California’s local governments are feeling the pain of the state budget shortfall. Gov. Arnold Schwarzenegger’s proposal to shift more property tax dollars from cities and counties to schools, combined with uncertainty over backfill of the lost car tax and various state budget cutbacks is forcing many local agencies to revisit their service levels, raise fees and delay various projects.

Among the most obvious impacts will be additional traffic congestion due to delayed transportation projects. The administration proposes a combined $2 billion in transportation reductions during the current budget year and in 2004-05 — and it is unknown when transportation funding will return to "normal." Money for projects already included in the State Transportation Improvement Plan (STIP) is in doubt, and some transportation agencies figure they must rely on local and federal revenues in coming years.

"We’re looking at 2008 or 2010 for projects that we thought were going to break ground in 18 months," complained West Sacramento City Manager Toby Ross.

The state budget problems are also eating into discretionary dollars that cities and counties spend in areas such as advance land use planning and redevelopment. Some jurisdictions are raising fees, as "full cost recovery" is the mantra in numerous planning departments.

When the governor rolled out his $99 billion budget for 2004-05 in January, local government officials were distressed to see a new round of property tax transfers. Similar transfers to the Education Revenue Augmentation Fund (ERAF) already cost cities and counties about $5 billion a year. Schwarzenegger proposes moving another $1.3 billion away from cities and counties — a permanent takeaway of about 10% of property tax revenues. The shift also includes $135 million from redevelopment agencies, who have absorbed recent one-time hits but have not been subject to ongoing ERAF losses.

"We estimate that about 60% of the agencies in the state will not have sufficient funds to make ERAF payments of this magnitude after meeting existing obligations to pay property tax pass-through payments to other local governments, debt service, contractual commitments, and regular administrative expenses," California Redevelopment Association Executive Director John Shirey warned in a message to members.

The shift of property tax "further undermines the economics of new housing projects," said League of California Cities spokeswoman Megan Taylor, because even current levels of property tax do not fully fund the services required by houses.

Counties would feel the brunt of the latest ERAF shift. California State Association of Counties President Paul Stein said any county department that receives general fund support — including most planning, building and transportation departments — will face cutbacks.

Stein, a Calaveras County supervisor, said raising revenues is not an option in his conservative neck of the woods. "Just to think that we could easily go to the voters and increase a tax on something isn’t realistic," said Stein, who noted that voters recently rejected an increase in the hotel bed tax. And Stein said he could not vote to raise user fees because " you don’t do that in times of duress, and that’s what we have here."

Other jurisdictions, both cities and counties, are not hesitating to bump up fees at the planning and building department counters, and elsewhere. In Santa Rosa, for example, the City Council has mandated "100% cost recovery" for processing all planning applications, said Community Development Director Wayne Goldberg. The city raised fees modestly last June. This month, a 40% fee increase is scheduled to take effect. The fees are intended to cover all direct costs and overhead.

"Our fees were fairly low before we got this mandate. I think now we’re probably above the median," Goldberg said. The Santa Rosa development community has not fought the fee increases because the city has guaranteed that turn-around times would remain constant. However, Goldberg’s department has also cut staff, losing seven positions — 10% of staffing — last fiscal year and another 10% this fiscal year. To keep pace, the city has been forced to modify some review processes, he said.

Goldberg said his advance planning division, which has only two employees, has not been hurt by the cutbacks. Other jurisdictions, however, report staff reductions for long-term planning.

Nearly 200 cities and counties have lent their support to a proposed initiative that would block the state from taking local revenues, such as property and car taxes, without voter approval. The measure would apparently prohibit Schwarzenegger’s proposed property tax shift. The initiative is likely to hit the street this month and could appear on the November ballot.

The transportation cutbacks are dramatic. Besides eliminating the Davis administration’s Traffic Congestion Relief Program (TCRP), Schwarzenegger also proposes suspending the Proposition 42 guarantee of gasoline sales tax revenue for roads.

"If adopted," says a Legislative Analyst’s Office review of the budget, "the administration’s proposal to suspend Proposition 42 would be the second suspension, in full or in part, in the first two years of this program, thereby creating uncertainty regarding future Proposition 42 transfers when the state faces a budgetary crisis. Such uncertainty makes long-term planning difficult, and money will be wasted in stopping and restarting projects, many of which are local priorities."

The San Bernardino Association of Governments (SANBAG) has placed a number of projects on hold, including several rail grade separation projects, and improvements to Interstates 10 and 15. The transportation agency was scheduled to get $169 million from the TCRP, but will end up with only $19 million, SANBAG spokeswoman Cheryl Donahue said.

"We are not counting on any money from the STIP," Donahue added. "We are assuming the 2004 STIP is dead."

For the Santa Clara Valley Transportation Authority (VTA), the state cutbacks come on top of a local economic slowdown that has hurt revenues from a local half-cent sales tax. Over the last two years, VTA has deferred or eliminated $120 million of locally funded projects, spokeswoman Anne-Catherine Vinickas said. The agency is continuing with planning and engineering so projects are "shelf ready" when the economy picks up, she said.

The VTA stands to lose about $630 million that was in the TCRP for the agency’s biggest project, a $4 billion extension of BART from Fremont to San Jose. Moreover, the Federal Transit Administration in January recommended against $843 million for the BART project.

Vinickas said VTA is bonding against future revenues to continue engineering for the BART project, which had been scheduled for completion in 2014. Voters approved a half-cent sales tax scheduled to take effect in 2006, with the money dedicated solely to transit. Still, with VTA running an annual deficit of up to $100 million, it is unclear when the agency could build the BART line.

In West Sacramento, the numbers are smaller. But, says City Manager Ross, the need for a new interchange at I-80 and Harbor Boulevard is unmistakable. The roughly $12 million project was in the 2006 STIP, but that funding appears unlikely to materialize. Plus, state officials now say the city must pay 75% of the project cost, up from 50%.

"We can’t do nothing. What it means is we’ll have to supplement that project with some 100% locally funded projects," said Ross, suggesting some temporary ramp modifications.

While administration officials defend the cutbacks as necessary, Business Transportation and Housing Secretary Sunne Wright McPeak has said future transportation funding decisions could be based on local approval of housing and job centers.

"We have not been getting enough return on our investment," McPeak told the Contra Costa Times. "We have improved capacity in some areas but we have increased congestion because we have an inefficient land use pattern that has hurt our economic competitiveness."

The administration has not proposed substantial cutbacks for the Department of Housing and Community Development — and did not suspend the mandate for updating housing elements. The administration’s January budget proposal for the Resources Agency was incomplete.

Wayne Goldberg, City of Santa Rosa, (707) 543-3220.
Toby Ross, City of West Sacramento, (916) 617-4500.
Paul Stein, California State Association of Counties, (209) 754-6370.
Cheryl Donahue, San Bernardino Association of Governments, (909) 884-8276.
League of California Cities website:
Legislative Analyst’s Office website: