Counties: Budget Scheme Puts Local Governments at Risk; Officials React Strongly to Proposed Property Tax Shift.

News Editors/Business Editors/Political Writers

SACRAMENTO, Calif.--(BUSINESS WIRE)--Jan. 9, 2004

Counties recognize the enormous budget deficit the State is facing and understand the need to develop a comprehensive, equitable and balanced plan to address the crisis. However, Governor Arnold Schwarzenegger's proposal today to shift 15 percent of the Counties' remaining property taxes to balance the state budget does not in any way meet the test of equity and fairness, county officials said.

Although the Governor insisted today that he "didn't want to do things the way they've always been done," his proposal to grab $1.3 billion in property tax revenues from local governments is exactly that: business as usual.

"Recent history has shown that proposals such as this are foolhardy, shortsighted and ineffective. We are shocked that the Administration is willing to travel down the same path, knowing what the outcome will be: the elimination of critical services that Californians depend on every day," Steve Szalay, California State Association of Counties Executive Director, said.

Counties are still feeling the effects of the last such budget gimmick in 1992, in which the State took property tax revenues from local governments to pay for its obligations to schools, drastically reducing the counties' ability to provide basic services.

The shift, commonly known as the Education Revenue Augmentation Funds, or ERAF, continues today, with Counties giving up the most money -- nearly $5 billion in property taxes annually -- to enable the State to meet its financial obligations.

"The precedent set by the first ERAF was clear: local government services were made to suffer disproportionately for the State's fiscal woes," Szalay said. "Now, since Counties have continued to bear the brunt of the budget cuts over the last three years, their budgets are already stretched to the breaking point. The Governor's plan has the potential to cripple California's local governments."

Over the last two years, Counties have taken cumulative $2.5 billion in cuts. Coupled with state mandates to administer programs, rising caseloads and increasing public safety expenditures, many Counties have become experts at efficiency while still eking out a budget each year.

The Governor has insisted recently that he is seeking creative solutions to the State's towering fiscal crisis, that he will require the State to refrain from spending more revenue than it is bringing in and that he supports local government services. The proposal to increase the ERAF property tax shift stands in stark contrast to these statements, Szalay said.

Counties also note that the Governor's proposed property tax shift is permanent and ongoing, singling out local governments for the most drastic budget impacts.

"Counties insist on a meeting with the Governor to discuss these issues, because we understand the importance of crafting a fiscally responsible budget," Szalay said. "Counties provide more than $20 billion in services for the State of California. It is imperative that we be involved in any budget solution."

He went on to say:

"County Supervisors have been making tough fiscal choices for a decade. We are a creative bunch because we have to be. I say to the Governor, let's work together to ensure that Counties are part of the solution, not the victims of politics as usual."