HomeMy WebLinkAbout24 - City's Response to State Budget ActionsCITY OF NEWPORT BEACH
CITY COUNCIL STAFF REPORT
Agenda Item No. 24
August 11, 2009
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Dennis Danner, Administrative Services Director
(949) 644 -3123 or DDannero_NewportBeachCA.gov
Homer Bludau, City Manager
(949) 644 -3000 or HBludau(c)NewportBeachCA.gov
SUBJECT: CITY'S RESPONSE TO STATE BUDGET ACTIONS
ISSUE:
What actions should the City take in response to the State's Budget adoption, the
suspension of Proposition 1A and a borrowing of the City's property tax revenues for
the 2009 -10 fiscal year?
RECOMMENDATION:
Staff recommends the City Council approve the use of Unappropriated General Fund
Operating Reserves to mitigate the loss of property tax revenues for the 2009 -10 fiscal
year due to the adoption of the State Budget and the suspension of Proposition 1A.
DISCUSSION:
The State Legislature passed with the necessary two- thirds vote in each house and the
Governor signed a State Budget for the 2009 -10 fiscal year which included the
suspension of Proposition 1A, and a borrowing in FY2009 -10 of about $1.9 billion from
city, county and special district property tax revenues. The budget bill directs county
auditors to reduce the 2009 -10 property tax allocations to cities, counties, and special
districts by 8% of the total property tax revenues received by each agency in 2008 -09
(excluding debt levies). The base for this calculation includes all revenue allocated from
the 1% tax rate (both secured and unsecured property taxes) to each local agency,
including Vehicle License Fee in -lieu property tax payments and the "Triple -Flip"
quarter -cent local sales tax in -lieu payments. However, the Triple -Flip payments for
2009 -10 will not be reduced - rather those amounts will come from other property tax
allocations. The budget bill also provides for repayment of local agencies for the
reductions, plus interest, by June 30, 2013, in accordance with the provisions of
Proposition 1A of 2004 (Article 25.5 of the California Constitution). The one time
City's Response to State Budget Actions
August 11, 2009
Page 2
amount of property tax losses to the City of Newport Beach based on this action is
$6,085,147.
The legislation also includes provisions for securitization of the property tax losses to
help local governments avoid actual reductions in revenues this year. A joint powers
authority, the California Statewide Communities Development Authority (CSCDA), will
issue notes backed by the State's repayment obligation and use the proceeds to
replace the diverted property taxes of local agencies that choose to participate in the
securitization.
City staff recommends assigning $6.0 million from our Unappropriated General Fund
Operating Reserves to fund FY 2009 -10 City operations to replace the property tax
revenues that we will not receive in FY 2009 -10 due to the State's action on Proposition
1A. This is not an inconsequential action for several reasons — for the reduction of
Operating Reserves from $11 million to $5 million could have a direct policy impact on
at least one other aspect of the City's operations — specifically water purchases and
distribution.
As the Council is aware, the Finance Committee has discussed a series of options to
address the anticipated large increase in water purchase costs (including increases in
the price of imported water from the Metropolitan Water District and, in a related
calculation, a reduction in the amount of groundwater from the Orange County Water
District we can take next year). One option to keep the Water Enterprise Fund at its full
funding level (including operations and maintenance, capital projects, and water
purchases) was to provide a General Fund loan from unappropriated operating
reserves to the water enterprise fund. Doing so would allow a more gradual repayment
of the General Fund from increased water commodity and per meter charges to our
ratepayers. This option is less viable with a reduced level of General Fund Operating
Reserves, thus making a gradual rate increase more problematic when Council address
water rate funding options.
Environmental Review:
Not applicable.
Public Notice:
The agenda item has been noticed according to the Brown Act (72 hours in advance of
the meeting at which the City Council considers the item).
Funding Availability:
The 2009 -10 City Budget includes approximately $11.0 million in Unappropriated
General Fund Operating Reserves which can be used to replace, on a temporary basis,
any loss of property tax revenues due to the adoption of the State Budget and the
suspension of Proposition 1A.
City's Response to State Budget Actions
August 11, 2009
Page 3
Alternatives:
There are two other viable options to address the temporary loss of property tax
revenues due to the State actions:
The City could choose to reduce General Fund operations for all or a portion of
the property tax losses. This would require the City to reopen budget
deliberations and direct the General Fund operating departments to reduce
approved appropriation authority for any loss of property taxes.
2. As mentioned above, the legislation permitting the suspension of Proposition 1A
also allows for the securitization of the property tax losses to help local
governments avoid actual reductions in revenues this year. The City could
choose to borrow the amount of lost property taxes. This would, however, require
the payment of interest in an amount that would probably exceed the interest
paid by the State on the borrowed property taxes.
Prepared by: Prepared by,::
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Dennis C. Danner Homer L. Bluvlau
Administrative Services Director City Manager