BILL ANALYSIS                                                                                                                                                                                                    Ó




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  SB 536                      HEARING:  4/6/11
          AUTHOR:  DeSaulnier                   FISCAL:  Yes
          VERSION:  2/17/11                     TAX LEVY:  No
          CONSULTANT:  Weinberger               

                            PROPERTY TAX ALLOCATION
                     FROM PUBLIC UTILITY PROPERTY (URGENCY)
          

          Creates a special formula for allocating unitary property 
          tax revenues to the Oakley Redevelopment Agency.


                           Background and Existing Law  

          The California Constitution requires the State Board of 
          Equalization (BOE) to assess public utilities for property 
          tax purposes.  The BOE assesses a regulated utility's 
          property as a unit, instead of assessing the individual 
          value of separate properties owned by the utility.  State 
          law allocates the property tax revenues from state-assessed 
          public utilities differently than the property tax revenues 
          from locally-assessed properties.  

          Until 1988-89, state law allocated property tax revenues 
          from all state-assessed property on a situs basis among tax 
          rate areas.  The complexity and administrative cost of 
          tracking property holdings and allocating property tax 
          revenues among thousands of small geographic locations led 
          the Legislature to create the current countywide method for 
          allocating unitary property tax revenues (AB 2890, 
          Hannigan, 1986).   

          Under the countywide method, the BOE allocates the unitary 
          assessed value of utility property among the counties based 
          on the amount of property within each county.  County 
          auditors allocate the property tax revenues from unitary 
          properties using a formula based on the amount of unitary 
          revenues received by the county's taxing jurisdictions in 
          1987-88.  For years after 1987-88, each taxing jurisdiction 
          receives up to 102% of its prior year unitary property tax 
          revenues.  The county auditor allocates the remaining 
          property tax revenue from the county's unitary roll to all 
          taxing jurisdictions in proportion to their shares of 




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          property tax revenues derived from locally-assessed 
          property.

          In other words, this unitary tax allocation method creates 
          a countywide pool of property tax revenues generated by 
          growth in the value of state-assessed properties.  Each 
          local taxing agency gets a share of the countywide pool, 
          regardless of whether any state-assessed property is within 
          that agency's boundaries.

          The Legislature has created some exceptions to this 
          countywide unitary tax allocation method.  When the City of 
          Chula Vista (San Diego County) was willing to accept a 
          proposed electrical power plant, legislators directed that 
          the resulting property tax revenues would be allocated to 
          schools and the county government under the unitary tax 
          method, but the share that would have gone to all cities in 
          San Diego County under the unitary tax method would instead 
          go just to Chula Vista (AB 1108, Peace, 1993).  The 
          Legislature approved similar exceptions for an electrical 
          power plant in the City of Escondido (AB 2558, Plescia, 
          2004), a PG&E education and training center in the City of 
          Livermore (SB 53, Lockyer, 1991), and a PacBell computer 
          center in the City of Fairfield, (AB 454, Klehs, 1987).  

          The Legislature also created an exception to the countywide 
          unitary tax allocation method for all newly constructed 
          public-utility-owned, large-scale electrical generation, 
          substation, and transmission facilities.  That exception 
          allocates a greater share of unitary property tax revenues 
          to the city or county in which a qualified electrical 
          facility is located (SB 1317, Torlakson, 2006).

          The Community Redevelopment Law allows local officials to 
          set up redevelopment agencies, adopt redevelopment plans, 
          and finance redevelopment activities using property tax 
          increment revenues.  When a redevelopment agency adopts a 
          redevelopment plan for a project area and selects a base 
          year, the agency "freezes" the amount of property tax 
          revenues that schools and other local governments receive 
          from the property in that area.  In future years, as the 
          project area's assessed valuation grows above the frozen 
          base, the resulting property tax revenues - the property 
          tax increment - go to the redevelopment agency instead of 
          going to the schools and the other underlying local 
          governments.  State law requires redevelopment officials to 





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          make pass-through payments to schools and other local 
          governments to mitigate the long-term fiscal effects of 
          property tax increment financing (AB 1290, Isenberg, 1993). 
           State law also requires redevelopment officials to set 
          aside 20% of an agency's property tax increment revenues to 
          increase, improve, and preserve the supply of affordable 
          housing (AB 3674, Montoya, 1976).

          The California Energy Commission is considering a proposal 
          to construct a 600 megawatt power plant within a 
          redevelopment project area in the City of Oakley (Contra 
          Costa County).  Oakley officials say that the modified 
          allocation method created by the 2006 Torlakson bill 
          doesn't allocate enough revenue to their redevelopment 
          project area.  They want the Legislature to create an 
          exception to that modified allocation method to send more 
          unitary property tax revenues from the proposed power plant 
          to the Oakley Redevelopment Agency.





