The $99 billion 2003-04 state budget signed in August by Gov. Gray Davis contained almost nothing to cheer the planning and development community. The budget added another layer to an already complicated system of funding local government, shifted money away from redevelopment agencies, cut funding for some land use programs, and appeared to delay many of the toughest decisions for at least a year. Advocates of local government and planning generally agreed that the budget could have been worse. Yet some details were still unknown as of late August because they were tied up in trailer bills and cleanup legislation. One of the budget cornerstones is the "triple-flip." This calls for half of local sales tax revenues to go to the state, which will replace the funding lost by cities and counties with an identical amount of property tax revenue shifted away from schools. State general funds will replace the property tax revenues lost by school districts. The triple-flip is to remain in effect for five years — long enough to retire $10.7 billion in bonds that are financing part of the state budget deficit. "I don't think it will have any implication for local government," League of California Cities Legislative Director Dwight Stenbakken said of the triple-flip. "It won't change behavior. Whatever we lose in sales tax is replaced with property tax. It's still a sales-tax-based system." California Redevelopment Agency Executive Director John Shirey agreed. "It doesn't have any affect on land use policy or redevelopment," he said of the triple-flip. Local government representatives are concerned about the precedent of Sacramento grabbing local sales tax revenue in exchange for backfill dollars. "The most skeptical point of view is that this is probably another promise that will be broken when there's another fiscal crisis, which could be next year,' Stenbakken said. Some people see the triple-flip as a short step toward a permanent tax swap that would make cities and counties less dependent on sales tax and more dependent on property taxes. Assemblyman Darrell Steinberg (D-Sacramento), one of the brokers of the budget deal, is expected to pursue a tax swap again in 2004 with his AB 1221. Negotiations over the bill are ongoing. One unresolved question of the triple-flip concerns re-implementation of the full one-cent sales tax at the local level once the state no longer needs the money. Returning to a 1% local sales tax could trigger a Proposition 218 election, although lawmakers did include language intended to raise the local sales tax rate to its previous level automatically. The budget hits redevelopment agencies with a one-way shift of $135 million. That amount of property tax revenues will go from redevelopment agencies to schools. This makes the 2003-04 budget the second in a row to move money from redevelopment agencies to school districts. The shift is more than last year's $75 million, but it is a small fraction of what the Davis administration had proposed (see CP&DR, June 2003, February 2003). The CRA's Shirey was pleased that lawmakers did not make the shift permanent, as the governor's office had proposed. But given that the 2004-05 budget is already projected to have an $8 billion deficit because of all the one-time cuts in this year's budget, Shirey said he expects to see another shift of redevelopment revenues when the governor's next budget is presented next January. One worrisome aspect of the shifts away from redevelopment agencies is that the state continues to take money that has been committed long-term by the agencies, said Sande George, lobbyist for the California chapter of the American Planning Association. The legislation that implemented the transfer, SB 1045, allows redevelopment agencies to "borrow" up to 50% of low- and moderate-income housing set-aside funds to cover the shift. Agencies have up to 10 years to repay the housing funds. The budget also includes these provisions related to land use and development: • Keeps for the general fund $856 million (about 75%) of the expected Proposition 42 transportation revenues from the sales tax on gasoline. Included in the resulting transportation cuts are $489 million from the governor's Traffic Congestion Relief Projects fund and $188 million for city and county streets and roads. • Shifts $18 million from Caltrans' planning, design and project oversight staff to the State Highway Account for construction. • Consolidates the High Speed Rail Authority, which is planning a 700-mile system, into Caltrans, saving about $2 million. • Cuts $4 million from the University of California, Merced, budget, forcing a one-year delay in the campus's opening to fall of 2005. • Eliminates the Technology, Trade and Commerce Agency. Lawmakers transferred some of the agency's programs to the Business, Transportation and Housing Agency, including the Infrastructure and Economic Development Bank, a manufacturing technology program and fee-supported tourism programs. Lawmakers provided no money for the Film Commission, foreign trade offices and the Main Street program. • Defers for one year the next round of regional housing needs assessments at the regional and local levels. • Eliminates general fund support for the Resources Agency ($1.3 million) and the California Environmental Protection Agency ($900,000). • Assumes approximately $70 million of new or increased fees for a wide variety of permits, including wastewater discharge, air pollution, water rights, timber harvesting and power plant siting permits. The budget additionally assumes imposition of new fees — possibly on rural property owners — to replace $52.5 million cut from the Department of Forestry and Fire Protection. • Assumes $680 million in new revenues from Indian casinos. • Relies on $39.8 million of Proposition 46 housing bond revenues to pay for ongoing housing programs. • Establishes 11% as the minimum county share of property tax revenues. Orange and Yolo counties currently receive less than 11%. This change costs the state money because the state will have to replace property tax revenues shifted from school districts to the two counties. Regarding transportation, the budget makes a number of shifts and loans from one account to another. The bottom line, according to the Legislative Analyst's Office, is a 4.6% cut for Caltrans to $6.5 billion in 2003-04. The accounting maneuvers and reductions make it difficult to determine what the state's transportation priorities are, said several Sacramento observers. The LAO makes clear that the budget relies heavily on bond funds for natural resources and environmental protection programs. Of the $518 million budgeted for the Cal-Fed Bay-Delta Program, for example, $349 million is from the $3.4 billion Proposition 50 water bond. Several proposals with land use implications did not survive in the final budget. Republican proposals to eliminate the Coastal Commission and slash general fund support for the Governor's Office of Planning and Research went nowhere. And the Davis administration gave up on a proposal to eliminate subventions to counties that provide Williamson Act tax breaks to agricultural landowners. Contacts: Dwight Stenbakken, League of California Cities, (916) 658-8200. John Shirey, California Redevelopment Association, (916) 448-8760. Sande George, California chapter of the American Planning Association, (916) 443-5301. Legislative Analyst's Office budget review: