CC SR 20220607 F - Cal Cities State Budget Request
CITY COUNCIL MEETING DATE: 06/07/2022
AGENDA REPORT AGENDA HEADING: Consent Calendar
AGENDA TITLE:
Consideration and possible action to authorize the Mayor to sign a letter of support for
the League of California Cities’ (Cal Cities) state budget request.
RECOMMENDED COUNCIL ACTION:
(1) Authorize the Mayor to sign a letter of support for Cal Cities’ state budget priorities,
which asks that some of the historic state budget surplus be spent on local
government.
FISCAL IMPACT: None
Amount Budgeted: N/A
Additional Appropriation: N/A
Account Number(s): N/A
ORIGINATED BY: McKenzie Bright, Administrative Analyst
REVIEWED BY: Karina Bañales, Deputy City Manager
APPROVED BY: Ara Mihranian, AICP, City Manager
ATTACHED SUPPORTING DOCUMENTS:
A. Draft letter in support of Cal Cities state budget request (page A-1)
B. Governor Newsom’s May Budget Revision summary prepared by Renne
Public Policy Group (page B-1)
BACKGROUND AND DISCUSSION:
Lawmakers are in the process of finalizing the 2022-23 State Budget as the Legislature
must pass a final, balanced budget before June 15. Cal Cities, which works to defend and
expand local control through advocacy efforts, is calling on lawmakers to use th e state’s
historic surplus to allocate $1.6 billion for programs that achieve shared city and state
goals for housing resiliency, as well as reimburse cities for unfunded, state -mandated
programs.
1
CITYOF RANCHO PALOS VERDES
On November 2, 2021, the City Council adopted the City’s 2022 Legislative Platform,
outlining the policy positions of the City.1 The platform includes the support of legislation
that grants full cost reimbursement to local agencies by the state and federal government
for all mandated programs (2022 Legislative Platform, item 5.A.).
Specifically, the Cal Cities budget request seeks the following:
Establish a Housing and Economic Development Program - $500 million
This would establish a Housing and Economic Development Program that would facilitate
a partnership between the state and local agencies that adopt local property tax increment
financing tools to support affordable housing, upgrade essential infrastructure, and spur
economic development. This would create a state-local partnership to provide matching
funds to help propel investments in affordable housing, public infrastructure, and job
creation.
Organic Waste Recycling Program Implementation - $180 million
The Department of Resources Recycling and Recovery’s (CalRecycle) Organic Waste
Reduction Regulations (SB 1383), adopted in November 2020, require local governments
to reduce landfill disposal of organic waste 75% by 2025 and to increase edible food
waste recovery by 20%. Compliance obligations for local governments began in early
2022, and local governments continue to develop a comprehensive suite of local
collection, enforcement, and funding programs.
While a local assistance grant program is in the process of being created in the current
legislative cycle, additional funding is needed to implement and comply with SB 1383.
Reimburse Local Governments for State-Mandated Programs - $933.5 million
According to data obtained from the State Controller’s Office, as of October 2021, the
state owes cities, counties, and special districts more than $933 million, including
estimated accrued interest, in mandated costs incurred since 2004.
Local governments rely on the state to reimburse them in a timely manner for costs related
to state-mandated programs. Failing to pay for these costs threatens the stability of local
budgets and the ability of local governments to fund essential services to the community.
Given that local governments have diligently carried out crucial, unfunded programs for
many years, Cal Cities is urging the Legislature to make local governments whole and
support the financial sustainability of local governments.
1 The 2022 Legislative Platform and a record of the bills the City Council has taken a position on during
the 2021-2022 legislative session is available at rpvca.gov/LegislationCorner.
2
CONCLUSION:
Staff recommends the City Council authorize the Mayor to sign the letter in support of Cal
Cities’ budget request for cities as drafted or with revisions (see Attachment A).
