BILL ANALYSIS AB 2788 Date of Hearing: April 20, 1994 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT Mike Gotch, Chair AB 2788 (Epple) - As Amended: April 18, 1994 ASSEMBLY ACTIONS: COMMITTEE L. GOV. VOTE> COMMITTEE W. & M. VOTE> SUBJECT: Revises the conditions under which local entities in a certain š county may be eligible for an allocation from that county's Public Safety Augmentation Fund. DIGEST Existing law: 1) Pursuant to Article XIII, Section 35 of the California Constitution: a) Imposes a sales and use tax at the rate of 0.5% (1/2-cent) effective January 1, 1994, and specifies that revenues from this tax shall not be considered proceeds of taxes for purposes of the state constitutional appropriations limit (pursuant to Article XIIIB of the California Constitution) or state General Fund proceeds of taxes for purposes of Article XVI of the California Constitution (Proposition 98 school funding guarantee). b) Requires all proceeds from the 1/2-cent sales tax imposed pursuant to a) above to be deposited into the Local Public Safety Fund for allocation to counties by the Legislature, as prescribed by statute, exclusively for public safety services of local agencies. c) Requires, in order for a county to receive revenues attributable to the 1/2-cent sales tax, that either of the following occur: o A majority of the board of supervisors of the county must pass a resolution requesting an allocation of proceeds of the tax in a manner specified by the Legislature; or o A majority of voters of the county voting in the November 2, 1993, election on the state constitutional amendment imposing the sales tax must vote in favor of the measure. d) Provides that the 1/2-cent sales tax must conform to the Sales and Use Tax Law. - continued - AB 2788 Page 1 AB 2788 e) Provides that the provisions imposing the 1/2-cent sales tax supersedes any provision of the California Constitution in effect as of November 2, 1993, which is in conflict with these provisions. 2) Pursuant to statutory law: a) Defines "public safety services" as including, but not limited to, sheriffs, police, fire protection, county district attorneys, county corrections, and ocean lifeguards. "Public safety services" does not include courts. b) Requires each county which is qualified to receive revenues from the 1/2-cent sales tax to establish a Public Safety Augmentation Fund (PSAF) for receipt of its share of the revenues. c) Requires amounts deposited into the PSAF to be allocated back to the county and each city within the county in proportion to the net amount of property taxes each of those entities lost in the 1993-94 fiscal year to the Educational Revenue Augmentation Fund (ERAF) for allocation to school entities. In no event may a city receive a sales tax allocation which exceeds 50% of its net property tax reduction. Sales tax amounts in excess of this 50% cap would be allocated to the county. d) Creates an exemption to the formula specified in c) above for Fresno, Kings, Merced, San Bernardino, San Diego, San Joaquin, Solano, and Yolo counties. In these counties, the total proportional allocation of sales tax proceeds to cities is limited to 5% of the sales tax amounts deposited in the county's PSAF. Additionally, the allocation of revenues to cities in Alameda County is limited to 6.1% of the funds in the county's PSAF. e) Provides that an allocation factor, rather than a computation of an actual amount, must be used for allocating the sales tax proceeds within each county in the 1993-94 fiscal year and each fiscal year thereafter. The factor assigns each local jurisdiction a share of the revenues in the county's PSAF, whereby in future years, the proceeds of the PSAF are allocated in the same proportion. This bill: 1) For a county of the first class (i.e., Los Angeles County), limits the š definition of "public safety services" to include only sheriffs, police, fire protection, county district attorneys, county corrections, county probation officers, and ocean lifeguards. 2) As a condition of receiving an allocation from the county's PSAF, š requires Los Angeles County or any city within the county, including any charter city, that provides public safety services to demonstrate to the state Controller that it has allocated existing resources for each of the local public safety services (see #1 above) at either the 1991-92 or - continued - AB 2788 Page 2 AB 2788 1992-93 fiscal year funding level, whichever fiscal year the local entity had the highest budget for all combined public safety services, including any staffing for capital facility projects, additional public safety service responsibilities mandated by the Legislature subsequent to the 1991-92 fiscal year, or any salary increases mandated by pre-existing labor contracts. 