HomeMy WebLinkAboutOppostion Letter - Excess ERAF Trailer Bill Language (Kamlager) - 06.07.2022
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June 7, 2022
The Honorable Sydney Kamlager
Chair, Senate Budget Subcommittee No. 4 on State Administration and General Government
1021 O Street, Suite 6510
Sacramento, CA 95814
RE: May Revise – Excess ERAF Trailer Bill Language—OPPOSE
Dear Chairperson Kamlager,
On behalf of the City of Cupertino, I am writing to express our opposition to a revised
proposed trailer bill released in connection with the May Budget Revision currently titled “Act
to Amend Section 97.70 of Revenue and Taxation Code relating to taxation and making an appropriation
therefor.” This proposed trailer bill, like a previous and also unacceptable version, would change
current law in a way that would significantly harm cities and counties by permanently
“capping” the Education Revenue Augmentation Fund (ERAF) money that would be returned
to them after schools have been fully funded and, instead, use such local tax revenues to pay the
State’s in‐lieu Vehicle License Fee (VLF) obligation.
In 2004, the state permanently lowered the VLF, which reduced funding for cities and
counties by approximately $4.4 billion (in 2004 dollars). To mitigate this impact, the state agreed
to backfill the lost VLF revenues dollar‐for‐dollar by reducing property tax revenues that are
required to be shifted from cities, counties, and special districts to the countywide ERAF by the
amount of the countywide VLF adjustment amount, knows as the VLF Swap. However, in those
instances where there are insufficient funds to cover the VLF adjustment, the state has provided
annual appropriations to make up for the revenue shortfalls.
The law that codified this compromise and remains in effect, explicitly provides that
cities and counties’ excess ERAF monies are not available to pay the state’s VLF obligation.
When this compromise was reached, neither local agencies nor the Legislature anticipated that
the two funding sources to pay the state’s in‐lieu VLF obligation would ever be insufficient to
do so. In recent years, however, VLF revenue shortfalls have occurred and, as a result, cities and
counties have been required to make special appropriation requests to receive their full amount
of VLF in arrears.
CORRESPONDENCE TO CHAIRPERSON KAMLAGER OPPOSING VLF BUDGET TRAILER BILL page 2 of 2
The state is now proposing to address this shortfall by taking local agencies’ own funds
to pay for the state’s VLF obligation. Specifically, this bill would amend Revenue & Taxation
Code § 97.70(f)(1) to reverse the current statutory restriction on using local agencies’ excess
ERAF and instead permanently cap it so that future growth can be used to fund the State’s VLF
obligation. This fundamental change runs counter to the 2004 agreement that resulted in
Proposition 1A. It also violates constitutional provisions approved by the voters, including as
Proposition 1A and 22, that prohibit the state from raiding local agency funds to pay for its
responsibilities. Indeed, the act would penalize local agencies that seek to defend their
constitutional rights by including a provision to immediately terminate state funding for
shortfalls if its cap on excess ERAF is invalidated in Court.
The City of Cupertino strongly opposes the proposed trailer bill offered in the May
Revise. The trailer bill reneges on commitments that the state previously enacted into law
regarding the source of VLF funding, violates state constitutional provisions that prohibit such
raids of local funds and the 2004 budget compromise between the state and local agencies. The
state must fund its VLF obligation without diverting funds from local agencies’ budgets. As
such, we urge you to reject this trailer bill language so that none of its amendments to Revenue
and Taxation Code § 97.70 are enacted into law.
Sincerely,
Darcy Paul
Mayor
City of Cupertino
cc: Senator Dave Cortese
Senator Josh Becker
Assemblymember Evan Low
Assemblymember Marc Berman