League of California Cities Policy Committee Meetings Sacramento 19 January State Budget and Legislation Update. State of the State

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League of California Cities Policy Committee Meetings Sacramento 19 January 2017 State Budget and Legislation Update State of the State 2 Prop30 temporary sales tax ended 12/31/2016 but state tax

1 League of California Cities Policy Committee Meetings Sacramento 19 January 2017 State Budget and Legislation Update State of the State 2 Prop30 temporary sales tax ended 12/31/2016 but state tax revenues hold steady Operating budget debt progress but large unfunded employee retirement costs remain State revenues down from previous budgets, estimates but still growing moderately Unmet needs: transportation, water, other infrastructure, poverty, housing, health care, Cap-and-Trade, etc. Uncertainties/risks: health care (ACA), federal funding, pension funding, natural disasters.

3 Governor s Proposed Budget 2017 Revenues down from June 2016 Budget Act

6 billion in deficit after chewing through budgeted $1.

corrective action Governor s proposed corrective actions: Adjust Prop98

7 billion Recapture $400 million affordable housing set-aside and $300 million

2 3 Governor s Proposed Budget 2017 Revenues down from June 2016 Budget Act estimates FY will end $1.6 billion in deficit after chewing through budgeted $1.6 billion surplus Future annual gaps of $1 billion to $2 billion absent corrective action Governor s proposed corrective actions: Adjust Prop98 calculations for lower revenues $1.7 billion Recapture $400 million affordable housing set-aside and $300 million for state building modernization. Constrain spending 4 State Revenues Still Projected to Grow General Fund Dept of Finance Jan2017 estimates TOTAL 3.3% CIT 4.9% 0.4% SUT 5.3% PIT TOTAL 2.7% CIT 4.7% 0.7% SUT 3.3% PIT

State General & Special Funds Spending 2017-18 5 UC/CSU

Fund $124 Billion Other Corrections Health and Social

Corrections Other Transportation Infrastructure, Debt

3 State General & Special Funds Spending UC/CSU Education K-12 and Community College Education General Fund $124 Billion Other Corrections Health and Social Services Health, Social Srvcs Special Funds $52 Billion Corrections Other Transportation Infrastructure, Debt Proposition 2* Rainy Day Fund & Debt Reduction 6 Source: LAO

Debts and Liabilities Eligible for Accelerated Payments Under Prop2 Dollars in Millions Outstanding Amount Start of 2017-18 Proposed PayDown 2017-18 Budgetary Borrowing Repay Loans from Special Funds

4 Debts and Liabilities Eligible for Accelerated Payments Under Prop2 Dollars in Millions Outstanding Amount Start of Proposed PayDown Budgetary Borrowing Repay Loans from Special Funds $ 1,365 $ 252 Settle-up Underfunding of Prop98 1, Repay Transportation Loans State Retirement Liabilities State Retiree Health 74, State Employee Pensions 49,592 0 Teacher Pensions 72,626 0 Judges Pensions 3,279 0 Deferred Payments to CalPERS University of California Retirement Liabilities UC Employee Pensions 15, UC Retiree Health 21,087 0 Total $ 239,552 $ 1,156 Source: Governor s Budget Summary 2017 Fig INT Governor s Proposed Budget Would End with $9.4 Billion Reserve 8 Dollars in Millions Prior Year Fund Balance $ 5,023 $ 1,027 Revenues and Transfers 118, ,027 Expenditures 122, ,520 Ending Fund Balance 1,027 2,534 Encumbrances SFEU balance 47 1,554 Reserves SFEU balance 47 1,554 BSA balance 6,713 7,869 Total Reserves $ 6,760 $ 9,423

5 Debt Service Ratio Expected to Decline Somewhat Throughout Forecast Period 9 Debt Service Costs as Share of Annual General Fund Revenues, LAO Projections 10 Local Taxes and Bonds in California November 2016 Michael Coleman

Local Tax and Bond Measures November 2016

650 measures including 430 local tax and bond

3 Billion 135 city / county majority vote

special taxes, parcel taxes Including 12

6 Local Tax and Bond Measures November 2016 Schools Special Districts Counties Cities Record 650 measures including 430 local tax and bond measures 184 school bonds totaling $25.3 Billion 135 city / county majority vote general purpose taxes 117 two-thirds vote bonds, special taxes, parcel taxes Including 12 non-school G.O bonds totaling $7.3 billion 12 Local Revenue Measures November 16

7 Local Revenue Measures November Local Revenue Measures November 16 14

Local Revenue Measures passed/proposed Gubernatorial and Presidential Elections 15 Nov2006 Nov2008 Nov2010

(Majority Vote) 2/5 5/9 6/12 4/6 2/6 12/15 City SpecialTax,GObond (2/3 Vote) 18/34 11/21 7/11 5/15 14/23 19/33

10/21 21/33 School ParcelTax2/3 2/7 17/21 2/18 16/25 8/8 17/22 School Bond 2/3 0/0 2/3 0/0 1/1 0/1 2/7 School

8 Local Revenue Measures passed/proposed Gubernatorial and Presidential Elections 15 Nov2006 Nov2008 Nov2010 Nov2012 Nov2014 Nov2016 City General Tax (Majority Vote) 31/43 40/56 44/67 48/60 62/88 103/120 County General Tax (Majority Vote) 2/5 5/9 6/12 4/6 2/6 12/15 City SpecialTax,GObond (2/3 Vote) 18/34 11/21 7/11 5/15 14/23 19/33 County SpecialTax, GObond (2/3 Vote) 5/13 7/12 0/3 7/12 4/9 10/23 Special District (2/3) 19/35 10/19 6/17 7/16 10/21 21/33 School ParcelTax2/3 2/7 17/21 2/18 16/25 8/8 17/22 School Bond 2/3 0/0 2/3 0/0 1/1 0/1 2/7 School Bond 55% 55/67 85/92 47/63 90/105 91/ /177 Total 132/ / / / / /430 The Fuel Tax Swap of 2010

Federal gas tax 18.4 per gallon California gas tax Highway Users Tax Account HUTA 30.0 per gallon (drops to 27.8 /gal. on July 1) California U.S.T. fee 2.0 per gallon California sales tax 2.

