HomeMy WebLinkAbout2004-08-24 - AGENDA REPORTS - GEN ELECTION PROP 1A (2)CONSENT CALENDAR
DATE:
SUBJECT:
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Agenda Item:
CITY OF SANTA CLARITA
AGENDA REPORT
City Manager Approval
Item to be presented by:
August 24, 2004
Michael P. Murphy
NOVEMBER GENERAL ELECTION: PROPOSITION IA
City Manager
RECOMMENDED ACTION
City Council support Proposition IA relating to local government finance, which will appear on
the November 2, 2004, California General Election ballot.
BACKGROUND
Earlier this year, the LOCAL (Leave Our Community Assets Local) coalition, led by the League
of California Cities, California State Association of Counties and California Special Districts'
Association qualified an initiative for the November California General Election ballot. The
measure, now known as Proposition 65, is designed to protect local revenues from being shifted,
realigned, borrowed or otherwise "taken" from local governments in an effort to balance the state
budget. During the week prior to submission of signatures for qualification of the LOCAL
initiative, Governor Schwarzenegger approached the LOCAL coalition and asked that initiative
measure not be submitted for signature verification and ballot qualification and that local
government interests work with him on an alternative plan for addressing both the current state
budget crisis and long term local government revenue protection.
The LOCAL coalition recognized that Governor Schwarzenegger most likely approached the
coalition based upon presumption that the initiative would qualify for the ballot. However, in the
spirit of cooperation with the new Governor, the LOCAL coalition agreed to work with Governor
Schwarzenegger on his plan to address the current budget crisis and provide long term local
government revenue stability. During the past few months, a finance compromise was developed
which helps address the state's immediate cash needs and provides long term stability for local
government revenues. In order to balance the California budget for Fiscal Year (FY) 04/05 and
IN N �
FY 05/06, Governor Schwarzenegger sought $1.3 billion from local governments each of the
next two fiscal years. In exchange for the contributions from local government to help balance
the state's budget, the Governor and Legislature have agreed to place on the November ballot a
measure which provides protection for local governments from future state revenue raids. The
LOCAL coalition agreed to support this finance proposal as it worked its way through the
Legislature as Senate Constitutional Amendment (SCA) 4. The remaining element is for the
electorate to enact SCA 4, now known as Proposition IA, to create the future enduring local
government constitutional protections.
Proposition IA contains a number of provisions. A chart is attached which briefly outlines
current law, local government protections as proposed under Proposition 65, and local
government protections as proposed under Proposition IA. The largest financial issue for the
City of Santa Clarita entails the loss of approximately $1.5 million each of the next two fiscal
years as the City's share of the $1.3 billion annual taking from local government by the State of
California. Enactment of Proposition I A will protect sales tax and transaction and use taxes
received by local governments by preventing the state from reducing the amounts which local
governments receive or enacting an alternate distribution formula to local governments.
Proposition IA will also protect property tax from being taken by the state or reallocated by the
state among local governments. Beginning in FY 08/09 the state may "borrow" property tax
from local governments but a loan could occur only twice within a 10 year period. However,
Proposition IA would guarantee that any loan must be repaid within three years of the date of
borrowing, with interest. Furthermore, before a second loan within the 10 year period could be
secured, the first loan must have been repaid. The overall amount of any such loan would be
limited to 8% of the total amount of property tax allocated to cities counties and special districts
in the previous fiscal year. This ensures that local government will not bear a disproportionate
share of the burden in assisting the state in meeting its financial obligations during any future
state budget crisis. The final component of the property tax borrowing provisions require that the
2003 Vehicle License Fee Gap Loan must be repaid before any borrowing could occur. For the
City of Santa Clarita, this amounts to $2.9 million, payable by the state in FY 06/07.
The last large scale provision of Proposition I A relates to state mandate reform. The first
element is the clarification of what conditions constitute a state mandate to local governments.
Proposition IA clarifies existing law to say that a state mandate includes the transfer of
additional responsibility for a state program or service to local governments. The second element
is that the state will either need to identify sufficient funding to reimburse local governments for
complying with a state mandate or suspend compliance with the mandate in the budget year
where money is not available.
