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6.1.F. - Page 17 State of California Dissolution of the Redevelopment Agencies As of February 1, 2012 Redevelopment Agencies across the State of California ceased doing business. This was the result of the California State Supreme Court upholding the validity of ABX1 26, legislation that went into effect on June 29, 2011. The State's objective in dismantling the Redevelopment Agencies is to shift a portion of its obligation to finance K-14 education from the State to local governments by dismantling Redevelopment Agencies. The law provides that certain qualifying debt obligations, such as principal and interest payments on bonds, will continue to be paid by the revenues generated from the former Redevelopment Agency but all discretionary programmatic activities will either cease or the sponsoring city will need to identify another funding source. Funds remaining after the debt obligations of the former Redevelopment Agencies have been paid will then be distributed to the taxing entities within the territory of the former Redevelopment Agency in rough proportion to the amount of property tax revenue they would have received had the Redevelopment Agency never been in existence. Redwood City expects to receive about$1.4 million of revenue from this source in FY 2012/13. The City's response has been to eliminate five vacant positions in our former Redevelopment Agency which will save about $692,000 annually and eliminate $1.47 million of supplies and services annual appropriations, mostly used for professional services. This in conjunction with the additional revenue the general fund expects to receive still shifts about $184,000 of budgeted expenditures in FY 2012/13 to the City's general fund. In FY 2011/12 the City's general fund absorbed about $2.4 million of expenditures that were incurred in connection with winding down the former Redevelopment Agency's activities. Public Employee Pension Reform On September 19, 2012 the Governor signed the Public Employee Pension Reform Act (AB 340) into law. This legislation dramatically reforms public employee pensions by reducing benefits and requiring employees to contribute more towards pension benefits. For future retirees, this law extends the normal retirement ages for non-safety and safety employees to 62 and 57, respectively, places a cap on final year compensation upon which pensions are calculated at $110,000 for those employees participating in social security and $132,120 for those that do not, and prohibits compensation spiking by excluding vacation and sick leave buyouts, bonuses, and overtime. For all participants, the measure eliminates the purchase of non-qualified service credits (airtime), prohibits retroactive pension increases, and prohibits pension holidays. Generally, AB 340 also establishes a standard for new members to contribute 50% of the normal cost of their pension benefit and eliminates for new employees the option for employers to pay the employee's share of pension benefit. Finally, the measure limits post-retirement public employment and those convicted of a felony in connection with their official duties would forfeit pension benefits. The reforms are expected to reduce future pension contributions, however it is expected that it may be some time before those savings are realized. Sales Taxes Sales tax is critical general fund revenue as it accounts for about 19% of total general fund revenues. As the local economy recovers from the 2007 recession, sales tax revenue is beginning to reflect this recovery increasing 8.5% from FY 2010/11. Most of this increase was attributable to increased sales from new and used vehicle dealers and from gas stations. The City continues to rely heavily on sales tax generated by businesses engaged in selling software. A threat to this revenue stream is the progressive migration of businesses delivering software to their customers electronically (via lnternet download or over dedicated phone lines)which then, under regulations adopted by the State of California Board of Equalization, provides that such products are no longer subject to sales tax. iii