This initiative measure is submitted to the people in accordance with the provisions of Article II, Section 8 of the Constitution.

This initiative measure amends and adds sections to various codes; therefore, existing provisions proposed to be deleted are printed in strikeout type and new provisions proposed to be added are printed in italic type to indicate that they are new.

PROPOSED LAW

Local Control and Fiscal Responsibility Act

Section 1. The people of the State of California do hereby find and declare all of the following:
   (a) Local taxpayers have the right to see their property tax dollars controlled locally and spent for the local services they need. But every year since 1992, against the wishes of local government and taxpayers, the state government has taken at least three billion six hundred million dollars ($3,600,000,000) of property taxes from the cities and counties to cover the state's budget deficit.
   (b) This property tax shift from local government control to state government has severely damaged the ability of local governments to provide basic local services such as police, sheriffs, fire, parks, libraries, emergency medical services, and child protection.
   (c) To replace the funds taken by the state government, ordinary taxpayers have been burdened with increased sales taxes and other taxes and increased fees at the local level even as local services have been cut.
   (d) Instead of reversing this tax shift from the state back to local control, the state Legislature gave an eight hundred million dollars ($800,000,000) tax break to the wealthiest 1.2 of Californians by reducing the top income tax brackets in 1996. These wealthiest 1.2 of taxpayers will receive at least four billion dollars ($4,000,000,000) in tax breaks over the next 5 years while local services will suffer and average taxpayers get no relief.
   (e) When tax measures which fall on ordinary citizens, such as sales tax increases, were due to end, the state Legislature has continued them or provided for a vote of the people on their continuation. But when income tax rates on only the very wealthiest 1.2 of taxpayers were due to expire, the state Legislature refused to even allow a vote of the people on continuing the top income tax brackets.
   (f) Reversing these two actions of the Legislature--the property tax shift and the tax cut for the wealthy--will help restore stability to city and county services, will relieve the burden on local taxpayers, and will improve the fiscal and economic condition of the entire state of California.
   (g) Thus, the people of the State of California enact the ''Local Control and Fiscal Responsibility Act" to provide cities and counties with fiscal relief and restoration in proportion to the revenue loss that each local agency sustains as a result of the continued financing of the state budget at the expense of local government, and to pay for the amount of fiscal relief and restoration as can be financed by continuing those top income tax rates on the wealthiest taxpayers that would otherwise expire in 1996.
   (h) It is the intent of the people of the State of California to restore the historical connection of basic local government services to the local property tax. In view of the complexity of both the method by which the Legislature transferred property tax revenues from local agencies and of reversing this transfer by the initiative process, the people hereby call upon the Legislature and Governor to take those actions that are necessary to reverse the property tax shift from cities, counties, and special districts in a manner that maintains and is consistent with the funding and allocation levels resulting from this measure.

Section 2. Chapter 6.6 (commencing with Section 30061) is added to Part 6 of Division 3 of Title 3 of the Government Code, to read:

Chapter 6.6. Local Fiscal Relief

   30061. (a) Upon receipt by a county of an apportionment made pursuant to subdivision (b) of Section 19603, the county treasurer shall deposit that apportionment in a Fiscal Relief and Restoration Fund in the county treasury and shall notify the auditor of the amount of that deposit. For each fiscal year immediately following a fiscal year in which a deposit is made into a county's Fiscal Relief and Restoration Fund pursuant to this section, the auditor shall allocate the amount of the deposit, including any interest accrued thereon, among the local agencies in the county in accordance with each local agency's proportionate share of the total amount of property tax revenue that is required to be shifted from all local agencies in the county for that fiscal year as a result of Sections 97.2 and 97.3 of the Revenue and Taxation Code. For purposes of determining proportionate shares pursuant to the preceding sentence, the auditor shall reduce the shift amount determined for each local agency by the amount of money allocated to that agency pursuant to Section 35 of Article XIII of the California Constitution, and shall also reduce the shift amount determined for all local agencies in the county pursuant to that same constitutional provision. For purposes of this subdivision, ''local agency" does not include a redevelopment agency or an enterprise special district, and an ''enterprise special district" means a special district that engages in an enterprise activity as identified in the 1989-90 edition of the State Controller's Report on Financial Transactions of Special Districts in California.
   (b) It is the intent of the people of the State of California in enacting this section to provide basic fiscal relief to local agencies in proportion to the amounts of property tax revenue that state law diverted from local agencies commencing with the 1992-93 and 1993-94 fiscal years, but reduced by the additional revenue allocated to those agencies pursuant to the sales and use tax currently imposed by Proposition 172, which was approved by statewide voters at the November 2, 1993, special statewide election.

Section 3. Limit on future property tax shifts.

Section 97.42 is added to the Revenue and Taxation Code, to read:
    97.42. (a) Notwithstanding any other provision of law, for each fiscal year commencing with the 1996-97 fiscal year, the auditor shall not reduce the proportionate share of total property tax revenues collected in the county that is allocated to local agencies below the corresponding proportionate share for those local agencies for the 1995-96 fiscal year.
   (b) It is the intent of the people of the State of California in enacting this section that the amount of fiscal relief provided by the statutory initiative adding this section not be offset by an additional diversion of local property tax revenues by the state. It is further the intent of the people that the amount of fiscal relief provided by this statutory initiative not be offset by any other diversions of local revenue by the state.

