With five of six propositions defeated at the polls statewide yesterday, Pleasanton officials will confer this morning on the possible financial impact to the city if Gov. Schwarzenegger follows through on his threat to start reducing the state's now $21-billion-plus deficit by "borrowing" the money he needs from cities and counties.
Final vote tallies showed that Measures 1A through 1E were defeated by more than 60 percent of the votes cast with only Measure 1F passing. That measure, which will prohibit legislators and state constitutional officers from receiving pay raises when the state is running a deficit, was approved by 73.9 percent of voters statewide, with 26.1 percent voting against it.
The final results for the other measures were:
1A - Yes: 34.1% No: 65.9%. Would have sent a portion of state revenues to a "rainy day" fund for use in lean years and capped state spending at a 10-year average of state revenue, adjusted for population growth and inflation.
1B - Yes: 37.4% No: 62.6%. Would have required additional payments to local school districts and community colleges to offset recent budget cuts starting in the 2011-2012 fiscal year.
1C - Yes: 35.4% No: 64.6%. Would have allowed state to borrow $5 billion to address current budget deficit against projected additional lottery proceeds.
1D - Yes: 34.2% No: 65.8%. Would have temporarily redirected $600 million in funds from California Children and Families Act (1998's Proposition 10) to General Fund for support of health and human services children's programs, also cutting early childhood development programs funded by the act.
1E - Yes: 33.6% No: 66.4%. Would have redirected $230 million from Mental Health Services Act funds (2004's Proposition 63) for two years to existing health programs, cutting community mental health programs.
Gov. Arnold Schwarzenegger has said that if the propositions failed, he would have to make drastic cuts to education and health care, and served notice that he may ask cities and counties for billions of dollars from their property tax and other funds.
At Tuesday night's City Council meeting, Finance Director Dave Culver said that if the governor follows through on that threat, it could force the city to send nearly $5 million more to Sacramento to help pay down the state deficit.
That would come from sending 8 percent of the city's property taxes for fiscal 2009-10 which starts next July 1– or about $4.7 million – to the state. To do that, Culver said the governor would suspend 2004's Proposition 1A, which protects local funds from being used by the state, and to borrow 8 percent of local property-tax revenues.
In addition, the state could seize another $640,000 Pleasanton receives from Proposition 42 local sales taxes on gasoline, which the city uses for capital projects.
Schwarzenegger's action is allowed under Proposition 1-A, a constitutional amendment written by the League of California Cities and the California Association of Counties and approved by voters in 2004.
Under Prop. 1-A guidelines, the state is allowed to "borrow" twice from cities, counties and special taxing districts within a 10 year period, but any money borrowed must be repaid before a second takeaway could occur. The state also must repay borrowed funds at 7 percent interest within three years.
Prop. 1-A came as a result of years of takeaways by the state that started in 1993 when Pete Wilson was governor, with money being taken by Sacramento on an as-needed basis for the Education Revenue Augmentation Fund (ERAF). Those funds are still being siphoned off from cities and counties, with more than $100 million so far stripped from Pleasanton's General Fund.
Although the funds were designated to help the state meet its obligation to finance education throughout the state, there's never been any accounting of how the money is disbursed based on city and county contributions, Culver said.
"If the $100 million Pleasanton has paid into this fund had actually gone to the Pleasanton school district, I wouldn't complain," said City Manager Nelson Fialho. "But clearly, our school district has not gotten the benefit of that money."
Tuesday night, Culver said that Pleasanton appears to be in better financial shape than many other local agencies that will have to give up 8 percent of their property tax revenue to the state.
Anticipating a state grab for local revenue, Culver recommended last fall that $3 million sitting unused in the city's capital improvement fund be added to the $7.9 million already in a temporary recession reserve, boosting it to $10.9 million. If Schwarzenegger seizes $4.7 million from Pleasanton, the money will be disbursed from these reserves. If that never happens, the money will be transferred out of the temporary reserve back to the capital projects fund.
"Right now, we have completed most of our capital projects and can wait a few years before needing the funds," Culver said.
Besides the possible takeaways, which would occur next January and April, when the city receives it property tax payments, Pleasanton is also losing vehicle license fees gradually as the Department of Motor Vehicles takes more to pay increased administrative expenses.
Culver said the city received $400,000 in those fees in 2006-07, then just $300,000 the following fiscal year, and projects receipts to total only $160,000 this year.
"Fortunately, we anticipated the state's financial problems and put money aside to prepare for it rather than spend it," Culver said. "Many other cities are not in such good shape and I'm afraid the governor's demand for 8 percent in property taxes could put many of them over the edge."