                                   Proposed Law  

          Senate Bill 536 creates a new method for allocating unitary 
          property tax revenues from new public utility-owned, 
          state-assessed, "qualified property." 

          SB 536 defines "qualified property" as all plant and 
          associated equipment, including substation facilities and 
          fee-owned land and easements, placed in service by a public 
          utility in the Oakley Redevelopment Project Area on or 
          after January 1, 2011 and related to:
                     Electrical substation facilities that either 
                 operate at 50,000 volts or more or have a 
                 transformer with a high-side voltage of 50,000 volts 
                 or more.
                     Electric generation facilities that have a 
                 nameplate generating capacity of 50 megawatts or 
                 more.
                     Electric transmission line facilities of 
                 200,000 volts or more.

          SB 536's unitary property tax allocation method differs 
          from the countywide allocation method that applies 





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          generally to revenues from utilities' state-assessed 
          property and from the 2006 Torlakson bill's modified method 
          for allocating revenues from qualified electrical facility 
          property in three significant ways:

          I.    Non-debt service allocation  .  Generally, under the 
          countywide unitary tax allocation method, property tax 
          revenues from the non-debt service portion of the tax 
          applied to state-assessed property go into a countywide 
          pool which is then allocated by a formula that:
           Establishes a unitary tax base for any jurisdiction which 
            had state assessed property within its boundaries in the 
            1987-88 fiscal year.
           Annually increases each local agency's unitary base by up 
            to 2% (provided that there are sufficient revenues).
           Allocates the remaining revenues to all local agencies in 
            the county in proportion to each agency's share of 
            non-unitary property tax revenues.

          The modified method for allocating revenues from qualified 
          electrical facility property allocates revenues to a 
          county, school entities, and non-enterprise special 
          districts in proportion to the revenues they received from 
          the utility in the prior year under the countywide 
          allocation method.  Of the remaining revenues, 90% goes to 
          the city or county where the electrical facility is built 
          and 10% goes to the local government that provides water 
          service to the qualified electrical facility property.

          Senate Bill 536 requires the revenues from the property tax 
          assessed on public utility-owned, state-assessed qualified 
          property to be allocated entirely to the county in which 
          the qualified property is located.  The county auditor then 
          allocates the property tax revenues derived from the 
          non-debt-service portion of the property tax on qualified 
          property as follows:
           First, allocate to the county in which the qualified 
            property is located and to all of the school entities 
            located in that county, the amount of property tax 
            revenues that would have otherwise been allocated to the 
            county and school entities or districts had the bill not 
            been enacted.
           Second, allocate to the East Contra Costa Fire Protection 
            District an amount equal to 2% of the property tax 
            revenues.
           Third, allocate to any regional park district an amount 





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            of property tax revenues equal to the amount of property 
            tax revenues allocated to that special district in 
            2010-11.
           Fourth, allocate to the redevelopment agency governing 
            the project area in which the qualified property is 
            located, the balance of the property tax revenues.

          II.   Debt service allocation  .  Generally, unitary property 
          tax revenues from the debt-service rate that applies to 
          state-assessed properties are allocated to each taxing 
          jurisdiction that levies a rate in excess of 1% for 
          voter-approved debt service in proportion to the percentage 
          of total property tax revenues each jurisdiction received 
          from taxes on state-assessed property in the prior year.  
          Under the modified allocation method for qualified 
          electrical facilities, revenues from the debt-service rate 
          are allocated using the general method, except that school 
          entities receive an amount equivalent to the same 
          percentage of property tax revenues they received from the 
          utility in the prior fiscal year.  
          
          Senate Bill 536 allocates revenues from the debt-service 
          rate in two steps:
           First, the revenues go to taxing jurisdictions in those 
            Contra Costa County tax rate areas in which the qualified 
            electrical facility is located in an amount equivalent to 
            the BOE's current-year assessed value of the qualified 
            property multiplied by any override rate adopted by the 
            local agency for the year.
           Second, the balance of the revenues are allocated 
            pursuant to the general allocation statute.

          III.   Property valuation  .  Generally, the BOE annually 
          reassesses state-assessed property at its current market 
          value on January 1.  The modified allocation method for 
          qualified electrical facilities excludes from the 
          definition of qualified property any additions, 
          modifications, reconductoring, or equivalent replacements 
          to the plant and associated equipment made after the plant 
          and associated equipment are placed in service.  
          
