BILL ANALYSIS                                                                                                                                                                                                    



                                        
                       SENATE LOCAL GOVERNMENT COMMITTEE


          BILL NO:  AB 1955                     HEARING:  8/12/10
          AUTHOR:  De La  Torre                 FISCAL:  Yes
          VERSION:  8/10/10                     CONSULTANT:  Detwiler
          
                     CITY OFFICIALS' COMPENSATION (URGENCY)

                                   Existing Law  

          General law cities may pay salaries to their council  
          members, using a statutory schedule based on population:
               Up to and including 35,000     residents$300 a month
               Over 35,000 and up to and including 50,000$400 a month
               Over 50,000 and up to and including 75,000$500 a month
               Over 75,000 and up to and including 150,000$600 a  
          month
               Over 150,000 and up to and including 250,000$800 a  
          month
               Over 250,000 residents                 $1,000 a month

          By ordinance, a city council can increase its salaries  
          beyond these statutory amounts, but a raise can't exceed 5%  
          a year since the last increase.  State law prohibits  
          automatic salary increases.  With majority-voter approval,  
          city council members can receive higher or lower salaries  
          than the statute prescribes.

          Unless specifically authorized by state law, general law  
          cities can't provide higher compensation for their council  
          members' service on other commissions, committees, boards,  
          or authorities.  Some state laws limit the compensation  
          that city council members can receive when they serve on  
          other bodies.  For example, if a city council in a city  
          with less than 200,000 residents appoints itself as the  
          community redevelopment agency, state law limits the  
          council members' compensation to $30 a meeting for a  
          maximum of four meetings a month.  However, if another  
          statute allows compensation, but does not set an amount,  
          state law limits the maximum amount to $150 a month.

          These statutory limits on general law cities do not apply  
          to what a city can provide its council members for  
          retirement, health and welfare, and federal social security  
          benefits, if the city pays the same benefits for its  
          employees.  These statutory limits do not apply to the  
          reimbursement of council members' actual and necessary  




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          expenses (AB 11, De La Torre, 2005).

          General law cities --- like all local agencies, except  
          school districts --- must adopt written policies that  
          control their reimbursements for expenses.  In addition, if  
          a local agency compensates its governing body or key staff,  
          those local officials must receive ethics training every  
          two years (AB 1234, Salinas, 2005).

          The California Constitution allows cities to adopt local  
          charters with majority-voter approval.  The Constitution  
          allows charter cities to control their own municipal  
          affairs.  Relying on the municipal affairs doctrine, the  
          119 charter cities can set their city council members'  
          compensation.   


                                    Background  

          Adopted in November 2005, the City of Bell's charter limits  
          council members' compensation for service as council  
          members to the amounts that general law cities of similar  
          populations can receive under state law.  With an estimated  
          38,867 city residents in 2010, Bell's council members could  
          receive $400 a month under the statutory schedule which  
          applies to cities that have more than 35,000 residents and  
          up to and including 50,000 residents.  

          Newspaper articles report that Bell's city council members  
          receive salaries that total $1,800 annually for their  
          council service.  At $150 a month, those salaries are below  
          the statutory schedule for similarly sized cities.   
          However, these same reports say that most of Bell's city  
          council members also received annually:
               $18,895 for serving on the Public Financing Authority.
               $18,895 for serving on the Surplus Property Authority.
               $18,895 for serving on the City Housing Authority.
               $18,895 for serving on the Planning Commission.
                    $720 for serving on the Community Redevelopment  
          Agency.
               
          Because Bell is a charter city, its city council does not  
          have to follow the limits set by the 2005 De La Torre bill.


                                   Proposed Law  





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          I.   Excess compensation cities  .  General law cities must  
          follow the compensation limits set by state law, but  
          charter cities can use their constitutional authority to  
          control municipal affairs to set their own compensation.   
          Assembly Bill 1955 defines an "excess compensation city" as  
          any city, including a charter city, that compensates any  
          city council member in excess of the amounts set by state  
          law.  However, if a city charter specifies that council  
          members must devote their entire time to their council  
          duties, that city is outside the definition.  If a city's  
          mayor is independently elected, a city can show that the  
          mayor's additional compensation is provided by ordinance or  
          charter.

          If the Attorney General determines that a city is an  
          "excess compensation city," AB 1955 requires the Attorney  
          General to notify the city council and provide a hearing.   
          At the hearing, the city can demonstrate that it is not an  
          "excess compensation city" by showing that it is in  
          compliance with the statutory compensation limits.  The  
          city can show that the voters approved higher salaries or  
          that the salary increases are not more than the 5%  
          increases allowed by state law.

          If, after the hearing, the Attorney General determines that  
          the city has failed to demonstrate that it is not an  
          "excess compensation city," AB 1955 requires the Attorney  
          General to notify the city, the Franchise Tax Board, and  
          the city's redevelopment agency.  If a city later complies  
          with the statutory compensation limits, it may ask the  
          Attorney General to be relieved of its status as an "excess  
          compensation city."  If the Attorney General agrees, AB  
          1955 requires the Attorney General to notify the city, the  
          Franchise Tax Board, and the city's redevelopment agency of  
          this change in status.

