COUNTY OF SAN MATEO

Inter-Departmental Correspondence

County Manager's Office

DATE:

July 31, 2003

BOARD MEETING DATE:

August 5, 2003

TO:

Honorable Board of Supervisors

FROM:

John L. Maltbie, County Manager

SUBJECT:

County Manager's Legislative Report #12

1.

STATE BUDGET UPDATE

Breaking the nearly month-long impasse, the State Senate approved the $100 billion 2003-04 State Budget on Sunday, July 27. The Assembly completed their work on Tuesday, July 29 after a record setting 29-hour session, approving the budget bill (Assembly Bill 1765) and 22 trailer bills. The spending plan nibbled at the $38 billion deficit by increasing debt, new fees and deferring nearly $8 billion to the next fiscal year. Nearly $300 million was restored by the Assembly's final budget action.

The Governor is expected to blue pencil items and sign the 2003-04 State Budget by the end of the week. Once the Governor has acted a final report of the impact of the State Budget on County programs and services will be provided to the Board.

Provision not in the Budget

The final budget solution does not include realignment, new taxes, or fiscal restructuring or reform proposals. The Senate budget solution included Senate Bill 9 that would create a Bureaucracy Realignment and Closure Commission "charged with examining state bureaucracies and the goal to eliminate or consolidate duplicative agencies and bureaucracies;" and Senate Bill 102 that would require the Department of Finance to use performance-based budgeting so that "program funding is based on results rather than good intentions." Both measures failed to win concurrence in the Assembly.

Major Provisions of the 2003-04 State Budget

Government Finance

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Assembly Bill 1768 directs the State Controller to transfer to cities and counties an amount equal to the offset amount ("gap") not paid during FY 2003-04 (estimated to be $825 million) to be repaid by August 15, 2006. $40 million in advance payments maybe made if the local entity can demonstrate "hardship."

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Assembly Bill 7 X creates the California Fiscal Recovery Financing Act to finance $10.7 billion in deficit bonds. The bonds are serviced with sales tax revenue shifted from local agencies. Cities and Counties will be required to adopt new Bradley-Burns ordinances at the new rate. An equal amount of local property tax revenues from the Educational Revenue Augmentation Fund (ERAF) is used to reimburse cities and counties in the amount of shifted sales tax. This so-called "Triple flip" is meant to shore-up California's stature on Wall Street to prevent further diminution of the state's credit rating. Last week Standard & Poors lowered the state's rating by three notches from A to BBB, the lowest level of any State, costing the state million of dollars in higher interest payments;

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Assumes $4 billion from an increase in the vehicle license fee (VLF) effective October 1;

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$130 million in redevelopment property tax increment is transferred to ERAF, though cities are given the option of using other revenues to make the payment. Last minute Assembly amendments reduce the shift from $250 to $130 million. These changes require Senate concurrence when the Legislature reconvenes on August 18 from its summer recess. In exchange for the tax transfer, the term of redevelopment agency project area may be extended by one year;

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Eliminates the Technology, Trade and Commerce Agency;

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Provides $15.8 million to the Public Library Foundation or a 50 percent reduction;

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Continues the $60 million Property Tax Administration Program.

Criminal Justice

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Defeated the Senate's proposed repeal of the booking fee (AB 1749);

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Eliminates the Office of Criminal Justice Planning (OCJP);

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Rejected the two-year suspension of the $500,000 small and rural county law enforcement grants;

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Transfer and limits the undesignated court fees from counties to the state in the amount of $31 million beginning in 2003-04;

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Reduces Citizens' Option for Public Safety (COPS) and Juvenile Justice Crime Prevention Act each by $16.3 million, funding each at $100 million;

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Restores the $16.1 million for Standards and Training for Corrections (STC);

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Reinstates $22.5 million to the Commission for Peace Officers Standards and Training (POST);

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Increases the California Youth Authority sliding scale fees from $150 per month to $176;

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Protects the $15 million program to combat methamphetamines;

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Consolidates and cuts 50 percent of the funding for five vertical prosecution programs elder abuse, child abuse, statutory rape, major narcotic vendors and California career criminal; and

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Eliminates the $18.5 million high technology grants for local law enforcement.

