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HomeMy WebLinkAboutMINUTES - 07152003 - U.1 TO: BOARD OF SUPERVISORS CONTRA COSTA FROM: Gayle B. Uilkema Supervisor District II ', COUNTY DATE: July 15, 2003 SUBJECT: County Position on VLF Backfill Payment SPECIFIC REQUEST(S) OR RECOMMENDATION(S) &BACKGROUND AND JUSTIFICATION RECOMMENDATION[& CONSIDER whether or not to support legislation that would defer Vehicle License Fee offset backfill payments to counties and cities until the time that the full VLF revenues are received by the State or a State Budget is enacted,whichever is sooner. BACKGROUND/REASON(S) FOR RECOMMENDATION(S): The Urban Counties Caucus (UCC) will be holding a special a mergency m eeting o n T hursday, Ju ly 17th t o consider whether or not it should adopt a position on deferral o f p ayment o f t he V LF b ackfill b y t he S tate Controller due to counties for the gap period (until approximately September 20`x'). As Contra Costa County's representative to the Urban Counties Caucus, I need to be able to express the County's position on this issue. The Controller is obligated under law to make the backfill payments, absent a change in law. He has informally agreed to withhold the gap backfill for a short while to allow the Legislature time to work on this issue. In fact, the Controller sent a letter to counties on July 9`h stating that he would make the July VLF payments just through June 19(when the trigger was pulled). Even though all the key budget balancing proposals assume that local governments will not receive the backfill payments for the gap period, there is no current statutory proposal authorizing the Controller to withhold these payments. This is a potentially huge problem for counties if the Legislature builds the gap amount into the eventual Budget and the backfill money has already been distributed to counties and cities. The State will then have limited methods to recoup these funds other than another property tax raid or further county program cuts. CONTINUED ON ATTACHMENT: YES SIGNATURE: RECOMMENDATION OF COUNTY ADMINISTRATOR R OM ENDATI OF BOARD COMM! APPROVE OTHER -' SIGt-"ATURE(S): ACTION OF BOARD ON JULY 15, 2003 APPROVED AS RECOMMENDED OTHER CWMEM whether or not to support legislation that would defer Vehicle License Fee offset payments to counties and cities until the time that the full Vehicle License Fee revenues are received by the. State or a State Budget is enacted, whichever is sooner; The Board provided directions consistent with the Board Order; no formal action was taken. Sir: Rollie Katz, P.O. Box 222 (P.E.U. Local 1) Martinez. VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A X UNANIMOUS(ABSENT --- - ) TRUE AND CORRECT COPY OF AN AYES. NOES: ACTION TAKEN AND ENTERED ABSENT: ABSTAIN: ON MINUTES OF THE BOARD OF DISTRICT III SEAT VST SUPERVISORS ON THE DATE SHOWN. Contact:Sara Hoffman,335-1090 ATTESTEDJULY 15, 2033 cc: CAO JOHN SWEETEN,CLERK OF Urban Counties Caucus j� THE BOARD QF ,,SU,pERVISORS DEIfi= BACKGROUND/REASON(S) FOR RECON MENDATION(cent'd): At their July 1 Ota'meeting,UCC Board Members had a lengthy discussion about what to do about this gap issue. Although it is questionable if counties have any obligation to help resolve the State's fiscal problem, all the budget proposals to date demonstrate that we will be a significant part of any solution. There is little confidence that any"deal" for repaying any local government"loan"will be honored in the future. Some Supervisors also believed that there should be some immediate benefit to counties for offering assistance to the State. The most pressing problem is the issue of the Controller's obligation to continue making the backfill payments since the backfill revenue is included in all major budget proposals. If this is not addressed, counties may be forced to either remit the funds back to the State, which the Sacramento advocates believe is an unlikely solution, or the Legislature will make up the difference by increasing the ERAF transfer from cities and counties or by enacting significantly larger local cuts. Either method of recouping the backfill payments could easily lead to permanent reductions in County resources. There seemed to be agreement that counties do not want to encourage the Legislature to take more local property tax. Further, if counties offer to assist in a remedy by suggesting that the payments be held in trust until the budget issue is resolved, it could generate good will and give us a platform for discussing limitations on county hits. This strategy would not preclude any other negotiations on making the backfill gap funds a"loan"to the State, and might actually facilitate that discussion. Supervisor Cox (San Diego)moved that the Caucus support legislation that would defer backfill of the Vehicle License Fee offsets until the time that the full VLF revenues flow directly to cities and counties or a state budget is enacted, whichever is sooner. Caucus members supported the motion on a 4 to 2 vote;however,Urban Counties Caucus policy requires consensus. It was agreed that Supervisors should consult with their Boards on this issue, and the matter will be reconsidered on July 17`x'. Payment of the VLF gap backfill to counties was discussed within the context of the"Triple Flip"proposal, intended to create a dedicated revenue stream to finance payment of deficit bonds. The State would dedicate a quarter or half cent of local sales tax to repay the bonds. Cities and counties would get back a like amount of property tax funneled through ERAF. The latest information indicates that the sales tax/property tax swap would be temporary, lasting only until the bonds are paid off, and that it would be recalibrated annually to avoid creating local government"losers". The other piece of the triple flip plan is that cities and counties would forego the VLF backfill payments for the gap period between the pulling of the trigger on June 20 and ending about 90 days later. CSAC and the League have been working with the Department of Finance on a concept that would repay these funds not later than August 15, 2006. They say that this"loan"would be local government's full contribution to the Budget solution but none of the budget proposals so far reflect this limitation(see attached comparison chart on budget balancing proposals). Other issues affecting local government associated with the triple flip proposal include: 1) Local governments are supposed to get property tax in exchange for the sales tax. However, at this point it likely that the State's financial situation next year will be as dismal as it is this year. What would keep the Legislature from withholding the property tax next year or in any future year if the State is having fiscal difficulties? 2) With regard to repayment of the gap backfill funds(about$852 million statewide and $12.3 million for Contra Costa), language has been drafted that would make the payment a continuous appropriation so it is not part of a future budget vote. However, since it would just be a statute, a future legislature could change it. CSAC says that counties could bond against the offset payments, like Orange County did when they dedicated part of their VLF proceeds to repayment of their recovery bonds. Then the Legislature would not be able to withhold these funds because they would be impairing a contract. Is it cost effective to securitize or bond against these funds for a three year period? 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