BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 85
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          SENATE THIRD READING
          SB 85 (Cogdill)
          As Amended  October 26, 2009
          Majority vote

           SENATE VOTE  :   Vote not relevant
            
           APPROPRIATIONS      15-0                                        
           
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          |Ayes:|De Leon, Conway, Ammiano,  |   |                          |
          |     |Charles Calderon, Coto,    |   |                          |
          |     |Davis, Fuentes, Hall,      |   |                          |
          |     |Harkey, Miller, Nielsen,   |   |                          |
          |     |Skinner, Solorio, Audra    |   |                          |
          |     |Strickland, Torlakson      |   |                          |
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          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, a reduction amount that  
               is equal to the lesser of either of the following:

               i)     The reduction amount that was determined for FY  
                 2010-11; or,

               ii)    The reduction amount that is determined for FY  
                 2011-12.

             b)   For FY 2012-13, a reduction amount that is equal to the  
               lesser of either of the following:

               i)     The reduction amount that was determined for FY  
                 2011-12; or,

               ii)    The reduction amount that is determined for FY  
                 2012-13.









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             c)   For FY 2013-14 and each FY 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  
            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 the 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 [these estimates assume average  
            property tax growth rates].

          2)About $100,000 in 2011-12 and $200,000 in 2012-13 and  








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            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  
          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  








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          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  
          "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  








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          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.

          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.

          Amendments to SB 85 were adopted on October 26, 2009, to revise  
          the reduction amounts contained in Section 1 of the bill to  
          ensure that the six "negative bailout" counties will not be  
          harmed if property tax receipts in those counties come in lower  
          than expected during FYs 2011-12 and 2012-2013.


           Analysis Prepared by  :    Debbie Michel / L. GOV. / (916)  
          319-3958


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