State Budget Wrap - Local Government dodges one of the bullets!
As you probably know, the State legislature finally approved a revised budget yesterday afternoon. Local government's initial hit was expected to be as much as $5.4 billion--$2.1 billion more than they had been proposing for most of the budget session.
Luckily our local officials decided to not let this happen without a fight, and we ended up greatly reducing the impact on our local citizenry. I believe the Speaker of the Assembly, Karen Bass, summed up the role of local government in the budget battle when she tweeted yesterday:
"local govt 'declared war' on Legislature over cuts."
In order to finish the budget, the legislature was forced to eliminate their theft of $2 billion of highway user taxes over the next two years. We were able to convince the legislature that not only was this a bad idea (since it would virtually eliminate all local road maintenance), but it was likely illegal as well. Locally, this means we don't have another $1 million hole in our budget and we'll be able to keep our street maintenance program in place.
While the legislature spent the past month promising not to borrow our property tax funds, they ended up doing it anyway. They claim that clean up language over the next month will allow us to securitize this loss of $1 million locally. In other words, the state will promise to put this debt near the top of their list of repayments, thereby allowing us to go to Wall Street or other sources and borrow money that the state will promise to repay. If the state follows through, there should be no impact on our upcoming budget.
The one area where we failed to show the state the error of their ways was their theft of redevelopment funds. Back in May, a Superior Court judge ruled that the state's taking of RDA funds was illegal and therefore the $350 million they proposed to steal in 2008-2009 was not going to happen. The state went back to the drawing board and came up with a convoluted scheme that they believe will make the theft legal this time. And since they were mad we beat them in court, they decided to increase the theft by 600 percent!
I believe that we have a better than 50 percent chance of beating them in court again--but it will likely take the better part of the next year to wade through yet another lawsuit. In the meantime, there will likely be 50,000 less construction jobs statewide over the next year while these redevelopment funds are tied up in litigation.
It is the loss of jobs that frustrates me the most. As I've noted in recent blogs, the state is foolishly cutting funds in the areas that can help the state the most. Any economist will tell you that capital dollars circulate through the economy multiple times and bring in additional income tax, sales tax and business taxes to the state. It is likely that their $2 billion RDA take will reduce state revenues by a like amount.
In addition, I'm worried that the state workers are going to further depress the economy by reducing services to the state and the citizens. We've already been getting vibes that CalTrans is going to be using the state imposed Friday furloughs as an excuse to slow down their already glacial pace of processing environmental reviews for stimulus projects. They are also going to start charging local entities for the services they are supposed to providing through their own budget. It is likely that many transportation projects will fall behind schedule and hundreds of thousands of road construction jobs will be delayed by a year -- all because CalTrans refuses to find a way to work harder and smarter during these lean budget times.
I'm also confident that we'll be dealing with the budget mess again before the end of the year. It is likely that many of their budget fixes will not result in cost savings to the state and that their cutting of funds that spur jobs will further reduce the state's treasury in the coming year.
In the short run though, we'll enjoy our victories for a couple of days and continue to find ways to keep our service levels up despite the thefts from our state government.
Luckily our local officials decided to not let this happen without a fight, and we ended up greatly reducing the impact on our local citizenry. I believe the Speaker of the Assembly, Karen Bass, summed up the role of local government in the budget battle when she tweeted yesterday:
"local govt 'declared war' on Legislature over cuts."
In order to finish the budget, the legislature was forced to eliminate their theft of $2 billion of highway user taxes over the next two years. We were able to convince the legislature that not only was this a bad idea (since it would virtually eliminate all local road maintenance), but it was likely illegal as well. Locally, this means we don't have another $1 million hole in our budget and we'll be able to keep our street maintenance program in place.
While the legislature spent the past month promising not to borrow our property tax funds, they ended up doing it anyway. They claim that clean up language over the next month will allow us to securitize this loss of $1 million locally. In other words, the state will promise to put this debt near the top of their list of repayments, thereby allowing us to go to Wall Street or other sources and borrow money that the state will promise to repay. If the state follows through, there should be no impact on our upcoming budget.
The one area where we failed to show the state the error of their ways was their theft of redevelopment funds. Back in May, a Superior Court judge ruled that the state's taking of RDA funds was illegal and therefore the $350 million they proposed to steal in 2008-2009 was not going to happen. The state went back to the drawing board and came up with a convoluted scheme that they believe will make the theft legal this time. And since they were mad we beat them in court, they decided to increase the theft by 600 percent!
I believe that we have a better than 50 percent chance of beating them in court again--but it will likely take the better part of the next year to wade through yet another lawsuit. In the meantime, there will likely be 50,000 less construction jobs statewide over the next year while these redevelopment funds are tied up in litigation.
It is the loss of jobs that frustrates me the most. As I've noted in recent blogs, the state is foolishly cutting funds in the areas that can help the state the most. Any economist will tell you that capital dollars circulate through the economy multiple times and bring in additional income tax, sales tax and business taxes to the state. It is likely that their $2 billion RDA take will reduce state revenues by a like amount.
In addition, I'm worried that the state workers are going to further depress the economy by reducing services to the state and the citizens. We've already been getting vibes that CalTrans is going to be using the state imposed Friday furloughs as an excuse to slow down their already glacial pace of processing environmental reviews for stimulus projects. They are also going to start charging local entities for the services they are supposed to providing through their own budget. It is likely that many transportation projects will fall behind schedule and hundreds of thousands of road construction jobs will be delayed by a year -- all because CalTrans refuses to find a way to work harder and smarter during these lean budget times.
I'm also confident that we'll be dealing with the budget mess again before the end of the year. It is likely that many of their budget fixes will not result in cost savings to the state and that their cutting of funds that spur jobs will further reduce the state's treasury in the coming year.
In the short run though, we'll enjoy our victories for a couple of days and continue to find ways to keep our service levels up despite the thefts from our state government.
posted by City Manager @ 2:25 AM
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