October 5, 2004

SUBJECT: Positions on Propositions 1A and 65, and Measures J, L, O and P for the November 2004 Election

This report summarizes Propositions 1A and 65 and Measures J, L, O, and P on the November 2^nd ballot, and provides City Council an opportunity to take a public stand on the measures. This report also provides the City’s adopted policy on the issues, the position of the League of California Cities [LCC] (if appropriate), and a staff recommendation. Generally, staff only recommends a position on a ballot measure if there is an existing City policy on the issue or significant impact on the City.

City Council will have an opportunity to take a position on all other November ballot measures at the October 19^th Council meeting. Due to the significance of Propositions 1A and 65 and Measures J, L, O, and P, staff is bringing this report to Council for their consideration prior to October 19^th.

Staff recommends the following positions on the six ballot measures:

• Proposition 1A: Support
• Proposition 65: Oppose
• Proposition J: Support
• Proposition L: Support
• Measure O: Support
• Measure P: Support

Staff is providing this report to afford the City Council an opportunity to take a public stand on six measures on the November 2^nd ballot. Staff’s recommendations are generally based on existing City policies from documents such as the General Plan and the Legislative Action Policies. Past positions of the Council also guide staff recommendations. New positions taken by the Council will become official policies of the City and will be added to the Legislative Action Policies. EXISTING POLICY

Legislative Management Sub-element, Goal 7.3C: Participate in intergovernmental activities, including national, state and regional groups, in order to represent the City's interest, influence policy and regulations, and enhance awareness.

Legislative Management Sub-element, Policy 7.3C.1: Represent adopted City policy in intergovernmental activities.

1) Proposition 1A and Proposition 65

Summary
Propositions 1A and 65 amend the State Constitution to reduce the state’s authority over local finances. Proposition 1A emerged from the state budget negotiations led by Governor Schwarzenegger that took place during spring and early summer 2004, resulting in the historic budget agreement with local governments. Proposition 1A is meant to supercede Proposition 65, the Local Taxpayers and Public Safety Protection Act, which previously qualified for the November ballot.

During the state budget negotiations, the coalition of city, county and special district officials agreed that a united front of state and local leaders would produce the best result at the ballot box. Hence the budget deal was forged that resulted in Proposition 1A as an acceptable alternative to Proposition 65. If both measures pass on November 2^nd, the one with the most votes will become law.

Since Proposition 1A is meant to supercede Proposition 65 on the November statewide ballot as a more secure option to protect local revenues from future state takeaways, a detailed summary of Proposition 1A is provided here:

Protection of Property Tax under Proposition 1A
Proposition 1A generally prohibits the state from shifting to schools or community colleges any share of property tax revenues allocated to local governments. The measure also specifies that any change in how property tax revenues are shared among local governments within a county must be approved by two-thirds of both houses of the Legislature (instead of by majority votes). The measure prohibits the state from reducing the property tax revenues provided to cities and counties as replacement for the local sales tax revenues redirected to the state and pledged to pay debt service on state deficit-related bonds approved by voters in March 2004.

One major exception to the above restrictions regarding sales and property taxes is that the state can shift a limited amount of local government property tax revenues from local governments if: the Governor proclaims that the shift is needed due to a severe state financial hardship, the Legislature approves the shift with a two-thirds vote of both houses, and certain other conditions are met. The state, however, must repay local governments for their property tax losses, with interest, within three years.

Protection of Sales and Use Tax under Proposition 1A
Proposition 1A does not allow the state to reduce the current funding that local governments receive from sales and use tax, or restrict in any way a city or county from imposing sales and use taxes in accordance with existing law.

Protection of Vehicle License Fee (VLF) under Proposition 1A
If the state reduces the VLF rate below its current level, Proposition 1A requires the state to provide local governments with equal replacement revenues. The measure also requires the state to allocate VLF revenues to county health and social services programs and local governments.

State Mandate Reform under Proposition 1A
The State Constitution requires the state to reimburse local governments for state-mandated programs. The Legislature has sometimes "suspended" the mandate, rather than reimbursing local governments. Proposition 1A requires that, in each fiscal year’s budget beginning in 2005-06, the Legislature must either appropriate sufficient funds to reimburse local governments for their costs of complying with a mandate or suspend the operation of the mandate for that fiscal year.

