate into an overall savings for the City in 1992-93 of approximately $470,000, of which $318,000 is attributable to the General FUnd. The budget also extends the period for funding PERS pension debt to 30 years for all PERS e~ployers~ The Council had already made the decision to extend the city's fundinq year to 25 years. Savings of $560,000 in the General Fund .... ould be realized by that action, which will now increase to $610,000 with the change to 30 years. This savings was not included in the salaries and benefits estimates for the 1992-94 budget, as was discussed during the budqet hearings, so the entire $610,O~O can be applied to offset other revenue losses. ~l....e.r Bills" Two t""trailer-bills" W'2re signed by the Governor on september 16, 1992~ 88 1.559: This bill will probably have as significant a fiscal impact Qn cities as the revenue red~ctions in the main budget bill. The Califcrnia state Associc.tion of counties (CSAC) pushed through last-~inute legislation to expand the definition of booking fees, introducinq "intent languaqe lll that will undercut citi~sl ability to challenge excessive booking fees, alia give counties the authority to refuse prisoners in need of "immediate medical treatment." The bill will expand the definition of -administrative costs" of booking prisoners to include mental screenings; court scheduling, filinq and release processingi property and laundry; interviewing and classifying persons; processing of persons for court appear ancesi and "unit management and supervision" of the booking process. Although it is difficult to project precisely how much CHR:425:92 2 .- ......,...---.,..".c-------~" "-"-.-. -.-. ,-- -.-~- ., .' . the e~panded booking fees vil1 cost, staff esthnates a range of $310 1 00Q to $1~12 million in additional costs. A more definitive projected increase cannot be determined at this time as the county has not yet indicated how they will interpret and imple~ent the legislative languaqe. The current booking fee covers Cou.,-,ty expenses for initial booking and processing of arrested persons who are taken by officers to jail. Under the new leqislation, the fees 'Would cove!;" County expanses beyond the initial processing and depending upon the direction the County takes, could cover the processing costs (fingerprinting, photc qraphing, data entry, etc.) associated ~·ith those individuals ..,ho are cited and released by our officers, but ~ho are required to be processed pr-ior to their court appearances. If the County ""as to adopt this posture, the City would pay fees for almost every person arrested (4,000 -5,000), and thus, the higher figure on the range. AS ~012: This bill contains relief from the current Proposition 111 maintenance of effort (MOE) requirements tor eligibility fer State gas. tax moni~s. The bill suspends HOE requirements for fiscal years 1992-93, 1993-94 and 1994-95 for cities and counties. As ~he city was extremely close to its MOE target in 1991-92, this ~andatE relief is extremely welcome. Two other "trailer bills aloe still awaiting the Governor's siqnature: sa .'2: This bill provides an allocation formula and 10-year repayment schedule for local governments to refund sales taxes related to the 1.990 court decision in Aerospace Corporation v. state Board of Equalization (Aerospace). The Aerospace decision held that imposition of State s~les and use taxes on purchases made in connection 'With federal defense contract.s was illegal, and required that refunds and interest payments be made to private contractors for the 10-year period cove-ed by the case. The total estimated liability for cities is approxill1ately $130 million. Using information from 115 audits of de-fense contractor firms already completed, State B~rd of Equali2ation (SB0E) staff has developed a formula which distributes city sales tax losses based on an Mepicenter" methodology rather th~n the individual audits that have proven very time-consuming for the SBOE. The City had previously estimated its exposure in the Aerospace decision to be negligible. However, there no~ is a potential revenue loss since the refunds will be calculated on a percentage basis according to geographical proximity to the defense contractor involved. Staff will keep Council apprised if more definite information on losses becomes available. AS 408: This bill would decriminalize parking citations, and make cities and other local jurisdictions the primary processing and adjudicative bodies rather than the courts. AB 408 'Will become effective on July 1, 1993 but 'Will not be fully implemented until 3 --'------- ·;: c •. January :., 1994. Staff \iiI.! be returning to the ,:ouncii. with a proposal to implement AS 408 as part of a long-term soll..lt':'on to parking citation proce6si~q. 'epop·utl'Siop. The total impact ot the State~s budqet on Palo Alto~s adopted 1992- 94 General Fund budget, to the extent that it is quantifiable at this point, ranges from a net revenue loss of $97,000 to $263,500 net loss, dependinq upon how the Co~nty implements sa 1559. As was c!iscussed during the 1992-94 bud.qet hearing, potential savings from the City's ehanqe to the PERS health care system were not included in the 1992-94 budgeted salaries and benefits estimates. Those savinqs are estimated. at $350,000 tor Jar.uary to June 1992, a.nd $/00_ 000 per year on an ongoing basis. Staff reco~ends offsetting any net negative impact on the adopted 1992- 94 budget with those savings. ~ReSP,ectfuIIY submitted, --LI /' ~'-./ ~ i :Harrison ~Dire"t:60_f Finance e Flemi?1.lJ sistant City Mager CMR:425:92 • "; ,.