Item 9 Preliminary Official Statment Dated February 25, 1994

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Several court decisions have held parts of Proposition 62 (a statute) to be in conflict with the State Constitution, substantially undermining its effectiveness. The City cannot predict what the effect of a similar constitutional amendment wou ld be on the fiscal flexibility bility of the City. Article XIIIB of the California Constitution The State and most entities of local government are subject to an annual "appropriations limit" imposed by Article XIIIB of the State Constitution (the "Gann Limit"). Article XIIIB prohibits an entity of government from spending "appropriations subject to limitation" in excess of the appropriations limit imposed. Article XIIIB, originally adopted in 1979, was modified substantially by Propositions 98 and 111 in 1988 and 1990, respectively. "Appropriations subject to limitation" are authorizations to spend "proceeds of taxes," which consist of tax revenues, State subventions and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed "the cost reasonably home by such entity in providing the regulation, product or service," but "proceeds of taxes" excludes tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on appropriations of funds which are not "proceeds of taxes," such as reasonable user charges or fees, and certain other non-tax funds. Not included in the Article XIIIB limit for the City are appropriations for the debt service costs of bonds existing or authorized by January 1, 1979, or subsequently authorized by the voters, appropriations required to comply with mandates of courts or the federal government and appropriations for qualified capital outlay projects. The appropriations limit may also be exceeded in cases of emergency. However, unless the emergency arises from civil disturbance or natural disaster declared by the Governor of the State, and the expenditure is approved by two-thirds of the appropriate legislative body, the appropriations limit for the entity for the Debt three years must be reduced by the amount of the excess. The appropriations limit for the City in each year is based on the limit for the prior year, adjusted annually for changes in the cost of living and changes in population, and adjusted, where applicable, for transfer of financial responsibility of providing services to or from another unit of government. The change in the cos t of livingis, at the option of the City, (2) the percentage change in the local assessment theroll on nonresidential ercentage e 1pro State y.perEitherr tes capita st is likely to be rsonal income, or greater than the change in the cost of living index, which was used prior to Proposition 111. For the City, change in population is to be measured either within the jurisdiction of the City or the County as a whole. As amended by Proposition 111, the appropriations limit is tested over consecutive two-year periods. Any excess of the aggregate "proceeds of taxes" received by the City over such two-year period above the combined appropriations limits for those two years is to be returned to taxpayers by reductions in tax rates or fee schedules over the subsequent two years. Section 4 of Article XIIIB provides that the appropriations limit imposed on any entity of government may be changed by the electors of such entity, provided that the duration of any such change shall not exceed four years from the most recent vote of the electors. As originally enacted in 1979, the appropriations limit for the City was based on 1978-79 fiscal year authorizations to expend proceeds of taxes and was adjusted annually to reflect changes in cost of living and population (using different definitions, which were modified by Proposition 111). Starting in the 1990-91 fiscal year, the City's appropriations limit was recalculated by taking the actual 1986-87 limit, and applying the annual adjustments as if Proposition 111 had been in effect. 33