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9,A-r6 BUDGETfrom page ................ ............... No written version of the budget is likely to surface until the special session planned for the evening of Sunday, July 26, making detailed analysis difficult at this stage. We do know that, as we reported last week, the "Triple Flip," will swap "'/2 cent of the Bradley -Bums sales tax for an equal amount of property tax. The'/ cent sales tax lost at the local level is then reenacted at the state level. This accomplishes two tasks. First, the state can dedicate, to the satisfaction of the financial community, a "new," state - enacted, %: cent sales tax, to fund the deficit reduction bonds for a period of 5 years to help finance $10.7 billion of the state budget deficit. Second, and most importantly for the Republican caucuses in the Legislature, it does not raise the overall state tax burden. The League strongly opposes this proposal. While it is billed as a "hold- harmless" proposal for local governments, the League is deeply concerned about its consequences for local revenues. There are clear cash flow implications: the new sales tax reimbursements would be paid on a twice- yearly basis, as property tax is now paid, as opposed to the monthly reimbursements that now occur under the current sales tax structure. If the proposal is really designed to be revenue neutral, it must compensate local governments for the loss of interest income due to the delays in the distribution of revenue to cities through the less frequent property tax distribution system. redevelopment agencies. It is the League's under- standing that the proposal to cut the $250 million will inrlude an option for a city or county to pay for the redevelopment cut with any other revenue available, if necessary. There may be other cuts that we are unaware of at this point, since language and other details are not available at this writing. We will provide more informa- tion on the budget package, including talking points for city officials, on the State Budget page on the League's website fwww.cacities.ora d t . What's Next? Senators Burton and Bruits indicated that this proposal will have the requisite 27 votes in the Senate when it is taken up for a vote on Sunday evening. The Assembly remained relatively inactive during this budget negotiation, choosing to wait for the Senate to forge an agreement. No schedule has been an- nounced for the Assembly to consider the Senate package, but it would likely be early next week. What This Package Means for Local Govern- ments Once again, local governments are being used to balance the state budget. While legislators clearly "heard us" on the need to protect local services, and have attempted to structure a package that minimizes cuts, the package does indeed "dip into" local re- sources. VLF "Gap" Funds Loaned, and RDA "Optional" Cut Further, the Burton- Brulte package contains what is being billed as the "VLF Loan," wherein the state would stop VLF backfill payments to local govern- ments (about $852 million for cities and counties), and then pay those local governments back in three years for the loss of revenue. Again, local govern- ments would have to finance this gap in cash flow through whatever means they have available. The League maintains that any halt to VLF backfill payments is unconstitutional, and any "loans" extended to the state through these funds should be repaid with interest to compensate financing costs. Finally, the package calls for a $250 million cut to The lesson is clear: stable funding for local services is at risk in the current state -local fiscal relationship. Last weekend the League board of directors voted unanimously to support a ballot measure to give local government protection from the fiscal ups and downs of state finance. (See "League Board Votes Unani- mously to Sponsor Initiative ".) The ballot measure will be the League's primary focus for the next 18 months. It will require the concerted support of all city officials to get behind the measure in word and deed. The alternative to a ballot measure that strengthens constitutional protection for local funds is to continue business as usual, with local governments providing the "bailout" to state government in times of crisis. PAGE 8 /PRIORITY FOCUS Visit the League's Official Web Site -- www.cacities.org