December 16, 2011
Pursuant to Elections Code Section 9005, we have
reviewed the proposed constitutional amendment related to the 2011
realignment of state programs and revenues (A.G. File No. 11‑0061 #1S).
Background
State and Local Governments Operate and Fund Different Programs
The state and local governments operate various
programs in California. Most of these services are delivered by local
governments—counties, cities, special districts, schools, and
redevelopment agencies. Programs operated by state and local governments
are funded through a variety of sources, including federal funds, taxes,
and fees.
Criminal Justice System.
In California, the state funds and operates prisons and supervises
parolees released from prisons. The state also funds the court system
through a combination of state General Fund resources and various fine
and fee revenues. Counties operate jails and supervise probationers, as
well as provide prosecutors and public defenders for the court system.
Cities provide police services. The state provides some funding—such as
grants—to local governments for criminal justice activities, but most
local law enforcement activities are funded from local revenues.
Health and Human Services
Programs. The state and local governments—primarily
counties—operate and fund a variety of health and human services
programs, including mental health services, substance abuse treatment,
foster care and child welfare services, and adult protective services.
These programs are funded through a combination of state, federal, and
local funds, with the specific share of costs assigned to the state and
local governments varying by program.
Proposition 98 Minimum Annual Funding
Guarantee.
In 1988, voters approved Proposition 98. Including later
amendments, Proposition 98 establishes a guaranteed minimum annual
amount of state and local funding for K-14 schools. Generally,
Proposition 98 provides K-14 schools with revenues that grow each year
with the economy and the number of students. The guaranteed funding is
provided through a combination of state General Fund appropriations and
local property tax revenues. Proposition 98 expenditures are the largest
category of spending in the state's budget—totaling roughly 40 percent
of state General Fund expenditures. With a two-thirds vote, the
Legislature can suspend the Proposition 98 guarantee for one year and
provide any level of K-14 schools funding it chooses.
State-Reimbursable Mandates.
The California Constitution generally requires the state to reimburse
local governments when it "mandates" a new local program or higher level
of service. Over the years, the courts have interpreted this requirement
in a way that has not required state reimbursement for many state
measures that have the effect of increasing local costs.
2011 Realignment Legislation
As part of the 2011‑12 budget plan, the
Legislature enacted a major shift—or "realignment"—of state program
responsibilities and revenues to local governments. In total, the
realignment plan provides $6.3 billion to local governments (primarily
counties) to fund various criminal justice, mental health, and social
services programs in 2011‑12, and ongoing funds for these programs
annually thereafter.
Shift of State Program
Responsibilities. The realignment package includes $6.3 billion
in 2011‑12 for court security, adult offenders and parolees, public
safety grants, mental health services, substance abuse treatment, child
welfare programs, adult protective services, and other programs.
Implementation of this package began in 2011.
Shift of Revenues to Cover
Program Costs. To fund the realignment of these programs, the
budget provides a total of $6.3 billion in revenues from three sources
to local governments to implement the realigned programs. Specifically,
the state redirected 1.0625 cents of the state's sales tax rate to
counties. In addition, the realignment plan redirects an estimated
$453 million from the base 0.65 percent vehicle license fee (VLF) rate
for local law enforcement programs. Under prior law, these VLF revenues
were allocated to the Department of Motor Vehicles for administrative
purposes and to cities and Orange County for general purposes. The
budget also shifts $763 million on a one-time basis in 2011‑12 from the
Mental Health Services Fund (established by Proposition 63 in November
2004) for support of the Early and Periodic Screening, Diagnosis, and
Treatment Program and Mental Health Managed Care program.
Exclusion of Revenues From
Proposition 98 Calculation. A budget-related law (Chapter 43,
Statutes of 2011) excluded the redirected 1.0625 cent sales tax revenues
from the Proposition 98 calculation, reducing the minimum guarantee by
roughly $2 billion. Chapter 43 excluded these revenues, however,
contingent on the approval of a ballot measure by November 2012 that (1)
reauthorizes the exclusion of the 1.0625 cent sales tax revenues from
the Proposition 98 calculation and (2) provides funding for school
districts and community colleges by an amount equal to the reduction in
the minimum guarantee due to the exclusion. Absent a ballot measure with
these specific provisions, Chapter 43 would increase the Proposition 98
minimum guarantee back to its original level.
