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BACKGROUND Anticipating the defeat of Propositions 1A 1E on the May 19, 2009 ballot, the State Department of Finance announced it had proposed to Governor Schwarzenegger that the state borrow over $2 billion in local property taxes from cities, counties, and special districts to balance the state budget. In order to start that process, the Governor would need to issue a proclamation declaring the existence of a "severe fiscal hardship." The legislature would then pass urgency legislation, which identifies how the loan will be repaid with interest, in order to implement the borrowing program. This legislation requires two thirds vote of the legislature to pass. DISCUSSION Cities, counties, and special districts are experiencing significant revenue losses due the current economic recession. The struggle to balance budgets while continuing to provide vital services to local communities will be made more difficult should the proposal for the state to borrow from local property taxes pass. Many cities have reduced essential services, implemented employee furloughs /layoffs and hiring freezes in response to declining revenues. This legislation to take funds from already depressed levels of property tax will cause further harm to cities and impact local services. The League of California Cities is strongly encouraging local agencies to participate in a campaign to oppose this proposal. Should the State be successful in borrowing from municipalities, the impact to the City of Pleasanton is expected to be between $4.5 to $4.7 million dollars. Since the early 1990s, when the State first began taking these funds from cities, the cumulative property tax loss to the City, as estimated by the League, is over $74 million dollars. Statewide, this figure represents $8.6 billion. In addition to the adverse effect of the loan program, there is concern that the State Legislature is currently considering additional bills that may impact cities by imposing new costs that will be difficult to afford or sustain. The combination of property tax revenue barrowing and new costly mandates on cities, counties, and special districts will result in fiscal pressure on agencies already straining to maintain public safety and other essential services. Submitted by: Fiscal Review: Approved by: v ic Julie Yuan -Miu David P. Culver Nelson Fialho Assistant City Manager Director of Finance City Manager Attachments: 1. Resolution Page 2 of 2