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    News / Perspective

    Tale of Two Cities: In LB, Car Tax Rollback + Legislative Inaction On Backfill Pushes City Hall Into Budget Abyss; Added To Council-Created Deficit, City Mgr. Warns VLF Loss Could Force "Immediate & Dramatic Cost Cutting Measures"

  • Atop Signal Hill, City Council Put Aside VLF Reserve Fund That Can Carry City Thru June 2004

    (December 12. 2003) -- The state legislature's refusal thus far to provide local government with a backfill for Governor Schwarzenegger's rollback of tripled vehicle license fees ("car tax") is drilling another hole in LB City Hall's already deficit-riddled budget...and could reach $23 million if allowed to persist through the current FY 04 budget year (ending Sept 04), creating a further gap every month between what Councilmembers are spending and City Hall is taking in.

    In a December 9 memo to Mayor Beverly O'Neill and Councilmembers, City Manager Jerry Miller warned that unless the Governor and state lawmakers reach some agreement to backfill local governments for the VLF reduction, LB City Hall "could lose as much as $19 million in General Fund revenue, as well as $4 million in the Health Fund revenue during FY 04 [the current budget year.]"

    As separately reported by, on December 11 the Assembly effectively blocked two backfill bills -- one by a Republican and the other by LB Democrat Alan Lowenthal -- to backfill local government.

    Prior to the Assembly vote, LB City Hall's Director of Financial Management, Bob Torrez, told that the situation "hasn't produced an immediate cash crunch because Long Beach has diverse revenue sources, but if Sacramento does nothing, and if nothing else changes, LB City Hall could run out of money as early as June 2004."

    By comparison, the Signal Hill City Council voted in June 2003 to adopt a budget that includes a VLF reserve fund sufficient to carry that city through June 2004, said Signal Hill City Manager Ken Farfsing in response to an inquiry by

    In the summer of 2003, the former Davis administration ordered a tripling of the VLF (effective Oct. 1) after state legislators over several years managed to turn CA's former surplus into a multi-billion dollar deficit. Critics warned that courts could rule that the tripled VLF illegal (and it is now being challenged in court), but in late September 03 the LB City Council adopted a budget that assumed VLF revenue would continue (either via continuing the triple car tax or receiving some legislative backfill).

    In early October, voters recalled Governor Davis...and on Nov. 17, 2003 Gov. Schwarzenegger took office and (as promised) rolled back the VLF by 2/3. This effectively began reducing LBs VLF revenue by 2/3...with no backfill in place. On November 25, as first reported by, Gov. Schwarzenegger assured CA big city Mayors, including LB Mayor Beverly O'Neill, that local governments would be made whole for the VLF rollback with some sort of backfill.

    But only the legislature -- the Assembly and state Senate -- can actually authorize spending the money for a backfill...and with the Assembly blocking consideration of Republican and Democrat VLF backfill bills, a backfill check is not in the mail.

    Some CA cities have previously indicated they may sue Sacramento, claiming local governments are constitutionally entitled to the VLF revenue (a remedy requiring a judge to agree).

    In a worst case scenario, if state lawmakers don't come up with a legislative backfill, and if court litigation doesn't change the status quo, the LB City Council might have to make cuts in City Hall's current spending -- possibly in big numbers.

    This could come as Council elections approach in Districts 2, 4, 6 and which it's not unlikely that the incumbents' records concerning City Hall's budget deficit (even prior to the VLF loss) will become a political issue.

    As previously reported by, despite being publicly warned by a respected civic financial consultant Len Wood not to spend non-renewing resources to cover ongoing expenses, LB Councilmembers adopted a budget in Sept. 2003 that spends roughly $15 million to $17 million more (depending on how it's reckoned) in one time revenue than City Manager Jerry Miller publicly proposed as part of a February 2003 three year financial strategic plan to reduce the deficit.

    In his Dec. 9 memo to the Mayor and Councilmembers, City Manager Miller wrote in reference to the VLF issue:

    It is truly unfortunate that we, and all cities and counties in California, find ourselves in a situation that is not of our doing. I am calling upon departments to identify viable, and reasonable, solutions to the City's fiscal dilemma. Additional cost reductions, beyond those called for in the Three-Year Plan, will be required if we are to maintain the City's fiscal stability. Further details will be provided to you as they are available.

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