ALTERNATIVES:
In addition to the Staff recommendation, the following alternative actions are available
for the City Council’s consideration:
1. Identify revised language to add to the letter.
2. Do not authorize the Mayor to sign the letter.
3. Take other action as deemed appropriate.
3
June 7, 2022 Via Email
The Honorable Nancy Skinner
Chair, Senate Budget and Fiscal Review
Committee
1021 O Street, Suite 8630
Sacramento, CA 95814
The Honorable Philip Ting
Chair, Assembly Budget Committee
1021 O Street, Suite 8230
Sacramento, CA 95814
SUBJECT: 2022-23 State Budget Request to Invest $1.6 billion in the Vitality of
Cities – SUPPORT
Dear Senator Skinner and Assemblymember Ting:
In the spirit of a strong state and local government partnership to benefit all Californians,
the City of Rancho Palos Verdes supports Cal Cities’ request for a one-time allocation of
$1.6 billion (General Fund) in fiscal year 2022-23 to establish a Housing and Economic
Development Program, implement organic waste recycling regulations, and reimburse
local governments for unfunded, state-mandated programs.
Local governments are essential to the strength of California’s economy, and their vitality
is dependent upon fiscal stability. These proposed investments would support the
economic vitality of local governments and would also help further the state’s ambitious
climate resiliency and affordable housing goals.
The City urges the Legislature to seize the historic opportunities the state budget surplus
presents to invest in our communities and advance our shared goals. A strong state -local
fiscal partnership would propel significant investments in a bright, sustainable future for
all Californians.
The Cal Cities budget request seeks funding for three critical issues:
Establish a Housing and Economic Development Program – $500 million
The City of Rancho Palos Verdes supports establishing a Housing and Economic
Development Program that would facilitate a partnership between the state and
local agencies who adopt local property tax increment financing tools to support
A-1
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Senator Skinner and Assemblymember Ting
June 7, 2022
Page 2
affordable housing, upgrade essential infrastructure, and spur economic
development.
This program is crucial to achieving our housing supply and climate action goals.
While cities appreciate the property tax tools the Legislature created after
dissolving redevelopment to help address a range of community issues, the lack
of funding has resulted in few cities being able to fully utilize them. Tools such as
the Enhanced Infrastructure Financing Districts, Community Revitalization and
Investment Authorities, and Affordable Housing Authorities may differ in their focus
and details, but their common challenge is they lack sufficient financial capacity.
The establishment of a state-local partnership to provide matching funds would
greatly expand the viability of these tools, and propel significant investments in
affordable housing, public infrastructure, and job creation.
Organic Waste Recycling Program Implementation – $180 million
Local implementation of organic waste recycling programs is essential to achieve
California’s goal to reduce greenhouse gas emissions. However, cities and
counties need significant additional funding to implement this state-mandated
program without diverting existing resources from other essential services and
increasing the financial burden on taxpayers.
The Department of Resources Recycling and Recovery’s (CalRecycle) Organic
Waste Reduction Regulations (SB 1383), adopted in November 2020, require local
governments to reduce landfill disposal of organic waste 75% by 2025 and to
increase edible food waste recovery by 20%, an effort we strongly support.
However, compliance obligations for local governments began in early 2022 and
local governments continue to develop a comprehensive suite of local collection,
enforcement, and funding programs. Cities and counties greatly appreciate the
Legislature’s creation of the SB 1383 local assistance grant program in the 2021
Budget Act. Additional funding is greatly needed though, which provides a renewed
opportunity for state and local partnership to further our shared climate goals
In order to comply with SB 1383, local governments have had to ra ise their rates
to cover the additional program costs, which further burdens our residents at a time
when inflation is at its highest rate in decades and personal budgets are already
impacted. Given the state’s budget surplus, now is the right time for the state to
increase funding to implement this program to help keep solid waste and recycling
rates from increasing even further.
A-2
Senator Skinner and Assemblymember Ting
June 7, 2022
Page 2
Reimburse Local Governments for State-Mandated Programs – $933.5
million
According to the State Controller’s Office, as of October 2021, the state owes
cities, counties, and special districts more than $933 million, including estimated
accrued interest, in mandated costs incurred since 2004.
Cities and counties rely on the state to reimburse them in a timely manner for costs
related to state-mandated programs. Failing to pay for these costs threatens the
stability of local budgets and the ability of local governments to fund essential
services to the community. Given that local governments have diligently carried
out crucial, unfunded programs for many years, now is the time for the Legislature
to make local governments whole and support their financial sustainability.
