Monday, August 23, 2010

Proposed Legislation in Response to City of Bell Scandal

The Legislature has unveiled a six-bill package of legislation in response to the salary scandal involving the City of Bell. The six bills are:
  • AB 827: Prohibits any employment contract for a local, unrepresented employee from including an evergreen provision, severance payments greater than 12 months in salary, automatic compensation increases, and automatic raises that exceed the cost of living.
  • AB 192: Requires cities to pay for any higher pension payments that stem from their luring a municipal employee away from another city by offering exorbitant pay. 
  • AB 194: Establishes a cap on the total compensation that can be used to calculate a pension benefit. 
  • AB 1955: Requires charter cities to be penalized by the state if they pay city council salaries higher than allowed in general-law cities. Councilmembers would be slapped with a 50% personal income tax on any ”excess” amounts and the city's redevelopment agency would be restricted from approving new plans or issuing new debt. 
  • AB 2064: Requires the Legislature to post on its website the salaries of its elected members and employees. The bill also requires cities, counties, special districts, school districts and joint powers authorities to post the salaries of its elected officials and key employees.
  • SB 501: Requires officials of cities, counties, special districts, school districts and joint powers agencies to file an annual statement that discloses their compensation to the public.

I’m going to try to provide comments on these bills over the next couple of weeks. I’m going to start with AB 1955 because I think it’s the most interesting.

1.  This bill would slap a 50% tax on the amount of a Councilmember’s “excess” salary. According to the Senate analysis, taxing income based on source is “unusual” in California. However, the analysis notes that the tax is similar to the “AIG bonus tax” passed by Congress.

2.  Under this bill, a charter city would be deemed an “excess compensation city” if Councilmember pay exceeds the statutory limit for general law cities. What is the limit for general law cities? Under Government Code section 36516, how much a general law city may pay a Councilmember depends on the city’s population. Here is the chart:
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
3.  However, it’s not as simple as just looking at the chart. The amounts in section 36516 have not changed since 1984. However, the statute allows a city to increase Councilmember salaries by ordinance up to 5% a year. (In addition, council salaries can be increased beyond these limits if submitted to and approved by the voters.) So what effect does that 5% annual increase have? If a general law city paid  a Councilmember $1000 a month in 1984, and increased that amount 5% every year, Councilmember pay would be approximately $3556 per month (or $42,672 annually) today. That amount would be the maximum amount a general law city could pay a Councilmember under section 36516 without submitting the issue to the voters.

4.  Now, here comes the big caveat. Under AB 1955, an “excess compensation city” by definition cannot be a charter city with a population over 285,000 individuals. In other words, any charter city with a population over 285,000 is exempt from this bill.  How many cities are there with more than 285,000 people?  There are 13 cities in California with populations over 285,000:  Los Angeles, San Diego, San Jose, San Francisco, Fresno, Long Beach, Sacramento, Oakland, Santa Ana, Anaheim, Bakersfield, Riverside, and Stockton.  All 13 of these cities are also charter cities.  Under AB 1955, all 13 would be exempt from this bill.