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Home My WebLink About0401.093July 29~ 1993 HONORABLE CITY COUNCIL Palo Alto, California , : .; IPlIQT OF 1993-94 .TATE BUDGET Members of the Council: a.parl; fp Ir iet The p~-posa of this report is to provide information on the impact of the 1993-94 State budget on Palo Alto. The net impact for 1993- 94 is esti:aated to be a loss of between $382,000 and $623,000, dependinq on whether a half-cent sales tax is approved by voters in November 1993. The ongoing reduction in city revenues is betwaen $725,000 and $1,107,000, again depending upon 'Whether the half-cent sales tax extension is approved by the votars in November. This reduction comes in addition to the $.9 million property tax shift in 1992-93. A reduction of $1. 7 million was already anticipat.ed in tha 1993-94 budqet. staff is recommen1ing that Council not take any action at this time to adjust the budqet, but address the issue at the time of the Midyear Raport, since it appears likely that County and other pending S~ate leqislation may also impact the City financially. eVer the past three budget years, Palo Alto's losses to the State and County budget actions have totalled approximately $4.3 million. Background on JUne 30, 1993, the Governor signed the State budget and related trailer bills. The budget contains a $2.6 billion shift in property tax revenues from local governments to a newly created Educational Revenue Augmentation Fund. Cities' share of the total reduction viII be $288 million. The reductions will be offset on a one-time basis in 1993-94 by a transfer of $130 million from the Transportation and Pl~r~in9 and Development Account (TPDA). CMR:401 ~93 --------.----:: o o In addition. the state budget contains an extension of the vne halt-c~nt sales taxI with revenues allocated to local governments. The additional sales tax is quaranteed only through December 31 1 1993; eKtehsion beyond that date is dependent on approval by the voters in a statewide election scheduled for November 2, 1993. The full year value of the hall'-cent sales tax extension is estimated at $1.46 billion. 'With $92.7 million allocated to cities~ Funds from the sales tax exten5ion are to be placed in another ne:wly cre.ated state fund, the Local Public safety Fund, allocated to cities and counties t9 be used exclusively for public safety~ Public safety services for cities include police and fi~e protec tion.. There are no :naintenance of effort requir-ements involved in the Local Public Safety Fund, so presumably the~e is latitude for local governments to shift General Fund doll&rs to other needs in response to the receipt of the additional sales tax monies. Prop.rU 'lax J,lIVenue Shift Each city's share of the $288 million pr-operty tax shift is calculated based on its proportionate share of the 1993-94 AB 8 ·state ~ssistance payments,-A per capita cap on the amount of property tax taken of $19.31 is included in the legislation. Based on Palo Alto's 1993 population of 57,324, the property tax loss will be $1,107,000. This is offset for 199~-94 only by the transfer from the TPDA. The TPDA funds are estimated to be 31 perc(,:nt of the 1993-94 AS 8 property tax reduction or $343,000. To calculate what the State is callinq the Palo Alto's net 1993-94 AS 8 loss, t~e one-time TPDA aonies ~re subtracted from the 1993-94 AS 8 shift of $1.11 million; thus Palo Alto's net 1993-94 AS 8 loss is $764,000. The allocation of revenues frem the half-cent sales tax to counties is based on each county's proportionate share of statewide taxable sales. The money received is to be placed in a Public Safety Augmentation Fund at the county level. Allocation to individual cities within the county is made based on each city's net 1993-94 AS 8 loss proportionate to the countywide net 1993-94 AS a 109s. The .aximum amount any city c~n receive on an annual basis is 50 percent of its net 1993-94 AB 8 loss. For Palo Alto, this amount would be $382,000. The state Department of Finance will be workinq with each county's auditor to calculate the actual allocation. Because there is wide variation