O.C. Cities Fear State Proposal to Tap Funds

City officials throughout Orange County were up in arms Wednesday over state proposals to claim a larger portion of property taxes and vehicle license fees, which they said would have a “devastating” effect on upcoming city budgets already slashed to accommodate flat or falling revenues.

The legislative working group making recommendations on local government budgets will present the proposals to the Legislature’s Budget Conference Committee in Sacramento today.

The proposals, which would effectively transfer greater responsibility for education finance from the state to local governments, is among the 76 budget options being presented to the conference committee as ways to help solve the state’s projected $11-billion budget shortfall.

Earlier this week, the League of California Cities alerted municipalities throughout the state about two of the proposals that, if passed, could cost cities as much as $2.8 billion in property tax revenue.

In effect, one proposal would permit the state to shift property tax revenue from cities, counties and special districts to schools. The other would transfer all or part of $900 million in annual vehicle license fees from cities to counties.

City managers and other city officials, who have already spent several months trimming their budgets, reacted angrily to the possibility of losing yet more funds.

“It’s an outrageous theft of funds,” said Dana Point City Manager William O. Talley, whose city could lose more than $1 million if the proposals are approved.

“The state just won’t live . . . within its means,” Talley said. “This is nothing more than robbing local government to pay for the mismanagement of the state budget.”

“It’s too ridiculous to even talk about,” said Buena Park City Manager Kevin O’Rourke, whose city stands to lose $3.2 million if the Legislature adopts the proposals. “You have a state Legislature and governor out of control. They are shifting their burden onto us.”

State Sen. Marian Bergeson (R-Newport Beach), who helped prepare the state’s budget reduction options, said opposition to some of the proposals was expected.

“The fact that the state is facing a fiscal crisis means there have to be some extraordinary measures,” Bergeson said. “We either cut expenditures, raise taxes or deficit spend. It’s a very difficult and painful process. The state simply doesn’t have the money. It’s not business as usual.”

Among the cities hardest hit in Orange County would be Huntington Beach, which stands to lose as much as $9.5 million in anticipated property tax and vehicle license fee revenue.

“We’ve already had to deal with a $4.2-million budget deficit,” said Robert Franz, deputy city administrator. “If we had to reduce another $9 million, we would be in a crisis mode. We would have to reopen our budget and look at further cuts.”

Franz said Huntington Beach relies more heavily than most cities on property tax, and the city gets relatively little income from sales taxes. Property taxes are also generally higher in Huntington Beach because of its proximity to the ocean.

“We are more dependent on property taxes than most cities,” Franz said. “The property tax, even during the recession, has been the city’s most stable revenue source. It’s been something we could count on.”

The city, which is scheduled to adopt next year’s $96-million budget next Monday, has already eliminated 29 employee positions through attrition and transfers and would be forced to lay off yet more if the city receives less money from the state, Franz said.

“We have no idea what the state is going to do,” Franz said. “Every year at this time they talk about drastic measures and what they come up with in July or August is anybody’s guess. This is worse than anything we’ve seen from them in the last several years.”

Another large city that would face a severe financial crunch is Anaheim, which would have to trim $11.8 million more from its $136.7-million budget. The city has already cut 200 positions from its 2,200-member work force during the last two years because of the recession, and city officials said this week that they can’t afford to lay off more.

Many officials said any further budget cuts would force them to consider cuts in public services, including reductions in the Police and Fire departments.

Costa Mesa officials said the $4.8 million they would lose represents more than 8% of their entire general fund, which has already been trimmed by 7% in an effort to balance next year’s budget, said finance director Susan Temple.

“We would have to regroup and rethink the way we deliver services,” Temple said. “We would be talking about cutting basic services, and we are very stretched as it is.”

Officials in San Juan Capistrano, which would lose $1.2 million, said the proposals would force them to perform some major restructuring in city services.

“We would be dramatically impacted,” said George Scarborough, assistant city manager. “It would necessitate a basic change in the way this city operates. It would affect police services, and that is the last place we would ever want to make reductions.”

Sheri Erlewine, director of communications for the League of California Cities, said the property tax plan “came out of the blue” and would be “disastrous” for cities.

“This is as bad as we’ve ever seen it,” Erlewine said. “The problem is that cities have been cutting ever since Proposition 13 passed. Over the years, cities have cut libraries, recreation programs and maintenance. The only two major expenses left to cut are police and fire, which we’ve tried not to do.”

Sen. Frank Hill (R-Whittier), vice chairman of the budget committee, which is made up of six legislators, said league officials have “overreacted” to the two proposals, which he said will most likely not be approved.

“From my perspective, the proposals aren’t going anywhere,” Hill said. “This is simply a list of options, a series of proposals.”

Cities Facing Revenue Loss

If the state Legislature follows through with a proposal to take away some property tax revenue and a portion of annual vehicle license fees from cities, counties and special districts, and to shift these funds to schools, Orange County cities could lose a collective $40.7 million. Possible losses, by city:

Possible Possible Possible License Revenue Property Tax Total City Losses Losses Losses Anaheim $9,681,210 $2,120,250 $11,801,460 Brea 1,162,508 432,055 1,594,563 Buena Park 2,453,220 792,136 3,245,356 Costa Mesa 3,413,023 1,436,233 4,849,256 Cypress 1,531,530 387,188 1,918,718 Dana Point 1,148,648 0 1,148,648 Fountain Valley 1,867,635 645,294 2,512,929 Fullerton 4,067,910 1,712,178 5,780,088 Garden Grove 5,131,665 1,125,658 6,257,323 Huntington Beach 6,410,250 3,115,925 9,526,175 Irvine 3,960,495 390,274 4,350,769 Laguna Beach 829,868 687,312 1,517,180 Laguna Niguel 1,739,430 0 1,739,430 La Habra 1,815,660 706,209 2,521,869 La Palma 540,540 215,395 755,935 Los Alamitos 422,730 145,510 568,240 Mission Viejo 2,609,145 0 2,609,145 Newport Beach 2,359,665 2,308,790 4,668,455 Orange 3,967,425 1,306,619 5,274,044 Placentia 1,450,103 447,902 1,898,005 San Clemente 1,495,148 446,991 1,942,139 San Juan Capistrano 951,143 232,976 1,184,119 Santa Ana 10,564,785 3,201,377 13,766,162 Seal Beach 883,575 519,658 1,403,233 Stanton 1,086,278 205,610 1,291,888 Tustin 1,895,355 376,134 2,271,489 Villa Park 219,161 98,565 317,726 Westminster 2,786,535 364,009 3,150,544 Yorba Linda 1,909,215 0 1,909,215

Source: League of California Cities