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LEAGUE OF CALIFORNIA CITIES REVENUE AND TAXATION POLICY COMMITTEE HIGHLIGHTS March 2002 ATTENDANCE: Members: Tim Raney (Chair), Citrus Heights; Mark Rozmus, (Vice Chair), San Marcos; Maria Alegria, Pinole; Robert Biery, Westlake Village; Irwin Bornstein, Mission Viejo; Mary Bradley, Sunnyvale; Jim Bruno, Thousand Oaks; Janice Cader-Thompson, Petaluma; Larry Cain, San Juan Bautista; John Chlebnik, Calimesa; Mary Cortez, Big Bear Lake;Trish Dunlap, Chico; Glen Everroad, Newport Beach; Fred Fowler, Sunnyvale; Ken Frank, Laguna Beach; Joseph Hilson, Hayward; Jerry Jeffe, Los Angeles; Daniel Juarez, Hawthorne; Mike Kasperzak, Mountain View; Cheri Kelley, Norwalk; Dick Kelly, Palm Desert; Linn Livingston, Newport Beach; David McPherson, San Jose; Llewellyn Miller, Claremont; Al Nero, Brea; Michael Noll, Signal Hill; Laura Peabody, Fairfield; Michael Reynolds, Redlands; Aleida Rios, Pittsburg; Phil Rockey, Oakdale; Michael Stover, Lakewood; James Thalman, Chino Hills; Linda Wilson, Manhattan Beach Guests: Anthony Gonsalves League Staff: Frances Medema, Brian Cooley I. Welcome and Introductions Chair Tim Raney welcomed members and asked that members report on their largest source of general fund revenues in their introductions. Sales tax revenues were ranked number one on the list by all but a few of the members. II. The Fiscal Condition of California Cities – 2001 Report Charles Summerell, Institute for Local Self Government staff, outlined the key points of the report. The report summarizes the results of a survey of cities conducted in June 2001. Cities were asked to report on their city’s fiscal outlook for the coming year compared to the current year. They were also asked how certain issues such as unfunded mandates, binding arbitration and ERAF were impacting their financial condition. The report compares results by population size and region. Copies of the report are available on the Institute website www.ilsg.org. Summerell asked members to submit suggested improvements to the report by completing the comment form at the back of the report. III. State Board of Equalization Task Force Update Task force member Glen Everroad noted that a new agreement has been implemented that allows the State Board of Equalization (BOE) and cities and counties to work together to identify and resolve incorrect sales tax distributions. 46 cities have joined the program and 6 pilot cities have realized $1.2 million in new revenues. Task force member David McPherson summarized recent regulatory actions by the State Board of Equalization that jeopardize sales tax revenues. The new regulations include sales tax refunds on bad debts for retail financing companies, lenient definitions on qualifications that allow a purchasing company to obtain sales tax permits, and eliminating certain items from gross receipts for sales tax purposes for caterers. BOE was scheduled to discuss within a few days regulations changes that would exclude retail sales on Indian reservations from sales and use tax. Members strongly opposed the proposal as the changes could encourage new sales tax sanctuaries on Indian reservations. IV. Legislative Update AB 1939 (Daucher) Local Government Finance. Assembly Member Daucher presented the details of the fiscal reform plan proposed under AB 1939. Under the measure, eligible counties would apply to the Governor to set aside property tax revenue gains in excess of 2% to be allocated by negotiation among all local government agencies within the county. This option will be available only to counties where the county and all cities within that county have adopted approved housing elements. Committee Recommendation: Support. AB 2878 (Wiggins). Local Government Finance. Dan Flynn, staff consultant to Assembly Member Wiggins, outlined the purpose and content of the bill. This bill proposes to replace VLF backfill funds with property tax revenues and swap city sales tax revenues for county property tax revenues through a revenue neutral adjustment. The committee took issue with two elements of the bill. First, the committee observed that any transfer of a protected revenue (sales tax) for an unprotected revenue source (property taxes) would put city revenues at risk and ran counter to current League policy. Second, committee members observed that any measure that addresses changes to local revenues must be backed by a constitutional protection provision. Committee Recommendation: Oppose. Community Public Health and Safety Protection Act. (Ballot measure proposed by League, California State Association of Counties and California Special District