On July 24, when state legislators ended months of partisan bickering and reached a new budget agreement, news reports showed images of lawmakers smiling, shaking hands and congratulating each other on a job well done.
But for local governments all across the state, there was little cause for celebration.
A provision included within the budget allows the state to borrow eight percent of the cities’ and counties’ property tax revenue for fiscal year 2009-2010. The total monetary impact to Santa Barbara County will be about $22 million, with $1.5 million of that coming from Santa Maria.
It’s an amount that the city, which recently addressed a $5.5 million budget deficit of its own, can’t cover with reserves.
“We can’t afford to take out another $1.5 million,” said Santa Maria City Manager Tim Ness. “They say it’s going to be a loan, that they’re going to pay it back in three years with interest, but we’re not sure that we believe that.”
Local governments have made efforts in the past to keep the state from raiding their coffers. Proposition 1A, an initiative that passed in 2004 with nearly 84 percent of the vote, bars the state from borrowing money from cities or counties unless they agree to pay it back with interest within three years.
The legislation also limits the state to borrowing from local governments twice within 10 years and only in times of an economic crisis. The provision triggered for the first time on July 1, when Gov. Arnold Schwarzenegger declared a fiscal emergency.
Ness said the initiative wasn’t perfect, but was a “preemptive strike” to keep the state from having carte blanche over local tax
revenues. Even so, the city will likely have to take an extended hit.
“They’ve triggered the maximum, and as soon as they pay the money back, at the end of 2013, they’re going to turn right around and borrow it back,” Ness said. “So we’re into a six- or seven-year deal here where they’re going to take the money and not give it back to us until quite a ways down the road.”
The city does have the ability to “securitize” the loan—meaning they’ll have the option of borrowing from the state against the money. But with the state’s bond rating close to junk, Ness said, the cost to do so would be astronomical.
As a result, the city will be forced to drop at least 12 full-time positions that were being held vacant in anticipation of the cuts.
Beyond that, the full impact is unclear, though Ness said it would be major. He expects the city will have to eliminate public safety positions and make more reductions to services and personnel. He said he’s working with city departments to put together budget reduction plans and expects to present options to the City Council by the end of next month. The city may also be forced to cut library hours and eliminate open positions.
Still, the situation could have been worse.
State legislators had designs on taking money from the Highway Users Tax Account—local gas tax money used for road maintenance—with no intention of paying it back. The proposal stalled largely because of a strong lobbying effort by the League of California Cities, schools, and business and labor groups.
Had such money been included, it would’ve meant another $1.4 million loss for Santa Maria and probably would’ve forced many cities into bankruptcy, according to Dave Mullinax, public affairs manager for the League of California Cities.
Still, Mullinax isn’t happy about what transpired in the capitol.
“The opinion writers and pundits up there in Sacramento are calling local governments the winners of this budget because they’d intended to take about $6 billion from us without any recourse or any guarantees of getting paid back. Let me say we certainly weren’t popping champagne bottles,” Mullinax said. “It was a budget that Californians in general were victims of. The Legislature should be ashamed of themselves, quite frankly.”
In addition to the property tax loans, the state will seize money from redevelopment agencies across the state, to the tune of $1.7 billion. Redevelopment agencies are prospective property tax funds earmarked by local governments to revitalize inner cities by demolishing run-down areas and enticing new businesses to relocate to blighted areas.
The state will take $460,000 from Santa Maria’s single redevelopment agency—the Town Center mall—currently in “maintenance mode.”
While the cities have no recourse to recover the property tax money, the league and the California Redevelopment Association are determined to fight the redevelopment withholdings in court. They’re in the process of filing a lawsuit claiming that the state action is unconstitutional.
The cities and counties are confident they’ll prevail in court. Last year, an attempt by the state to take $350 million in redevelopment funds was ruled illegal.
Either way, Mullinax expects the current budget to come undone by October.
“I think everyone is in agreement that the Legislature and the way we do governance here in California needs dramatic reform, and the Legislature is unable to reform itself,” Mullinax said. “They have their staff members come around and talk about what a great job their member is doing and how they’re looking out for us, but you peek behind the curtain and it’s a joke. They’re not looking out for us, and we’ve had to fight for everything we have every single time.”
While the HUTA money is safe for now, according to Ness, it’s only a matter of time before the state figures out a new strategy to make another grab for it.
“We believe that as soon as the state runs into another problem, that’s one of the first things on top of their priority list,” Ness said. “That cut could be re-tabled and could be made before the end of this fiscal year, so we’re kind of leery.” m
Contact Staff Writer Jeremy Thomas at jthomas@santamariasun.com.
This article appears in Aug 6-13, 2009.
