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M S A-09 BUDGETfrom page 1 6 8 6 6 sees 6 6 0 6 0 0 6666. 6 0 0 6 6 .......... 6 6686 6 0000 0 0 — VLF Payments Face New Jeopardy We learned Thursday that the Department of Motor Vehicles now views the 67.5% higher level of VLF collected in October (estimated between $469 — 600 million) as "money collected in error" — a position consistent with the Administration's view that the June 20 pulling of the VLF "trigger" was in error. The department further believes that the state is required by law to place a higher priority on issuing refunds to consumers who paid the full 2% VLF charge, than disbursing to cities and counties even the reduced, one -third level of current and future VLF receipts. In effect, the department's interpretation is that cities and counties who received the higher levels of VLF collected after October 1 were actually overpaid! Their correction plan calls for withholding VLF payments to cities and counties entirely during January and part of February, while the state accumulates sufficient funds to issue vehicle owner refunds. VLF payments to local governments at new rate would presum- ably start up again in late February or March. Senate proposal would finance the bonds over 8 years with the '/2 cent sales tax that was en- acted earlier this year as part of the budget "triple flip ". In that convoluted arrangement, the Bradley -Burns local sales tax was reduced by a half cent, the state sales tax was increased by a like amount, and the increased state tax was dedicated to financing $10.7 billion in deficit bonds. A key element in the Senate proposal is that the while the 8 year repayment increases the amount of annual debt service, it shortens the length of time needed to retire the bonds. For cities, a key consideration is that the Senate proposal extends the current and infa- mous "triple flip" law. As you recall, the current "triple flip" would affect local sales tax revenues for a period of 5 years, during which cities and counties are to be reimbursed for the sales tax loss with an equal amount of property taxes from ERAF accounts. In the new the Senate deficit bond proposal, the "triple- flip" lasts from 5 years to 8 years!! From a city perspective this doesn't appear to be progress, but rather a step or two backwards. This is an outrageous proposal. Consumer refunds are a state responsibility - they should be paid, but not by defunding local services. We are currently seeking additional informa- tion to determine how widely accepted is this approach — and what the Governor plans to do to make sure that local services don't experi- ence a complete, devastating gap in funding. But that's not the only impact under consider - ation in the State Capitol this week: Senate Offers "Triple Flip" Alternative Also this week, both the Assembly and Senate Budget Committees met to further consider the Governor's $15 billion deficit bond package, and a new Senate counter - proposal for the same amount. While the Governor proposes to pay off the deficit bonds with gen- eral fund revenues over 15 to 20 years, the The League testified at the Senate hearing that the proposal would not meet with much enthusiasm among city officials. Unless there was some mechanism to resolve the immediate dilemma faced by cities and counties — loss of 2 /3rds of the VLF backfill revenue starting on Wednesday of next week — the bond proposal did not offer much to meet city needs. What Next? City officials must deliver two clear mes- sages: To Legislators: Don't Come Home Until You Have Fixed The VLF Backfill Problem!!! To the Governor: Give Us Details of How You Will Keep Your Promise to Protect Local Government Services from Your Action to Cut the VLF Tax!!! Visit the League's Official Web Site -- www.cacities.org PRIORITY FOCUS /PAGE 5