AgdaPkt 2008-01-28 Clsd and Reg - Laserfiche WebLink

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9A Page 2 'Budget' Continued from Page 1... Echoing his remarks in his State of the State address Tuesday, Jan. 8, Gov. Schwarzenegger unveiled his Budget Stabilization Act, a constitutional amendment that would establish a mechanism to cap spending when revenues are high, helping prevent future deficits. The Governor outlined a two-pronged approach to deal with both the projected budget deficit for the current fiscal year (2007-08) and the structural deficit in FY 2008-09. Governor's Proposed Solution to FY 2007-08 Imbalance In the FY 2007-08 budget the Legislature passed last August, the Governor projected a $4 billion surplus at the end of the year. However, because of the housing slump and subprime mortgage crisis, state revenues have dropped to such a level that there is no surplus, and the state lacks funding to fulfill its current financial obligations, To close this gap, the Governor announced that he will sell the remaining $3.3 billion in Economic Recovery Bonds (ERB) by February 2008. For local governments, the effect is that the anticipated sunset of the triple flip mechanism will be delayed several years, to 2012 or beyond. The triple flip mechanism was established by Proposition 57 (2004), the Economic Recovery Bond Act. It involves taking a quarter-cent of the local sales tax to repay these bonds and reimburses local governments' losses on a dollar-for-dollar basis with property tax. As another means to address the projected shortfall, the Governor proposed cutting $217 million from state agencies. The 10 percent across the board to state agencies and programs cuts Gov. Schwarzenegger proposed will take effect March 1, 2008. He is also seeking to delay payments on $6.24 billion in funding intended for a variety of existing programs including; K-12 schools, state teachers' supplemental benefits and various Medi-Cal and other health programs. Proposal Includes Delay in Highway User Tax Payments The Governor is proposing to delay payment of approximately $500 million of payments of Highway Users Tax (per gallon Gasoline Excise Tax) payments to local governments. Cities and counties receive about $100 million per month of these revenues. The Governor has proposed to suspend these payments for a five-month period (April-August 2008) to be paid in full without interest in September 2008. The League is analyzing this proposal for impacts on cities. The Administration is citing the authority to delay payment pursuant to Section 6 Article 19 of the California Constitution. which permits borrowing of these funds under certain conditions but requires repayment either within 30 days of the adoption of the budget bill for the subsequent fiscal year or within three years, (At this point, the proposal is suggesting the shorter pay-back period.) This section of the Constitution also authorizes the Legislature to establish a loan program to offset the temporary losses experienced by local government. Note that these are revenues from the Motor Vehicle Fuel Tax (also called the Gasoline Excise Tax or the Highway Users Tax) allocated among local governments and state transportation funds pursuant to California Streets & Highways Code 932104-2108. These are not revenues derived from the Proposition 42 sales tax on gas. Governor's Proposed Solution to Fix FY 2008-09 Imbalance For the fiscal year that begins July 1, the Governor proposes to cut funding across all state agencies by 10 percent. These cuts have many significant impacts on state programs, including education, with the suspension of Proposition 98. Gov. Schwarzenegger has not proposed to take property taxes from local governments under Proposition 1A (2004), nor has he proposed to taking any transportation funds under Prop. 42, protected by Proposition 1A (2006). Across the Board Cuts Impact Public Safety Programs Payments to counties for Local Detention Facilities (Gov Code Sec 29552) have also been reduced by 10 percent to $31.5 million. Current law stipulates that in any year the budget 2