BILL ANALYSIS SB 85 Page 1 SENATE THIRD READING SB 85 (Cogdill) As Amended September 10, 2009 Majority vote SENATE VOTE : Vote not relevant APPROPRIATIONS 15-0 ---------------------------------------------------------------- |Ayes:|De Leon, Conway, Ammiano, | | | | |Charles Calderon, Coto, | | | | |Davis, Fuentes, Hall, | | | | |Harkey, Miller, Nielsen, | | | | |Skinner, Solorio, Audra | | | | |Strickland, Torlakson | | | |-----+---------------------------+---+--------------------------| | | | | | ---------------------------------------------------------------- SUMMARY : Provides limited property tax relief to seven counties. Specifically, this bill : 1)Requires, for purposes of property tax revenue allocations, the county auditor of a "negative sum" county, in reducing the amount of property tax that otherwise would be allocated to the county, to apply a reduction amount according to the following: a) For fiscal years (FYs) 2011-12 and 2012-13, a reduction amount that is equal to the reduction amount that was determined for FY 2010-11; b) For FY 2013-14, a reduction amount that is determined on the basis of the reduction amount applied for FY 2010-11 without any increase in the latter amount for FYs 2011-12 and 2012-13; and, c) For FY 2014-15 and each fiscal year thereafter, a reduction amount that is determined on the basis of the reduction amount applied for the immediately preceding FY. 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 SB 85 Page 2 second lowest percentage share of combined county-wide and less than countywide property tax shares as of 2006-07. 3)Declares that no reimbursement is required under the provisions of this bill because it provides for offsetting savings to local agencies or school districts that result in no net costs to the local agencies or school district. EXISTING LAW : 1)Limits the maximum amount of ad valorem tax on real property to 1% of the full cash value of the property with counties collecting the tax revenues and then apportioning it to cities, the county, special districts, redevelopment, and school districts in the county. 2)Requires the county auditor in each fiscal year to allocate property tax revenues to local jurisdictions in accordance with specified formulas and procedures, and generally requires each jurisdiction be allocated an amount equal to the total amount of revenue allocated to that jurisdiction in the prior fiscal year, subject to certain modifications and that jurisdiction's portion of the annual tax increment. FISCAL EFFECT : According to Assembly Appropriations Committee, reallocations of property tax revenues from school districts to counties totaling $290,000 in 2011-12 and $580,000 in 2012-13, consisting of: 1)About $190,000 in 2011-12 and $380,000 in 2012-13 and thereafter due to the freezing of the "negative sum" adjustment for two years; 2)About $100,000 in 2011-12 and $200,000 in 2012-13 and thereafter due to the bill's provision that raises the specified countywide property tax share. Under Proposition 98, the state General Fund will be required to backfill the loss in property taxes to schools. COMMENTS : SB 85 would provide limited property tax relief to seven counties in California. One section of SB 85 would cap the amount of property tax reduction for six counties in California on a going-forward basis, with specified caps for SB 85 Page 3 specified fiscal years. These six counties, dubbed the "negative bailout" counties (Alpine, Lassen, Mariposa, Plumas, Stanislaus, and Trinity), are in a unique situation stemming from the passage of Proposition 13 in 1978, and subsequent legislation relating to local government finance. Because Proposition 13 reduced revenues received by local governments from property taxes, the Legislature responded by bailing out local governments with $858 million in block grants. Of this amount, $436 million went to counties. SB 85 also contains provisions that would increase the countywide property tax 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 county-wide property tax shares as of 2006-07, provisions that would specifically affect Yolo County. In 1979, the Legislature permanently restructured 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 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. This three-part package was intended to provide proportionate bailout to all counties, but, under the provisions of AB 8, the six counties were not awarded additional property tax revenues. For the six "negative bailout" 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. In 1982, the Department of Finance discovered the six counties had not been shifting their "negative bailout" amounts to schools. The Legislature forgave the past $5.5 million in miscalculations, clarified some counties would receive a "negative bailout" amount, and required counties to shift their SB 85 Page 4 "negative bailout" amounts in future years (AB 2162, Condit, 1983). Since 1983, Stanislaus County has transferred more than $52 million in "negative bailout" to the schools. Its "negative bailout" increases annually, just as property tax revenues grow. Stanislaus County officials argue the "negative bailout" payments are an unintended consequence of AB 8 because the Legislature wanted to relieve the fiscal pressures on counties, not increase them. In future years, the six counties will benefit from the growth in property tax revenues, meaning the schools in those counties will no longer benefit from that property tax growth. As a result, the state's General Fund will take a hit because the state must backfill the property tax revenues that the schools will no longer receive. SB 85 is not the six counties' first attempt to cap their "negative bailout payments." This year, SB 684 (Cogdill) was held in Assembly Appropriations Committee on its suspense file. In 1996, AB 698 (Cannella, 1996) died in Senate Appropriations Committee and AB 1069 (Cardoza, 1997) died in Assembly Appropriations Committee. In 1997, Governor Wilson vetoed AB 472 (Cardoza, 1997), arguing the counties received additional fiscal relief when the state took over trial court funding. Senate Local Government Committee passed SB 756 (Denham, 2003), SB 9 (Denham, 2006), and SB 215 (Denham, 2007), but those bills died on the Senate Appropriations Committee's suspense file. SB 85 also contains provisions that would provide property tax relief to Yolo County, the county with the second lowest share of combined countywide and less than countywide property tax shares as of 2006-07. In February 2009, as part of the state budget package, SB 8 X3 (Ducheny), Chapter 4, Statutes 2009-10 Third Extraordinary Session, contained property tax relief provisions for Orange County, the county with the lowest share of property taxes allocated to county government in the 2006-07 year. SB 8 X3 increases property tax revenue allocations to Orange County by $35 million annually in 2009-12 and 2010-11 and by $50 million annually thereafter. The additional funds for Orange County will be diverted from property tax revenues currently allocated to local K-12 school districts and the County Office of Education in Orange County. SB 85 Page 5 There are major differences in the percentages of property taxes that are currently allocated to cities, counties, special districts and school districts within counties across the state, for various reasons. Part of the difference in percentages from jurisdiction to jurisdiction can be explained by the determination of the AB 8 formula, which was to some extent based on each local government's share of property tax collections before Proposition 13 was enacted. Although differences in allocation 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 county governments. Previously, several bills have been proposed to provide 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, 2006) and AB 405 (Duvall, 2007) would have required that schools' share of tax increment revenue available upon the expiration of redevelopment areas be reallocated to counties. SB 1909 (Machado, 2003) would have established an 11% floor for property taxes allocated to county governments, but the bill was vetoed by the Governor. Analysis Prepared by : Debbie Michel / L. GOV. / (916) 319-3958 FN: 0003172