CaliforniaCityNews.org

Dan Walters Grumbles About City Spending

Dan Walters took his weekly column in the SacBee in the direction of local government finance, and found plenty to grumble about.  Walters, who perhaps becasue he holds the rather unhappy distinction of being among a select few in the Capitol with some institutional knowledge and memory of a functioning state government, is known to be a pretty cynical on the subject of state governance. 

Perhaps as an extension of this malaise, Walters found occasion to take the good news of 25 California cities making the Standard & Poors 'AAA' list to take cities (mostly big cities) to task for profligate spending during the good times and union-centric thinking now that big decisions have to be made.

Walters seems preoccupied with large cities in this analysis, and would do well (in our humble opinion) to turn his eyes towards the strong fiscal practices of the dozens -- nay, hundreds -- of California cities who, unlike the state, have made responsible and difficult decisions in the past couple years. 

But take a read for yourself.  As usual, Walters does make a number of sound points and he remains one of the strongest voices of reason in Sacramento. 

CA Cities Fare Well on Standard & Poors List of 'AAA' Cities

Here's a odd one... despite the dire financial times, California cities actually fared pretty well in a Standard & Poors report on AAA rated municipalities across the nation.  As the Capitol Weekly reported Monday, "The venerable credit rating agency's latest listing of 169 "AAA" cities includes 25 in California, the most of any state (Massachusetts is second with 21), and 12 of the 25 are new to the list this year."

It's an interesting read, and Standard & Poors notes some interesting conclusions.  While geography and population don't seem to matter much (San Jose was the only large CA city to make the list), one strong indicator did reveal itself: "Profiles Generally Reflect High Incomes And Low Debt Ratios." 

Hmm.  Did anyone in the Capitol read this report?  Take a look yourself here.

2010 Budget & Ballot: There Will Be Blood

Dan Walters forecasted a "bloody battle" for the state budget in 2010 in the SacBee Friday.  "They've scraped the bottom of the gimmick barrel, voters are livid and new taxes are functionally off the table," writes Walters, adding "This will be one of the bloodiest skirmishes the Capitol has ever seen – with the only option being that the most populous state in the nation default on its debts."

Current projections have the 2010 budget already in the hole somewhere between $15 and $25 billion -- depending on who you believe and how cynical you are on an economic turnaround in the next 6 months.  So against this backdrop, and heading into the homestretch of 2009, why don't we take a look at what's in store for the State of California in 2010...

Livid Voters
Walters is right on the mark with that one, and we're not even going to bother looking up the current approval ratings for the legislature.  We all know they're abominable, and what is for certain: voters will have plenty of opportunity to voice their displeasure in 2010.

San Diego Mayor's Task Force Recommends... Bankruptcy?

A task force of local business leaders appointed by San Diego Mayor Jerry sanders to examine the city's financial position has come back with an ominous finding.  If "a series of urgent and drastic fiscal reforms" are not undertaken, bankruptcy may be the city's best option.

Now, this may be the exact leverage Mayor Sanders would like to promote such reforms, but the very suggestion is worth noting.  The VoiceofSanDiego has a copy of the draft report, which cautions "Stop the half truths, unfunded mandates and budgetary gimmicks. We can no longer promise what we cannot afford. The task force herein recommends several near term solutions but we must stay focused on the bigger problem; the practice of making promises that we do not properly fund or pay for -- or history will likely repeat itself."

Hmm, sounds like we could hit 'find and replace' and sub out "San Diego" with the "State of California" in this report.  No offense to San Diego. 

Read more from the Voice of San Diego here.

Pew Center Finds CA a Leader -- in Fiscal Crisis

Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin all have one thing in common... they're all on the same road to fiscal calamity, just like us.  The Pew Center on the States released a report on state finances and found a similar pattern of budget gaps, unemployment, foreclosure and overly-structured (i.e. restrictive) budget rules. 