3) Requires the Controller to notify the county auditor of those local š entities that have met the requirement in #2 above. 4) Specifies that if Los Angeles County or any city within the county fails š to meet the requirement in #2 above, the county auditor must allocate that entity's share of the revenues in the PSAF proportionately among those other local entities in the county that qualify for an allocation of those revenues. 5) Specifies that the provisions of this act must become operative on July š 1 following the effective date of this act. 6) Contains legislative findings and declarations relating to the need for š special legislation. FISCAL EFFECT State-mandated local program; contains a general disclaimer. COMMENTS 1) Background. To partially address an $11.2 billion budget gap, the 1992-93 state budget included a shift of $1.3 billion in property tax revenues from local governments to the Educational Revenue Augmentation Fund (ERAF) established in each county for allocation to school districts, county offices of education, and community college districts (i.e., school entities), in order to relieve a portion of the state General Fund's obligation to fund K-14 education, as follows: Counties $ 525 million Cities 200 million Special Districts 375 million Redevelopment Agencies (one-year only) 200 million TOTAL: $1,300 million No new revenues or revenue authority were provided to local agencies to offset their 1992-93 property tax revenue losses. To partially address an $8.0 billion budget gap, the 1993-94 state budget included a further shift of $2.595 billion in property taxes from local governments to the ERAF, as follows: - continued - AB 2788 Page 3 AB 2788 Counties $1,998 million Cities 288 million Special Districts 244 million Redevelopment Agencies 65 million TOTAL: $2,595 million To partially offset the 1993-94 property tax revenue losses of counties and cities, the Legislature and the Governor provided a one-time allocation of vehicle license fee revenues (from a redirection of state transportation funds) totaling $130 million to be disbursed in proportion to their respective shares of the total property tax revenue reduction. The Legislature and the Governor also agreed to extend the then- temporary 1/2-cent sales tax (due to expire June 30, 1993) through December 1, 1993, and dedicated the revenue generated for local public safety. Proceeds from this extension of the 1/2-cent sales tax must be deposited into the Local Public Safety Fund and distributed to certain counties (i.e., counties that adopt a specified resolution) based on a county's proportionate share of statewide taxable sales (on a "situs" basis). Additionally, the Legislature and the Governor agreed to submit SCA 1 (Committee on Budget and Fiscal Review) Resolution Chapter 41, Statutes of 1993, to the voters on November 2, 1993 (the ballot measure was Proposition 172). SCA 1 imposes a permanent 1/2-cent sales tax effective January 1, 1994, to provide a dedicated revenue source for public safety purposes. Proposition 172 was approved by 57.8% of the voters. 2) Intent of Proposition 172. This bill establishes a maintenance-of-effort (MOE) level of funding for Los Angeles County and cities within that county before they are eligible to receive any allocation of the Proposition 172 funds. Proposition 172 and SB 509 (Committee on Budget and Fiscal Review) Chapter 73, Statutes of 1993, which provides for allocation of the proceeds from the permanent 1/2-cent sales tax, reflect the agreement reached by the Governor and the legislative leadership relating to the provision of a dedicated revenue source for public safety purposes. Although a MOE requirement was considered by the Governor and the legislative leadership, it was rejected. Consequently, neither measure makes reference to a MOE requirement. In fact, the analysis of the ballot measure prepared by the Legislative Analyst states: "The measure requires that the revenues from the additional one-half percent sales tax be used only for local public safety activities, which include police and sheriffs' departments, fire protection, county district attorneys, county probation, and county jail - continued - AB 2788 Page 4 AB 2788 operations. The amendment adds to the Constitution a statement that declares that public safety is the first responsibility of local government, and that local government officials have an obligation to give priority to the provision of public safety services. The additional sales tax revenues resulting from this measure are intended to offset part of the $2.3 billion in county and city revenue losses that resulted from adoption of the state's 1993-94 budget. Specifically, $2.3 