For more information about the impact of Proposition 1A on local governments, see Attachment A, Analysis of Proposition 1A by the California Legislative Analyst’s Office.

Proponents: Proponents argue that Proposition 1A protects local tax dollars for law enforcement, fire protection, emergency medical and other important services. Local governments, the Legislature and the Governor have all said that this is a good solution.

Opponents: Opponents argue that Proposition 1A gives local governments a spending guarantee with no oversight. This Proposition prevents the Legislature from lowering the local sales tax rate. It locks in a local finance system that has a lot of problems.

Staff Analysis/Fiscal Impact: While Propositions 1A and 65 seek to protect local governments from future state takeaways, there are key differences between the two measures. Proposition 65 would require voter approval before the state could take local revenues, while Proposition 1A would require a two-thirds vote of the Legislature. Though it may appear more advantageous to require voter approval to take local revenues, this distinction is entirely offset by cap, loan and repayment guarantees that would be codified in the State Constitution if Proposition 1A passes. Proposition 65 has no such guarantees.

If passed, Proposition 1A will amend the California Constitution to protect local governments from future state revenue takeaways, in exchange for two years of substantial funding cuts. For Sunnyvale this amounts to approximately $4.1 million over FY 2004/2005 and FY 2005/2006. The revenue loss will be partially offset by the return of VLF backfill "gap" revenue in FY 2006/2007 totaling approximately $2.4 million, so the net loss to Sunnyvale is $1.7 million.

City Policy:
Legislative Action Policy 7.1.ii.11: Support efforts to amend the California Constitution to provide local government with protected and predictable revenue sources.

Legislative Action Policy 7.1.9: Oppose unfunded or underfunded state or federal mandates.

LCC Position: Support Proposition 1A and oppose Proposition 65

2) Measure J

Summary: The passage of Measure J would allow the Santa Clara Unified School District to issue $315,000,000 of bonds to make seismic upgrades to classrooms and schools, add school facilities to relieve overcrowding, and repair deteriorated plumbing, sewers, bathrooms, leaky roofs, aging boilers, inadequate heating, electrical and building systems.

Proponents: Proponents argue that Measure J will make needed seismic upgrades to classrooms and schools for earthquake safety and improve electrical capacity and access to technology. Every Measure J dollar will go directly into critical facility upgrades and will qualify the Santa Clara Unified School District for up to $27 million in State matching funds. An independent Citizens Oversight Committee and annual audits will ensure Measure J funds are spent properly.

Opponents: Opponents argue that the bond measure will only lead to more wasteful spending and that the school district should not be rewarded for fiscal irresponsibility. Homeowners are still repaying $145,000,000 of Santa Clara Unified School District's infrastructure bonds. The school district should implement other money-saving reforms that increase school performance and reduce costs.

Staff Analysis/Fiscal Impact: Principal and interest on the bonds will be payable from the proceeds of tax levies made upon the taxable property in the Santa Clara Unified School District. Property owners within the District would be assessed no more than $58 per $100,000 of their property’s assessed value (not market value) each year for thirty years. 55% voter approval is required to pass this measure. The District encompasses the following Sunnyvale schools: Braly, Peterson, and Ponderosa.

City Policy:
Legislative Action Policy 7.1(10): Support funding for local governments and schools that are not in conflict with each other.

Legislative Action Policy 7.1ii)12: Support the ability of local governments and school districts to raise additional revenues through simple majority voter approval requirements; oppose efforts to place greater controls on the revenue raising authority of local governments and school districts.

3) Measure L

Summary: The passage of Measure L would allow the Fremont Union High School District to levy a parcel tax to preserve core academic classes, maintain qualified and experienced teachers and school employees, and continue programs that help students qualify for college.

Proponents: Proponents argue that Measure L will provide essential funding to attract and retain outstanding teachers, maintain manageable class sizes, continue proven academic programs that enhance student achievement, maintain academic support specialists who help students struggling with the basics like reading, writing and math, and maintain music and art programs.

