In an effort to avoid a potential headache from the state of California’s new budget, the city of Rocklin has joined other cities and counties and sold their property taxes as a municipal bond for investors.

The state of California is set to borrow billions in property taxes this year, of which Rocklin was on the hook for more than $1.1 million. The July legislation came at a time when the recession drained city revenues, forcing the city council to lay off and furlough workers, cut services and raise fees.

Kimberly Sarkovich, the city of Rocklin chief financial officer, encouraged council last Tuesday to enroll in the new Proposition 1A securitization program, signed into law by Governor Arnold Schwarzenegger last month.

“The city of Rocklin is actually going to sell (the property taxes) to the California Communities and they are going to turn around and issue bonds using the promise of the state of California to back these bonds,” Sarkovich said.

The state will then pay back the bondholders within three years along with 2 percent interest. While Mayor Peter Hill and Councilman Brett Storey were absent from the Oct. 27 city council meeting, the three remaining members unanimously approved the measure. Vice Mayor Scott Yuill said Rocklin citizens will benefit from the program.

“Though the state’s confiscation of our funds is frustrating and worrisome, this financial mechanism as laid out, will cost Rocklin nothing for the bond issuance and leave us with no default risk,” Yuill said.

During the meeting, Council woman Kathy Lund wanted to know what happens if the state doesn’t pay back the bond holders.

“The bond holders are taking the credit risk for that,” Sarkovich said. “The State of California is paying the interest and all the transaction costs related to the bond issuance.”

Rocklin resident Andrea Streight is concerned about the program.

“It sounds like the mortgage backed securities that got us in the trouble to begin with,” Streight said. “The city of Rocklin should have had the leadership not to participate in something like this.”

Yuill said this was the only option available beyond more citywide cuts.

“The only questionable moral behavior here is the state’s confiscation of our local funds,” Yuill said. “Most municipal bonds are secured by tax revenue streams, that are completely common. Anyone who holds muni bonds in a 401k, for instance, owns a security backed by taxes or fees.”

The city of Roseville, Sacramento County and Placer County are also enrolled in the program. California Communities is sponsored by the League of California Cities and the California State Association of Counties. Rocklin is expected to get all of their taxes revenues back by June of next year.