BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 85
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          Date of Hearing:   September 10, 2009

                                Kevin De Leon, Chair

                  SB 85 (Cogdill) - As Amended:  September 4, 2009 

          Policy Committee:                             NA    Vote:NA

          Urgency:     No                   State Mandated Local Program:  
          Yes    Reimbursable: No


          As proposed to be amended, this bill provides limited property  
          tax relief to seven counties. Specifically, the bill:

          1)Freezes "negative sum" property tax allocations at the 2010-11  
            levels for two years - 2011-2012 and 2012-13 -- and then  
            allows the negative sum amounts to resume growth in line with  
            current law. The freeze applies to six counties (Alpine,  
            Lassen, Mariposa, Plumas, Stanislaus, and Trinity) that had a  
            portion of their property taxes shifted to school districts  
            under legislation passed following voter approval of  
            Proposition 13 in 1978.

          2)Increases the countywide property tax allocation (and reduces  
            school districts' allocation) by $100,000 in 2011-12 and  
            $200,000 in 2012-13 and thereafter for the county with the  
            second lowest percentage share of combined county-wide and  
            less than countywide property taxes as of 2006-07. This  
            provision affects Yolo County. 

           FISCAL EFFECT  

          1)Reallocations of property tax revenues from school districts  
            to counties totaling about $290,000 in 2011-12 and $580,000 in  
            2012-13 and thereafter, consisting of:

             a)   About $190,000 in 2011-12 and $380,000 in 2012-13 and  
               thereafter due to provision freezing the "negative sum"  
               adjustment for two years.

             b)   About $100,000 in 2011-12 and $200,000 in 2012-13 and  
               thereafter due to the provision that raises the specified  


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               countywide property tax share. 

          2)Under Proposition 98, the state GF will be required to  
            backfill the loss in property taxes to schools.


           1)Rationale  .  The bill is intended to provide relief to specific  
            county governments that, according to the bill's proponents,  
            have been adversely affected by laws enacted subsequent to  
            voter approval of Proposition 13 in 1978 governing the  
            allocation of property taxes collected within each county.

           2)Background - negative sum counties.  Following voter approval  
            of Proposition 13, which cut local property taxes by more than  
            50%, the state responded with a one-time "bailout" of local  
            government. This included $858 million in block grants, of  
            which $436 million went to counties. The following year, the  
            Legislature adopted a longer term bailout, by permanently  
            restructuring the allocation of property taxes (AB 8, L.  
            Greene, 1979).  AB 8 shifted some of the schools' property tax  
            revenues to local agencies and replaced the schools' losses  
            with increased subventions from the state General Fund. 

            The AB 8 formula specifically shifted additional property  
            taxes to counties in an amount equal to their 1978-79 block  
            grants, plus a portion of Aid to Families with Dependent  
            Children (AFDC) costs not covered by the state buyout, minus  
            the new state grants for county health services.

            For six "negative sum" counties, the state grants for health  
            services exceeded their 1978-79 block grants plus the  
            adjustment for AFDC costs.  Consequently, rather than shifting  
            additional property tax revenue from schools to these  
            counties, these counties shifted property tax revenue to  
            schools.  In these six counties, property tax revenues were  
            reduced rather than augmented to balance the relatively larger  
            health and welfare payments.

           2)Background - post Proposition 13 allocation of  property  
            taxes  . There are major differences in the percentages of  
            property taxes that are currently allocated to cities,  
            counties, special districts and school districts across within  
            counties across the state. As of 2006-07, the share of  
            property taxes that were allocated to county governments  


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            averaged 20% but ranged from 6.6% to over 60%. The county with  
            the lowest share of property taxes allocated to county  
            government in 2006-07 was Orange. The second lowest was Yolo,  
            with a county share of 9.6%. 

            Part of the difference is that a key element of the AB 8  
            formula was that the shift of property taxes from schools to  
            non-school local governments within each county was based  
            partly on each local government's share of property tax  
            collections before Proportion 13 was enacted.  This in turn  
            reflected, among other things, varying pre-Proposition 13  
            property tax rates imposed by local jurisdictions. Other  
            factors include: (a) the value of homes and businesses in  
            various areas; (b) the percentage of population and businesses  
            located in cities versus non-incorporated county areas; (c)  
            how municipal services are divided among cities, counties, and  
            special districts; and (d) state laws that have been enacted  
            since Proposition 13 that govern the sharing of property taxes  
            upon incorporation of new cities.

            Although differences in allocations are due to a variety of  
            complex factors, representatives of counties with  
            below-average allocations have long advocated for state  
            relief, normally involving a reallocation of property taxes  
            from schools to counties governments.

           3)Proposed amendments  . The amendments increase the countywide  
            property tax allocation to the county with the second lowest  
            percentage share of combined county-wide and  
            less-than-countywide property tax shares as of 2006-07. 

           4)Previous legislation  . The provision of this bill that freezes  
            "negative sum" adjustments is the most recent in a long list  
            of proposals to cap these amounts in the six counties.  SB 215  
            (Denham, 2007), SB 9 (Denham, 2006), SB 756 (Denham, 2003),  
            and AB 698 (Cannella, 1996) died in the Senate Appropriations  
            Committee, and AB 1069 (Cardoza, 1997) was held under  
            submission by this committee.  Governor Wilson vetoed AB 472  
            (Cardoza, 1997), stating that that the counties received  
            additional fiscal relief when the state took over trial court  

            The provision of this bill raising the county government's  
            property tax allocation in the county with the second lowest  
            share in the state is similar in concept to a provision  


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            included in SB 3X 8 (Ducheny), Chapter 4/2009. That measure  
            increased the countywide allocation to the county with the  
            lowest share of countywide allocation or property taxes by $25  
            million in 2009-10 and $50 million in 2010-11 and thereafter.  
            Previously, several bills had been proposed to provide more  
            general relief to "low wealth" counties (generally defined as  
            counties in which the countywide share of property taxes is  
            below the statewide average.)   For example, AB 2682 (Daucher)  
            of 2006 and AB 405 (Duvall) of 2007 would have required that  
            schools' shares of tax increment revenue available upon the  
            expiration of redevelopment areas be reallocated to counties.  
            SB 1909 (Machado), which was vetoed by the governor in 2004,  
            established an 11% floor for property taxes allocation to  
            county governments.  
           Analysis Prepared by  :    Brad Williams / APPR. / (916) 319-2081