Opponents: Opponents argue that Measure L has no specific plan on how the District will spend the money and no plan to monitor the impact of this tax. Because parcel taxes affect all parcels of property equally, and residential property makes up the bulk of most districts, the burden falls disproportionately hard on homeowners. Opponents also argue that now is the wrong time to heighten financial burdens on already struggling property owners.

Staff Analysis/Fiscal Impact: If this measure passes, property owners within the Fremont Union High School District would pay $98 per parcel annually for 6 years. Senior citizens would be exempt from paying the tax. Two-thirds voter approval is required to pass this measure. Fremont High School is the Sunnyvale school within the District.

City Policy:

Legislative Action Policy 7.1(10): Support funding for local governments and schools that are not in conflict with each other.

Legislative Action Policy 7.1ii)12: Support the ability of local governments and school districts to raise additional revenues through simple majority voter approval requirements; oppose efforts to place greater controls on the revenue raising authority of local governments and school districts.

4) Measure O

Summary: The passage of Measure O would allow the Cupertino Union School District to levy a parcel tax to help attract and retain the best teachers and staff, keep class sizes small, maintain essential educational programs including music and art, and fund programs that enhance student achievement.

Proponents: Proponents argue that Measure O will provide essential funding to attract and retain outstanding teachers, maintain manageable class sizes, continue proven academic programs that enhance student achievement, maintain academic support specialists who help students struggling with the basics like reading, writing and math, and maintain music and art programs.

Opponents: Opponents argue that Measure O has no specific plan on how the District will spend the money and no plan to monitor the impact of this tax. Because parcel taxes affect all parcels of property equally, and residential property makes up the bulk of most districts, the burden falls disproportionately hard on homeowners. Opponents also argue that now is the wrong time to heighten financial burdens on already struggling property owners.

Staff Analysis/Fiscal Impact: If this measure passes, property owners within the Cupertino Union School District would pay $98 per parcel annually for 6 years. Senior citizens would be exempt from paying the tax. Two-thirds voter approval is required to pass this measure. The District encompasses the following Sunnyvale schools: Nimitz, Stocklmeir, and West Valley.

City Policy:
Legislative Action Policy 7.1(10): Support funding for local governments and schools that are not in conflict with each other.

Legislative Action Policy 7.1ii)12: Support the ability of local governments and school districts to raise additional revenues through simple majority voter approval requirements; oppose efforts to place greater controls on the revenue raising authority of local governments and school districts.

5) Measure P

Summary: The passage of Measure P would allow the Sunnyvale School District to issue $120,000,000 in bonds in order to "maintain a safe learning environment at Sunnyvale’s elementary and middle schools by replacing 40 year old gas, water and sewer lines; improving and expanding school libraries; installing energy efficient heating and cooling systems; replacing portables with permanent classrooms; expanding school facilities to relieve overcrowding; and making essential school improvements."

Proponents: Proponents argue that Measure P will fund the next phase of school repairs in the Sunnyvale School District and that funds can only be used to upgrade school facilities, not for salaries or administration. Measure P funds will stay in Sunnyvale to improve aging neighborhood school facilities and will be overseen by an independent citizens committee to make sure that they are properly spent.

Opponents: Opponents argue that now is the wrong time to heighten financial burdens on already struggling property owners. More responsible spending is needed, not more taxes. Opponents argue that, since the bond issue will affect only property owners, it is unfair for tenants who will not be repaying these bonds to vote for more property taxes. Finally, homeowners are still repaying $34 million of Sunnyvale School District’s infrastructure bonds.

Staff Analysis/Fiscal Impact: Principal and interest on the bonds will be payable from the proceeds of tax levies made upon the taxable property in the District. Property owners within the Sunnyvale School District would be assessed an estimated $24 per $100,000 of their property’s assessed value (not market value) each year for thirty years. 55% voter approval is required to pass this measure. The District encompasses the following Sunnyvale schools: Bishop, Cherry Chase, Columbia Middle, Cumberland, Ellis, Fairwood, Lakewood, San Miguel, Sunnyvale Middle, and Vargas.

City Policy:
Legislative Action Policy 7.1(10): Support funding for local governments and schools that are not in conflict with each other.

