BILL ANALYSIS �
AB 23 X1
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 23 X1 (Budget Committee)
As Amended June 14, 2011
Majority vote. Budget Bill Appropriation Takes Effect
Immediately
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|ASSEMBLY: | |(June 3, 2011) |SENATE: |23-16|(June 15, |
| | | | | |2011) |
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(vote not relevant)
SUMMARY : Makes various changes to state laws to address
provisions relating to local taxation necessary to implement the
provisions of the 2011-12 budget agreement.
The Senate amendments delete the Assembly version of this bill,
and instead:
1)End the "revenue exchange period" under the so-called "Triple
Flip" effective 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.
2)Provide for a windup mechanism of the revenue exchange, based
on a June 30, 2011 end of the revenue exchange period. As a
consequence:
a) Director of Finance, prior to May 1, notifies the county
auditors of the portion of the estimated revenue loss for
that fiscal year that is attributable to the fourth
quarter;
b) County auditors reduce the May property diversion to
cities and counties by that amount; and,
c) Estimates are then reconciled with the actual amounts
through a settle-up process in the following year.
3)Add an appropriation allowing this bill to take effect
immediately upon enactment.
AS PASSED BY THE ASSEMBLY , this bill expresses the intent of the
Legislature to enact statutory changes relating to the 2011
Budget Act.
AB 23 X1
Page 2
FISCAL EFFECT : This measure 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 state General
Fund savings. Due to a one-quarter lag in payment, state
General Fund expenditure savings is estimated to be $900 million
in 2011-12. Savings will increase to about $1.1 billion plus
growth in 2012-13 and ongoing until 2016.
COMMENTS : Under current law, an additional state quarter-cent
sales and use tax is imposed effective July 1, 2004. The revenue
from this tax is deposited in the Fiscal Recovery Fund, which is
continuously appropriated and dedicated to payment of debt
service on the Economic Recovery Bonds (ERBs). This dedicated
tax is to 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.
In addition, current law sets forth the so-called "Triple Flip"
financing arrangement related to the payment of the debt service
on the ERBs. Under this arrangement, a quarter-cent of the
local Bradley-Burns uniform sales and use tax is suspended
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.
To compensate local governments for the quarter-cent
Bradley-Burns rate suspension, current law also 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. 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, 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. As a result, the state
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.
AB 23 X1
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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, under current rates. If the temporary one
cent sales tax expires on June 30, 2011, and is not extended,
the sales tax rate on July 1, 2011, would be reduced by
three-quarters of a cent, relative to the June 2011 rate.
Proposition 26 of 2010 amended Article XIII(A), Section 3 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.
Analysis Prepared by : Mark Ibele / BUDGET / (916) 319-2099
FN: 0001296