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lo. 2 THE LEAGUE ANALYSIS: HOW THE GOVERNOR'S PROPOSED CUTS WILL IMPACT CITIES The Transfer of Redevelopment Agency Low and Moderate Income Housing Funds Governor Davis proposes to shift to the state general fund $500 million in Redevelopment Agency Low and Moderate Income Housing Funds unencumbered as of December 1, 2002. The League believes that the $5(10 million estimate of unencumbered assets is overstated. According to the State Control- ler, in 2000-01, only $113 million was unencumbered, budgeted or otherwise designated for a specific project. It is also important to note that it's not unusual for the housing funds balance in a redevelopment project to accumulate over a period of years. The housing fund monies are not usually encumbered (contracted) until the end of the process of funding a project. Agencies commonly need 3 — 5 years to assemble the funding sources, the project site and to secure land use entitlements. During this 3 — 5 years, the accumulation of housing funds reserved or budgeted for a specific project is often unavoidable. As with many issues, the impacts of these proposed cuts are more complex than initially realized. At a time when the housing crisis continues to grow, the loss of these funds could mean a loss of 10,000 - 15,000 affordable housing units. It is unclear at this time to what degree Proposition 46 housing bond funds would makeup for this loss, but it is likely that any compensation will be modest because of the types of affordable housing allocations specified by Prop. 46. Cities should contact their local legislators and let them know how this proposed shift of monies will impact your ability to complete projects, and to provide affordable housing in your community. :) Mid -Year Transportation Cuts Eliminate $90 Million for Local Streets & Roads Maintenance: For cities and counties the most immediate hardship in the transportation cuts is the loss of $90 million budgeted in 2002 -03 for local streets and roads maintenance. Cities and counties received their first quarterly payment from the Controller's office on October 11, 2002, but the Governor's proposal would eliminate the remaining three quarterly payments (January, April, and July). As you may recall, although the entire shift of the sales tax on gasoline from the State's General Fund adopted in 2000 by AB 2928 (and constitutionally protected by voters in March 2002 as Proposition 42) was suspended for two years, the local streets and roads monies were held harmless in exchange for receiving no rehabilitation and maintenance funding in the out years of 2006-07 and 2007-08. However, the Governor's proposed cuts would immediately eliminate this fiscal year's funding estimated at a total of $90 million ($45 million each for cities and counties). Cities are urged to convey the impact to their city maintenance projects that these cuts represent. Legislators creed to know that in some cases, due to both critical needs and "use or lose it" provisions, many projects have already started in anticipation of receiving these funds. Telling these and other stories to your legislators can make a difference. Proposition 42 Funding: The Governor also proposes to eliminate the transfer from the State's General Fund of the entire Proposition 42 funding to transportation. This is estimated to save the Gene al Fund $1.046 billion in fiscal year 2003 -04. Proposition 42 authorized such a suspension during a state fiscal crisis. Hovvever, Proposition 42 also requires a two-thirds vote of the Legislature to institute the suspension. For transportation the Governor's proposal means a further delay in the shift of sales tax on gasoline for transportation purposes. This fund shift was to be allocated as follows: $678 million towards the Governor's 42 capital projects, $147 million for the State Transportation Improvement Projects (STIP), $147 million for cities and counties for local streets and roads, and $74 million for transit. Continued on page 3 PAGE 2/PRIORITY FOCUS Visit the League's Official Web Site••www.cacities.org