Riverside Cities Scramble After Lost Funds

By John Howard, Special from Capitol Weekly

For some, "realignment" is a four-letter word.

When the strapped state in 2011 approved shifting programs -- incarcerating some prison inmates, for example -- to the counties as part of a budget-balancing act, the idea was to give the locals enough money to handle the new responsibilities.

But it didn't quite work out that way. Just ask four small cities in Riverside County: Jurupa Valley, Menifee, Eastvale and Wildomar. 

By quirks of the calendar, these newly incorporated cities missed out on getting funds to make up for the shift of vehicle licensing fees, or VLF money, to the counties. The cities had been counting on those fees.

In Jurupa Valley's case, the timing couldn't have been worse. 

The city of 94,000 became an incorporated city on the same day -- July 1, 2011 -- that the late-night budget deal went into effect. Jurupa Valley, the newest city in California, incorporated after voters approved it at the ballot box four months earlier and after successfully going through a lengthy series of hoops with the assurance that the money would be there. It wasn't.

"It basically removed 47 percent of our first-year revenues," said Jurupa Valley City Manager Steve Harding. "All of our budget assumptions had to change immediately." 

Amazingly, only one other city of more than 400 across California lost more in VLF -- Los Angeles.

Los Angeles, the state's largest city, "was the only one that had more taken from it in actual (VLF) dollars," Harding noted. Jurupa Valley's $6.7 million first-year loss was "more than San Francisco, more than San Diego, more than San Jose," he added. The second year, the city lost $6.7 million. "So that puts us $13 million in the hole."

The other cities also scrambled.

"Given a takeaway of $1.7 million, the city council took immediate action to reduce the budget," said Misty Cheng, finance director of Wildomar, which has a total city budget of about $8.2 million. "Unfortunately the majority of that cut was in police services, which is a large part of city's budget." 

Angry local officials pushed for a fix, but redirecting more VLF funding back to the cities drew opposition from the counties, who were on the hook under realignment to provide custody for some state prisoners. Reducing the counties' share of VLF would blow holes in their own budgets, they said, and the counties lobbied successfully last year to block legislation to redirect the VLF money. 

The Legislature approved the plan, but Gov. Brown -- who has not championed the cities' causes while governor -- heeded the counties and vetoed the bill.

That bill "essentially would have replaced the VLF funds that they lost," said Jean Hurst, a lobbyist for the California State Association of Counties, which feared that counties would be hurt financially. Their concerns had an effect on the governor, at least in part because he sought to protect realignment, a program that he championed and in which he had invested political capital. "Our concerns were ongoing about the realignment funding sources, so we asked for a veto," she said.

The tangled history of VLF money is as much political as financial. 

When the economy was solid in the late 1990s, the VLF was reduced by two-thirds, from 2 percent of a vehicle's worth to .65 percent -- a move that delighted motorists but jangled cities and counties, who had received a piece of the VLF revenues. 

But the state made up the difference, tapping its General Fund. Eight years ago, the Legislature approved a swap in which replaced that make-up money with property tax revenue that otherwise would have gone to schools. In turn, the state then made up that money from the General Fund.

Later, the Legislature approved legislation to more fairly distribute the VLF funding to accommodate cities' annexations of inhabited areas and future growth.

If all this flipping and swapping sounds complicated, it is. But one thing was clear: The VLF-property tax swap didn't provide extra money for cities that were not in existence at the time the state was covering the locals during the original two-thirds cut in VLF fees. The upshot was that newer cities received less VLF than older ones. 

Brown's 2011 realignment plan cut some $153 million statewide in VLF funding that had been destined for the cities and counties and used the money instead to pay for public safety. Proposition 30, also championed by Brown, was approved last year by voters and temporarily raised sales and income taxes. It also contained a provision to dedicate money to the locals to cover the costs of realignment.

This year, a new rescue measure was crafted, jointly authored by a Democrat and Republican. It jettisons the effort to use VLF money and instead taps the property tax under a formula largely based on population and annexations. The bill, SB 56 by Sens. Bill Emmerson, R-Redlands, and Richard Roth, D-Riverside, was put on hold at  the Senate Budget and Finance Committee as negotiations continued over a piece of the bailout covering the cities' annexations. The bill would provide about $18 million for the cities.

Supporters included the police chiefs and professional firefighters, CSAC, Riverside County, the League of California Cities and the Urban Counties Caucus, among others. There was no opposition, according to a Senate analysis.

For the four cities in Riverside County, this may be the last hope.

"If SB 56 does not pass, the city cannot make it," Harding said. "If SB 56 fails, the city has two alternatives: Go to the citizens and ask for a public safety tax, or start the disincorporation process."

"All we want is parity with every other city in the state of California. We're not asking for a dime more or a dime less than any other city, but that we be treated the same way as everyone else," he said, adding that Sacramento just doesn't seem to get it. "The people here are perplexed as to why this is such a hard thing to understand."

Capitol Weekly has been a must-read in Sacramento since 1988 and its editor, John Howard, has long been a trustworthy figure in the Capitol community. Visit capitolweekly.net for more stories from the Capitol, and follow Capitol Weekly on Twitter (@Capitol_Weekly) for more updates.

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