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
AB 1955 -- 8/10/10 -- Page 2
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
AB 1955 -- 8/10/10 -- Page 3
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
AB 1955 -- 8/10/10 -- Page 4
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
AB 1955 -- 8/10/10 -- Page 5
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
AB 1955 -- 8/10/10 -- Page 6
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.
AB 1955 -- 8/10/10 -- Page 7
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.
AB 1955 -- 8/10/10 -- Page 8
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.