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HomeMy WebLinkAbout14 RESOLUTION 03-07 01-21-03AGENDA REPORT NO. 14 01-21-03 MEETING DATE: JANUARY 21, 2003 TO: FROM: SUBJECT: HONORABLE MAYOR AND MEMBERS OF CITY COUNCIL WILLIAM A. HUSTON, CITY MANAGER ~ RESOLUTION NO. 03-07 SUMMARY The Governor is proposing to eliminate $4.2 billion of Vehicle License Fee (VLF) revenue pledged to cities and counties. The City of Tustin would lose $1.3 million of VLF in fiscal year 2002-03 and $2.8 million in fiscal year 2003-04 if the Governor's proposal is enacted by the State Legislature. The City's VLF revenue is used for general operations (police, fire, parks and recreation, public works, etc.). RECOMMENDATION That the City Council adopt Resolution No. 03-07. DISCUSSION One component of the Governor's proposals to eliminate the $35 billion State deficit is shifting $4.2 billion in VLF income away from cities and counties. When the State enacted legislation in 1998 to reduce the VLF in phases, it committed to cities and counties it would offset the loss of the income by "backfill." Since 1998, the VLF has been reduced by 67.5%, and the reduction in VLF paid by the public has been backfilled to cities and counties annually through the State General Fund. The Governor is ignoring the commitment made to cities and counties in 1998 and simply wants to keep VLF income that has been allocated for local services since 1935. VLF revenue in fiscal year 2002-03 is 10.8% of the City of Tustin's General Fund income. Under the Governor's proposal, the City would lose approximately $4.1 million over eighteen months. For fiscal year 2002-03, the Governor's proposal would reduce budgeted General Fund income by 3.7 percent. For fiscal year 2003-04, it would constitute approximately 7.9 percent. These percentages are based on the current adopted budget that can change based on what actual year-end expenditures are, changes in other income (up or down), etc. Keeping in mind the caveat that the magnitude of the loss of VLF can change with other factors taken into consideration, the following illustrates the impact of the Governor's proposal on the City's fiscal year 2003-04 General Fund budget: Fifty-two percent of expenditures are for police and fire services; If public safety expenditures were exempted from City budget reductions enacted in fiscal year 2003-04 to offset the loss of VLF, the other operating departments (not including the Water Enterprise Fund) would face budget reductions of up to 16.5 percent; v' Because of contractual obligations, the budget for fire services cannot be reduced; If the Police Department budget was proportionally reduced in fiscal year 2003-04, it would lose approximately $1.3 million. (This amount is based on a 9% reduction. If all departments are reduced equally except fire, the reduction to offset loss of VLF backfill is 9% in lieu of 16.5% when police and fire are exempted.) As indicated above, the numbers presented are based on the current adopted budget and an assumption that the fiscal year 2003-04 General Fund budget is unchanged. However, even if assumptions about actual expenditures being lower or actual revenues being higher are factored in, there is no escaping the fact that $4.1 million is a large amount of General Fund income. Resolution No. 03-07 calls upon the State Legislature to enact legislation which guarantees cities and counties will receive 100% of VLF income, not the 32.5% proposed by the Governor. It requests that action be taken to restore the full VLF as was provided for when the 1998 legislation was signed into law by then-Governor Pete Wilson. The 1998 legislation clearly provides it was the intent of the Legislature that the VLF be returned to the original levels if insufficient monies are available. Local agencies have received this vital source of income since 1935. This year alone, the City is losing $1.5 million to the Educational Revenue Augmentation Fund (ERAF) first mandated by the State in fiscal year 1992-93. This mandate, imposed when the State last had a major deficit, diverts General Fund property tax revenue to education. Since enacted, the City has lost $11.5 million to the ERAF. It is time for the State to quit using local agencies as a deep pocket to bail the State out of its self-imposed fiscal messes. RESOLUTION NO. 03-07 l0 12 15 16 2O 21 22 23 24 25 A RESOLUTION URGING THE CALIFORNIA LEGISLATURE TO REJECT THE GOVERNOR'S PROPOSED SHIFT OF LOCAL VLF REVENUES AND TO HONOR THE 1998 COMMITMENT TO RESTORE THE VLF WHEREAS, prior to 1935, cities and counties collected property taxes on moto_r vehicles to fund essential local public health and safety services; and WHEREAS, in 1935, the Legislature first enacted the Vehicle License Fee (VLF) Act, replacing the property tax on vehicles with a 1.75 percent fee charged against the value of the motor vehicle; and WHEREAS, in 1948, the rate of the VLF was increased to 2 percent of the value of the vehicle; and WHEREAS, in 1986, the voters voted overwhelmingly to constitutionally dedicate the proceeds of the VLF to fund city and county services; and WHEREAS, in 1998, a period of strong economic growth, the Legislature approved the use of a portion of the rapidly growing state General Fund to reduce the VLF payments of vehicle owners. This amount, known as the "offset," grew in future years to a 67.5 percent offset against the amount owed. The, amount paid to local governments in lieu of the reduced VLF payment is known as the "VLF backfill;" and WHEREAS, the 1998 legislation and subsequent enactments contain clear provisions that when insufficient funds are available to be transferred from the General Fund to fully fund the offsets and backfill amount that the VLF offset shall be reduced and VLF payments increased; and WHEREAS, VLF and backfill revenues constitute 11 percent of the City of Tustin's General Fund revenues; and WHEREAS, 52 percent of the City's General Fund expenditures are committed to police and fire services; and WHEREAS, revenues derived from the VLF and backfill are of critical importance in funding vital local public health and safety services; and WHEREAS, any failure by the Legislature to maintain the VLF backfill or restore the VLF will cause widespread disruption in local government services essential to the well-being of California citizens and their cities and counties; and WHEREAS, Governor Davis' proposal to divert $4 billion in local VLF backfill payments over the next 17 months fails to honor the 1998 commitment and is a direct assault on local services that will be felt by every California resident; and WHEREAS, shifting $4.2 billion in locally controlled revenues for local services is neither equitable nor fair. No state program or department has been asked to shoulder such a disproportionate share of the budget pain. These cuts come on top of the nearly $5 billion each year that is transferred from local services to fund state obligations. l0 12 13 15 16 1'7 18 19 2O 21 22 23 24 25 NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF TUSTIN, CALIFORNIA, that if the state General Fund can no longer afford the expense of part or all of the VLF "backfill," that the Legislature and Governor of California are hereby respectfully urged to implement the provisions of current law providing for the reduction of the VLF offset in bad economic times and to restore the VLF in an amount necessary to reduce the VLF backfill; and RESOLVED FURTHER, that the City of Tustin hereby expresses its profound appreciation to the legislators who support such VLF restoration legislation. PASSED AND ADOPTED at a regular meeting of the City Council of the City of Tustin on the 21st day of January, 2003. ATTEST: Tracy Wills Worley Mayor Pamela Stoker City Clerk