Local Government Commission Indicates Concerns About
State Budget Proposals

The Board Members asked that I summarize our discussion and send it on to you:

VEHICLE LICENSE FEES (VLF)

Governor's Proposal:
The Governor's budget proposes to eliminate the backfill to local government that the State promised to provide when they first cut the VLF in 1998. Restoring the VLF is not among the Governor's proposed revenue enhancements.

Smart Growth Impact:
The VLF is the only substantial source of discretionary revenue for cities that is allocated based on the number of residents and is therefore the only revenue incentive provided by the state for higher density housing development. The proposed cut in the VLF will make both single family and multi-family housing development more financially infeasible for cities and counties.

Cutting the VLF will make local governments even more dependent upon sales tax revenues and will exacerbate big-box-development feeding frenzies and sprawl.

SALES TAX

Governor's Proposal:
The Governor's budget proposes to finance local government by increasing sales taxes, while shifting responsibility to counties for health and social services. The increase in sales tax is proposed as a way to pay for this.

Smart Growth Impact:
Local increases in sales tax have been an important mechanism for local governments to use in financing transit projects. If the Governor increases the sales tax, it makes it almost impossible for local government to do the same.

If cities and counties will be relying to a greater degree that ever on sales tax to keep afloat, they will be forced to permit ever more big box development.

REDEVELOPMENT AGENCY FUNDING

Governor's Proposal:
The Governors budget takes away any balances in the Low and Moderate Income Housing Fund of a Redevelopment Agency that were unencumbered as of December 1, 2002.

Smart Growth Impact:
A number of communities were accumulating their redevelopment agency housing funds until the amount was adequate to fund planned low income housing. Taking these funds will make it more difficult to achieve the Smart Growth principal that specifies that neighborhoods provide housing for people from a mix of income levels.

Redevelopment Agency sponsored housing is usually infill, higher density housing, in keeping with smart growth goals.

Governor's Proposal:
Beginning next year, the Governor's budget proposes to begin shifting $250 million of redevelopment agency tax increment financing to schools, through ERAF. That amount will grow over time to about $1.2 billion. (This enormously expands the current city responsibility for school funding, which is now about $700 million.)

Smart Growth Impact:
Smart growth calls for creating strong downtown centers and revitalizing declining neighborhoods located close to downtown centers. However, it is more costly for the developer to build on infill sites than on greenfields. Without the incentives provided to developers by redevelopment agencies for new infill and rehab projects in our downtowns and declining neighborhoods, ever more growth will move to the periphery and leap frog development will be exacerbated.

After the federal housing programs, redevelopment agencies provide the single largest housing subsidy program in the state, producing housing for very low, low, and moderate income housing families. By taking future redevelopment funds away from local governments, the ability of redevelopment agencies to fund new housing projects in downtowns and first ring suburbs will be reduced or eliminated.

WILLIAMSON ACT REIMBURSEMENTS

Governor's Proposal:
Discontinue payments by the State to counties to replace the property tax lost when counties put property into the Williamson Act.

Smart Growth Impact:
This will eliminate incentives to counties to protect property using the Williamson Act and will likely result in more open space lost to development.

Judy Corbett, Executive Director
Local Government Commission
1414 K Street, Suite 600
Sacramento, CA 95814
Telephone: (916) 448-1198
FAX: (916) 448-8246
email: jcorbett@lgc.org
Website: www.lgc.org

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posted 01.24.03