          When notified by the Attorney General that its city is an  
          "excess compensation city," AB 1955 prohibits a  
          redevelopment agency from:
                 Adopting new or amending existing redevelopment  
               plans.
                 Issuing bonds, notes, interim certificates,  
               debentures, or other obligations.
                 Encumbering funds or spending money, except for  
               seven specified types of existing obligations and  





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               debts.

          AB 1955 imposes an additional 50% tax on the gross income  
          of city council members in an "excess surplus city" for  
          income that exceeds the compensation amounts set by state  
          law.  The state personal income tax provisions relating to  
          credits, filing status and recomputation of income tax  
          brackets, and joint returns do not apply to this additional  
          tax.

          II.   Open meetings  .  Current law requires the governing  
          bodies of all local agencies, including school districts,  
          to ratify their executive employees' contracts of  
          employment in open session and reflect those decisions in  
          their minutes.  This requirement applies to  
          superintendents, deputy superintendents, assistant  
          superintendents, associate superintendents, community  
          college presidents, community college vice presidents,  
          community college deputy vice presidents, general managers,  
          city managers, county administrators, or similar chief  
          administrative or executive officers.  Copies of these  
          employment contracts and settlement agreements must be  
          publicly available (SB 1996, Hart, 1992).

          The Ralph M. Brown Act requires local agencies' meetings to  
          be "open and public," with specific exceptions.  For  
          example, a local agency's legislative body may meet in  
          closed session to consider the appointment, employment,  
          evaluation, discipline, or dismissal of an employee unless  
          the employee requests a public session.  However, the Brown  
          Act prohibits local officials from taking final action in a  
          closed session on an unrepresented employee's compensation.

          Assembly Bill 1955 declares that all individual contracts  
          of employment with an employee who is or will be employed  
          by and report directly to the local agency's legislative  
          body must be ratified in open session of the legislative  
          body.  At least seven days before ratification, the  
          legislative body must disclose contract information,  
          including the employee's name, the position, the total  
          amount of salary, benefits, retirement, and any other  
          compensation.  AB 1955 requires the local agency to  
          disclose this information in a publicly accessible location  
          and on the agency's Internet Web site, if it maintains one.  
           Consistent with these requirements, AB 1955 declares that  
          final actions on the compensation of unrepresented  





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          employees who are or will be employed by and report  
          directly to the local agency's legislative body must occur  
          in open session.

          III.   Legislative declarations  .  In addition to its  
            substantive provisions, Assembly Bill 1955 declares that  
            the disclosure of officers and employees' compensation is  
            an issue of statewide concern and not a municipal affair;  
            its provisions apply to charter cities.  AB 1955 also  
            contains legislative declarations in support of the  
            bill's urgency clause.


                                     Comments  

          1.   Truth and consequences  .  This summer's controversy over  
          the compensation that the City of Bell paid to its council  
          members and employees caused many legislators to ask how  
          the 480 cities set their salaries, determine benefits, and  
          reimburse costs.  Bell's adoption of a city charter in 2005  
          gave it constitutional control over its municipal affairs,  
          including the compensation paid to the council members.   
          When it was a general law city, Bell had to comply with the  
          statutes that restrict council members' compensation, but  
          as a charter city it can avoid those statewide limits.  AB  
          1955 does not stop Bell --- or any other charter city ---  
          from compensating its city council with whatever amounts  
          are warranted by local conditions and circumstances.   
          However, charter cities that pay more than what state law  
          allows for general law cities trigger the AB 1955's two  
          consequences.  City council members must pay a higher  
          personal income tax rate on their excess compensation.   
          Redevelopment officials in an excess compensation city  
          can't use create new or expand existing redevelopment  
          projects, can't create new redevelopment debt, and can't  
          spend redevelopment money except to meet obligations.   
          While the Legislature can't stop charter cities from making  
          unwise compensation decisions, AB 1955 creates consequences  
          that may deter them.

          2.   Home rule  .  Because of the constitutional municipal  
          affairs doctrine, charter cities answer to their own voters  
          and not to the California Legislature.  When the 2005 De La  
          Torre bill set limits on what the general law cities can  
          pay their council members, legislators knew that those  
          reforms would not apply to the charter cities.  Some say  





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          that Sacramento is in no position to tell communities how  
          to run their local governments.  Because cities are closer  
          to the people than the Legislature and the Governor,  
          compensation decisions belong at the local level.  Instead  
          of poking into local politics, legislators should let a  
          community's voters control their elected officials.  That's  
          why the constitutional home rule provision exists.

