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Governor's May Revision
2003-04
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Overview
. The Deficit. The Adjusted Budget Gap is $38.2 billion. Higher tax receipts in
recent weeks prevented it from being a large gap. This is up from $34.6 billion in
January. Revenue estimates in the January budget have tracked almost on target,
but expenditures due to caseload and Proposition 98 along with the cancellation of
the sale of the second installment of the tobacco securitization bond have
increased the budget gap to the $38 billion figure.
. The Multi-year Plan. The May Revision Budget incorporates the proposal to
finance a portion of the state budget deficit over multiple years.
. The Taxes. The May Revision Budget requires/assumes the passage of $1.8
billion in cigarette and income taxes for local government to operate realigned
programs (primarily county administered programs); and, a temporary one-half
cent sales tax ($2.3 billion) to pay for the deficit financing plan.
. Budget On-time. The 2003-04 budget must be passed on time to ensure that the
State can borrow the cash needed to pay obligations. This means some time
reasonably close to July 1 st.
The Economv
. Housing Strong. Residential construction and housing markets remained strong
. Employment OK. Overall employment rose in California in the first three
months of2003, while it fell on a nationwide basis.
. Good Signs. Personal income tax withholding and sales taxes were up from a
year ago in the first four months of2003.
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. Modest Growth. Despite a pickup in consumer confidence in April, most of the
evidence suggests that the California and national economies will grow only
modestly during the rest of 2003 with better opportunities in store for 2004.
. Personal Income Tax Bottoms-Out? Most significant change in revenue
estimates occurred with the personal income tax. Weaker final payments in April
suggest that capital gains income was somewhat lower than expected. However,
market-related income such as capital gains and stock options appear to have
bottomed-out and the May Revision assumes a modest growth in these
components in 2003-04.
Local Government
. Public Safety Protected. The May Revision continues a number of public safety
programs for local governments at full funding, including $232.6 million (full
funding) for the COPS/Juvenile Justice programs; $18.5 million for grants to
small and rural county sheriffs; and, $18.5 million in law enforcement technology
grants.
. Booking Fees Gone. The May Revision makes no changes in the January
proposal to eliminate $38 million in booking fee reimbursement to cities. In other
words this latest version of the budget will eliminate the reimbursement.
. Vehicle License Fees/Backfill. The printed version of the May Revision
suspends the vehicle license fee backfill payments for 2003-04. The vehicle
license fee tax is assumed to be restored in July, but, according to reports from the
Department of Finance will require a 60 to 90 day start up period before
collections are fully realized. According to our analysis this could leave a 2 to 3
month gap when no VLF payments are made to local government. VLF payments
to cities and counties runs about $250 million a month. If totaled, this could result
in a $500 million to 750 million loss to cities and counties. In response to this
concern, the Department of Finance reports that it was their intent to make the
transition from VLF backfill payments to the VLF tax without loss ofrevenue to
local government. The exact mechanics of this transaction are not clear and have
to be confirmed further with the Department of Finance before accurate estimates
can be made.
. Redevelopment Agencies. No new proposals were made in the May Revision
Budget for cuts to redevelopment agencies. However, the January proposal for a
$250 million cut in the 2003-04 budget remains in place. Remember in that
January proposal the $250 million cut was to continue and grow in future budget
years. Also, remember that the proposal requires local government general fund
revenues to backup this cut, if the redevelopment agency cannot produce the
necessary revenue to execute the cut.
. Williamson Act. The May Revision restores the Williamson Act subvention to
$40.15 million. This program is a fiscal incentive to maintain agricultural
production land.
. Mandates Deferred, Suspended and Repealed. In his January budget, the
Governor proposed to continue the deferral of reimbursement payments to cities,
counties and special districts for state-mandated programs. The reimbursement of
this obligation would have amounted to an estimated $900 million for the state by
the end of 2003-04. The May Revision instead proposes the suspension of 34
mandates, the repeal of one mandate and the deferral of all others. The repealed
mandate relates the Open Meetings Act, requiring posting of agendas. This action
in the May Revision reduces the annual obligation for these mandates by
approximately $32.9 million. It is also the Administration's intent to draft
statutory language necessary to repeal 27 of the 34 mandates proposed for
suspension in this proposal during the development of the 2004-05 Governor's
Budget.
. Transportation Money. The Governor's January budget proposed the suspension
ofrevenues from the sales tax on gasoline and the use ofthose for the state
general fund. This suspension and transfer amounted to approximately $1.145
billion. In the May Revision, the Governor modifies this proposal to provide
sufficient funds to meet the cash requirements of projects that received allocations
prior to December of 2002. The May Revision proposes this transfer at $207
million. This would result in the suspension of sales tax on gasoline revenues at
the level of$938 million, which can be used for general fund purposes. This $938
million is a loan to the general fund, to be paid back by in later years. The May
Revision contains no proposal to take the sales tax on gasoline revenue that goes
to repair local streets and roads.
. Public Libraries. The Governor's January budget proposed $15.8 million for the
public libraries fund, with approximately $9 million going to city libraries. This
proposal is unchanged in the May Revision.
