BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1955 (De La Torre)
Hearing Date: 08/27/2010 Amended: 08/20/2010
Consultant: Mark McKenzie Policy Vote: L Gov 3-1
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BILL SUMMARY: AB 1955, an urgency measure, would establish a
process for determining whether a city is deemed an "excess
compensation city," as defined, require certain local agency
employment contracts to be approved in an open session of the
legislative body, prohibit any new redevelopment activity in an
excess compensation city, and impose a 50 percent tax on a city
council member's income derived from an excess compensation city
to the extent that income exceeds specified amounts.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
SCO determinations $175-$325 $175-325 General
--------(see staff comments)--------
AG review of record likely minor costs to review hearing
records General
FTB administration $219 General
Tax on excess compensation unknown tax revenue gains,
likely less than General
$500 in any fiscal year (see staff
comments)
Compensation disclosureunknown, potentially significant
reimbursable General
(Brown Act requirements) mandate costs (see staff
comments)
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Existing law prescribes population-based limits on salaries that
general law cities are authorized to pay city council members.
These limits range from a maximum of $300 per month for cities
with a population of 35,000 or less to a maximum of $1,000 per
month for cities with over 250,000 residents. These limits do
not apply to amounts paid by a city for retirement, health and
welfare, federal social security benefits, or reimbursements for
actual and necessary expenses. Existing law allows a city
council to increase city council members' salaries beyond
statutory limits by ordinance, up to 5 percent per year since
any previous increase, but 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 may not
provide higher compensation for their council members' service
on other commissions, committees, boards, or authorities, and if
no statutory limits are specified, compensation is limited to
$150 per month for each body on which the council member serves.
The California Constitution allows cities to adopt local
charters with majority-voter approval that provides authority to
control their own municipal affairs. There are currently 119
charter cities in California, all of which are authorized to set
compensation for their city council members.
Page 2
AB 1955 (De La Torre)
AB 1955 is one of a number of bills that address the controversy
surrounding compensation paid to officials in the City of Bell,
a small city with 38,867 residents, after voters approved a city
charter in 2005. Through public records requests, the Los
Angeles Times reported that Bell's City Manager received total
annual compensation of over $1.5 million, and some city council
members were being paid close to $100,000 per year for a
part-time office. More recent reports revealed that Bell
officials illegally raised property taxes in 2007 to cover
rising pension costs for its employees.
AB 1955 does not interfere with a charter city's constitutional
authority to set compensation for its officials under the
municipal affairs doctrine. The bill is designed to provide an
incentive for a city to pay its council members a salary that is
aligned with statutory requirements for compensation paid in
general law cities by imposing punitive measures on cities that
pay council members what is deemed to be excess compensation.
Specifically, this bill would:
Define "excess compensation city," as a general law or charter
city that provides compensation to its city council members
that exceeds the statutory population-based salary limits for
general law cities. The bill provides an exception for
charter cities with a population of over 285,000. A city, by
ordinance or city charter, may pay an independently elected
mayor more than the specified limits.
Require the State Controller's Office (SCO) to notify a city
and the Attorney General (AG) if, based upon a review of
public records or salary information reported to the SCO, that
city meets the definition of an excess compensation city.
Require the SCO to conduct a hearing, within 10 days of a
request by a city receiving notice, to allow a city to
demonstrate it is not an excess compensation city by providing
specified evidence.
Require the SCO to notify the AG of a determination that a
city is an excess compensation city, and require the AG to
review the record of the SCO hearing and either concur or not
concur with the determination within 60 days.
Require the SCO to provide written notification to the
Franchise Tax Board (FTB) and the local redevelopment agency
that a city is an excess compensation city.
Authorize a city to bring itself into compliance with
specified compensation limits and be relieved of its status as
an excess compensation city, in which case the SCO would
immediately notify FTB and the local redevelopment agency.
Prohibit a redevelopment agency from doing any of the
following upon notification by the SCO that a city is an
excess compensation city: (1) adopting new or amending
existing redevelopment plans; (2) Issuing bonds, notes,
interim certificates, debentures, or other obligations; or (3)
encumbering funds or spending money, except those related to
specified types of existing obligations and debts.
Impose an additional 50 percent tax on the gross income of a
city council member of an excess compensation city that
exceeds the specified statutory salary limits.
Require an employment contract or amendments to that contract
for persons who report directly to a local agency's
legislative body to be ratified in an open session of the
legislative body, after public disclosure of specified
compensation information at least five days prior to the
public meeting. The bill amends the Ralph M. Brown Act to
require these disclosures, and the requirements would apply to
cities, counties, special districts, and school districts.
Page 3
AB 1955 (De La Torre)
According to the SCO, this bill could impose the equivalent of
six personnel years of workload on their staff at a total cost
in the range of $650,000. This estimate is based upon: (1) an
assumption that the SCO would compile data and perform analysis
on city official compensation to determine how many of 478
cities have excess compensation; (2) an assumption that 50
cities will be notified of their excess compensation status; (3)
an assumption that a hearing will be conducted for 25 cities;
and an assumption that all cities that are deemed excess
compensation will attempt to be relieved of their status as an
excess compensation city. Staff estimates that the number of
cities that would be reviewed and found to be an excess
compensation city could be significantly lower than the SCO's
assumptions. Staff assumes that the bill would primarily apply
to the approximately 105 charter cities with a population of
under 285,000, since these entities are not currently subject to
the statutory limits for city council compensation. If ten
percent of these charter cities were found to be excess
compensation cities, the SCO costs would likely be in the range
of $350,000.
AB 1955 would impose an additional income tax of 50 percent on a
city council member's salary that exceeds the statutory limits
for general law cities, during the time in which a city is
deemed an excess compensation city. FTB indicates that it would
incur one-time administrative costs of $219,000 to develop,
program, and test revisions to existing systems to implement
this bill. FTB also identifies a number of implementation
concerns that may lead to disputes with taxpayers and result in
other technical difficulties. Among other things, the bill is
silent on the timing of payments that would be subject to the
additional tax, the applicability of penalties and interest, and
how taxpayers would be informed that they are subject to the
additional tax. The additional tax provisions could result in
unknown additional revenues. The amount of revenues would
depend upon the number of cities deemed to be excess
compensation cities, how quickly a city subject to that
designation would act to come into compliance, the period of
time in which a city is subject to that designation, the number
of council members whose salaries exceed specified limits, and
the amounts of those salaries. If ten cities were deemed to be
excess compensation cities for a three month period, and each
city had five council members with salaries that exceed
compensation limits by $50,000 each that were subject to the
additional 50 percent tax, the revenues would be $312,500.
These revenues could be lower or higher depending on a number of
factors.
AB 1955 would impose a reimbursable state-mandated local program
by requiring an employment contract or amendments to that
contract for persons who report directly to a local agency's
legislative body to be ratified in an open session of the
legislative body, and by requiring specified information be
posted in a conspicuous location on the local agency's website,
and in a location that is freely accessible to the public, at
least 7 days prior to the meeting for ratifying the contract or
amendment. As an amendment to the Brown Act, this provision
would apply to all cities, counties, special districts, and
school districts, nearly 6,000 agencies in total. The costs
associated with these additional duties are unknown and would
likely be minor for most local agencies. However, if the bill
imposed costs in excess of $1,000 on 200 of these agencies,
reimbursable costs would be over $200,000. Reimbursable costs
could be significantly higher if more agencies have costs that
exceed $1,000.