Supporters of Proposition 1A, led by Governor Schwarzenegger, argue that the measure is
needed as the State of California has taken local tax dollars in the amount of $40 million during
the past 12 years. Proponents further argue that Proposition IA will not raise taxes and in fact,
will lessen the need for local governments to raise future taxes to make up for revenue taken by
the state. Supporters note that Proposition IA provides flexibility in any future state budget
emergency for the state to borrow local government revenues while at the same time assuring
repayment of those borrowed funds.
Opponents of Proposition IA, led by California Board of Equalization Chair Carole Migden,
argue that the measure does not contain any fiscal accountability provisions. Opponents argue
that Proposition 1A enables irresponsible local government spending. Finally, though not
unprecedented as witnessed by Proposition 98's funding guarantees for education, they argue that
local governments will be receiving a stable revenue source not provided to some areas of the
state budget, including health care.
Proposition IA, enacted by the Legislature as Senate Constitutional Amendment 4, provides
many of the same, and in some cases exceeds, constitutional protections offered under
Proposition 65, which will also appear on the November 2, 2004 ballot. The League of
California Cities recommends the passage of Proposition IA and has now taken an opposed
position to Proposition 65. Should Proposition IA be enacted by the voters with a larger vote
total than Proposition 65, language contained in Proposition IA nullifies all provisions of
Proposition 65, should it be enacted by the voters. Should both measures pass and Proposition
65 receive the larger vote total, the provisions of both propositions would become law with those
provisions contained in both measures or conflicting provisions governed by the language in
Proposition 65.
ALTERNATIVE ACTIONS
1. Take no position on Proposition IA.
2. Oppose Proposition I A
3. Other action as determined by the City Council.
FISCAL IMPAC
Enactment of Proposition I A will result in a loss of revenue to the City of Santa Clarita in the
total amount of approximately $3 million over the the next two fiscal years. The City will
receive $2.9 million in FY 06/07 as repayment for the Vehicle License Fee "Gap Loan" that
occurred in FY 03/04. All staff activities associated with adoption of the recommended action
are included in the adopted City of Santa Clarita 04/05 budget and require no additional
resources.
ATTACHMENTS
Senate Constitutional Amendment 4 (Proposition IA)
Local Revenue/Proposition Comparison Chart
Senate Constitutional Amendment No. 4
RESOLUTION CHAPTER 133
Senate Constitutional Amendment No. 4—A resolution to propose to
the people of the State of California an amendment to the Constitution
of the State, by amending Section 15 of Article XI thereof, by adding
Section 25.5 to Article XM thereof, and by amending Section 6 of
Article XIII B thereof, relating to local government finance.
[Filed with Secretary of State July 30, 2004.1
LEGISLATIVE COUNSEUS DIGEST
SCA 4, Torlakson. Local government finance.
(1) The California Constitution requires that specified revenues
derived under the Vehicle License Fee (VLF) Law be allocated among
the counties and cities of the state according to statute. Existing statute
requires that a specified percentage of the revenues derived under the
VLF Law be deposited in the Local Revenue Fund in the State Treasury
for allocation among counties and cities for specified purposes.
This measure would require those revenues derived under the VLF
Law from that portion of the vehicle license fee rate that does not exceed
0.65% of the market value of a vehicle to be deposited in an amount
specified by that law in the Local Revenue Fund for allocation to cities,
counties, and cities and counties, and the balance of that portion to be
allocated among those entities as otherwise provided by law. This
measure would also require that compensating allocations be made if a
statute reduces the annual vehicle license fee below 0.65% of the market
value of a vehicle.
(2) Existing property tax law requires the county auditor, in each
fiscal year, to allocate property tax revenue among local jurisdictions in
accordance with specified formulas and procedures, and generally
requires that each jurisdiction be allocated an amount equal to the total
of the amount of revenue allocated to that jurisdiction in the prior fiscal
year, subject to certain modifications, and that jurisdiction's portion of
the annual tax increment, as defined.
This measure would prohibit the Legislature from enacting a statute
that modifies the manner of apportioning ad valorem property tax
revenues so as to reduce the percentage of the total amount of ad valorem
property tax revenues that are collected countywide and allocated among
all local agencies, as defined, in a county below the percentage that these
agencies would receive under the law in effect on the operative date of
this measure. This measure would authorize the suspension of this
96
Res. Ch. 133 —2—
prohibition for a fiscal year, if certain conditions are met. This measure
would, except as otherwise provided by another provision of this
measure, also prohibit the Legislature from enacting a statute that
changes for any fiscal year the pro rata shares in which ad valorem
property tax revenues are allocated among local agencies in a county,
other than by a bill approved by a 2/3 vote of the membership of each
house of the Legislature.