Section 4. Continuation of the top income tax brackets.

Section 17041 of the Revenue and Taxation Code is amended to read:
   17041. (a) (1) There shall be imposed for each taxable year upon the entire taxable income of every resident of this state, except the head of a household as defined in Section 17042, taxes in the following amounts and at the following rates upon the amount of taxable income:

If the taxable income is:		the tax is:
Not over $3,650		1% of the taxable income
Over $3,650 but not over $8,650		$36.50 plus 2% of the excess over $3,650
Over $8,650 but not over $13,650		$136.50 plus 4% of the excess over $8,650
Over $13,650 but not over $18,950		$336.50 plus 6% of the excess over $13,650
Over $18,950 but not over $23,950		$654.50 plus 8% of the excess over $18,950
Over $23,950		$1,054.50 plus 9.3% of the excess over $23,950

   (2) (A) For any taxable year beginning on or after January 1, 1991 , and before January 1, 1996 , the income tax brackets and rates set forth in paragraph (1) shall be modified by each of the following:
   (i) For that portion of taxable income that is over one hundred thousand dollars ($100,000) but not over two hundred thousand dollars ($200,000), the tax rate is 10 percent of the excess over one hundred thousand dollars ($100,000).
   (ii) For that portion of taxable income that is over two hundred thousand dollars ($200,000), the tax rate is 11 percent of the excess over two hundred thousand dollars ($200,000).
   (B) The income tax brackets specified in this paragraph shall be recomputed, as otherwise provided in subdivision (h), only for taxable years beginning on and after January 1, 1992.
   (b) There shall be imposed for each taxable year upon the entire taxable income of every nonresident or part-year resident which is derived from sources in this state, except the head of a household as defined in Section 17042, a tax which shall be equal to the tax computed under subdivision (a) as if the nonresident or part-year resident were a resident multiplied by the ratio of California adjusted gross income to total adjusted gross income from all sources. For purposes of computing the tax under subdivision (a) and gross income from all sources, the net operating loss deduction provided in Section 172 of the Internal Revenue Code, as modified by Section 17276, shall be computed as if the taxpayer was a resident for all prior years.
   (c) (1) There shall be imposed for each taxable year upon the entire taxable income of every resident of this state, when the resident is the head of a household, as defined in Section 17042, taxes in the following amounts and at the following rates upon the amount of taxable income:

If the taxable income is:		the tax is:
Not over $7,300		1% of the taxable income
Over $7,300 but not over $17,300		$73 plus 2% of the excess over $7,300
Over $17,300 but not over $22,300		$273 plus 4% of the excess over $17,300
Over $22,300 but not over $27,600		$473 plus 6% of the excess over $22,300
Over $27,600 but not over $32,600		$791 plus 8% of the excess over $27,600
Over $32,600		$1,191 plus 9.3% of the excess over $32,600

