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Other Budget Issues

Last Updated: 2/5/2015
Budget Issue: Fund Mandate Related to Local Revenue Shifts
Program: State Mandates
Finding or Recommendation: Allocate $217,678 to fund the prior year reimbursements related to the Accounting for Local Revenue Realignments mandate.
Further Detail


In 2004, the Legislature adopted three complex financial transactions affecting several major local government revenue sources:

  • Vehicle License Fee Swap. City and county vehicle license fee (VLF) revenues were permanently reduced and replaced with increased property taxes redirected from schools.

  • Triple Flip. One-quarter cent of the city and county sales tax was redirected to repay state deficit-financing bonds—known as Economic Recovery Bonds. City and county sales tax losses were backfilled with increased property taxes redirected from schools. Upon full repayment of the Economic Recovery Bonds in 2015, the sale tax revenues will revert to cities and counties and the property tax backfill will end.

  • ERAF III. $1.3 billion in property taxes were shifted on a one-time basic in 2004-05 and 2005-06 from cities, counties, special districts, and redevelopment agencies to schools and community college districts.

In 2013, the Commission on State Mandates determined that certain county administrative activities necessary to carry out these financial transactions were state-reimbursable mandates. In 2014, the Commission adopted a statewide cost estimate for these activities totaling $217,678. Reimbursable costs are almost exclusively limited to activities carried out in 2004-05 and 2005-06. This mandate, therefore, is unlikely to result in future state reimbursement costs.

Governor’s Proposal

The Governor’s 2015-16 budget allocates $217,678 to fund the prior year reimbursements related to this mandate.

LAO Recommendation

The administrative activities reimbursed under this mandate were necessary to carry out state imposed changes in local finances. It is therefore reasonable that the state should reimburse locals for these costs. We recommend the Legislature adopt the Governor’s proposal.