(3) The Bradley -Bums Uniform Local Sales and Use Tax Law
authorizes a county to impose a local sales and use tax at a rate of 1.25%,
and similarly authorizes a city, located within a county imposing such
a tax rate, to impose a local sales tax rate of I% that is credited against
the county rate. Beginning on July 1, 2004, and continuing through the
revenue exchange period, as defined, existing law partially suspends the
authority of a city or a county to impose a sales and use tax rate under
the Bradley -Bums Law. Existing law also authorizes various local
governmental entities to impose transaction and use taxes at various
rates for various purposes.
This measure would prohibit the Legislature, except as otherwise
provided by this measure, from restricting the tax rate authority of local
governments under the laws described above, and from changing the
method of distributing revenues derived under those laws. This measure
would also prohibit the Legislature from extending beyond the revenue
exchange period the partial suspension of the Bradley -Bums Law tax
rate authority, and from reducing certain property tax revenue
allocations related to that suspension.
This measure would also allow the Legislature, by statute, to authorize
2 or more local agencies, with the approval of the governing body of each
of those agencies, to enter into a contract for the exchange of property
tax revenue allocations for revenues derived under the Bradley -Bums
Law.
(4) Under the California Constitution, whenever the Legislature or a
state agency mandates a new program or higher level of service on any
local government, the state is required to provide a subvention of funds
to reimburse the local government, with specified exceptions. Existing
statutory law establishes a procedure for local government agencies to
file claims for reimbursement of these costs with the Commission on
State Mandates and the Controller.
This measure would provide that for the 2005-06 fiscal year and every
subsequent fiscal year, with respect to a mandate for which the costs of
a city, county, city and county, or special district claim previously have
been determined to be payable by the state pursuant to law, the
Legislature shall either appropriate, in the annual Budget Act, the full
payable amount that has not been previously paid, or suspend the
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operation of the mandate in the current fiscal year. The measure would
also provide that payable claims for costs incurred prior to the 2004-05
fiscal year that have not been paid prior to the 2005-06 fiscal year may
be paid over a term of years, as prescribed by law.
The measure would also specify that a new program or higher level of
service includes a transfer by the Legislature of complete or partial
financial responsibility for a required program from the state to cities,
counties, cities and counties, or special districts. This measure would
also state that ad valorem property tax revenues may not be used to
reimburse a local government for the costs of a new program or higher
level of service.
(5) This measure would also declare that this measure supersedes
Proposition 65 on the November 2, 2004, general election ballot, if both
measures are approved and this measure receives a higher number of
affirmative votes.
Resolved by the Senate, the Assembly concurring, That the Legislature
of the State of California at its 2003-04 Regular Session commencing
on the second day of December 2002, two-thirds of the membership of
each house concurring, hereby proposes to the people of the State of
California that the Constitution of the State be amended as follows:
First—That Section 15 of Article XI thereof is amended to read:
SEC. 15. (a) From the revenues derived from taxes imposed
pursuant to the Vehicle License Fee Law (Part 5 (commencing with
Section 10701) of Division 2 of the Revenue and Taxation Code), or its
successor, other than fees on trailer coaches and mobilehomes, over and
above the costs of collection and any refunds authorized by law, those
revenues derived from that portion of the vehicle license fee rate that
does not exceed 0.65 percent of the market value of the vehicle shall be
allocated as follows:
(1) An amount shall be specified in the Vehicle License Fee Law, or
the successor to that law, for deposit in the State Treasury to the credit
of the Local Revenue Fund established in Chapter 6 (commencing with
Section 17600) of Part 5 of Division 9 of the Welfare and Institutions
Code, or its successor, if any, for allocation to cities, counties, and cities
and counties as otherwise provided by law.
(2) The balance shall be allocated to cities, counties, and cities and
counties as otherwise provided by law.
