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PA-20 BUDGET from page 1 Fine Tuning Needed .............. The Legislature reconvenes August 18 and is scheduled to adjourn September 12. The last month of the session will be busy, as usual, but we can expect lawmakers to consider a number of proposals to correct or modify the state bud- get. In the legislation impacting local government there are a number of changes needed to ensure that the bills will conform to the intent and under- standing of their architects. There are also legislators willing to carry amendments to lessen the impacts on local government. A Sadly Flawed "Solution" In the final analysis, this was not a good state budget. While it begins to tackle the $38 billion budget deficit, it leaves a considerable chunk of the deficit to be resolved next year. The financial community has lowered the state's credit rating to the lowest of any state. While there were substantial cuts to programs, the deficit "solu- tion" relied heavily on one -time gimmicks, debt rollovers and borrowing. It may take a step in the right direction, but it does not solve the state's fundamental structural problem. Until this is addressed, we can expect this to happen again next year and perhaps with every business cycle in the future. It takes a Legislature and Governor with political will to resolve this problem. These two institutions in California do not have this will now, nor are they likely to have it in the foresee- able future. Next year's budget is estimated to have a $7.9 billion deficit. While state revenues have stabilized and have even grown a bit during the summer months, next year will require another scramble to put together a budget that will again have detrimental impacts on public services, including local government. The City Perspective On The 2003 -04 State Budget The following summarizes the key elements of the budget affecting California cities. Addi- tional details are available in a companion article, "Budget and Trailer Bills ". • Triple -flip. Once again, promises were made to cities that they would be kept reason- ably whole under the proposed "triple -flip" or "swap" proposal. This is the measure that swaps'' /2 cent of the Bradley -Burns sales tax for an equal amount of property tax. The state has made promises before; the most recent was the 1998 promise to continue to backfill cities for the vehicle license fee reduction. This promise was "solid gold" -- until the next reces- sion. The backfill is gone and there are new schemes to take its place. How long will the promised "triple -flip" last? This does not stabilize local government finance —just the opposite. • VLF Loan. This budget allows the state to take the scheduled vehicle license fee backfill payments for July (the June 20 — 30 obligations not paid July 10), August and Sep- tember, to help close the $38 billion deficit. The take away is constructed as a "loan" to the state. Meanwhile, the vehicle license fee "trigger" was pulled on June 20, increasing the fees collected back to their pre -1998 rate. The increase will be fully implemented on October 1 and this new revenue will go to cities and counties. In the budget, the state makes a "commit- ment" to pay back the "loan" (3 months of VLF backfill payments) after three years. The VLF loan arrangement is much preferable to the alternative — an actual cut of the backfill pay- ments to local government. Many people in the Senate leadership worked hard to make this loan provision happen and their effort is greatly appreciated. However, it is another promise, and given the state's fiscal instability, many will question as to whether the promise can be kept. • Redevelopment Cut. Redevelopment agencies were, and actually still are, under consideration for a revenue cut. The Senate version of the budget contained a $250 million cut. The Assembly version was reduced to a Continued on Page 7 PAGE 6 /PRIORITY FOCUS Visit the League's Official Web Site-- www.cacities.org