Mayor Dennis Kennedy came away Thursday from a two-day budget
meeting in Sacramento with a feeling of some success but aware of
challenges ahead, detailed in the governor
’s “May revise,” also released Thursday. The May revise is the
second pass at a proposed state budget.
Mayor Dennis Kennedy came away Thursday from a two-day budget meeting in Sacramento with a feeling of some success but aware of challenges ahead, detailed in the governor’s “May revise,” also released Thursday. The May revise is the second pass at a proposed state budget.
Kennedy was part of a coalition that negotiated a compromise with Gov. Arnold Schwarzenegger to bring to an end the state habit of taking local property taxes for its own purposes..
Schools Superintendent Carolyn McKennan, at the district office, was trying to plan her new budget from details already worked out between the governor and negotiators for the schools.
The deal with counties and cities will allow the governor to take $350 million from California cities and another $350 million from counties for the next two years to meet the state’s obligation for school funding.
The coalition received a promise of relief in year three – no more money grab. In turn, the governor said he would help convince voters to get an initiative on the November ballot – and passed – setting the promise in stone, or at least in law.
The deal will add $2.6 billion to the $102.8 billion state budget, adding to future deficits. The governor has been working with interest groups to settle chunks of the new budget before the Legislature takes hold; the budget must be approved by July 1, though that date has been missed in eight of the past 25 years.
Morgan Hill will lose $358,000 a year from property tax revenue for those two years, said City Manager Ed Tewes, who also attended the meetings.
Kennedy said the compromise initiative is being called “short-term pain for long-term gain.”
“We agreed to give up some tax revenue for two years. It will be painful,” Kennedy said, “but we’re all in this together and I think it is the best we can get.”
Had they not been able to get the proposed initiative on the Nov. 2 ballot, he said, the city’s budget situation would be much worse.
The initiative is intended to spell out details of the budget compromise.
“A speaker today said that politics is the art of the possible,” Kennedy said. “And this is what is possible.”
Kennedy, along with Councilwoman Hedy Chang, Councilman Greg Sellers and Tewes were in Sacramento with the peninsula division of the League of California Cities, a league of counties and one representing special districts – library and fire districts – all trying to keep as much of their fast-dwindling funds as possible.
Besides the challenge of getting the “protect the cities and counties revenue” passed in November, two other obstacles loom ahead.
One is the state Legislature which must pass the budget. The other is the effect the up-front, pre-emptive deals made by the governor with cities, counties, Indian tribes, K-12 school districts and higher education will have on social services and health care since there isn’t much money left to negotiate with.
Kennedy said the group met Wednesday with legislators Jackie Spier, D-San Francisco; Joe Simitian, D-San Jose, and Sally Lieber, D-Mountain View.
“There was a common theme: they gave us the impression that this was the governor’s deal and they wanted structural reform (of California’s convoluted, ever-changing tax structure) before they agree to anything,” Kennedy said. “There is a certain amount of structural reform built into this ballot measure. It’s not perfect but it’s doable.”
Kennedy said that if the Legislature does not buy into the deals the governor has made with interest groups they may be in trouble.
“I think they’ll be run over by a freight train,” he said. “No one will be pleased with them.”
The plight of social services and health care is potentially serious and was brought up by the legislators, Kennedy said.
“With the agreements being made (with the interest groups), the only remaining area left to cut at the state level (to close the $17 billion shortfall) is these services,” Kennedy said. “They serve the poor, sick and destitute, the ones least able to lobby on their own behalf and who will be hurt the most.”
Kennedy said this was a valid concern. The revised budget dropped January plans to limit public health services for children and cuts to reimbursements to physicians and hospitals caring for the poor and indigent.
“We must find a way to protect them,” Kennedy said, hinting of new taxes or fees.
“As of today though,” he said, “new sources of revenue are not on the table – but the governor has been willing to change direction on some issues.”
It is not only the city’s general fund budget that will be affected by the continued property tax take away. The Redevelopment Agency will find its income reduced too, Tewes said.
“Cities will lose $250 million a year for two years,” Tewes said, “and Morgan Hill $2.1 million each year.
Because the city is building several capital projects – the aquatics center, indoor and outdoor recreation centers and, possibly even a library, Tewes had notified the City Council that they may have to do some short-term borrowing to complete the big ticket items.
Fortunately, the city has reserves to use over the next three or four years.
“We will bring the budget into balance by June 30, 2008,” Tewes said. “We’ll ease into it by using our reserves prudently.”
Tewes said he was also encouraged by the governor agreeing to repay vehicle license fees withheld from the cities.
McKennan said Thursday she is a bit optimistic about the governor’s May revise.
“You really want to be pessimistic and then be buoyed by the surprise of the good news,” she said. “I am hoping this is not misplaced optimism.”
McKennan said she has met with influential education people in Sacramento who believe that the governor will keep his $2 billion deal with schools.
“Their belief is that the deal will hold,” she said. “The other good news is that COLA (cost of living adjustment) will be growing, it will be closer to 2.4 percent this year.”
The original amount budgeted for state schools was $4 billion; the governor promised during his campaign to give schools $2 billion.
“All of this is just speculation at this time,” McKennan said. “However, these people (that she was meeting with) usually have inside information.”
The first pot of money, she said, if more is made available, would go to equalization of student dollars.
“And Morgan Hill is a district that is in line for equalization dollars,” she said.
The next pot would go toward paying mandated costs, programs that the state says districts must have but does not pay for. The third pot, should the money go this far, she said, would go towards the deficit.
“For each dollar spent in the district, the district gets less than a dollar from the state,” she said.
The fourth pot of money would go towards school instructional materials.
“We don’t know how much of this will come to pass,” McKennan said. “We are optimistic that the deal will hold, but we are hedging our bets … If any of these things turn out to be true, it would certainly help us with the reductions we would have to make.”
The current fiscal year’s budget is $53 million.
The district has cut nearly $900,000 from next year’s budget with another $600,000 to go in order to have a balanced budget and sufficient reserves.