9 Federal gas tax 18.4 per gallon California gas tax Highway Users Tax Account HUTA 30.0 per gallon (drops to 27.8 /gal. on July 1) California U.S.T. fee 2.0 per gallon California sales tax 2.5% of sale value local rates only No 5% state sales tax on gasoline Any add-on sales taxes Countywide transportation tax rates Other local transactions and use tax rates Highway User Tax Account HUTA Revenue Allocation 18 base rate 27.8 Per Gal Gasoline Transportation Debt Service State General Fund Relief *Estimated BOE action effective July 1, Swap rate (adjusted annually) Str&Hwys State Highway Account Weight Fees ~$1 billion 44% Weight Fee Offset ~$1 billion Counties 22% Remainder Cities 22% Str&Hwys 2103

Fuel Tax Swap of 2010 $6 Revenues $6 Allocation $5 $4 State Swap Excise Sales Tax 5% 18.

10 Motor Vehicle Fuel Taxes before 2010 $6 Revenues $6 Allocation $5 $4 State Sales Tax 5% of sale $5 $4 Public Transit Acct Prop42 Transit Acct Prop42 State Hwy Acct Prop42 City&Co $3 $2 Base Fuel Excise Tax 18 $3 $2 State Highway Acct $1 $1 City&Co HUTA $0 $0 Motor Vehicle Fuel Taxes Fuel Tax Swap of 2010 $6 Revenues $6 Allocation $5 $4 State Swap Excise Sales Tax 5% 18.0 /gal of sale (variable) $5 $4 Public Transit Acct Prop42 Transit Acct Prop42 State Hwy Acct Prop42 City&Co $3 $2 Base Fuel Excise Tax 18 /gal $3 $2 State Highway Acct $1 $1 City&Co HUTA $0 $0

11 Highway User Tax Revenues Proposed 2103 swap 2104 counties 2105 cities& counties cities estimated projected 21 it s time for a new vehicle

Federal Fuel Taxes Vehicle Registration Fees Vehicle Weight Fees Cap-n-

Taxes incl. self help Local General Funds (incl. G.O.

Sales Tax Benefit Assessments and Mello- Roos Taxes Developer Fees and

revenues are flat /declining Per gallon rate is stagnate re inflation

makes it worse State General Fund support is gone Weight fees now fund

funds Local sales taxes nearly tapped out extend but not increase Local

12 Federal Fuel Taxes Vehicle Registration Fees Vehicle Weight Fees Cap-n- Trade Funds State Fuel Taxes Tolls Public Transit Fares Dedicated Sales Taxes incl. self help Local General Funds (incl. G.O. Bond Debt Service) State General Fund Local ¼% T.D.A. Sales Tax Benefit Assessments and Mello- Roos Taxes Developer Fees and Exactions Dedicated Parcel Taxes Redevelopment Tax Increment Fuel tax revenues are flat /declining Per gallon rate is stagnate re inflation Shift to alternative fuels Price based rate has tanked swap mechanism makes it worse State General Fund support is gone Weight fees now fund transportation debt General fund owes $879 million to transp. funds Local sales taxes nearly tapped out extend but not increase Local general funds squeezed by: other service demands, recession, state take-aways, flawed sales tax structure growing pension/ OPEB costs.

13 Priorities 1. Make significant investment, 2. Focus: maintain / rehab current system, 3. New revenue into high priority goods movement, 4. Raise revenue across a broad range of options, 5. Split revenue equally btw state and local systems, 6. Strong accountability requirements, 7. Consistent annual funding levels. 25 Restore Lost Revenues Truck weight fees Restore to transportation over 5 yrs to $1 billion/yr Price-based gas tax Reset rate to 17.3 cents +$900 million/year Repay loans to transportation from General Fund New Revenues 26 Gas tax Increase by 12 to $1.8B/yr and index Cap and Trade $500M Diesel tax Increase by 11 $300M/yr and index Road access fee $65/yr $2B/yr Diesel sales tax 1.75% to 5.25% $300M/yr Zero emission vehicle fee $100/yr $10M/yr

Reforms/Other Provisions Sensible CEQA reforms Office of Inspector General Reduce duplicative state/fed rules Increase Caltrans encroachment

authorization of Public Private Partnerships Provide spending transparency and accountability Require measureable performance targets Require

14 Reforms/Other Provisions Sensible CEQA reforms Office of Inspector General Reduce duplicative state/fed rules Increase Caltrans encroachment permit threshold Enact Advanced Mitigation Program Constitutionally protect existing & new revenues for transpt n Eliminate sunset on authorization of Public Private Partnerships Provide spending transparency and accountability Require measureable performance targets Require cities and counties to adopt a maintenance of effort Require CTC allocation of SHOPP support costs Provide Caltrans w flexibility re contracting out 27

A City Finance Update

League of California Cities Municipal Finance Institute Monterey 30 November 2016 A City Finance Update Michael Coleman 530.758.3952 coleman@muniwest.com www.facebook.com/munialmanac Twitter: @MuniAlmanac