As you know, state and local government must work together to advance our shared
goals. Through that collaborative process, there is hope to mitigate the impacts of climate
change, ensure all Californians have access to affordable housing, and create thriving
communities throughout the state. Thank you for consideration of this request and for the
continued partnership.
Sincerely,
David L. Bradley
Mayor, City of Rancho Palos Verdes
cc: Ben Allen, Senator, 26th State Senate District
Al Muratsuchi, Assemblymember, 66th State Assembly District
Senate Budget Committee Members (via email to sbud.committee@sen.ca.gov)
Assembly Budget Committee Members (via email to asmbudget@asm.ca.gov)
Jacki Bacharach, South Bay Cities Council of Governments
Jeff Kiernan, League of California Cities
Marcel Rodarte, California Contract Cities Association
Sharon Gonsalves, Renne Public Policy Group
Rancho Palos Verdes City Council and City Manager
A-3
May 16, 2022
To: Mr. Ara Mihranian, City Manager
Ms. McKenzie Bright, Administrative Analyst
City of Rancho Palos Verdes
From: Sharon Gonsalves
Renne Public Policy Group
Re: May Revision, Governor Newsom FY 22-23 State Budget Update
Dear Mr. Mihranian:
The following is a preliminary summary of the Governor Newsom’s May Revision of his FY 22-23 state
budget proposal. Moving forward, as you have the opportunity to dive into the proposals in greater
detail, if there are other areas or line items of interest expressed by Council or department heads,
please do not hesitate to reach out to our team to ask questions or request additional information.
May Revise: Budget Update Summary
On May 13, Governor Newsom presented his budget update, “building on the state’s ongoing work
to confront California’s greatest existential threats, bolster our economic growth, and make historic
investments in California’s future.” The press conference lasted 2.5 hours, and included robust Q&A
with the Governor, as well as with Keely Bosler, the Director of the Department of Finance.
Governor Newsom structured his proposed additional largely one-time funding investments in the
context of seeking to bolster current programs that align with the following state priorities:
1. Lowering Costs
2. Rebuilding California
3. Creating a Healthier California
4. Making a Safer California
5. Climate Commitment
Governor’s Priorities
The Governor’s priorities for allocating state surplus funds include offering inflation relief to California
residents, improving energy system reliability to avoid blackouts, and paying down state debts and
pension liabilities. Additionally, the Governor took a stand on California’s Pro-Life Agenda, stating
that California will “advance our values, not just our principles” by tethering several of the proposed
state spending priorities to enhanced protections and access for those fleeing from states with anti-
abortion and anti-LGBT policies. Further, the Administration continues to seek opportunity for the
state to become an insulin supplier and to work toward a single-payer health system, with Universal
Health Coverage as a first and novel step.
The Governors May Revision of the FY 22-23 budget proposal can be found HERE.
B-1
May Revision, By the Numbers
Overall budget: $300.7 billion
• Just under a 5% increase over January’s
projected revenues
• $227.3 billion General Fund spending, which
reflects a 15.5% increase from January
• $68.9 billion Special Funds
• $4.4 billion Bond Funds
Overall Surplus: $97.5 billion, which
triggers:
• $3.4 billion Proposition 2 funds, accelerating
pay off of retirement liabilities
• $7.2 billion reserve deposits into the State’s
Rainy-Day Fund
• $35.7 billion in Proposition 98 spending –
which reflects an increase of just over $21
billion from January numbers
Discretionary Surplus: $49.2 billion • Increase of $31.7 billion since January
• 99% of increased May revenues is proposed
as targeted one-time funds as outlined
below
Areas of Interest to Local Government
While this budget reflects just over $300 billion in spending, including just under $100 billion in
surplus funds, there is not much proposed investment by way of direct funding to municipalities.
However, we have identified the following investments to be of particular interest to local
government.
Homelessness, Housing & Mental Health
• Project Homekey. $150 million in additional funding is proposed.
• New Homeless Interim Housing Program. $500 million is proposed to be allocated for grants
to local governments for constructing interim homeless housing on state lands.