Association) AB 680 (Steinberg) Land Use: Sales Tax and Property Tax Allocation. League First Vice President John Russo and Executive Director Chris McKenzie updated the committee on recent Executive Board and staff actions and decisions on both the ballot measure and AB 680. The League and its partners on the ballot measure decided to postpone signature gathering on the ballot measure. The League Board adopted several conditions that must be met in order to proceed with the measure. One key condition was receipt of favorable Title and Summary language from the Attorney General and Legislative Analysts Office. The language that was received in early March polled very poorly with likely voters. The Board concluded that it would not be advisable to attempt to raise funds given the polling data. The ballot measure will be reconsidered in future elections as local fiscal conditions and voter sentiment change. Assembly Member Steinberg requested a meeting with the League Executive Board and expressed a willingness to explore alternatives to AB 680. One option the League proposed is to double-join AB 680 to a bill containing the League’s constitutional protection ballot measure. Other issues raised included a requirement that the State contribute funds to address local fiscal problems and concern that transferring funds across jurisdictional boundaries may not resolve local and regional service needs. Committee members held firm over the current policy of situs based sales tax distribution and reaffirmed opposition to AB 680 if sales tax reallocation were included. However, several committee members agreed that the bill opened important discussion on the broad policy issues of how to address long term regional needs. Committee Recommendation: Continue to oppose AB 680 in its current form and authorize staff to work with the author to craft a bill that supports city objectives, such as constitutional protection of revenues, and that does not change the Bradley Burns sales tax situs based distribution. SB 10XXX (Sher). Sales and Use Taxes: Exemption: Diesel. Committee Recommendation: Support. AB 2690 (Cardoza). Controller: Court Financial Statements: Audits. Committee Recommendation: Support in concept work with authors to identify key issues. State Budget David Jones, League legislative consultant, updated members on the current State Budget status. The deficit estimates by the Department of Finance total $12 billion and the Legislative Analysts Office estimates $17 billion. Budget negotiations will heat up after the May Revision is released. V. 2002 League Priorities and 2002 Committee Work Program Vice Chair Mark Rozmus led the discussion of the committee’s work program efforts to support the League 2002 priorities. Committee members identified actions already taken in 2002 that promote the League priorities and proposed proactive short and long term goals the committee would develop, especially in the area of fiscal protection. Rozmus will prepare a committee progress and future activities report for the Board. VI. Other Business Report on National League of Cities (NLC) Conference California representatives to the NLC policy committees discussed the key issues discussed at each policy committee. NLC Board Member Joe Hilson reported that the conference and NLC priorities represent four core themes: homeland security; racial equality; liveability; and children. California Commission on Tax Policy in the New Economy Several members attended the first meeting of the commission created by a SB 1933 (2000 session), a Vasconcellos bill to study current tax policy and flexible tools to adapt to the ever changing economy. Members that attended were optimistic that this commission offered cities an opportunity to have a voice in future tax policy direction. The commission must present a final report by December 2003. Policy committee members that attend the commission meetings were asked to bring progress reports to the Revenue and Taxation committee. Committee members were reminded of the deadline for submittal of Annual Conference Resolutions (Friday, August 2, 2002). Volunteers were requested to serve as jurors on the Helen Putnam Award of Excellence panels. Chair Tim Raney announced that it would be his last meeting. Since he will soon be moving from the city where he currently serves as council member, he will be resigning his council seat before the next meeting. Committee members thanked Raney for his leadership and wished him success in his future endeavors. VII. Next Meeting Friday, August 16, 2002, 1 – 4:00 p.m. – Sacramento Convention Center.
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