BILL ANALYSIS                                                                                                                                                                                                    


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                              UNFINISHED BUSINESS

          Bill No:  SB 85
          Author:   Senate Budget and Fiscal Review Committee
          Amended:  9/10/09
          Vote:     21


           ASSEMBLY FLOOR  :  Not available

           SUBJECT  :    Budget Act of 2009:  Trailer Bill vehicle

           SOURCE  :     Author

           DIGEST  :    Assembly Amendments delete the Senate version  
          expressing the intent of the Legislature to enact statutory  
          changes relating to the Budget Act of 2009.  The bill now  
          provides limited property tax relief to seven counties.

           ANALYSIS  :    

          Specifics of this 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  


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             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  

           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. 

           Negative sum counties  .  Following voter approval of  
          Proposition 13, which cut local property taxes by more than  
          50 percent, 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], Chapter 282, Statutes of  
          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  


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          relatively larger health and welfare payments. 

          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 averaged 20  
          percent but ranged from 6.6 percent to over 60 percent.   
          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 percent.  

          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. 

           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. 

           Previous legislation

           The provision of this bill that freezes "negative sum"  


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          adjustments is the most recent in a long list of proposals  
          to cap these amounts in the six counties.

          SB 215 (Denham), of 2007, SB 9 (Denham), of 2006, SB 756  
          (Denham),  of 2003, and AB 698 (Cannella), of 1996, died in  
          the Senate Appropriations Committee, and AB 1069 (Cardoza),  
          of 1997, was held under submission by this committee.   
          Governor Wilson vetoed AB 472 (Cardoza), of 1997, stating  
          that that the counties received additional fiscal relief  
          when the state took over trial court funding. 

          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 included in SBX3 8 (Ducheny), Chapter 4, Statutes  
          of 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 percent floor for  
          property taxes allocation to county governments. 

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No    
          Local:  No

          According to the Assembly Appropriations Committee (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 countywide property tax share;  
          and (2) Under Proposition 98, the state GF will be required  
          to backfill the loss in property taxes to schools. 


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          DLW:do  9/11/09   Senate Floor Analyses 


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