Sacramento Report
By Ron Kingston

State of the Budget

The impact and application of one word may be quite profound. Take for example the word “marathon”. Marathon to a landlord may be painful and may be interpreted as an extremely long time to regain possession of a rental unit. Marathon to a runner on the other hand may be measured by time and distance and bring simultaneous pleasure and pain. The same word to the California Legislature was recently defined as their latest budget balancing efforts to close a $26 billion budget shortfall.

Unfortunately the complicated budget package of spending cuts, raids on local government funds, education reductions, health and welfare reductions was not enough to close the deficit. As a result, the Governor line-item vetoed $656 million in state programs to rebuild California’s reserve fund and balance the budget.

The budget “balancing solutions” were comprised of: $15.5 billion by way of cuts, with schools ($6 billion), the University of California and State University systems lost $2.8 billion, MediCal services faced a $1.3 billion reduction, corrections departments face an unspecified $1.2 billion in cuts, three major welfare programs (welfare- to-work, CalWORKS program, In-Home Supportive Services and the children’s health insurance program, $878 million.

Even redevelopment agencies will loose between $1.35 billion to $1.7 billion. The redevelopment agency money will be used for backfilling state education dollars, unless a lawsuit is successfully mounted by the redevelopment agencies.

The remaining budget amendments are achieved through one-time raids on local government funding, $3.4 billion, and different accounting methodologies such as deferring state employee paychecks by one day for a savings of $1.2 billion.

Another $1.7 billion is saved by speeding up tax withholdings on individuals and businesses. It will delay state worker June paychecks by one day, pushing the payments into the 2010-11 fiscal year. It will ask employers to increase tax withholding by 10 percent starting in November. And it will ask quarterly tax filers to front-load 70 percent of their 2010 tax payments in the first half of the year.

The proposal to allow offshore oil drilling off the Santa Barbara coast in exchange for $100 million in selling the rights fell short on a 28-43 vote, which was a victory for Democrats and environmentalists.

The budget also assumes that the sale of the State Compensation Insurance Fund will bring in $1 billion. This fund is a quasi government agency that is the state’s largest writer of workers’ compensation insurance. Experts estimate that the sale will not be completed by June 30, 2010.

Remember, this budget package follows one that was approved by the Legislature in February 2009, which included more than $12 billion in higher income and sales taxes and other tax levies.

Budget officials, economists and politicians are warily awaiting the next round of state revenue figures because the latest budget-balancing efforts may not be enough to end a seemingly endless stream of red ink.

The Governor summed up his concerns in the following manner: “We are still in troubled waters; there are still uncertainties. We don’t know how much longer our revenues will drop. We don’t know if we may not be back in the next six months to make further cuts.”

Court Decision Invalidates Los Angeles
Inclusionary Zoning Ordinance Inclusionary zoning programs were struck with another blow as a result of a recent decision of the Second District Court of Appeal. The court held in Palmer/Sixth Street Properties LP v. City of Los Angeles that an in-lieu fee was inextricably intertwined with an invalid affordable housing program. The City of Los Angeles’ inclusionary housing program which required rent restrictions or the payment of in-lieu fees was determined to violate the Costa Hawkins Rental Housing Act.

That Act prohibits rent restrictions on newly constructed units or on units that turn over. LA City argued that their in-lieu fee does not conflict with the Costa Hawkins Rental Housing Act because that Act does not mention fees. The Court on the other hand held that the objective of the City’s ordinance was not to impose fees but to impose affordable housing requirements that may be satisfied by paying those fees to the City where the City concedes are in lieu of the set-aside requirements and not the other way around. As a result, this case like other cases raises doubt about in-lieu fees.

Ron may be reached at: Ron@CALPCG.com
or you can call him at (916) 447-7229.