in AS 8 revenue losses across counties and between cities within counties, it is impossible to estimate e.lC8ctly what Palo Alto will receive at this point. Giver-, the larqe AS 8 losses in several other Santa Clara county cities, there is no guarantee that Palo Alto's share of the half-cent sales tax will be the maximum amount of $382~OOO. CIIR:401:93 2 • " '. , U,U-94 S:t~tSi:i Budget ImpAk..t (iMQ) 1993-94 ongoinyo Approval Reje-::tion with Sales Wit... ...... out of Half-o! Half-Tax Auq-Sales Tax Cent cent mentation Augmenta- Sal~& Tax Sales Tax tion Property Tax $(1,107) $(1,107) $(1,107) $(1,107) Loss 'TPDA Transfer 343 343 Half-Cent Sales 382 1 1411 382 Tax Net Loss (382) (62) (725) (l,lO?) 1993-94 lIudqet-1,700 .1,700 1,700 1,700 ed Property Tax Los. Net BUdget $1,3:8 $1,071 $975 $593 Impact 1. Kaxim,um. estimate; will probably be lower ~ Y.bial. Lieen •• Fe. ltaOUll4ab9ut n One of th~ State bueget -trailer bills· provides for a transfer of responsibility for the collection of delinquent Vehicle license fees and penalties from the Department of Motor Vehicles to the Franchise Tax Board~ This is anticipated to eventually increase collections of vehicle license fees by up to $50 million statewide per year. To recapture these "windfall-revenues from cities and counties I the trailer bill also provides for an additional property tax transfer of $50 million from local governments to the schools~ ~his is a permanent reduction in each city's property tax revenua base, equal to $1.02 per capita; for Palo Alto, the reduction is $58,410, Mandate '''1 i .eft The budget also contains -mandate relief-for locc..l age.ncie~. However, the aandates imposed by the state on cities are not siqnificant in either numbers or dollars, since cities do not adm.iniste:r ~e.rge state programs as is the case with counties; CHlI:401:93 3 o consequently, this action will have little fiscal impact on cities, including PalCl Alto. H",wever, tie 1993-94 State budget does contain an extension of last year's suspension ot maintenance ot effort {MOEj requirements for receiving qas tax monies under Proposition 111. In the 1992-93 State budget, the MOE requirements were suspendec! for a total cf three years. This year's budqet e~en4s the suspension for an additional two years, until the 1997- 98 fiscal yeal'. '.7.," of 'tate Action. The 199"3-94 State budget continues the practice established two ya.ars 01190 of t.ll.e state balancing its budget through the use of local government revenues~ The chart below summarizes the major budget actions for the past three fiscal years, which have cost the City o~ Palo Alto over $4.2 million on an ongoing basis~ 1991-92 lln=93 .993-94 ~ Revenue Loss Property Tax $0.8 $1.1 $1.9 Fines and Forfeitures $0.2 0.2 0.2 0.6 Cigarette Tax 0.1 0.2 0.2 0.5 Expenditure Increases Booking Fees (SB 2557) 0.3 0.3 0.3 0.9 Property Tax Administ. 0.1 0.1 0.1 0.3 (SB 2557) TOTAL $0.7 $1.6 $1.9 $4.2 It should be noted that there were one-time offsetting revenues in all three fiscal years, including $150,000 from the short-lived ·snack tax· in 1991-92; lowered employee retirement contribution rates in 1992-93 ($318,000 tor t..'le General Fund); and the TPDA trans~er and half-cent sales tax extension in 1993-94. COD.cluaioJL The total revenue loss from the shift for 199)-94 is anticipated to be $382,000. On an ongoing basis, the 10s9 to the City from the 1993-94 state budget is $1,107,000 if the sales tax extension is not approved by the voters. If the sales tax extensioll is approved by the voters, the ongoing loss is estimated to be at least $725,000. The 1993-94 Budqet antiCipated a loss of $1.7 million in property tax revenues; ccnsequently, there will be a savings of approximately $1.1 to $1.3 million this fisc&l year, and betwe~n $593,000 and $975,000 on an ongoing basis. Staff is recommendinq that council not take any action at this time to adjust the budget, but at the time of the Midyear Report address the issue, since it CMR: 401: 93 4 .. , -. appears likely that County and other p~ndinq state legislation .&y also iapaet the City financially. CMR:401:9J 5