BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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                              UNFINISHED BUSINESS


          Bill No:  SB 85
          Author:   Cogdill, et al
          Amended:  10/26/09
          Vote:     21

           
          PRIOR SENATE VOTE NOT RELEVANT

           SENATE LOCAL GOVERNMENT COMMITTEE  :  5-0, 2/10/10
          AYES:  Cox, Kehoe, Aanestad, Price, Wiggins
           
          ASSEMBLY FLOOR  :  71-0, 1/27/10 - See last page for vote


           SUBJECT  :    Local Government Finance

           SOURCE  :     Stanislaus County


           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  :    

           Existing law
           
          1. Limits the maximum amount of ad valorem tax on real  
             property to one percent 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  
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             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.

          This bill 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:

                (1)      The reduction amount that was  
                   determined for FY 2010-11.

                (2)      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:

                (1)      The reduction amount that was  
                   determined for FY 2011-12.

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

             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.








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          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.

           Background
           
          This bill provides limited property tax relief to seven  
          counties in California.  One section of this bill caps 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.  This bill contains provisions that increases  
          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], 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 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  







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          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 "negative bailout" amounts in future years  
          (AB 2162 [Condit], Statutes of 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.

          This bill is not the six counties' first attempt to cap  
          their "negative bailout payments."  In 2009, SB 684  
          (Cogdill) was held in Assembly Appropriations Committee on  
          its suspense file.  In 1996, AB 698 (Cannella), of 1996  
          died in Senate Appropriations Committee and AB 1069  







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          (Cardoza), of 1997 died in Assembly Appropriations  
          Committee.  In 1997, Governor Wilson vetoed AB 472  
          (Cardoza), of 1997, arguing the counties received  
          additional fiscal relief when the state took over trial  
          court funding.  Senate Local Government Committee passed SB  
          756 (Denham), of 2003, SB 9 (Denham), of 2006, and SB 215  
          (Denham), of 2007, but those bills died on the Senate  
          Appropriations Committee's suspense file.

          This bill also contains provisions that will 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.

          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'  







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          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 this bill 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.

           Related legislation
           
          The provision of this bill were contained in SB 684  
          (Cogdill-R), which passed the Senate on Consent on 6/3/09,  
          39-0.  Those provisions were deleted and placed into this  
          bill with minor changes.

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

          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];  
          and (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.

           SUPPORT  :   (Verified  2/10/09)

          Stanislaus County (source)
          California State Association of Counties
          Regional Council of Rural Counties
          Yolo County








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           ASSEMBLY FLOOR  : 
          AYES:  Adams, Ammiano, Anderson, Arambula, Beall, Bill  
            Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,  
            Brownley, Buchanan, Caballero, Charles Calderon, Chesbro,  
            Conway, Cook, Coto, Davis, De La Torre, De Leon, DeVore,  
            Emmerson, Eng, Evans, Feuer, Fletcher, Fong, Fuentes,  
            Fuller, Furutani, Gaines, Galgiani, Garrick, Gilmore,  
            Hagman, Harkey, Hayashi, Hernandez, Hill, Huber, Huffman,  
            Jeffries, Jones, Knight, Lieu, Logue, Bonnie Lowenthal,  
            Ma, Mendoza, Miller, Nava, Nestande, Niello, Nielsen,  
            John A. Perez, Portantino, Ruskin, Salas, Saldana, Silva,  
            Skinner, Smyth, Solorio, Audra Strickland, Swanson,  
            Torres, Torrico, Tran, Villines, Yamada
          NO VOTE RECORDED:  Bradford, Carter, Hall, Monning, V.  
            Manuel Perez, Torlakson, Bass


          RJG:do  2/10/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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