LAO Reports

Insufficient ERAF: Examining a Recent Issue in Local Government Finance

December 18, 2012

 


Over the last two years, an unanticipated funding shortfall in Amador and San Mateo Counties cut city and county reimbursements for two complex state-local financial transactions: the triple flip and VLF swap. It is likely this funding insufficiency, commonly called insufficient ERAF, will continue in future years, requiring state action if the affected local governments are to receive their full triple flip and VLF swap payments. In addressing claims of insufficient ERAF in future years, the Legislature will be faced with the difficult decisions of how much compensation cities and counties should receive and how the compensation should be provided. In this report we describe the causes and potential future development of insufficient ERAF and outline a framework that could be used in developing a remedy for insufficient ERAF.