• Homeless Housing Assistance and Prevention Program (HHAP). The May Revise states that
the Administration is committed to extending this program at its current $1 billion annual
funding level, pending further discussion with the Legislature to meaningfully increase
outcomes and accountability on local HHAP spending to focus on highest priority needs,
such as encampment resolution, Homekey operating sustainability, and CARE Court housing
supports. However, funding will not be released until local accountability plans for
homelessness have been received by the state to be figured into awarded funding. These
are due by June from cities and counties, who must put together a plan showing how they
will use the dollars to meet specified metrics and is accompanied by a spending
augmentation of 18% for those found to be in compliance.
• Adaptive Reuse. $600 million ($500 million in the May Revise plus $100 million proposed in
the January budget) is proposed over two fiscal years for adaptive reuse projects that
convert underutilized retail and office properties to housing. It also includes proposed
streamlined approvals process to enhance the speed of delivery. With new 6th Cycle
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Regional Housing Needs Allocation (RHNA) targets set at an additional $2.5 million units as
the statewide goal, the state is investing where its priorities are to “make real what we
promote,” and is “leaning in hard” to meet needs.
Mental Health
• CARE Court. $65 million for state focused one-time initial costs to implement CARE Court,
but negotiations are ongoing with counties to determine actual cost needs and an ongoing
funding burden has yet to be disclosed. This item continues to be controversial and
negotiations between the Administration, Legislature, counties, and stakeholders is
ongoing. Additionally, this builds on the proposed $1.5 billion from the January Budget
proposal for mental health beds.
• $290 million augmentation, Children’s Mental Health Package. This builds on the $4.5 billion
in children and youth behavioral health initiative from last year with an additional $290
million augmentation in the May Revision:
• $85 million in wellness and mindfulness programs
• $75 million youth led media campaigns
• $50 million school and community-based crisis response
• $40 million community-based youth suicide prevention and outreach
• $40 million career development and parental support
Transportation
• Active Transportation. $500 million is allocated for active transportation projects.
• Federal Infrastructure Funding. The May Revise projects that California will receive $38
billion in funding under the federal Infrastructure Investment and Jobs Act over the next five
years, and thus provides a combined $194 million to address increased Caltrans’ staffing
needs.
Drought Relief
As part of an overall $7.2 billion to tackle drought between FY 2021-22 and January FY 22-23 Proposal,
the May Revise includes $1.3 billion in additional drought-related proposals. Depending on the yet to
be fleshed out details of the proposed investments, these spending priorities may trickle down to the
local level in the form of grant funding opportunities for specific projects. Proposed spending
includes:
• $530 million to support water recycling and groundwater cleanup; advance drinking water
and clean water projects that leverage significant federal infrastructure funds; and continue
aqueduct solar pilots.
• $553 million to provide grants to urban water districts and smaller community water
suppliers for drought-relief and related projects.
• $280 million to address fish and wildlife impacts associated with drought and climate
change.
• $187 million to support agricultural water conservation practices.
Economic Development and Tax Relief
• CaLCompetes Tax Credits and Grants. The May Revise proposes extending for five additional
years the existing Cal Competes Program, which offers tax credits to attract and retain high
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quality jobs, at $180 million annually. An additional $120 million one-time is proposed for
Cal Competes grants, which can be offered to businesses in addition to tax credits.
• New Tax Credit Program Proposal. The May Revise combines two tax credit programs (New
Innovation Headquarters Credit and Pre-Development of Green Energy Technologies Credit)
that were proposed in the January budget into a single program administered by the Energy
Commission, funded at $1.05 billion over four years. This program is also required to
provide additional consideration to companies that relocate from states that have enacted
anti-LGBTQ+ and reproductive rights laws.
• Cannabis
o Proposed revisions to cannabis taxation. Eliminate the cultivation tax, shift the point
of sale of the 15% excise tax from distribution to retail. The Administration assesses
this may create a temporary loss in local revenues and has proposed a $150 million
investment in targeted grants to backfill potential losses.
o $20.5 million for grants to local governments to expand local retail access.
• Tax Relief
o Sales and use tax exclusion for lithium extraction for a three-year period, with local
impacts backfilled.
o One-year suspension of the state’s portion of sales tax on diesel fuel.
o Clarification that recipients of federal PPP grants will not be subject to state income
tax on the amounts received.
o Offers applicants under two recent Main Street hiring tax credit programs the ability
to claim eligible credits over the next five years.
