Pleasanton braces for state to grab $4 million of local revenues to pay down state deficit

Pleasanton officials said yesterday they are bracing for another takeaway of municipal revenues aimed at paying down the state’s rapidly-rising budget deficit, a move that could cost Pleasanton nearly $4 million in general revenue and gasoline tax funds.

The threat has come from Gov. Schwarzenegger who would first need to declare a fiscal emergency for California, which is expected if voters reject key revenue producing propositions on Tuesday’s special election.

The state proposal calls for the governor to 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.

For Pleasanton, that would amount to $3.7 million based on this year’s property assessments, plus another $640,000 from Proposition 42 local sales taxes on gasoline, which Pleasanton uses for capital projects, according to Dave Culver, the city’s finance director.

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.”

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 $3.7 million from Pleasanton, the money will be disbursed from these reserves. If that never happens, the $3 million or more 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.”