BILL ANALYSIS
SCA 4
Page 1
(Without Reference to File)
SENATE THIRD READING
SCA 4 (Torlakson)
As Amended July 27, 2004
2/3 vote
SENATE VOTE :Vote not relevant
SUMMARY : Places a Constitutional Amendment to protect local
government revenues before the voters at the November 2, 2004
General Election. Specifically, this measure :
1)Protects the property tax revenues of local governments (i.e.,
cities, counties and special districts). Prohibits the
Legislature from enacting any law on or after November 3,
2004, that would reduce local governments' percentage share of
the 1% property tax revenue in any county below what that
share would be under existing state law as of November 3. The
effect of this protection would be that the Legislature could
not, by enacting a law, shift a larger share of the 1%
property tax away from local governments to schools or
community colleges (where the revenue would offset the state's
funding obligation under Proposition 98). This new protection
would have the following features:
a) Includes protection for property tax revenue shifted
from K-14 education to cities and counties to replace
Vehicle License Fee (VLF) revenue, as proposed in the
2004-05 Budget;
b) Prohibits the Legislature from passing any law that
would reduce the countywide share of the property tax
allocated to local governments below the share that
otherwise would occur in any fiscal year (FY) based on the
state law in effect on November 3. This allows for local
growth and decision making by protecting local government
revenues on a countywide basis but not locking in specific
percentage amounts. Thus, it would preclude the Legislature
from enacting new "ERAF shifts" to take property tax money
away from local governments (absent suspensions, as
discussed below). However, this measure does not prohibit
changes in local governments' share of property tax
revenues that result from circumstances or decisions that
would be allowed under existing law. For example, changes
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in local governments' share could occur because of
different rates of growth in assessed value within a county
that happen to result in an increase in the school share of
countywide revenue. Likewise, local decisions over the
formation of local agencies and regarding redevelopment
would not be restricted.
c) Requires that any bill that reallocates property tax
revenues among local agencies (except for voluntary local
agreements) must be passed by a two-thirds vote; and,
d) Restores and protects the temporary $1.3 billion revenue
reduction to local agencies proposed in the 2004-05 budget,
after 2005-06. The 2004-05 budget proposal shifts $1.3
billion in property tax revenue to K-14 education in
2004-05 and 2005-06. If the budget proposal is adopted,
then existing state law on November 3 will allow this
temporary shift but only for the two years. The
Legislature could not (absent suspension) extend this
property tax shift because doing so would reduce local
governments' percentage share of property tax revenues
below what they otherwise would be under existing state law
in 2006-07 or subsequent years.
2)Allows suspension of the property tax protection provision for
any individual FY, starting with 2008-09, subject to the
following requirements:
a) A proclamation of severe fiscal hardship by the
Governor;
b) Enactment of an urgency statute by a two-thirds vote of
the Legislature;
c) Enactment of a statute providing for full repayment of
any revenue loss, including interest, to local governments
by the end of the third FY following the year of
suspension.
d) Suspension may not result in a loss of more than 8% of
the property tax revenues of local governments; and,
e) No suspension may occur before a previously suspended
amount has been repaid. Suspensions may not occur more than
twice in any 10-year period. Furthermore, no suspension
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may occur until after the VLF "gap" amount has been paid
($1.3 billion of VLF backfill payments deferred from
2003-04 to be paid in August of 2006).
3)Constitutionally protects the sales tax replacement revenue
that cities and counties receive while the quarter-cent
suspension of the Bradley-Burns local sales and use tax is in
effect. Existing law suspends a quarter-cent of the local
sales tax rate and increases the state sales tax rate by the
same amount until the Economic Recovery Bonds authorized by
Proposition 57 have been paid off. During this "revenue
exchange" period, the "Triple-Flip" mechanism provides
replacement property tax revenue to cities and counties. The
Constitutional Amendment prohibits the state from reducing,
suspending, or delaying the replacement revenue during the
revenue exchange period. This measure also prohibits the
Legislature from extending the revenue exchange period or
failing to restore the quarter-cent local tax rate after the
revenue exchange period.
