COUNTY OF SAN MATEO

Inter-Departmental Correspondence

County Manager's Office

DATE:

April 15, 2003

BOARD MEETING DATE:

April 22, 2003

TO:

Honorable Board of Supervisors

FROM:

John Maltbie, County Manager

SUBJECT:

Legislative Report #3

State Budget Update - Information Only

With the announcement of a projected general fund budget gap of $34 billion for FY 2004 and the ongoing impasse, the rating agencies have continued to down grade the State of California bond ratings. Standards and Poor's stated" that this level of deficit would likely exceed the State's level of other borrowable funds at year-end, even if Governor Gray Davis proposed $3.4 billion midyear fiscal 2003 cuts are implemented;" Fitch stated "that the lower level of revenues would have a direct impact on cash flow and result in the State relying on the issuance of RAWs to meet its cash flow needs; and Moody's lowered its rating citing "the likelihood that the State will have great difficulty reaching consensus on the necessary fiscal adjustments during the upcoming budget session. The three agencies require a spending plan that includes reductions and tax increases before making any adjustments to the State's ratings.

The State is currently experiencing a $9 to $11 billion cash-flow problem and has been unable to market Revenue Anticipation Warrants (RAWs) due to its lowered ratings. The lower ratings generally preclude the traditional large institutional buyers from purchasing the State's RAWs.

Compounding the problem is the State Treasurers inability to sell $2.3 billion, the second in a total of $4.5 billion in tobacco securitization bonds due to a recent Madison County, Illinois ruling that ordered the nation's largest tobacco company to pay a $12 billion judgment. The judgement against Philip Morris resulted from a class action suit for misleading smokers that "light" cigarettes are less harmful. The $2.3 billion tobacco bonds are part of the State's current-year budget fix.

Returning from a 10-day spring recess, on Wednesday, April 23, 2003, Assembly Speaker Herb Wesson, Jr. will conduct a public hearing on "Restructuring State Finance."

1. Assembly Constitutional Amendment 7 (Dutra) Transportation Funding

Recommendation

Adopt a resolution in support of ACA 7 (Dutra) transportation funding from sales and use tax.

Background

The California Constitution conditions the imposition of a special tax by a city, county, or special district upon the approval of 2/3 of the voters of the city, county, or special district voting on that tax, and prohibits these entities from imposing an ad valorem tax on real property or a transactions or sales tax on the sale of real property. Existing statutory provisions and provisions in the California Constitution either impose or authorize the imposition of state or local sales and use taxes upon the gross receipts from the sale within the taxing jurisdiction of, or the storage, use, or other consumption in this jurisdiction of, tangible personal property.

Assembly Constitutional Amendment 7 would authorize a local transportation agency and a regional transportation agency, as defined, notwithstanding any other provision of the California Constitution, to impose an additional sales and use tax for a period of 20 to 30 years, as specified, at a rate of 0.5% exclusively for transportation purposes within the jurisdiction of the local or regional transportation agency if the additional tax is approved by 55% of the voters of the jurisdiction voting on the proposition to impose the tax.

Discussion

The Metropolitan Transportation Commission Final 2003 Legislative Program indicates MTC's priority 1 support for an appropriate measure to reduce the 2/3rds vote requirement for transportation taxes. According to the MTC Program, "Currently, 17 counties representing approximately 85% of the state's population have passed local sales tax measures. Of these, 14 will face reauthorization within the next 10 years. In the Bay Area, Marin, Sonoma and, most recently, Solano County all failed in their efforts to enact sales taxes with 2/3rds majority. Given the scarcity of new state or federal funds available for transportation in the near future, it is essential that local governments be given greater flexibility to raise their own funds."

San Mateo County's current half-cent sales tax for transportation will expire in 2008. Efforts to reauthorize the transportation tax have begun.

C/CAG is in support of ACA 7.

A similar bill, SCA 2 (Torlakson) would reduce the 2/3rds vote for transportation related sales tax to a simple majority. It would also require 25% of such funds to be used for smart growth planning. C/CAG and several other transportation groups have asked that the smart growth provision be amended. CSAC has taken an oppose-unless-amended position for SCA.

While CSAC supports the reduction from 2/3rds to a simple majority for transportation related sales tax increases, it opposes the restriction that 25% of those funds be dedicated to smart growth planning. CSAC opines that use of the funds be left to the discretion of local governments.

The Legislative Committee recommends support for ACA 7 (Dutra).

Vision Alignment

Support of ACA 7 (Dutra) furthers the County's commitment to redesign our urban environment to increase vitality, expand variety and reduce congestion and furthers Goal #10 and 12 to promote public transportation and land use decisions as they relate to transportation.

Fiscal Impact

With the potential reauthorization of San Mateo County's half-cent sales tax for transportation, the impact of this legislation could be significant.

2. Assembly Bill 1546 (Simitian) Four Dollar Vehicle Fee

Recommendation

Adopt a resolution in support of Assembly Bill 1546 (Simitian) to authorize a $4 fee on motor vehicle registration.

Background

The motor vehicle license fee (VLF) is a fee on the ownership of a registered vehicle in California, in lieu of a personal property tax. Until 1934 motor vehicles were subject to the property tax administered by local governments. In order to create a uniform system of taxation the state-imposed the VLF and exempted vehicles from property taxes. The revenues were returned to local governments, half to cities and half to counties based on population for discretionary use.

Assembly Bill 1546 (Simitian) would enable the City/County Association of Governments of San Mateo County (C/CAG) to impose an annual fee of up to $4 on motor vehicle registrations within the County. The funds would be used for local programs to mitigate the environmental impacts of automobiles: congestion relief and storm water pollution. The funds would be subject to audit.

The fee would be imposed upon a majority vote of C/CAG. C/CAG would be required to develop a work plan with performance measures. No more than 5 percent of the fees can be used for administrative costs. And the funds would be subject to audit.

Discussion

Related Measures

Assembly Bill 574 (Yee) would authorize the City and County of San Francisco, by ordinance, to impose a fee on vehicle registration to funds street and highway improves. The measure does not specify the amount of the fee nor duration of the authority.

Assembly Bill 204 (Nation) would establish a $4 fee on vehicle registration in the nine Bay Area counties to fund projects through grants to mitigate the adverse environmental impacts of cars. The imposition of the fee would require a majority vote of the board of supervisors in each participating county, yet the funds would be allocated by state agencies --(90 percent) by the San Francisco Bay Area Conservancy and (10 percent) by the State Water Resources Control Board to fund local and non-profit agency projects. Priority would be given to those projects that "most effectively" reduce, remediate or mitigate the adverse water quality and environmental impacts caused by motor vehicles. It is estimated that the fee could generate as much as $20 million annually.

Other Fees
The Department of Motor Vehicles already collects a number of fees at the time of vehicle registration, including a $1 fee for abandoned vehicle abatement, $1 vehicle theft deterrence, $4 for the Sacramento Air Quality District, $2 South Coast Air Quality Management District and the AB 434 (Chapter 807, Statutes of 1991) Bay Area "Transportation Fund for Clean Air" fund.

The Board's Legislative Committee recommends support for AB 1546 (Simitian).

Vision Alignment

Support of AB 1546 (Simitian) further the County's commitment to preserve and provide people access to our natural environment to achieve Goal #14 important natural resources are preserved and enhanced through environmental stewardship; and #22 county and local governments effectively communicate, collaborate and develop strategic approached to issues affecting the entire County.

Fiscal Impact

If fully imposed, the $4 fee is estimated to generate $3 million annually; $12 million over the four-year term of the authority. No County cost.