Legislative Action Policy 7.1ii)12: Support the ability of local governments and school districts to raise additional revenues through simple majority voter approval requirements; oppose efforts to place greater controls on the revenue raising authority of local governments and school districts.

There is no fiscal impact to this report. To the extent possible, fiscal impact of Propositions 1A and 65 and Measures J, L, O, and P has been included in the discussion.

Conclusion

Proposition 1A significantly reduces the state’s ability to take local property tax revenues, sales and use taxes, and VLF revenues. It also requires the state to reimburse local governments for state-mandated programs.

Proposition 65 would require voter approval before the state could take local revenues. However, Proposition 65 does not provide the same cap, loan and repayment guarantees that would be codified in the State Constitution if Proposition 1A passes.

Measure J would allow the Santa Clara Unified School District to issue $315,000,000 of bonds to repair school facilities. Property owners within the District would be assessed no more than $58 per $100,000 of their property’s assessed value (not market value) each year for thirty years.

Measure L would allow the Fremont Union High School District to levy a $98 parcel tax annually for 6 years to preserve core academic classes, maintain qualified and experienced teachers and school employees, and continue programs that help students qualify for college.

Measure O would allow the Cupertino Union School District to levy a $98 parcel tax annually for 6 years to help attract and retain the best teachers and staff, keep class sizes small, maintain essential educational programs including music and art, and fund programs that enhance student achievement.

Measure P allows the Sunnyvale School District to issue $120,000,000 in bonds to make repairs to school facilities. In order to pay back the bonds, property owners within the Sunnyvale School District would be assessed an estimated $24 per $100,000 of their property’s assessed value (not market value) each year for thirty years.

See Attachment C for a Chart of Select November 2004 Ballot Measures.

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, publication of the Council agenda in the San Jose Mercury News, and the availability of the report in the Library and the City Clerk's Office.

ALTERNATIVES

1. Support Proposition 1A; oppose Proposition 65; support Measure J; support Measure L; support Measure O; support Measure P.

2. Adopt a Resolution rescinding Resolution No. 153-03 Pertaining to a Statewide Ballot Initiative to Require Voter Approval Before State Government May Take Local Tax Funds.

3. Take other action as directed by Council.

4. Take no action at this time.

Staff recommends Alternative 1 and Alternative 2: support Proposition 1A; oppose Proposition 65; support Measure J; support Measure L; support Measure O; support Measure P; adopt a resolution rescinding Resolution #153-03 Pertaining to a Statewide Ballot Initiative to Require Voter Approval Before State Government May Take Local Tax Funds.

Staff recommends that the City Council support Proposition 1A because this Proposition would provide critical protection for City funds as well as essential City services.

Staff recommends that the City Council oppose Proposition 65 because, while this measure is consistent with existing City policy, Proposition 1A would afford greater protection of local revenues. The League of California Cities is encouraging all cities to oppose Proposition 65 and support Proposition 1A because 1A is a better and more flexible measure to prevent state raids on local government funding.

Staff recommends that the City Council support Measures J, L, O, and P because these measures would provide critical funding for Sunnyvale schools.

Staff recommends that the City Council adopt a Resolution rescinding Resolution No. 153-03. On November 11 2003, City Council adopted Resolution #153-03 in support of a statewide ballot initiative to require voter approval before the state government may take local tax funds (which later became known as Proposition 65). If Council chooses to oppose Proposition 65 as recommended by staff, Council will need to adopt a resolution rescinding Resolution #153-03. (See Attachment B: A Resolution of the City Council of the City of Sunnyvale Rescinding Resolution No. 153-03 Pertaining to a Statewide Ballot Initiative to Require Voter Approval Before State Government May Take Local Tax Funds).

Reviewed by:

Coryn Campbell
Intergovernmental Relations Manager

Prepared by:

Peter Bassett
Management Analyst

Approved by:

Amy Chan
City Manager

Attachments

A. Analysis of Proposition 1A by the California Legislative Analyst’s Office
B. A Resolution of the City Council of the City of Sunnyvale Rescinding Resolution No. 153-03 Pertaining to a Statewide Ballot Initiative to Require Voter Approval Before State Government May Take Local Tax Funds.
C. Chart of Select November 2004 Ballot Measures