AgdaPkt 2010-01-25 clsd and regular

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'State ofthe State' Continued from Page 1... 9A Page 2 "This is just the kind of Byzantine proposal that we've seen from the state over and over again in recent years that erodes voter confidence in state government, n said Chris McKenzie, League of California Cities executive director. "Destabilizing local infrastructure funding in this way puts California on the wrong track to reinvigorate the economy." As recently as 2006, voters went to the ballot box and supported the protection of gas tax revenues for all transportation purposes including transit. Recent court decisions have also clarified that prior legislative attempts to raid transit dollars were illegal. Public transit is a vital component of California's transportation system and for many residents it Is their only mode of transportation. Cities remain greatly concerned that transportation funds that are proposed to be allocated to local governments from the additional excise tax would be more vulnerable to future legislative raids. Just last year, the Governor proposed taking almost $1 billion of transportation excise taxes from local governments to fund state budget obligations. This proposal was narrowly defeated in the final hours. The League has reviewed the components of the budget for potential city impacts. The Governor proposes to resolve a $19.9 billion state budget deficit ($6.9 billion in FY 2009-10, and $13.3 in FY 2010-11) with $8.5 billion in cuts, pursuing $6.9 billion in additional federal funding to get a "fair share- for the state, and $3.9 billion through various funding swaps, fees and other mechanisms. Below is the staffs preliminary analysis of issues of importance to cities. Transportation Proposition 42 and HUTA. The Governor proposes to eliminate the 5 percent (temporarily 6 percent through FY 2010-11) sales tax on gas (Proposition 42), and partially replaces the funding by increasing the excise tax on gas (Highway Users Tax Account or HUTA) by 10.8 cents. This would bring the total excise tax to 28.8 cents per gallon, whereas the existing combined Prop 42 and HUTA taxes currently total 34.4 cents per gallon. The League has not yet reviewed language for this proposal, but it has been represented by the administration as not changing the current distribution of HUlA, funding levels for the State Transportation Improvement Program (STIP) or local streets and roads in FY 2010-11. The new 10.8 cent excise tax would be allocated as follows (in FY 2010-11): . $629 million for the STIP; . $629 million for local streets and roads (identical to Proposition 42 amounts); and . $603 million for the General Fund for transportation bond debt service. It is uncertain how the new distribution will impact local funding in future years. Since the fund source would no longer be from the state sales tax on gasoline, these funds would no longer be protected by Prop. 42 and Prop. 1A (2006). Instead, the Governor's administration maintains that these funds would be protected by Article XIX of the state constitution - the same law that protects current 18 cent per gallon Motor Vehicle Fuel Excise tax allocations. The Governor's budget summary does indicate that the excise tax will be adjusted in future years to cover future bond debt. Although there is no mention in the budget proposal. the Administration assures us the proposal only affects the 5 percent (temporarily 6 percent) state sales & use tax rate and would leave Prop 172, county realignment, locally adopted add-on rates and the local Bradley Burns rates in place on sales of gasoline 2