billion in annual property tax revenues were shifted from counties and cities to schools, thereby reducing the state's funding obligations to public schools. Revenue generated from this addition to the sales tax rate would be allocated to counties whose board of supervisors had adopted a resolution in support of this measure by August 1, 1993. Alternatively, if no resolution had been adopted, a county would receive the funds only if a majority of its voters approve this measure. For fiscal year 1993-94, passage of this measure is projected to generate approximately $714 million in additional revenue for counties and cities. On a full-year basis (beginning in 1994-95), this measure raises approximately $1.5 billion in revenue. These annual revenues would offset, on a permanent basis, about 65 percent of the statewide property tax loss to counties and cities resulting from the 1993 state budget actions." Furthermore, public safety representatives recognized that Proposition 172 was intended to backfill the 1993-94 property tax losses of counties and cities; some of these representatives even signed a ballot argument supporting the measure stating that deep cuts in public safety programs would occur without the sales tax proceeds resulting from this measure. Proposition 172 was endorsed by the California State Sheriffs' Association, California District Attorneys' Association, California Fire Chiefs' Association, California Police Chiefs' Association, Association of Los Angeles Deputy Sheriffs, California Organization of Police and Sheriffs, California Professional Firefighters, California Peace Officers Association, Los Angeles Police Protective League, Association of Orange County Deputy Sheriffs, and the Los Angeles County Professional Peace Officers' Association. On July 22, 1993, Attorney General Dan Lungren, in a letter addressed to all California district attorneys, acknowledged that Proposition 172 funds were not required to be used to supplement existing law enforcement budgets. 3) Potential Concerns. This bill is similar to AB 3746 (Mountjoy), which is also scheduled to be heard by the Committee today. - continued - AB 2788 Page 5 AB 2788 Opponents of AB 3746 have similar concerns with this bill, which include the following: a) This bill sets an unrealistic requirement that may be difficult for Los Angeles County to meet, as it fails to recognize the property tax shifts enacted via state budget actions over the last two years. Consequently, this bill would impact Los Angeles County public safety entities negatively, whereby they would not receive any of the proceeds from the permanent 1/2-cent sales tax. b) This bill guarantees a level of funding for public safety entities in Los Angeles County regardless of the needs of those entities. By not allowing the county board of supervisors to allocate moneys from the PSAF as it sees fit, this bill reduces local flexibility and eliminates incentives for cost reductions and program innovation. c) This bill will severely limit the ability of the Los Angeles County board of supervisors to address the diverse needs of its constituents, as it essentially holds public safety services harmless from funding cuts and diverts the focus of county budget cuts to non- public safety program areas (e.g., parks, recreation programs, libraries). Local officials note that these non-public safety program areas are necessary preventative programs that ultimately could reduce the funding required for public safety expenditures in the future. d) This bill changes the terms of the measure that the voters approved and may be unconstitutional. 4) Implementation Problems. This bill will likely cause confusion since it revises the allocation of the Proposition 172 funds without repealing the existing provisions prescribing that allocation, and contains undefined terms. 5) Purpose of AB 2788. According to the author, although this bill currently addresses the distribution of the Proposition 172 funds among public safety entities in Los Angeles County only, it is intended to be a measure also to address revisions in the allocation of those funds among public safety entities in other counties as more information becomes available and agreement is reached by the affected parties in those counties. The author states that in Los Angeles County, the District Attorney's office and the board of supervisors have reached agreement on revising the PSAF allocation to that office, but notes that the Sheriff's office still is negotiating with the board over its PSAF allocation. - continued - AB 2788 Page 6 AB 2788 SUPPORT OPPOSITION Assoc. for Los Angeles Deputy Sheriffs None on file. Los Angeles County Probation Union, AFSCME, Local 685 - continued - AB 2788 Page 7