Borrowed money back in local hands

San Mateo County received a $10.5 million check Friday, about half the money California borrowed from it after suspending Proposition 1A last year to keep the state running.

The city of San Mateo also received a $1.4 million check Friday through the Proposition 1A Securitization Program.

The payments come from California Communities, a joint powers authority, that issued bonds on behalf of cities, counties and special districts to pay back the loans. The state is on the hook to repay the bonds after it borrowed $1.9 billion from local jurisdictions last year. Cities that loaned the state 8 percent of its property taxes were not due to be repaid by the state, plus 2 percent interest, until the middle of 2013.

The city of San Mateo did not factor in state borrowing as it prepared its 2009-10 budget since it was unknown at the time whether the state would actually force the city to loan it the money, said Finance Director Hossein Golestan. San Mateo loaned the state $2.8 million in property taxes last year.

Without the securitization program, the city would have had to make additional cuts, Golestan said. San Mateo trimmed $4 million from last year’s budget and needed the passage of two tax measures in November to avoid cutting another $4 million from its budget. The securitization program helps keep important city services in place, such as fire and police, Golestan said.

"The city would have been short,” Golestan said.

Most cities in the state, 85 percent, participated in the program and all but one county participated.

San Mateo County is due to get the other half of the $20.7 million it loaned the state May 3.

If local jurisdictions did not pool resources in the joint powers authority, cities would be forced to either wait for the state’s repayment in 2013 or sell the promissory notes on their own, said Richard Watson, program director with California Communities, put together by the California State Association of Counties and League of California Cities. It first put together a securitization program in 2005, after the state withheld vehicle-in-lieu fees.

A total of 1,269 local government agencies in California participated in the Proposition 1A Securitization Program, which is the first bond transaction of its kind ever conducted.

Although cities receive the bond money, cities are not required to pay the money back. That burden rests with the state.

"San Mateo is out of the equation,” Golestan said. San Mateo gives up 2 percent in interest from the state, about $56,000, by getting the money sooner rather than later.

One out of 58 counties and about 15 percent of cities did not participate in the Proposition 1A Securitization Program.

"I’m baffled by the non-participation,” Watson said.

The Legislature permitted the establishment of a third-party securitization program for local governments to relieve the burden of loaning the state property tax revenues in last year’s budget package.

California Communities was appointed by the Legislature as the exclusive authority to offer such a program. Los Angeles County was the state’s biggest lender last year and will get two payments this year from California Communities totaling $310 million.

Last year, South San Francisco and Daly City had to loan the state just more than $2 million and Redwood City loaned the state nearly $3 million in property tax revenue.

Bill Silverfarb can be reached by e-mail: silverfarb@smdailyjournal.com or by phone: (650) 344-5200 ext. 106.