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August 12, 2009 > Impact of California State Budget Plan

Impact of California State Budget Plan

By Simon Wong

A solution to the State budget crisis was signed into law by Gov. Arnold Schwarzenegger on July 28. The budget plan was agreed by Sacramento legislators on July 24.

The closure of California's $24 billion budget gap includes appropriation of approximately $4 billion of local revenues from cities throughout the State - $2 billion in Proposition 1A loans from property taxes and $1.7 billion from redevelopment agencies.

For the City of Milpitas, this means Sacramento will "borrow" $1.7M (8 percent) of the City's property tax revenues in FY2009-10. The State has up to three years to repay this amount with interest; in the meantime, the City's General Fund will have a funding shortfall.

"Once the loan has been repaid, the State can 'borrow' again, for another three years. The second loan will also be for 8 percent of the City's property tax revenues. So, there will be two property tax loans to the State every 10 years," explained City Manager Tom Williams at the August 4 Council meeting.

The City's Redevelopment Agency will suffer an $11.8M appropriation this fiscal year.

"This is a significant impact to the RDA's tax increment. This is not a borrowing, simply a take. We shall not see this money again," said Williams.

At this stage, the City has three options to re-balance its budget to make up the loss of property tax funds. Borrow either from General Fund reserves or the Art Fund or the hotel tax (transient occupancy tax). The latter two funds have sufficient revenue to cover the $1.7M.

The matter will be brought back before the Council on August 18 for a formal budget amendment.

Jurisdictions throughout California are relieved that the State will not appropriate local gas tax (Highway Users Tax Account) monies. Plans to take away these funds had angered cities and counties and were dropped by the time legislators agreed a budget plan on July 24. This means that municipalities can continue their street improvement programs as planned.

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