          3.   Not inconsequential  .  While AB 1955 doesn't prevent  
          cities from paying high salaries to their council members,  
          two consequences occur if cities exceed the limits that  
          apply to general law cities --- the city's redevelopment  
          agency can't engage in new activities and the council  
          members pay a 50% personal income tax rate on their excess  
          income.   Because California's personal income tax laws  
          don't distinguish among the sources of income, this tax  
          consequence is unusual.  Nevertheless, the concept is  
          similar to the so-called "AIG bonus tax" that the U.S.  
          House of Representatives passed in March; a 90% tax rate on  
          individual's earnings above $250,000 that came from a  
          company which had received more than $5 billion in federal  
          bailout aid.  The Committee may wish to consider whether  
          the redevelopment and income tax consequences in AB 1955  
          will be adequate to deter the salaries that the bill wants  
          to discourage.  Instead of (or in addition to) those  
          consequences, the Committee may wish to consider:
                 Canceling enterprise zone benefits within the  
               excess compensation cities.
                 Directing the State Board of Equalization to stop  
               collecting sales taxes on behalf of the excess  
               compensation cities.
                 Directing the State Board of Equalization to slow  
               down sales tax revenue payments to the excess  
               compensation cities from quarterly to annually.
                 Prohibiting the excess compensation cities from  
               using state statutes to impose special taxes, benefit  
               assessments, and property-related fees, forcing them  
               to rely solely on their municipal affairs powers.

          4.   Cities and other agencies  .  The compensation provisions  
          of AB 1955 apply only to cities, not to counties or special  
          districts.  That approach reflects how those other  
          agencies' set their governing boards' compensation.  The  
          California Constitution requires county supervisors in  
          general law counties to set their own compensation by  
          referendable ordinances, without any statutory schedule.   





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          Charter counties must provide for the supervisors'  
          compensation in their charters.  Nearly all of the state  
          laws that govern special districts avoid monthly salaries  
          for their governing boards, instead allowing only stipends  
          for each meeting or day of service.  Nevertheless, the  
          Brown Act amendments in AB 1955 apply to all local  
          agencies: cities, counties, special districts, and school  
          districts.

          5.   Recalibration needed  .  The statutory schedule for  
          compensating general law city councils hasn't budged since  
          1984, the last time that legislators adjusted the amounts  
          for inflation.  But many general law cities pay their  
          council members more than the amounts listed in state law.   
          That's possible because the statute gives general law  
          cities two ways to pay more than the statutory schedule.   
           First  , a city council can adopt an ordinance that increases  
          its salary, provided that the raise doesn't exceed 5% a  
          year since the last pay hike.  Like all city ordinances, an  
          ordinance raising city council salaries is referendable.   
           Second  , a city's voters can raise (or lower) their city  
          council members' salaries.  Like general law cities, some  
          charter cities may pay their council members more than the  
          statutory schedule appears to allow.  To avoid an "excess  
          compensation city" designation under AB 1955, a charter  
          city with higher salaries will need to produce a paper  
          trail showing how its compensation fits within the  
          adjustments that state law already permits for general law  
          cities.

          6.   Cat and mouse  .  The Legislature passed the 2005 reforms  
          for general law cities after learning how the Huntington  
          Park City Council appointed itself to several highly  
          compensated  boards and commissions.  Although the council  
          members received modest salaries for their city council  
          service, they used statutory loopholes to pay themselves  
          large stipends and salaries for serving on the other boards  
          and commissions.  For example, Huntington Park's community  
          development commission's monthly salaries were 16 times the  
          maximum amount of what the statute allowed for a  
          redevelopment agency's stipends.  The 2005 legislation put  
          an end to those practices, but Bell has apparently used its  
          charter city status to avoid the statewide limits.   
          Legislators should be vigilant and watch how cities react  
          to consequences created by AB 1955.






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          7.   Related bill  .  AB 1955 is not the only measure that  
          legislators will consider after learning about Bell's  
          compensation practices.  Senator Correa intends to amend  
          his SB 501 on the Assembly Floor and insert new language  
          that requires local officials to disclose their salaries,  
          benefits, reimbursement payments, and other perquisites.   
          The Assembly Local Government Committee is likely to hear  
          SB 501 during the week of August 16.  The Senate Local  
          Government Committee will hear the Correa bill when it  
          returns to the Senate for concurrence in the Assembly  
          amendments.

          8.   Legislative history  .  AB 1955 failed to pass the Senate  
          Local Government Committee on June 30 by the vote of 1-3.   
          At that time, the bill would have amended the statutes  
          prohibiting public officials from holding incompatible  
          offices.  The author did not request reconsideration of the  
          failed bill; June 30 was the Committee's final regular  
          hearing for the 2009-10 legislative session.  During July,  
          however, newspaper accounts appeared regarding the City of  
          Bell's compensation decisions.  In response, the author  
          amended AB 1955 on August 10.  With the appropriate rule  
          waivers, the Committee can grant reconsideration and then  
          hear the amended bill on August 12.


                                 Assembly Actions  

          Not relevant to the August 10 version of the bill.


                         Support and Opposition  (8/10/10)

           Support  :  Unknown.

           Opposition  :  Unknown.