   (2) (A) For any taxable year beginning on or after January 1, 1991 , and before January 1, 1996 , the income tax brackets and rates set forth in paragraph (1) shall be modified by each of the following:
   (i) For that portion of taxable income that is over one hundred thirty-six thousand one hundred fifteen dollars ($136,115) but not over two hundred seventy-two thousand two hundred thirty dollars ($272,230), the tax rate is 10 percent of the excess over one hundred thirty-six thousand one hundred fifteen dollars ($136,115).
   (ii) For that portion of taxable income that is over two hundred seventy-two thousand two hundred thirty dollars ($272,230), the tax rate is 11 percent of the excess over two hundred seventy-two thousand two hundred thirty dollars ($272,230).
   (B) The income tax brackets specified in this paragraph shall be recomputed, as otherwise provided in subdivision (h), only for taxable years beginning on and after January 1, 1992.
   (d) There shall be imposed for each taxable year upon the entire taxable income of every nonresident or part-year resident which is derived from sources within this state when the nonresident or part-year resident is the head of a household, as defined in Section 17042, a tax which shall be equal to the tax computed under subdivision (c) as if the nonresident or part-year resident were a resident multiplied by the ratio of California adjusted gross income to total adjusted gross income from all sources. For purposes of computing the tax under subdivision (c) and gross income from all sources, the net operating loss deduction provided in Section 172 of the Internal Revenue Code, as modified by Section 17276, shall be computed as if the taxpayer was a resident for all prior years.
   (e) There shall be imposed for each taxable year upon the taxable income of every estate, trust, or common trust fund taxes equal to the amount computed under subdivision (a) for an individual having the same amount of taxable income.
   (f) The tax imposed by this part is not a surtax.
   (g) (1) Section 1 (g) of the Internal Revenue Code, relating to certain unearned income of minor children taxed as if the parent's income, shall apply, except as otherwise provided.
   (2) Section 1(g)(7)(B)(ii)(II) of the Internal Revenue Code, relating to income included on parent's return, is modified, for purposes of this part, by substituting ''five dollars ($5)" for ''seventy-five dollars ($75)" and ''1 percent" for ''15 percent."
   (h) For each taxable year beginning on or after January 1, 1988, the Franchise Tax Board shall recompute the income tax brackets prescribed in subdivisions (a) and (c). That computation shall be made as follows:
   (1) The California Department of Industrial Relations shall transmit annually to the Franchise Tax Board the percentage change in the California Consumer Price Index for all items from June of the prior calendar year to June of the current calendar year, no later than August 1 of the current calendar year.
   (2) The Franchise Tax Board shall do both of the following:
   (A) Compute an inflation adjustment factor by adding 100 percent to the percentage change figure that is furnished pursuant to paragraph (1) and dividing the result by 100.
   (B) Multiply the preceding taxable year income tax brackets by the inflation adjustment factor determined in subparagraph (A) and round off the resulting products to the nearest one dollar ($1).
   (i) (1) For purposes of this section, the term ''California adjusted gross income" includes each of the following:
   (A) For any part of the taxable year during which the taxpayer was a resident of this state (as defined by Section 17014), all items of adjusted gross income, regardless of source.
   (B) For any part of the taxable year during which the taxpayer was not a resident of this state, only those items of adjusted gross income which were derived from sources within this state, determined in accordance with Chapter 11 (commencing with Section 17951).
   (2) For purposes of computing ''California adjusted gross income" under paragraph (1), the amount of any net operating loss sustained in any taxable year during any part of which the taxpayer was not a resident of this state shall be limited to the sum of the following:
   (A) The amount of the loss attributable to the part of the taxable year in which the taxpayer was a resident.
   (B) The amount of the loss which, during the part of the taxable year the taxpayer is not a resident, is attributable to California source income and deductions allowable in arriving at adjusted gross income.
    (j) It is the intent of the people of the State of California in enacting the amendments to this section made by the statutory initiative adding this subdivision to continue those marginal income tax rates that affect only the very highest income taxpayers and would otherwise expire in 1996, in order to generate those revenues necessary to provide a basic level of local fiscal relief and maintain the state's ability to fulfill its other obligations. It is the intent of the people of the State of California that any future enactment that alters the rate, base, or burden of the state personal income tax at least maintain the level and proportionate share of revenues derived from the marginal income tax rates provided for by the statutory initiative adding this subdivision.

Section 5. Allocation of revenues from state to local government.

Section 19603 of the Revenue and Taxation Code is amended to read:
   19603. The (a) Except as provided in subdivision (b), the balance of the moneys in the Personal Income Tax Fund shall, upon order of the Controller, be drawn therefrom for the purpose of making refunds under this part or be transferred to the General Fund. All undelivered refund warrants shall be redeposited in the Personal Income Tax Fund upon receipt by the Controller.
    (b) (1) (A) Subject to any reduction required by subparagraph (B), on December 1 of each fiscal year, there is hereby deposited in the Local Agency Fiscal Restoration Account, which is hereby created in the General Fund, that additional amount of personal income tax revenue that is collected for the immediately preceding taxable year as a result of the amendments to Section 17041 made by the statutory initiative adding this subdivision, which continue in existence the two highest personal income tax rates.
   (B) Notwithstanding any other provision of law, any increase resulting from the statutory initiative adding this subdivision in the amount of state educational funding required by Section 8 of Article XVI of the California Constitution and any implementing statute shall be funded from a reduction in the amount of the deposit otherwise required by subparagraph (A). In no event shall the statutory initiative adding this subdivision result in a level of state educational funding that is less than the level of state education funding that would occur in the absence of that measure.
   (2) In each fiscal year, the full amount of revenues that is deposited in the Local Agency Fiscal Restoration Account pursuant to paragraph (1) is hereby appropriated to the Controller for apportionment among all counties in the state. Based upon information provided by the Department of Finance, the Controller shall make an apportionment to each county in accordance with the proportion that the total amount of revenue, required to be shifted for the prior fiscal year from all local agencies in the county as a result of Sections 97.2 and 97.3, bears to the total amount required to be shifted for the prior fiscal year as a result of those same sections for all local agencies in the state. For purposes of determining proportionate shares pursuant to the preceding sentence, the Controller shall reduce the total amount of shift revenue determined for all local agencies of a county by the total amount of revenue allocated in that county pursuant to Section 35 of Article XIII of the California Constitution, and shall also reduce the total amount of shift revenues determined for all local agencies in the state by the total amount of revenue allocated in the state pursuant to that same constitutional provision. Each apportionment received by a county pursuant to this section shall be deposited by the county treasurer as provided in Section 30061 of the Government Code. For purposes of this subdivision, ''local agency" has the same meaning as that same term is used in Section 30061 of the Government Code.
   (c) It is the intent of the people of the State of California in enacting subdivision (b) to make those personal income tax revenues, derived from the tax rates imposed upon only the very highest income taxpayers, available to relieve local agencies that have been required by state law to assume a portion of the state's funding burden, and thereby allow those agencies to better fund essential public services.