BILL ANALYSIS �
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THIRD READING
Bill No: AB 23X1
Author: Blumenfield (D)
Amended: 6/14/11 in Senate
Vote: 21
PRIOR VOTES NOT RELEVANT
SUBJECT : Budget Act of 2011: Local Government
SOURCE : Author
DIGEST : This bill ends the revenue exchange period under
the Triple Flip on July 1, 2011, thereby reinstating the
quarter-cent portion of the Bradley-Burns local sales and
use tax that has been suspended since July 1, 2004. As a
result, the state General Fund will no longer need to incur
the cost of backfilling the local revenue loss due to the
suspension. A General Fund benefit of about $900 million
will be realized in 2011-12.
ANALYSIS :
Existing Law :
1.Imposes an additional state quarter-cent sales and use
tax, effective July 1, 2004. The revenue from this tax
is deposited in the Fiscal Recovery Fund, which is
continuously appropriated and dedicated �pursuant to
legislation, the voter-approved bond act authorizing the
Economic Recovery Bonds (ERBs)--Proposition 57 of March
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2004--and the bond indentures] to payment of debt-service
on the bonds. This dedicated tax will remain in effect
until the "first day of the first calendar quarter
commencing more than 90 days following a notification by
the Director of Finance" that the ERBs have been paid off
or that sufficient funds to pay off the bonds have been
irrevocably provided.
2.Establishes the so-called "Triple Flip" financing
arrangement related to the payment of the debt service on
the ERBs
A. Suspends a quarter-cent of the local
Bradley-Burns uniform sales and use tax during the
"revenue exchange period," which currently is
defined with the same starting and ending dates as
the period during which the dedicated quarter-cent
state sales and use tax is effective. Existing law
also provides for the automatic reinstatement of the
local tax rate at the conclusion of the revenue
exchange period.
B. Provides for a shift of local property tax
revenues from K-14 education to cities and counties
in order to replace local governments' revenue
losses due to the quarter-cent Bradley-Burns rate
suspension. The amount of the shift is based on an
annual estimate by the Director of Finance, based on
a projection by the State Board of Equalization
(BOE), of the revenue loss to each local entity due
to the rate suspension for the then-current fiscal
year. County auditors allocate half of this amount
in January and half in May of each year. The
allocation amounts also include adjustments
(positive or negative) to reconcile the prior year's
estimates with the actual revenue losses determined
by BOE.
C. Backfills the loss of property tax revenue to
schools with additional state General Fund support,
as required by Proposition 98. Consequently, the
ultimate cost of the Triple Flip is borne by the
state General Fund.
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3.Provides for a windup mechanism of the revenue exchange
(based on an April 1 end of the revenue exchange period),
as follows: Prior to May 1, the Director of Finance
notifies the county auditors of the portion of the
estimated revenue loss for that fiscal year that is
attributable to the fourth quarter. The auditors must
then reduce the May property diversion to cities and
counties by that amount. The estimates are then
reconciled with the actual amounts through a settle-up
process in the following year.
Comments
According to the Senate Budget and Fiscal Review Committee
analysis, this bill does not affect in any way the state
quarter-cent sales tax that is dedicated to repayment of
the ERBs.
The Department of Finance estimates that sufficient funds
will have been paid or set aside to repay the ERBs fully
during 2016, when the Director of Finance makes a finding
to this effect. Consequently, the state quarter-cent
dedicated tax will trigger off sometime in 2016. This
assumes that no additional funds are provided from the
Budget Stabilization Account or other sources, so that bond
payments are made only from the proceeds of the dedicated
state quarter-cent tax.
Ending the suspension of the local quarter-cent rate will
result in an overall increase of a quarter cent in the
total combined state and local sales and use tax rate
during the remaining repayment period. However, if the
temporary one-cent sales tax expires on June 30, 2011, and
is not extended, the sales tax rate on July 1, 2011, will
be reduced by three-quarters of a cent, relative to the
June 2011 rate.
Proposition 1A, passed in November 2004, provides a
constitutional guarantee to local governments of property
tax allocations necessary to replace their Bradley-Burns
revenue loss during the partial rate suspension. This bill
eliminates the local Bradley-Burns revenue loss, so that
replacement property tax revenues are no longer required.
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Existing law provides for the automatic restoration of the
full Bradley-Burns local tax rate at the end of the revenue
exchange period. Furthermore, the right of local
governments to the restored rate is recognized by
Proposition 1A. Consequently, no local action is necessary
for the restoration of the local rate.
Proposition 26 of 2010 amended Section 3 of Article XIII(A)
of the Constitution to require that any legislation that
increases a tax imposed by the State and that increases the
tax paid by any taxpayer must be passed by not less than a
two-thirds vote of all members in each house of the
Legislature. The Bradley-Burns tax is a locally-imposed
tax and that section of the Constitution is not applicable.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: Yes
This bill will eliminate the annual diversion of about $1.1
billion of local property tax revenues from K-14 education
to cities and counties, resulting in an equivalent state
General Fund savings in Proposition 98 education costs.
Language in the bill specifies the schools' Proposition 98
funding level is not affected by the change - even in "Test
1" years. These savings will be temporary-they will end
during 2016, when the ERBs will be paid off. There will
not be any net fiscal impact on cities and counties (other
than intra-year timing adjustments due to the differences
in the flow of property tax versus sales and use tax
revenues) -this bill will simply restore cities' and
counties' Bradley-Burns sales and use tax revenue and
eliminate the property tax replacement revenue that they
have been receiving during the quarter-cent rate
suspension. Due to a one-month lag in payment, State
General Fund expenditure savings is estimated to be $900
million in 2011-12. Savings will grow to about $1.1
billion in 2012-13 and annually until the ERBs are repaid.
AGB:do 6/15/11 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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