(b) If a statute enacted by the Legislature reduces the annual vehicle
license fee below 0.65 percent of the market value of a vehicle, the
Legislature shall, for each fiscal year for which that reduced fee applies,
provide by statute for the allocation of an additional amount of money
that is equal to the decrease, resulting from the fee reduction, in the total
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Res. Ch. 133 —4—
amount of revenues that are otherwise required to be deposited and
allocated under subdivision (a) for that same fiscal year. That amount
shall be allocated to cities, counties, and cities and counties in the same
pro rata amounts and for the same purposes as are revenues subject to
subdivision (a).
Second—That Section 25.5 is added to Article XM thereof, to read:
SEC. 25.5. (a) On or after November 3, 2004, the Legislature shall
not enact a statute to do any of the following:
(1) (A) Except as otherwise provided in subparagraph (B), modify
the manner in which ad valorem property tax revenues are allocated in
accordance with subdivision (a) of Section I of Article XIH A so as to
reduce for any fiscal year the percentage of the total amount of ad
valorem property tax revenues in a county that is allocated among all of
the local agencies in that county below the percentage of the total amount
of those revenues that would be allocated among those agencies for the
same fiscal year under the statutes in effect on November 3, 2004. For
purposes of this subparagraph, "percentage" does not include any
property tar revenues referenced in paragraph (2).
(B) Beginning with the 2008-09 fiscal year and except as otherwise
provided in subparagraph (C), subparagraph (A) may be suspended for
a fiscal year if all of the following conditions are met:
(i) The Governor issues a proclamation that declares that, due to a
severe state fiscal hardship, the suspension of subparagraph (A) is
necessar3&
(ii) The Legislature enacts an urgency statute, pursuant to a bill
passed in each house of the Legislature by rollcall vote entered in the
journal, two-thirds of the membership concurring, that contains a
suspension of subparagraph (A) for that fiscal year and does not contain
any other provision.
(iii) No later than the effective date of the statute described in clause
(ii), a statute is enacted that provides for the full repayment to local
agencies of the total amount of revenue losses, including interest as
provided by law, resulting from the modification of ad valorem property
tax revenue allocations to local agencies. Ibis full repayment shall be
made not later than the end of the third fiscal year immediately following
the fiscal year to which the modification applies.
(C) (i) Subparagraph (A) shall not be suspended for more than two
fiscal years during any period of 10 consecutive fiscal years, which
period begins with the first fiscal year for which subparagraph (A) is
suspended.
(ii) Subparagraph (A) shall not be suspended during any fiscal year
if the full repayment required by a statute enacted in accordance with
clause (iii) of subparagraph (B) has not yet been completed.
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(iii) Subparagraph (A) shall not be suspended during any fiscal year
if the amount that was required to be paid to cities, counties, and cities
and counties under Section 10754, 11 of the Revenue and Taxation Code,
as that section read on November 3, 2004, has not been paid in full prior
to the effective date of the statute providing for that suspension as
described in clause (ii) of subparagraph (B).
(iv) A suspension of subparagraph (A) shall not result in a total ad
valorem property tax revenue loss to all local agencies within a county
that exceeds 8 percent of the total amount of ad valorem property tax
revenues that were allocated among all local agencies within that county
for the fiscal year immediately preceding the fiscal year for which
subparagraph (A) is suspended.
(2) (A) Except as otherwise provided in subparagraphs (B) and (C),
restrict the authority of a city, county, or city and county to impose a tax
rate under, or change the method of distributing revenues derived under,
the Bradley -Bums Uniform Local Sales and Use Tax Law set forth in
Part 1.5 (commencing with Section 7200) of Division 2 of the Revenue
and Taxation Code, as that law read on November 3, 2004. The
restriction imposed by this subparagraph also applies to the entitlement
of a city, county, or city and county to the change in tax rate resulting
from the end of the revenue exchange period, as defined in Section
7203.1 of the Revenue and Taxation Code as that section read on
November 3, 2004.
(B) The Legislature may change by statute the method of distributing
the revenues derived under a use tax imposed pursuant to the
Bradley -Bums Uniform Local Sales and Use Tax Law to allow the State
to participate in an interstate compact or to comply with federal law.
(C) The Legislature may authorize by statute two or more specifically
identified local agencies within a county, with the approval of the
governing body of each of those agencies, to enter into a contract to
exchange allocations of ad valorem property tax revenues for revenues
derived from a tax rate imposed under the Bradley -Burns Uniform Local
Sales and Use Tax Law. The exchange under this subparagraph of
revenues derived from a tax rate imposed under that law shall not require
voter approval for the continued imposition of any portion of an existing
tax rate from which those revenues are derived.