Proposal
The measure amends the Constitution to require
the state to continue providing revenues to local governments to pay for
the programs realigned in 2011, unless the state reduces these local
program responsibilities.
Authorizes Some Changes to
Realignment Programs and Revenues. The measure permits the state
to reduce the amount of sales tax and VLF revenues provided to local
governments for realignment as long as there is a commensurate reduction
in local realignment program responsibilities. If the state reduced
realignment revenues by an amount
greater than the reduction in realignment program responsibilities,
the measure requires the state to backfill the revenue difference to
local governments. The measure also allows the state to substitute
funding from other revenue sources as long as the alternative funding
level is at least equal to the amount that would have been generated by
the sales tax and VLF. Finally, the measure requires a four-fifths
(80 percent) vote of each house of the Legislature to reduce, eliminate,
reallocate funding for, or make other changes to, certain public safety
grant programs realigned to local governments in 2011.
Constrains State's Ability to
Impose Additional Requirements. Under the measure, a local
government would not be required to fulfill a statutory or regulatory
requirement approved after October 2011 related to the realigned
programs unless the requirement (1) imposed no net additional costs to
the local government or (2) the state provided additional funding
sufficient to cover its costs.
Limits Local Governments From
Seeking Additional Reimbursements. This measure specifies that
the legislation creating 2011 realignment would not be considered a
state-reimbursable mandate. Therefore, local governments would not be
eligible to seek reimbursement from the state for any costs related to
implementing the legislation (as enacted prior to October 2011).
Similarly, the measure specifies that any state regulation, executive
order, or administrative directive issued to implement the already
enacted legislation would not be a state-reimbursable mandate.
State and Local Governments Could
Share Some Unanticipated Costs. The measure specifies that
certain unanticipated costs related to realignment would be shared
between the state and local governments. Specifically, the state would
be required to fund at least half of any new local costs resulting from
certain changes in federal statutes or regulations. The state also would
be required to pay at least half of any new local costs resulting from
federal court decisions or settlements related to realigned programs if
(1) the state is a party in the proceeding, and (2) the state determines
that the decision or settlement is not related to the failure of local
agencies to perform their duties or obligations.
Fiscal Effect
Impact
on State and Local Governments.
This measure would change the state's authority over the 2011
realignment. Under the measure, the state could not shift any
realignment funds to other programs unless it reduced the scope and
costs of the realignment programs. Similarly, the state could not take
actions that increased realignment program costs unless it provided
additional funds for this purpose. As a result, local government's net
fiscal position regarding realignment would be more stable than
otherwise would be the case. Any impact would depend on how the state
would have acted in the future absent the measure. By providing the
constitutional protections to counties described above, the measure
could have a significant impact.
With regard to the state, the measure would have the related impact of
restricting the state's ability to make unilateral changes—either
reducing local revenues or raising local costs—in the 2011 realignment.
Impact on Proposition 98 Minimum
Guarantee. As noted earlier, absent a ballot measure raising
additional revenues for schools, current statute requires that the
realignment sales tax revenues be included in the calculation of the
minimum guarantee.
This initiative does not explicitly mention Proposition 98 or
school funding. However, by dedicating realignment revenues for local
governments, the measure has the effect of constitutionally excluding
those revenues from the Proposition 98 calculation and safeguarding the
monies for local governments. As a result, the Proposition 98 minimum
guarantee is lowered. Despite the drop in the guarantee, school funding
would not necessarily be reduced, as the Legislature has discretion to
spend more than the Proposition 98 minimum guarantee, other resources
permitting.
Summary of Fiscal Effect
This measure would have the following major
fiscal impacts:
·
Limitation on the state's ability to
change 2011 realignment, resulting in a more stable net fiscal situation
for local governments.
·
Decrease in Proposition 98 school minimum
funding guarantee. Actual impact on school spending would depend on
state decisions in balancing its annual budget.
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