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LEAVE OUR COMMUNITY AsSETS LoCAL
Dedicated to Protecting Funding for Police, Fire, Health
and other Essentlaf LOCAL Services
110]011111 *
l'
. Hig"lightsofQov~ritor's May Buctget;
. 'l:;~:;::i{;. ; !....~pa~ts<in Locial"Servi~4!s;~
On May 141h Governor Davis released his May Revision to the budget While the LOCAL coalition
does have concerns about some of the Governor's proposals, the revised budget is much-improved
over the Governor's January spending plan and generally protects funding for critical local services.
Of significant importance, Governor Davis abandoned his previous proposal to eliminate the Vehicle
License Fee "backfill" funding for cities and counties. These VLF revenues are a major source of
funding for vital local services such as law enforcement, fire, emergency medical and health care,
parks, libraries and roads to name a few.
Following are some of the major proposals (though not all) in the Governor's revised budget,
including the most significant proposals that would impact local services. An updated "Budget
Watch" document will soon be posted on the LOCAL coalition website (www.calocal.orq) and will list
all proposals that impact local services. A complete copy of the Governor's May Revise can be found
at http://www.dof.ca.qov/HTMLlBUD DOCS/Mav Revision 2003 www.pdf.
Overview:
The Administration's estimated budget gap is now $38.2 billion. The May Revision incorporates a
proposal to finance a portion of the budget ($10.7 billion) over multiple years on the following three
conditions: requires the passage of a temporary one-half cent sales tax to pay for the deficit
financing plan; the Legislature must pass the budget on time; and the legislature must continue its
work on the structural deficit after the passage of the budget
Vehicle License Fees I Backfill:
The Governor's May Revision assumes that the Vehicle License Fee (VLF) trigger will be pulled and
that the state will not be obligated to make offset payments in 2003-04. What remains to be seen,
however, is the timing of the "pulling of the trigger" and the flow of VLF revenues to cities and
counties. The Governor's May Revision document does not specifically speak to this item, but
LOCAL is concerned about the potential "gap" that may occur depending on the timing issue. In its
response to the Govemor's Revise, the LOCAL coalition stated that we would like a commitment that
the State will continue to guarantee the backfill during the time it takes to restore the VLF. Failing to
guarantee that backfill could mean the loss of hundreds of millions of dollars each month to cities
and counties. VLF funds are a primary source of revenue for public safety, health and emergency
services.
Realicmment:
The Governor is proposing a scaled back version of his Realignment proposal in the May Revision.
This proposal realigns fewer programs and lowers the proposed county share of cost in many cases.
The cost of the programs proposed for the revised realignment package in 2003-04 and the
dedicated revenue stream is approximately $1.8 billion. The Governor's proposal reconsiders his
original revenue plan to fund the Realignment package. The new revenues include a new 10.3% top
personal income tax bracket along with a $0.23 increase in the tobacco excise tax for 2003-04 and a
$0.40 increase in 2004-05. These new revenues are dedicated to the Realignment Fund and do not
affect the General Fund; thus, these revenues are not included in the Proposition 98 guarantee. The
LOCAL coalition has stated that while we are pleased the Governor scaled back the Realignment
proposal, we still have concerns and want to ensure that there is an adequate and stable revenue
source to fund the realigned services into the future.
(more)
Redevelopment AQencles:
The May Revise maintains the proposed $250 million cut to Redevelopment agencies in 2003-2004,
and also proposes a continued and increasing cut to Redevelopment Agencies in future budget
years. It is estimated that, under the Governor's Proposal, cuts to Redevelopment Agencies could
reach $1 billion annually in the next 15 years. The Governor's Proposal also requires local
government general fund revenues to backup a portion of this cut if the redevelopment agency
cannot produce the necessary revenue.
Public Safety:
The May Revision continues a number of public safety programs for local governments at full
funding, including $232.6 million (full funding) for the COPS/Juvenile Justice programs; $18.5 million
for grants to small and rural county sheriffs; and, $18.5 million in law enforcement technology grants.
The May Revision does maintain the elimination of $38 million in booking fee reimbursement to
cities.
Williamson Act:
The May Revision restores the Williamson Act subvention to $40.15 million. This program is a
fiscal incentive to maintain agricultural production land.
State Mandated ProQrams:
The Govemor's May Revision would continue the deferral of payment for mandate obligations for
prior years, as well as the 2003-04 costs of these payments. This will preserve the obligation of
local governments to provide the mandated activities as well as the obligation of the state to
reimburse those entities in the future, with interest. No date is provided in the May Revision for
repayment of these deferred funds to local entities. The May Revision also proposes the suspension
of 34 mandates. The Governor proposes repeal of one deferred mandate related to the Open
Meetings Act (Chapter 641, Statutes of 1986), that requires local governments to post agendas
regarding items to be considered at meetings, as well as the time and location of the meetings for an
annual savings of $32.9 million. It is the Administration's stated intention to draft the statutory
changes necessary to repeal 27 of the 34 mandates proposed for suspension in this proposal during
the development of the 2004-05 Governor's budget.
