HomeMy WebLinkAbout8.2 UpdtBudgetFY 03-14CTTY CLERK
AGENDA STATEMENT
CTTY COUNCZL MEETTNG DATE: September 2003
SUBJECT:
Update on the State Budget for Fiscal Year 2003-2004
Report Prepared by: Richard C. Ambrose, City Manager
ATTACHMENTS: Budget Change Form
RECOMMENDATION: ~Receive Report and Approve Budget Change
FINANCIAL STATEMENT: See Report.
DESCRIPTION: This report will provide Council with the information that is known to date
regarding the State Budget and the impacts to the City's Fiscal Year 2003-2004 Budget.
IMPACTS ON CITY'S ADOPTED BUDGET FOR FISCAL YEAR 2003-2004: On July 27, 2003,
the California Senate passed a budget resolution. The Assembly followed suit with a slightly modified
version of the budget resolution and this budget was signed into law by Governor Davis on August 2,
2003. While the budget begins to tackle the $38 billion deficit, it relies heavily on one-time solutions,
debt rollovers and borrowing to close the deficit; plus there will still be a remaining gap of about $8
billion in next year's budget. This means the threat to cities is not over yet. As such, since the State's
problems have not been fully mitigated, cities can expect potential budget impacts in Fiscal Year 2004-
2005. The chart below provides a very brief summary of the impacts to the City in the current fiscal year.
ITEM / FUNDING SOURCE
AMOUNT CITY BUDGETED FOR
FISCAL YEAR 2003-2004
POTENTIAL IMPACT ON THE
CITY'S ADOPTED BUDGET FOR
FISCAL YEAR 2003-2004
Vehicle License Fees - General $2,218,000 Estimated Loss of $456,000
Fund
N/A
Triple Flip (effective 7/2004)
Booking Fees by County -General
Fund
SB 90 State Mandated Cost
Reimbursements - General Fund
State Law Enforcement Grant -
Fund 202
$135,570 to be billed by County;
$60,748 reimbursement from State
$0 for Fiscal Year 2003-2004 (State
has deferred Payment of these until
at least FY 2004-2005)
$100,000
$0 (The State ordered the
suspension of these funds during
Fiscal 2002-2003)
Traffic Congestion Relief Funds -
Fund 240
TOTAL ANTICIPATED REVENUE LOSS TO CITY FOR
FISCAL YEAR 2003-2004 =
No Impact on City for FY 03-04
Revenue reinstated - No impact; City
included revenue in FY 03-04 Budget
No additional impact, since the City
has budgeted zero revenue
Revenue reinstated - No impact
No additional impact, since the City
has budgeted zero revenue
$456,000
COPIES TO:
G:XAgendas Council Meefings~Agenda Strut FY03-04BdgtUpdate.DOC
ITEM NO.
More action at the State level will be required to work-out some of the details as 'to how implementation
of various components of the State's budget will occur. The Senate and Assembly still need to reconcile
their differing versions (at sessions that began on August 18, 2003). Provided in this report are highlights
regarding some of the major items included in the State's Budget, as signed by the Govemor:
Vehicle License Fees (VLF): The estimated loss to the City in Fiscal Year 2003-2004 is $456,000. In
June, the State "pulled the trigger" to administratively raise vehicle license fees to their original, pre-1999
level. The increase should be fully implemented by October 1 st; there may not be any backfill of the lost
VLF revenues from when the "trigger" was pulled in mid-June, until full receipts are received beginning
in October 2003. Although the restored vehicle license fee revenue will go to cities and counties (the
historic recipients of this revenue), the budget allows the State to take the scheduled vehicle license fee
backfill payments for July, August, and September ($825 million statewide). AB 1768, one of the budget
trailer bills, specifies that the payment of backfill money that is owned to local governments during this
gap, be deferred until August 2006. The repayment at that time is without interest. In addition, the State
withheld the VLF backfill payment for the period June 20 - June 30 (the last 10 days of the fiscal year
after the VLF trigger was pulled).
As mentioned above, the "full story" about this budget has not yet unfolded. For example, two initiatives
have been proposed and have been cleared for circulation by the Secretary of State. One would eliminate
Vehicle License Fees and would ban vehicle license fees; the other initiative would amend the state
Revenue and Taxation Code to set the annual license fee for owning a vehicle (except for a trailer, semi
trailer or trailer coach) at $1.00 (one dollar), instead of the current rate of 2% of the vehicle's current
market value. Should either of these initiatives continue to move forward, proponents would need to
gather sufficient signatures for ballot consideration by January 12, 2004.
Triple-Flip: The triple flip does not officially take place until July 1st of Fiscal Year 2004-2005. The
triple flip "swaps" 50% (or ½ cents) of sales tax revenues for an equal amount of property tax revenues.
The ½ cent sales tax lost at the local level is then reenacted at the State level. The State would dedicate
the "flipped" proceeds to repay the deficit reduction bonds. This illustrative term was coined to
graphically explain the process:
Flip No. 1: The State takes away 50% of the local sales tax rate and dedicates it to secure bonds covering
nearly $12 billion of the State deficit. This "flip" would be in effect until all the deficit bonds are paid off
(estimated at between five and six years).