"While California often takes the spotlight, other states are facing hardships just as daunting," said Susan Urahn, managing director of the Washington, D.C.-based center. "Decisions these states make as they try to navigate the recession will play a role in how quickly the entire nation recovers."

Read more in the Fresno Bee.

What Did We Learn on Election Day?

Strong national trends and the spin machines from both major parties are doing their best to make hay of the election contests on Tuesday night. Here at CaliforniaCityNews we know that the most telling election results come from the diverse set of local elections we have from throughout the state and often provide a glimpse into the future of coming elections…

First, here’s what we do know: City election results largely mirrored the results and trends we have seen over the past four election cycles. New revenue measures (tax increase) continued to pass at the two-thirds rate - a remarkable number given the continued economic doldrums and voter angst about government activities at the state and federal level.

TRENDS

Continued support for revenue measures in these difficult times largely continued. The trend to protect local communities from the economic recession and state takeaways remained a compelling case for voters to entrust their local governments with additional revenue.

The strategy of “reduce and renew” on Utility Users Taxes (UUT’s) continued to be a winning one. 11 cities successfully utilized this strategy continuing a perfect record of wins by cities seeking to modernize their UUT ordinances. Only Coachella and Redondo beach lost UUT measures, a new UUT and an expansion as it related to a local power plant respectively.

Transient Occupancy Taxes (TOT’s) also fared well with the vast majority passing. Losses only occurred in Artesia, Rancho Palos Verdes, Blythe and San Anselmo. Special note on a regional strategy employed by cities in San Mateo County that acted in unison to raise TOT rates together from 10-12%...all city measures in the county were successful.

What this tells us is that voters continue to be open to tax increases at the local level – especially if they are extensions of what they are already paying (maintaining services) or taxing someone else.

The most interesting change came in the results of sales tax measures. These measures are often a good gauge of voter sentiment because it’s the most tangible sign of voters willingness to pay more to maintain or enhance services in their local community. Three of the five measures lost Tuesday night -– not many to draw much of a conclusive analysis but from what we can discern the losses came about from local dynamics as opposed to larger statewide trends.

As we have always advised –- the most significant indicator of a sales tax measure passing or failing is the cohesiveness of the council and the confidence the community has in them. Contentious council races, split councils and a history of failed measures in the past are key indicators in the chances of a measures passage or failure. Losses occurred in the cities of Salinas (40% YES - 60% NO), Ventura (44% YES – 55 % NO) and San Carlos (44% YES – 55% NO).

Salinas has "gone to the well" perhaps bit too frequently in recent years with revenue measure campaigns, and the continued history of seeking new revenues in this climate makes passage in this city an uphill climb at best. Measure K was a full cent tax increase and the local dynamics and history of tax measures coupled with low voter turnout explain the low 40% voter threshold of support.

Ventura showed both early promise and potential challenges in late summer as the council voted to authorize a vote on measure A – a half cent sales tax increase. A couple of years ago voters narrowly rejected a special tax for law enforcement (Measure P6 garnered 62% of the vote) and polling has consistently showed voter support levels for new revenue in the high 50’s. Ventura endured a very acrimonious election cycle with the local POA spending 20K in negative attack mailers to knock off an incumbent who raised the public pension reform issue. Along with tepid support from the business community, the local paper and recent controversies surrounding 911 fees and utility surcharge increases, voter support collapsed.

San Carlos also had a split council. A very public debate between employee compensation levels and new taxes by council members proved to be enough to move voters into the NO column…eerily similar to Ventura. As early as this spring voter support levels were polling in the low 60’s.

The lesson remains…if your city council isn’t in unanimous agreement on moving forward with a tax increase - think hard about going forward. If the council can’t agree, don’t expect the voters to hand you new revenue to figure it out later.

Michael Coleman from CaliforniaCityFinance has his usual thorough rundown of the tax votes here. 