Transportation / Prop 42 FundinQ:
The Govemor's May Revision departs from an outright suspension of Proposition 42. The May
Revision would transfer $207 million of Proposition 42 revenue to transportation projects and the
balance of these funds estimated at $938 million would remain in the State's General Fund with an
obligation to repay the Transportation Fund by June 30, 2009. However, the departure from a full
suspension is the extent to which the Govemor's proposal is consistent with recent actions by the
Assembly Budget Subcommittee No.5 on Transportation. The Governor's May Revision would only
transfer $207 million of Proposition 42 revenue to Traffic Congestion Relief Fund Program (TCRP)
projects to meet existing allocations, while the Assembly action would dedicate $546 million towards
TCRP projects. Further, the Governor's proposal would capture the estimated $87 million in
spillover monies, otherwise designated to the Public Transportation Account (PTA), for the State's
General Fund, while the Assembly proposes to capture the PTA spillover for allocations under
Proposition 42. Contrary to Assembly Budget Subcommittee NO.5 actions, under the Governor's
proposal cities and counties, the State Transportation Improvement Program (STIP) and transit
would not receive any funding next year under Proposition 42. The $207 million dedicated to
transportation would only fund existing allocations for 121 of the 141 TRCP projects. Lastly, the
transportation budget cuts other than Proposition 42 proposed in January that effect the seismic
retrofit bridge program and other miscellaneous programs remain slated for elimination.
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Important Public Meetings to Discuss
909 Area Code Change Proposals
(R.95-04-043, 1.95-04-044)
As required by the Federal Communications Commission, the California Public Utilities Commission (CPUC) is
taking steps to adopt a contingency plan to provide for the possibility of an area code change for the 909 area code.
In 2000, the CPUC suspended plans to change the 909 area code. In June 2002, the North American Numbering
Plan Administrator (NANP A) filed with the CPUC a proposal for a new area code in the 909 area. Yau now have an
opportunity to hear about that proposa~ propose your own area code change plan, ask questions and express your
opinion to the Conunission staff.
The NANP A proposal includes:
I. An ar.... code solit with l\Pnroximately one-half of the current 909 area code receiving a new area cod~ -~. Both
mreless and wireljne telephones. fux.s. modem and er uses currently assi ed 909 numbers in the affected
g""""nhic area - receive the new 951 area cod Under this industry proposal, the portion of the 9091\(ea code
in San Bernardino County and a small portion of eastern Los Angeles County would keep the 909 area code. )The
portion of the current 909 area code in Riverside County would receive the 951 area code. More complete
descriptions of the proposal including maps are located on the Commission website, www.couc.ca.gov. or
2. A generalized overlay throughout the current 909 geographic area with all new telephone numbers assigned to
wireless and wireline telephones, fuxes, modems, and other uses receiving the new 951 area code. Callers dialing
within the 909 area code, from 909 to the new area code. or within the new 951 area code would have to dial I + 10
digits, including the appropriate area code, fur all calls.
Neither plan would affect the amount you pay fur telephone service.
You are invited to attend one of the following live public meetings to discuss these and any other proposals you wish to make
for providing additional telephone numbers for the 909 area code.
SATURDAY, JULY 12,2003 -10 A.M.
Riverside City Council Chambers, 3900 Main Street, Riverside, CA 92522
TUESDAY, JULY 15,2003 -7 P.M.
San Bernardino City Council Chambers, 300 North . D' Street, San Bernardino, CA 92418
WEDNESDAY, JULY 16,2003 - 2 P.M.
Murrieta City Council Chambers, 26442 Beckman Court, Murrieta, CA 92562
WEDNESDAY, JULY 16,2003 -7 P.M.
Moreno Valley City Council Chambers, 14177 Frederick Street, Moreno Valley, CA 92552
THURSDAY, JULY 17,2003 -7 P.M.
Ontario Senior Community Center, 225 East 'B' Street, Ontario, CA 91764
For additional infurmation regarding the public meetings, or to write to the Commission regarding these proposals, please
contact the Califurnia Public Utilities Commission Public Advisor's Office in Los Angeles as follows:
320 West 4"' Street, Ste. 500
Los Angeles, CA 90013
1_866-849-8391 . .g~1fIe..tt
Dublic.advisor.la@cDuc.ca.gov LU S~ '7 0 ~ 22 q q
( ~VL~ ')
The Commission's policy is to schedule hearings in locations that are accessible to everyone. If you need special
accommodations, such as interpreters, to participate at these meetings, please contact the Public Advisor's Office at least
five business days in advance at 415-703-2074 or 1-866-849-8390 (Voice), or TIY 415-703-5282 or 1_866-836-7825.
Local Jurisdiction Meetings:
City of San Bernardino Council Chambers
300 North 'D' Street
San Bernardino, CA 92418
July 11, 2003 - reserved 9am to 12 pm
Meeting time: lOAM
Riverside County Board of Supervisors - Board Room
4080 Lemon Street
Riverside, CA 92501
July 11, 2003 - reserved 12:3Opm to 4pm
Meeting time: 2 PM