BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 85| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 85 Author: Cogdill Amended: 9/10/09 Vote: 21 PRIOR SENATE VOTES NOT RELEVANT 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 CONTINUED SB 85 Page 2 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. Comments 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 SB 85 Page 3 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" SB 85 Page 4 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. SB 85 Page 5 DLW:do 9/11/09 Senate Floor Analyses SUPPORT/OPPOSITION: NONE RECEIVED **** END ****