(3) Except as otherwise provided in subparagraph (C) of paragraph
(2), change for any fiscal year the pro rata shares in which ad valorem
property tax revenues are allocated among local agencies in a county
other than pursuant to a bill passed in each house of the Legislature by
rollcall vote entered in the journal, two-thirds of the membership
concurring.
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Res. Ch. 133 —6—
(4) Extend beyond the revenue exchange period, as defined in Section
7203.1 of the Revenue and Taxation Code as that section read on
November 3, 2004, the suspension of the authority, set forth in that
section on that date, of a city, county, or city and county to impose a sales
and use tax rate under the Bradley -Bums Uniform Local Sales and Use
Tax Law.
(5) Reduce, during any period in which the rate authority suspension
described in paragraph (4) is operative, the payments to a city, county,
or city and county that are required by Section 97.68 of the Revenue and
Taxation Code, as that section read on November 3, 2004.
(6) Restrict the authority of a local entity to impose a transactions and
use tax rate in accordance with the Transactions and Use Tax Law (Part
1.6 (commencing with Section 7251) of Division 2 of the Revenue and
Taxation Code), or change the method for distributing revenues derived
under a transaction and use tax rate imposed under that law, as it read on
November 3, 2004.
(b) For purposes of this section, the following definitions apply:
(1) "Ad valorem property tax revenues" means all revenues derived
from the tax collected by a county under subdivision (a) of Section I of
Article XHI A, regardless of any of this revenue being otherwise
classified by statute.
(2) "Local agency" has the same meaning as specified in Section 95
of the Revenue and Taxation Code as that section read on November 3,
2004.
Third—That Section 6 of Article XIII B thereof, is amended to read:
SEC. 6. (a) Whenever the Legislature or any state agency
mandates a new program or higher level of service on any local
government, the State shall provide a subvention of funds to reimburse
that local government for the costs of the program or increased level of
service, except that the Legislature may, but need not, provide a
subvention of funds for the following mandates:
(1) Legislative mandates requested by the local agency affected.
(2) Legislation defining a new crime or changing an existing
definition of a crime.
(3) Legislative mandates enacted prior to January 1, 1975, or
executive orders or regulations initially implementing legislation
enacted prior to January 1, 1975.
(b) (1) Except as provided in paragraph (2), for the 2005-06 fiscal
year and every subsequent fiscal year, for a mandate for which the costs
of a local government claimant have been determined in a preceding
fiscal year to be payable by the State pursuant to law, the Legislature
shall either appropriate, in the annual Budget Act, the full payable
amount that has not been previously paid, or suspend the operation of the
96
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mandate for the fiscal year for which the annual Budget Act is applicable
in a manner prescribed by law.
(2) Payable claims for costs incurred prior to the 2004-05 fiscal year
that have not been paid prior to the 2005-06 fiscal year may be paid over
a term of years, as prescribed by law.
(3) Ad valorem property tax revenues shall not be used to reimburse
a local government for the costs of a new program or higher level of
service.
(4) This subdivision applies to a mandate only as it affects a city,
county, city and county, or special district.
(5) This subdivision shall not apply to a requirement to provide or
recognize any procedural or substantive protection, right, benefit, or
employment status of any local government employee or retiree, or of
any local government employee organization, that arises from, affects,
or directly relates to future, current, or past local government
employment and that constitutes a mandate subject to this section.
(c) A mandated new program or higher level of service includes a
transfer by the Legislature from the State to cities, counties, cities and
counties, or special districts of complete or partial financial
responsibility for a required program for which the State previously had
complete or partial financial responsibility.
Fourth—That the people find and declare that this measure and the
Taxpayers and Public Safety Protection Act, which appears as
Proposition 65 on the November 2, 2004, general election ballot
(hereafter Proposition 65) both relate to local government, including
matters concerning tax revenues and reimbursement for the cost of state
mandates, in a comprehensive and substantively conflicting manner.