4)Constitutionally protects local sales tax revenues.
Specifically, this measure prohibits the Legislature from
restricting the authority of a city or county to impose the
Bradley-Burns Uniform Local Sales and Use Tax and any local
Transactions and Use Taxes. This measure also prohibits the
Legislature from changing the method of distribution of these
local sales taxes. This would retain in place the current
"situs" basis of sales tax, under which the jurisdiction in
which the sale occurs receives the sales tax revenue from that
sale. The Legislature, however, could revise the allocation
of the use tax portion of the Bradley-Burns tax if necessary
to comply with federal law or an interstate compact.
5)Enables the Legislature to authorize two or more specifically
identified local agencies within any county to exchange
property tax and Bradley-Burns sales tax revenues with
approval by a majority vote of the governing bodies of each
entity.
6)Revises the dedication of VLF revenues in the Constitution.
Currently, the California Constitution requires that all VLF
revenues above the costs of collection and refunds must be
allocated to cities and counties according to statute. This
Constitutional Amendment provides for the following uses of
VLF revenues:
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a) First, to the Local Revenue Fund to pay for health and
social services programs that are carried out by counties
and several cities as part of the state-local program
realignment that was enacted in the early 1990s. These
costs currently are paid out of a share of VLF revenues and
General Fund backfill payments;
b) Second, any remaining amounts within a VLF rate of 0.65%
(the current effective rate after offsets are applied) are
dedicated to cities and counties as provided by law. This
remaining amount currently is about $200 million; and,
c) Third, the state would be required to provide for
replacement revenue to local governments if the VLF rate is
reduced below 0.65% in the future. There is no
restriction, however, on the use of any additional VLF
revenue, should any be available in the future.
6)Provides additional requirements for payment of state-mandated
local costs. Currently, the California Constitution requires
the state to reimburse local agencies for the costs of
implementing a new state mandated program or higher level of
service. It does not specify when or how often the costs must
be reimbursed. Mandate requirements continue in force even if
payment has been deferred. This measure would restrict the
state's ability to defer payment as follows:
a) Prohibits the Legislature, beginning in 2005-06, from
deferring mandate payments by requiring that the
Legislature either appropriate the full amount payable in
the annual Budget Act or suspend the operation of the
mandate for the FY to which the Budget Act applies. The
state would remain liable, however, for any past mandated
costs, even in the event of suspension, as under current
law.
b) This requirement would not apply to:
i) Education mandates;
ii) Mandates that provide substantive or procedural
protections, rights or benefits to local government
employees or retirees; and,
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iii) Mandate costs incurred prior to 2004-05, for which
payable claims have been determined prior to 2005-06 and
payment has been deferred. This measure allows these
deferred claims to be repaid over a period of years as
provided by law (the local government trailer bill
provides for payment over five years starting in
2006-07).
d) Specifies that reimbursable mandate costs include any
shift of financial responsibility for a required program
from the state to local government, including an increase
in the local funding ratio for a required program that is
jointly funded by the state and local government. The
California Constitution requires the state to reimburse
local agencies for the costs of implementing a state
mandated new program or higher level of service. It does
not specify the precise meaning of "new program or higher
level of service." However, language in the decision on the
Sonoma County case indicated that simply increasing a local
funding percentage in a jointly-funded program would not be
result in a reimbursable mandate.
e) Includes an explicit statement that the state may not
use allocations of property tax revenue to pay for mandated
costs.
7) Declares that this measure is a comprehensive alternative to
the Local Government Property Tax Protection Act, Proposition
65 on the November 2 ballot, and that accordingly, none of the
provisions of Proposition 65 would take effect if both
measures pass and SCA 4 receives a larger number of
affirmative votes.
FISCAL EFFECT : This measure is consistent with the fiscal
assumptions in the Governor's May Revision Budget proposal and
with the overall agreement on the 2004-05 Budget.
Analysis Prepared by : Dan Rabovsky / BUDGET / (916)-319-2099
FN: 0007247