SunnyvaleRTC

January 6, 2004

SUBJECT: Resolution Supporting Passage of Proposition 56, the Budget Accountability Act

At the regularly scheduled meeting of December 2, 2003, Councilmember Fowler requested that the City Council consider a resolution of support for Proposition 56, a March 2004 ballot initiative that would amend the State Constitution to lower the threshold for legislative approval of the State budget and budget-related tax and appropriation bills, among other provisions as outlined below. The purpose of this report is to propose a resolution for City Council consideration (Attachment A) that would support the passage of Proposition 56.

Given that there are specific portions of Legislative Action Policies (LAPs) relative to the ballot initiative, staff recommends that the City Council adopt the attached resolution in support of Proposition 56.

BACKGROUND

The annual State Budget Bill provides ongoing funding for most state government programs. Before the Governor can approve and sign the budget, it must be passed by a two-thirds vote in the Assembly and Senate. The State Constitution requires legislative passage of the budget bill by June 15 of each year, but does not require the Governor and Legislature to come to final agreement by the start of the new fiscal year. In fact, the Legislature has missed the Constitutional deadline every year since 1986.

In response to the repeated budget stalemates that occur at the State level (which arguably produce irresponsible budgets), a broad coalition of advocacy groups has proposed an initiative for the March 2004 statewide primary election. The coalition includes such organizations as the League of Women Voters of California, the California State PTA, the AARP, Health Access and California Church IMPACT, as well as firefighters, educators, school employees and health care workers. Major funding for the initiative has been provided by the California State Council of Service Employees Political Issues Committee and the California Teacher’s Association Issue Political Action Committee (PAC).

Named by its proponents as the Budget Accountability Act, the initiative will appear on the ballot as Proposition 56: “State Budget, Related Taxes, and Reserve. Voting Requirements. Penalties. Initiative Constitutional Amendment and Statute.” The measure would amend both the State Constitution and Statutes to change the State budget process. The main provisions of the proposition are summarized as follows:

Votes on State Budget-Related Taxes and Spending: Permits Legislature to enact budget and budget-related tax and appropriations bills with 55% vote rather than 2/3 vote currently required.
Reserve Requirements: Establishes minimum requirements for putting money into and taking money out of the State reserve fund. Specifically, the measure requires at least 25% of excess revenues to be put into reserve until the reserve reaches 5% of prior-year General Fund spending. Reserve funds could only be spent in certain circumstances.
Consequences of Late Budget: Prohibits Governor and Legislature from collecting their salaries and expenses when the budget is late, and expenses could not be paid back. In addition, the Legislature must stay in session until the budget is approved.
Ballot Pamphlet Budget Summary: Requires the State Controller to prepare a budget summary to be included in the ballot pamphlet provided to voters. The summary would include a link to an Internet Website that includes voting records of legislators on budget-related bills.
Punishment of Legislators: Prohibits a legislator from punishing or threatening to punish another legislator for a budget-related vote.

At the regularly scheduled City Council meeting of December 2, 2003, Councilmember Fowler requested that this item be put on a future agenda for the Council to consider a resolution of support. Though there could be potential negative consequences for local governments if Proposition 56 is passed (e.g., it would be easier for the Legislature to take local revenues with a 55% vote), a support position is recommended given existing City policy.

EXISTING POLICY

2003 Legislative Action Policies (LAPs)

The relevant portions of the applicable LAPs are underlined below.

7. Planning and Management

7.3 – Legislative Management, Miscellaneous (1): Support efforts to revise the California Constitution to enhance accountability, efficiency, and responsiveness for state and local government.

7.3 – Legislative Management, Miscellaneous (2): Support long-term strategic planning by the state and balanced, multiple year budgets with a prudent reserve and outcome-based performance measures.

7.3 – Legislative Management, Miscellaneous (6) (a): Support efforts to revise the Constitution to shorten the regular legislative session to six months and prevent legislators or the Governor from being paid if the budget is not passed by June 30. Note: This policy was inadvertently omitted during the process of updating the 2003 LAPs.

DISCUSSION

The Budget Accountability Act (Prop 56), proponents say, is a necessary reform measure to address the yearly stalemates and partisan wrangling that occur in the State Legislature that lead to passage of irresponsible budgets. If passed by the voters, Prop 56 would amend the State Constitution and Statutes to lower the threshold to pass the State budget from the current two-thirds vote to 55%. It would also establish minimum requirements for creating and using General Fund reserves. Specifically, the measure would require the Legislature to put aside at least 25% of any “excess revenues” in those years where revenues exceed what is needed for “current service levels,” until the reserve reaches 5% of prior-year expenditures. These reserve funds could only be spent in emergency situations, or in years where spending exceeds available revenues.

Prop 56 would also require the Legislature to stay in session until the budget is passed, and would permanently withhold salary and expenses for the Governor and the Legislature for each day the budget is late. It would further require the State Controller to include a budget summary in the ballot pamphlet provided to voters at every statewide election. The summary would include a link to an Internet Website that shows the voting records of legislators on budget-related bills. Lastly, it would prohibit a legislator from punishing or threatening to punish another legislator for a vote related to the budget.

Opponents of the initiative argue that passage of Prop 56 will only make it easier for the Legislature to enact higher taxes, leading taxpayer groups to dub the measure the “Blank Check Initiative.” While it has some positive provisions aimed at making state officials more accountable for enacting responsible and timely budgets, the lower threshold would be an open invitation to increase vehicle license fees (VLF), gas taxes, income and sales taxes, and to impose new parcel taxes on homeowners and new taxes on small business. Critics further argue that, under a 55% vote requirement, the majority party will not have to gain politically difficult bipartisan consensus before increasing taxes.

State-Local Fiscal Relationship

Though staff is recommending a support position based upon relevant portions of the adopted LAPs, it is prudent to outline for Council the potential unintended consequences that Prop 56 may have for local governments. With regard to the state-local fiscal relationship, a 55% vote to pass the State budget could make it much easier for the Legislature to take local revenues, particularly if the Local Taxpayers and Public Safety Protection Act, which is scheduled for the November 2004 statewide election, is not approved by the voters. Given the current fiscal and political climate in Sacramento, local revenues and/or reduced local funding would be tempting targets for state legislators, especially given the recent decision by the Governor to fully fund the local VLF backfill by declaring a fiscal emergency.

The League of California Cities has officially taken no position on Prop 56. While the League acknowledged that there are good points on both sides, it could not support all of the provisions as a package, and questioned whether the measure would provide enough adequate structural reform to warrant changing the State Constitution.

FISCAL IMPACT

There is no fiscal impact in adopting the resolution. Any fiscal impact to Sunnyvale as a result of passage of Prop 56 is unknown at this time and will depend on a number of factors such as the State’s financial circumstances, the composition of the Legislature, and its future actions.

PUBLIC CONTACT

Public contact was made through posting of the Council Agenda on the City's official notice bulletin board, posting of the agenda and report on the City's web page, and the availability of the report in the Library and City Clerk's office.

ALTERNATIVES

1. Adopt the attached resolution supporting the passage of Prop 56, the Budget Accountability Act.

2. Do not adopt the resolution and take no position on Prop 56.

3. Do not adopt the resolution and take an oppose position on Prop 56.

4. Direct staff to perform further study.

RECOMMENDATION

Staff recommends Alternative 1.

Prepared by:

Pete Gonda
Senior Management Analyst, Finance

Reviewed by:

Mary J. Bradley
Director, Finance

Approved by:

Amy Chan
Acting City Manager

Attachments

A. Resolution of the City Council supporting passage of Proposition 56, the Budget Accountability Act