• Small Business Hard-Hit Industries Grant Program. The May Revise proposes this new
program to assist businesses that suffered most in the pandemic and agricultural businesses
suffering from drought impacts. The program would be administered by the Office of the
Small Business Advocate (CalOSBA) and offer:
• $500 million in grants, ranging from $10k-$50k, to businesses in the top ten
industries most impacted by the pandemic.
• $75 million in grants to small agricultural businesses, ranging between $30k-$50k, to
provide additional relief to those small businesses most affected by severe drought.
Energy
• State megawatt (MW) gaps have been prioritized in the May Revision.
• $10 billion combined proposed investment between the January FY 22-23 proposal and May
Revision: $2 billion (January), $8 billion (May). The additional $8 billion proposed funding is
broken down as follows:
• Strategic Electricity Reliability Reserve (5,000 MW). $5.2 billion.
• Energy Arrearage Relief. $1.2 billion.
• Residential Solar Incentives. $970 million to the Public Utilities Commission (PUC) for
incentives residential solar and storage systems, of which $670 million is to be
directed to low-income households.
• $225 million: New electricity transmission, including from Salton Sea. The development of
lithium valley has emerged as a significant state priority to meet the needs of the future.
The proposal includes economic development pathways for locally based jobs created by
the development of this new industry.
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Broadband
• Middle-Mile Augmentation. The May Revise proposes to augment prior budget allocations
for development of middle-mile broadband by $1.1 billion over two fiscal years to address
increased cost of labor and supplies.
Public Utilities Commission
• Revising Electrical Rate Setting. The May Revise indicates that the Administration will be
pursuing legislation to allow the PUC to adjust electricity rates to predetermined fixed
charges with considerations of low-income customers. This rate reform effort will reduce
charges attached to volumes of electricity consumed, help control rate volatility, and enable
creation of better price signals that will enhance widespread electrification efforts. As this
proposal continues to develop, RPPG will continue to track this closely as the revised rates
could have fiscal impact to municipalities.
Fire, Emergency Services, Public Safety
• Cal Fire. $150 million to Cal Fire for enhanced operational support, staffing, and equipment.
• CalOES. $183 million to the Office of Emergency Services for various improvements to
strengthen California’s emergency response readiness.
• Mutual Aid. $25 million to improve local law enforcement mutual aid deployment
resources.
• Non-Profit Security. $50 million for security assistance to non-profit organizations at risk of
hate-motivated violence and threats.
Public Safety
The May proposal reflects an increase of $193 Million over January proposed investments. This
funding reflects spending priorities to enhance the Fentanyl Task Force at DOJ and combat fentanyl
trafficking, increase victims’ services, address officer wellness, curb child sex trafficking and
exploitation, fund missing and murdered Indigenous persons, and for non-profit security grants.
This builds on the $356 Million proposed in the January Budget that addresses ghost guns, gun buy-
back programs, retail theft task forces, investigation and prosecution, and support for impacted
small businesses.
Miscellaneous
• Peace Officer Wellness. $50 million in grants to local government supporting peace officer
wellness, mental and emotional health, and improve community trust and relations.
• Access to State Parks. Proposals include $13.5 million to purchase additional state park
passes that can be checked out from local libraries.
• Strategic Water Storage. $500 million is provided in FY 25-26 for strategic water storage,
including in aquifers and off-stream reservoirs.
• Coastal. $50 million is provided to the Coastal Conservancy to purchase critical shoreline
properties to preserve natural resources and advance climate resilience.
• Methane Satellites. $100 million in Greenhouse Gas Reduction funds is allocated to expand
the number of satellites launched for methane observations and allow California to identify
the source of these emissions and work with programs to hold emitters accountable for
violations.
B-5
State Appropriations Limit (SAL): GANN Limit Not Triggered Under Revised Proposal 1
At the state level, the State Appropriations Limit (SAL) – often referred to as the GANN limit –is
triggered when revenues exceed the limit as calculated over a two-year period. Once the GANN
limit is triggered, state lawmakers may only spend any revenues over that limit in very narrow and
specified ways: returning money directly to the taxpayer or spending more in education.