Health and Human Services

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Increases VLF payments to realignment from 24.33 percent to 28.07 to make it whole;

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Shifts 25 percent or $53 million, of the federal child support penalties to counties of which San Mateo County's share is approximately $800,000;

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Reduced the Medi-Cal provider rate reduction from 15 to 5 percent;

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Retains the 34 Medi-Cal optionals;

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Freezes rates for long-term care facilities, hospital inpatient rates and health, dental and vision plan rates for Healthy Families at 2003 levels;

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Provides $4.9 million in federal funds for private trauma care centers;

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Reduces Mental Health Managed Care by $11.5 million;

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Requires $69 million in federal Individual with Disabilities Education Act (IDEA) funds used for AB 3632 services provided by county mental health in proportion to each county's 2001-02 claim;

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Reduces Early Periodic Screening and Diagnosis (EPSDT) by $12.2 million and local alcohol and drug programs by $11.5 million;

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No cost-of-living adjustment for CalWORKS recipients;

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$14 million allocated for statewide fingerprint imaging system;

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Eliminates support for the Labor Market Information Program, but provides $56.4 million to support CalWORKS Employment Services;

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Suspends the SSI/SSP cost-of-living adjustment

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Does not pull the IHSS "trigger," to maintain the maximum General Fund contribution at $9.50 per hour;

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Transfers $11 million of TANF funds to Child Welfare Services; and

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Rejects the capping of social workers costs at $135,000.

Child Care

Funds child care caseload for all three stages; however Assembly Bill 1765 reduces child-care spending by $384 million through "reforms" and savings assumed from lower caseload projections.

Education

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Increases community college tuition from $11 to $18 per unit;

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Suspends the teachers' tax credit; but

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Maintains per pupil spending at nearly the same level as the current year.

Bioterrorism

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Of the $82.8 million in federal bioterrorism funds provided California, this budget allocates $25 million to local health programs and retains $50.5 million to be appropriated through Senate Bill 678 (Ortiz) scheduled for hearing in the Assembly Appropriations Committee on August 20, 2003. $7.3 million in federal funds are retained for state operations.

Housing and Transportation

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Defers $856 million of the $1.145 billion Proposition 42 transportation bond and requires its repayment by 2009; appropriates just $289 million for transportation projects with $189 million dedicated to Traffic Congestion Relief Projects (TCRP) and $100 million to State Transportation Improvement (STIP) projects;

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Local government loss of $188 million for streets and roads, $88 million to STIP and $94 million to Public Transit Account and $489 million reduction to Traffic Congestion Relief Projects;

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Reduces Caltrans staff by 1,648 positions and consolidates transportation agencies of High Speed Rail Authority with Caltrans and the Office of Traffic Safety with the Office of Business, Transportation and Housing; and

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Restores $4.7 million in General Aviation Airport grants.

Natural Resources

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Restores the Williams Act Subvention

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Protects $116 million in local flood control subvention program;

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Replaces $52.5 million reduction to California Department of Forestry, State Responsibility Areas through imposition of a fee on property owners;

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Deletes the 30 percent local match requirement on Proposition 40 grant funds;

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Requires the unallocated $80 million reduction to University of California be made proportionally to the operations of the Cooperative Extension.

1.

a)

In 1988, the State Legislature enacted the trial court-funding act to begin the process of realigning trial court responsibility and costs from counties to the state. State law created law libraries to provide free legal materials to county residents, legal professionals and self-help litigants. Currently, law libraries are funded by court filing fees or county General Funds.

2.

ASSEMBLY BILL 1095 (CORBETT)

Assembly Bill 1095 (Corbett) would create a task force on county law libraries. The task force would be charged to identify and develop recommendations for funding law library operations, facilities and expansions. Task force findings and recommendations would be presented to the Judicial Council and Legislature by January 1, 2005. The Administrative Office of the Courts would staff the task force.

The nine-member task force would include three representatives from each of the following stakeholders: the judiciary, counties and law library administrators.

