SACRAMENTO - Legislation designed to offer much-needed financial help to Riverside County's newest cities will have its first hearing this week, following more changes designed to chart a path through California's convoluted state-local fiscal landscape.
The measure, Senate Bill 56, essentially mixes past and future in crafting a statewide policy for incorporations and annexations.

It would put any city incorporated after 2004 - all four of which are in Riverside County - in the same funding pool as cities that have been in place for much longer. Those cities and counties receive a share of property tax revenue designed to make up for what they previously received in vehicle-license fee revenue, a voter-approved change known as the "VLF swap."
"In a nutshell, it's treating them similar to how everyone else was treated prior to (Proposition) 1A," said Jason Gonsalves, a Sacramento lobbyist for the cities of Eastvale, Jurupa Valley, Menifee and Wildomar, referring to the 2004 ballot measure.

The legislation by state Sen. Richard Roth, D-Riverside, would affect more than just the Riverside County cities or recent annexations of populated territory, such as in Fontana. SB 56 also would apply to future new cities and annexations.

Yet the bill's prospects are uncertain. Any increase in property-tax revenue diverted to freshly minted cities would end up costing the state because the general fund would have to make up for any drop in property-tax money that goes to local schools.

"SB 56's allocations of...property tax revenues make winners out of newly incorporated cities and other cities that have annexed territory since 2004," reads an analysis by the Senate Governance and Finance Committee, which refers to the state general fund as "the fiscal loser."
The panel will hear the bill Wednesday.

The root of the four Riverside County cities' predicament goes back more than a decade.
Until the late 1990s, the vehicle-license fee was a major funding source for cities, including new ones. Then lawmakers reduced the fee, but reimbursed local governments for the lost revenue.
That reimbursement ended in late 2003, replaced by the VLF/property tax swap several months later. In the current fiscal year, there were $294 million in swap payments to Riverside County and every city in it formed before 2004.

As for post-2004 cities, lawmakers came to the rescue in 2006 and passed a bill that carved out a slice of the remaining license-fee money to help them get started.

Then came the 2011 budget deal. Lawmakers shifted the license-fee money to pay for local law-enforcement grants, costing the four Riverside County cities an estimated $14 million in revenue annually. Last year's Prop. 30 permanently locked up license-fee money for public safety realignment.
The previous system included a "bump" bonus for new cities, something missing from SB 56. But with the housing market recovering, the cities could do better under the legislation than they would have with the previous bump.

A December 2012 report by the Legislature Analyst's Office estimated that local governments have received $2 billion more in property tax revenue than what they would have received pre-swap.

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