Flip No. 2: The State replaces this lost revenue to cities and counties with the ERAF property tax money
that was taken from cities and counties in the early 1990's to help fund education.
Flip No. 3: Using ERAF money to backfill the sales tax taken from cities then increases the State's
obligation to fund schools from other State general fund resources.
Since Sales Tax is received monthly and Property Tax is received in late December and late April, there
will be some loss of interest income to the City (and a gain for the State) because of the cash flow
differences. As currently outlined, the "steps" of the triple-flip will work as follows:
1. On August 15th of each year that the "triple flip" is in effect, the State Board of Equalization will
give the Director of Finance (DOF) an estimate, based on the prior fiscal year, of the amount of the
"countywide adjustment amount." The "countywide adjustment amount" is defined as the
combined total sales tax revenue loss to the county and each city in the county for the year.
2. On September 1st, the DOF notifies the county auditor of the portion of the "countywide
adjustment amount" to be allocated for each city and county.
3. In January and May of each year (date not defined as of this writing), the County Auditor
allocates one-half of the amount identified on September 1st to cities and counties.
4. At the end of the fiscal year for which an adjustment amount was determined (date not defined
as of this writing), DOF recalculates adjustment amounts based on actual amounts and notifies the
County Auditor of the recalculation.
5. In the fiscal year following the year in which a recalculation was made (date not defined' as of
this writing), the County Auditor is to allocate the 'excess amount, or for overpaid amounts,
transfer money back.
This scheme is being billed as a "hold-harmless" proposal for local governments. This is not entirely
accurate. There are two problems that get in the way of that claim:
1. Potential Cash Flow Problems: The property tax reimbursement payments for the sales tax loss
will only be paid twice a year, as property tax is now paid. Sales tax payments, on the other hand,
are made monthly.
2. Lost Interest: With property tax reimbursement checks made only twice a year, local
governments will lOse the interest earnings on the sales tax they would have had from the monthly
payments.
In any case, the "triple-flip" will not happen prior to July 1, 2004, thus it would not have any impact to the
City until Fiscal Year 2004-2005. Since this does not become effective until next July 1 s, there is still the
prospect that it could be "fine-tuned" for reasonableness. Moreover, during the State's budget
deliberations, a legal opinion was rendered that suggests the State could do its own internal revenue swap
and dedicate a portion of State revenue for the deficit reduction bond pay off - a "single flip" instead of
this very complicated "triple flip" scheme. Although not put into writing, Assembly members verbally
committed to looking into this over the next several months before the triple flip provision goes into
effect.
Booking Fees by Counties - The revised version of the State budget apparently will still allow counties to
impose booking fees on cities. The, City currently has in its budget to pay Alameda County approximately
$136,000 in booking fees for Fiscal Year 2003-2004. However, the revised version of the State budget
would still allow for partial reimbursement of booking fees to the City from the State, which the City
budgeted to receive $60,748 in Fiscal Year 2003-2004.
Other Cuts - Details released about other potential cuts that could affect cities and would impact the city
of Dublin are as follows:
ao
Continued Suspension of SB 90 State Mandated Cost Reimbursements - These are
reimbursements from the State for costs incurred by cities as a result of actions by the State
that require cities to perform certain duties, such as the preparation of Council meeting agendas
and quarterly investment reports. The City did not budget any of the SB 90 revenue for Fiscal
Year 2003-2004.
State Law Enforcement Grant - This grant will still be funded in Fiscal Year 2003-2004.
The City budgeted $100,000 in Fiscal Year 2003-2004, and it appears that although the State
Level allocation has been reduced, this funding remains intact.
c. Law Enforcement High Technology Grants - The State has cut funding for these programs.
The City anticipated this action and assumed no funds would be received.
d. Continued Suspension of Traffic Congestion Relief Funds - The City assumed no funds
would be received in preparing the Fiscal Year 2003-2004 budget.
At this time, it appears that the City will receive approximately $456,000 less in revenue (VLF) than
anticipated. The City's Fiscal Year 2003-2004 Adopted Budget included a Reserve for Economic
Uncertainty in the amount of $846,531. It is recommended that the City Council authorize the use of
$456,000 from these Reserves to balance the Fiscal Year 2003-2004 City Budget. Staff plans to come
back to Council with more information and/or budget adjustment recommendations, if needed later in this
Fiscal Year.
CITY OF DUBLIN
BUDGET CHANGE FORM
CHANGE FORM #
New Appropriations (City Council Approval Required):
~/ From Reserves for Economic Uneertainty (Fund 001)
From New Revenues
Required)
Budget Transfers:
From Budgeted Contingent Reserve (1080-799.000)
Within Same Department Activity
BetWeen Departments (City Council Approval
Other
Name: Motor Vehicle License Fee $456,000 Name: $
Account #: 001.555.001 Account #:
Name: Name:
Account #: Account #:
Name: Name:
Account #: Account #:
Name: Name:
Account #: Account #:
Name: Name:
Account #: Account #:
FinMgr/ASD: C.~ fi~.~ ~)~ A~f Date:
- ~igna~-ur~ -~
REASON FOR BUDGET CHANGE ENTRY: To reflect the impacts of the passage of the State Budget on the
City of Dublin
City Manager: Date:
Signature
Mayor: Date:
Signature
Posted By: Date: Signature