Discussion

It is argued that Assembly Bill 1095 is an appropriate next step to trial court funding and realignment. The task force may be able to develop an appropriate state funding mechanism to fund the costs of law libraries that support the state's trial courts. This measure is co-sponsored by CSAC, Judicial Council and the Council of California County Law Librarians.

Status

Assembly Bill 1095 was approved by the Assembly 79-1; and will next be considered by the Senate Appropriations Committee.

Support and Opposition

Assembly Bill 1095 is supported by Orange County Board of Supervisors, Los Angeles County Law Library, Northern California Association of Law Libraries, Sacramento County Public Law Library, San Diego Area Law Library, Southwestern University School of Law and Tulare County Public Library. No known opposition.

Recommendation

Attached for your consideration is a resolution in support of Assembly Bill 1095 (Corbett) County Law Libraries.

Vision Alignment

This legislation reflects the principle of responsive, effective and collaborative government and achieves goals # 20. Government decisions are based on careful consideration of future impact, rather than temporary relief or immediate gain; and #22. County and local governments effectively communicate, collaborate and develop strategic approaches to issues affecting the entire County.

3)

Under the California Constitution, the Board of Equalization assesses pipelines, canals, etc., that straddle two or more counties, as well as property owned or used by utilities such as railways, telephone companies, companies that transmit or sell gas and electric generating facilities. County assessors are charged with assessing all other property.

County assessors currently assess aircraft owned by air carriers based on a 1998-99 negotiated formula. Those negotiations established the assessment methodology to be used through 2003-04. As a result of the negotiated agreement costly, protracted litigation was avoided. Currently, about $100 million is collected on the assessment of commercial aircraft. About half of that is apportioned to fund K-12 education. Any change in that apportionment directly affects the state General Fund in its Proposition 98 school-funding guarantee.

SENATE BILL 593 (ACKERMAN)

Senate Bill 593 (Ackerman) would shift the assessment of commercial airlines personal property from counties to the Board of Equalization and extend the negotiated assessment for an additional year to 2004-05. Since the Board of Equalization staff has no experience or Knowledge of the airlines industry, SB 593 would also direct the Department of Finance to shift a portion of counties' Property Tax Administration Grant funds to BOE to fund the new state responsibilities.

This measure would transfer the assessment responsibility for airline personal property, but retain real property and fixture assessment responsibility with counties, thus bifurcating the assessment system. BOE would assess commercial aircraft and other personal property such as ramps, ground vehicles, passenger Service, maintenance, engineering, communications and weather equipment; and County assessors would retain assessment of airline property such as terminals, hangers, possessor interests in public airports.

Discussion

Airline industry leaders argue that many states centralize assessment of aircraft and in these economically challenging times it is imperative to increase efficiency and reduce administrative costs. Airlines, which fly into numerous airports across California, must file property tax statements in every county in which they have personal property. Some carriers file as few as four, while others like FedEx files 256. The airlines industry is assessed and treated no differently than many other corporations, industries and businesses that operate in multiple jurisdictions in California.

County assessors have offered to work with the airlines industry to develop efficiencies to streamline the filing system.

The Board of Equalization has a history of granting exemptions and making special exceptions. For example, the BOE has granted $9 billion in exemptions and exclusions from the basic sales and use tax. Suffering the ills of a sluggish economy it is argued that the airlines industry is simply seeking a more favorable assessment and reduction in their property tax bills.

Support and Opposition

Senate Bill 593 has the support of Air Transport Association, Southwest Airlines, United Airlines. It is opposed by the Los Angeles, Santa Clara, Placer, San Diego and San Mateo County Assessors, the County of Los Angeles and the California State Association of Counties (CSAC). A copy of San Mateo County Counsel's letter expressing the Assessor's opposition to SB 593 is attached.

Status

Senate Bill 593 was approved by the Senate Revenue and Taxation Committee 4-0; and is currently on the Senate Appropriations Suspense file.

Recommendation

Attached is a resolution in opposition to Senate Bill 593 (Ackerman) to shift commercial air carrier property tax assessment from counties to the State Board of Equalization.

Vision Alignment

Opposition to Senate Bill 593 reflects the principle of responsive, effective and collaborative government and achieves goal # 20. Government decisions are based on careful consideration of future impact, rather than temporary relief or immediate gain.