This is a narrative to track, as the revenue projections specific to capital gains is a conservative
estimate of a volatile market and true figures could change as the year evolves, which would require
the state to alter spending plans. While evading the GANN limit is an unlikely scenario with the high
surplus, there are ways for the state to spend down revenues. In the May Revise, this is reflected
by GANN excluded spending priorities that: 1) direct state relief to the taxpayer, 2) heavy
investment in state infrastructure, 3) updated estimates of emergency spending.
1 In 1979, voters approved Proposition 4, an initiative that added a constitutional amendment, also known as the Gann initiative, which placed
limits on the growth of expenditures for publicly funded programs. Division 9 of Title 1, beginning with Section 7900 of the Government Code,
was added to laws to establish the process for calculating state and local government appropriations limits and appropriations subject to
limitation under Article XIII B of the California Constitution.
IN DETAIL: MAY REVISE PROPOSED INVESTMENTS TO PAY DOWN GANN CALCULATIONS
$18.1 Billion Proposed Inflation Relief Package.
• $11.5 Billion taxpayer rebate ($400 per registered vehicle, up to two cars, limited program)
• $2.7 Billion in emergency rental assistance ($8.1 Billion total program)
• $1.4 Billion for utility relief, including $1.2 Billion for additional energy arrearage relief and
$200 Million for water – builds on the $2 Billion investment in arrearage relief from FY 21-22
Budget.
• $933 Million: Health care worker retention, including $1500 to hospital and nursing staff
• $750 Million: Grants to local governments for free public transit (free bus/train rides for 3
months)
• $439 Million: Diesel tax pause on sales, for the state’s portion only
• $304 Million: Middle class health care subsidies
• $157 Million: Fee Waivers for childcare, should assist 40,000 families
$17 Billion Additional Infrastructure Investments. This builds off the $20 Billion already proposed in
the January FY 22-23 Budget Proposal, with an additional $17 Billion proposed infrastructure
investment in the May Revision:
• $6.2 Billion in Energy
• $5.6 Billion in TK-16 (inclusive of higher education)
• $1.8 Billion in Drought and Water
• $1.2 Billion in Housing and Homelessness
• $1.1 Billion in Broadband, focused on middle-mile investment
• $500 Million toward deferred maintenance
Fighting Covid-19 With Science. Building on the proposed $1.25 Billion investment in emergency
spending measures due to the COVID-19 pandemic, the May Revision proposes an additional $1.1 to
fight COVID-19 with science to keep Californians safe.
B-6
California Budget Process/What to Expect Moving Forward
Each year, the Governor must release a preliminary budget proposal by January 10th, which is then
followed by a “May Revise” released in mid-May, reflecting updated revenue projections based on
actual receipts.
Final Negotiations for the State budget.
• The budget committees of each house will close out subcommittee recommendations and
each will move to adopt its version of the state budget leading into final negotiations with the
Governor.
• Typically, the Assembly and Senate may convene a conference committee to resolve
differences in their spending plans. Last year the Administration, Speaker, and Pro-tempore
negotiated the ultimate deal privately.
• June 15. Either way outstanding issues must be addressed, and the Legislature must vote on
a balanced budget package to send to the Governor by June 15th, which is a constitutional
deadline, or they do not get paid until an agreement has been brokered. The Legislature will
reconcile any differences which results in a final proposed budget which is then passed by
both houses.
• July 1. The Governor then has until July 1 to sign the budget deal, which is the start of the
new fiscal year, and may line-item veto specific appropriations.
In recent years, the June 15 package has become all but ceremonial. The constitutional deadline does
not apply to trailer bills, which are bills that ‘trail’ behind the main budget package and adjust
appropriations in the main budget bill either up or down, with accompanying statutory language
necessary to enact the spending items. These bills are very often issue specific, but also can be
“Budget Bill Jr’s” that amend many sections of the larger budget package. For instance, due to the
large surplus last year, there were several Budget Bills Jr. for the 2021-2022 Final Budget.
With an even higher surplus this year, we expect there to be multiple iterations of the “final” budget
bill with trailer bills likely trickling through the legislative process through fall. These trailer bills are
almost always pre-negotiated between the Department of Finance/Administration and chief budget
consultants in each house/Legislative leadership prior to appearing in print, and there is little
opportunity to engage at that point. Even so, this process can present opportunities to engage sooner
to tweak spending proposals or the provisional language authorizing spending to open it up for
greater access.
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