Because this measure is intended to be a comprehensive and competing
alternative to Proposition 65, it is the intent of the people that this
measure supersede in its entirety Proposition 65, if this measure and
Proposition 65 both are approved and this measure receives a higher
number of affirmative votes than Proposition 65. Therefore, in the event
that this measure and Proposition 65 both are approved and this measure
receives a higher number of affirmative votes, none of the provisions of
Proposition 65 shall take effect.
M
96
FEW
Revised: 7/29/2004
PROPOSED LOCAL GOVERNMENT AGREEMENT
Current Law Prop 65 Agreement
Statutory/
V`LF
__��_urrentlyat
Constitutional
VLF Rati__
may reallocate
-7ffu—rrentlyat 2%
Reduced to 0.65% statutorily Statutory
at will to ERAF
2%
provisions of Art. 16, Sec. 16
and property tax backfill
Voter approval
of state constitution.
Needed
provided between 0.65% and
�VLF
-PTo—ne
2%
ff-ackfill If
reallocate to increase school
Backfill
Backfill provided if rate— -ifo—nstitutional
Reduced
or ERAF share. Reallocation
Provided if rate
reduced below 0.65%
—vLF
of property tax may not be
reduced.
increasWs in
Set at 2% in
No change
Canstitutionally �guarantees _Z�_o_nstjtutional
Rate
statute. Can
from current
0.65% for cities and counties.
only be used
law.
for city or
county
VLF Gan Loan
�U,-.T.
alatulorily requirea in 2006- Statutory
man required in 07. No future property tax
Repay ' nt ra�uir'ecl in I less
2006-07. 2006-07 un loan/suspension it unpaid.
Legislature
�Iuuu'
counties,
Uity, county, special district.
No further protections for
may reallocate
special districts
RDA beyond existing
at will to ERAF
and RDAs
provisions of Art. 16, Sec. 16
and among
Voter approval
of state constitution.
Among Local
� re
ca �allocate
approval.
schooVERAF) may be
Agencies
b y s"im iple
reallocated by 2/3 votes to
Suspension Vote
majority vote,
Voter approval
other local govts. In a county.
Needed
including to
Legislature may not
ERAF or other
reallocate to increase school
state fund.
or ERAF share. Reallocation
of property tax may not be
done to support state -
Trigger
a
Trigg r
take
�VVQ-vv' 11
ov'
Governor proclaims
permanently at
"significant state fiscal
Suspension Vote
will.
Simple
Voter approval
hardship."
c
2/3rds vote - separate b
Needed
majority to
I
Providing for repayment.
take
permanently—
INUI IV. IvIdy None. --No more than 2 times in 1 C
take a
ye, rs.
permanently at --No loan until VLF Gap loan
will. and previous suspension
loan paid.
--Cap of 8% of local share of
property taxes ($1.3 billion
Legislature must p is a cc
H'�" a
for repayment. statute to fully repay Iscoan with
interest (as provided by law)
Current Law Prop 65 Agreement Statutory/
Constitutional
SALES TAX
I
Protectli;n—
None. YWs, —unless
Protects the rate and me thoT-
—do—nititutionai
Legislature voters change.
of distribution of the local
may reduce
Bradley -Burns sales tax and
rate or change
Transactions and Use Tax.
method of
Guarantees payment of
distribution.
property tax backfill for Prop.
Prop. 57 triple
57 sales tax 1/4 cent
flip 1/4 cent
suspension. Also guarantees
sales tax not
return of 1/4 cent Bradley
protected
Burns sales tax when Prop
57 bonds retired.
Heallocation
May be If voters
iTo�ne
-7��o—nsfitufional
allowed. Law approve.
unclear.
MAN ES
Scope--
Consequence of
None "Duspenced at
Statute imposing mandaFe —is
—ifo—nstituflonal
discretion of local
suspended if no state funding
Nonpayment
agency
except for specified
employee rights and benefits.
Applies only to city, county,
--§-tatg
-'§tate —may
e c dis rict mandates.
2ie
Mand WDefinition
shift- —May shift
Kr —11 aTd definition to
stitutional
costs to local costs to local
include cost shifts from the
governments governments
state to locals.
without without
triggering triggering
reimbursement reimbursement
requirement. requirements or
suspension
vote
recuiramprit
VULUNTARY,
PROPERTY/SALES
TAX
9XCHANGES,,-,
None
None
Legislature may approve a
statutory framework for
voluntary exchanges of