Assembly Pulls All Nighter, Water Deal Done

Capitol Insiders' Twitter fees lit up at around 4:30 a.m. Wednesday morning, leading some of us to question who was up too late, and who was up too early.  Turns out the Assembly decided to burn the midnight oil and bang out the water deal once and for all.  Now at an $11 billion bond, and with the Coastal Commission-esque oversight panel for the Delta, the package is now on its way to the Governor, and the voters.

Some other key points: Democratic lawmakers dropped an enforcement measure that would have imposed stiffer fines on water thieves.  This was seen as a big win for Republican lawmakers, while they agreed to add another $1 billion to the bond measure. 

As for a canal?  Met Water District in SoCal says the package "paves the way" for such a project.  As any long time watcher of this issue will know, however, there's still a ways to go before that golden shovel breaks earth.  In the near term, look for mandatory conservation measures across the state, coupled with regional projects and new Delta levies. 

Read more in the Cap Weekly.

LAO Issues Report on Bond Debt, Urges "Prioritization" of Future Proposals

As water talks progress (sorta) through the Capitol, one committee chair (Assm. Anna Caballero) decided to ask the State Legislative Analyst (LAO) to provide a report on the state's projected General Fund debt service obligations and the state’s currently authorized, but unissued, general obligation (GO) bonds.

That report is out, and the LAO reports that the state has over $130 Billion of outstanding bonds and authorized,but as yet unissued bonds.  They also project that payments on already issued bonds are likely to peak in the next decade, leading them to conclude that "Debt Service Is One of the State Budget’s Fastest-Growing Obligations." 

The LAO writes that the General Fund soon may have annual debt-service payment obligations that total about 9 percent of its revenues, and that the State Treasurer has forecasted that these payments eventually will exceed 10 percent of revenues for much of the next decade.

As such, the LAO dryly remarks that "Increasing Prioritization of Future Bond Issuance May Be Necessary."  Hint hint. 

Read the full report here. 

Redevelopment Assoc. Sues State for $2 Billion Raid

The California Redevelopment Association (CRA) announced Tuesday that it filed a lawsuit in Sacramento Superior Court to stop ABX4-26, a state budget trailer bill passed in July as part of the 2009/10 state budget. ABX4-26 authorizes a $2.05 billion raid of local redevelopment funds to use for state purposes. A PDF copy of the petition filed today is attached.

The lawsuit challenges the constitutionality of ABX4-26 and seeks to prevent the State from taking redevelopment funds for non-redevelopment purposes.

This is the second lawsuit filed by CRA.  In April 2008, the Sacramento Superior Court ruled in favor of CRA and invalidated 2008 budget language that would have shifted $350 million in redevelopment funds to the State. On September 28, the State dropped its appeal in the first case, making the April decision final and binding.

“We believe the second budget raid by lawmakers is just as unconstitutional as the first,” said CRA Executive Director John Shirey. “Lawmakers ignored the State Constitution and attempted to write state budget legislation around it. That’s simply irresponsible policy-making, and it illustrates why many have concluded state government is broken and needs fixing.”

Guv Signs Prop 1A Securitization Bill

Governor Schwarzenegger has signed SB 67 and SB 65, the HUTA and Prop 1A securtization legislation that was held up by legislative shenanigans at the end of last month's session.  Many (most?) cities are enrolling in the securitization program, which has a Nov. 6 Deadline.

California Communities, the Joint Powers Authority authorized by the Legislature to execute the securitization of the Prop. 1A loan, announced that as of Tuesday, 57 counties, 352 cities and 707 special districts had enrolled in the program. The total amount for cities and counties to date enrolled in the program is $1.5 billion.

The interest rate for the Prop. 1A loan has been set by the Department of Finance at 2 percent. Repayment from the state is due to local agencies that do not securitize by June 30, 2013.

It is extremely important that cities interested in securitizing the lost amount of property tax complete the required documents immediately. Bond counsel to California Communities, must receive local agency approved and signed documents by Friday, Nov. 6.

Local agencies can enroll in the securitization program online at the California Communities website.