          Senate Bill 536 includes, in the definition of qualified 
          property, any additions, modifications, reconductoring, or 
          equivalent replacements to the plant and associated 
          equipment made after the plant and associated equipment are 
          placed into service.





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          IV.   Affordable housing  .  Senate Bill 536 requires the 
          Oakley Redevelopment Agency, once the qualified property is 
          placed in service, to develop one new housing unit for each 
          40 jobs created on real property within the specified 
          redevelopment project area.  All of the new housing units:
                 Must be affordable to, and occupied by, extremely 
               low income persons, as defined in statute.
                 Must comply with the requirements of the Community 
               Redevelopment Law, with specified exceptions.
                 Must be completed and occupied no later than 10 
               years after a specified date.
                 May be located anywhere within the City of Oakley.  
               The number of units required is not affected by 
               whether the units are within a project area.
                 May be used to satisfy the City of Oakley's 
               regional housing needs allocation.

          To determine the number of jobs created in the specified 
          project area, Senate Bill 536 requires the redevelopment 
          agency to determine the number of full and part time jobs 
          existing in the specified redevelopment project area six 
          months before the approval of an agency's five-year 
          implementation plan.  The agency must use data from a state 
          or federal agency in making the determination.  The number 
          of housing units that the agency must develop is 1/40th of 
          the number of jobs calculated and must be included in the 
          first applicable implementation plan.  For each subsequent 
          implementation plan, the number of additional units must be 
          based on any increase in the number of jobs since the prior 
          calculation.

          V.   Other provisions  .  Senate Bill 536 also requires a 
          public utility to provide the BOE with a description of the 
          qualified property in the form prescribed by the BOE so 
          that the BOE can determine the separate valuation.  The BOE 
          must transmit to the Contra Costa County auditor the 
          information necessary to identify the qualified property 
          and the corresponding assessed value data necessary to make 
          the property tax revenue allocations required by the bill.

          SB 536 requires the county auditor to make any necessary 
          pro rata reductions in the allocations of property tax 
          revenues attributable to the qualified property to 
          jurisdictions other than those receiving an allocation 
          under the bill's provisions.  The bill requires the Oakley 





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          Redevelopment Agency to reimburse the county auditor's 
          actual and reasonable costs for administering the property 
          tax allocation requirements.

          The bill contains legislative declarations to support its 
          special provisions applying to the Oakley Redevelopment 
          Agency.


                               State Revenue Impact
           
          No estimate.




                                     Comments  

          1.   Purpose of the bill  .  Recognizing the need to rapidly 
          expand the state's electrical generating capacity, and the 
          impact that new generating facilities have on local 
          communities, the 2006 Torlakson bill compensates 
          communities that accept those energy projects with bigger 
          shares of future unitary property tax revenues.  However, 
          that law compensates only cities or counties, not 
          redevelopment agencies.  SB 536 expands that modified 
          allocation method by providing the Oakley Redevelopment 
          Agency with a similar augmentation of future unitary 
          property tax revenues from a power plant built within its 
          boundaries.  SB 536's allocation of property tax revenues 
          from Oakley's power plant may generate over $2 million of 
          additional revenue per year over the life of the power 
          plant for the Agency.  These revenues will help to fund the 
          Agency's activities and mitigate the power plant's impact 
          within the redevelopment project area.

          2.   Not increment I  .  SB 536 is similar to SB 1398 
          (DeSaulnier, 2010), which died while awaiting a concurrence 
          vote on the Senate Floor.  Unlike the version of SB 1398 
          that the Senate Local Government Committee approved last 
          year, SB 536 does not require the unitary property tax 
          revenues received by the Oakley Redevelopment Agency to be 
          included in the agency's property tax increment.  However, 
          the bill's legislative findings and declarations - in 
          Sections 3 and 5 - still cite the need for the Agency to 
          receive "sufficient tax increment funding."  To clarify 





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          that the revenues allocated to the Oakley Redevelopment 
          Agency under SB 536's provisions are not part of the 
          agency's property tax increment, the Committee may wish to 
          consider amending the bill to delete the remaining 
          references to "tax increment."

          3.   Not increment II  .  By not including the additional 
          unitary property tax revenues from the Oakley power plant 
          in the Agency's tax increment, SB 536 exempts those 
          revenues from the extensive statutory requirements that 
          usually apply to redevelopment agencies' tax increment 
          revenues.  For example, the Agency will not have to make 
          additional pass-through payments to some other local 
          governments based on the additional revenues.  The Agency 
          will not have to set aside 20% of its additional revenues 
          for affordable housing.  By receiving property tax revenues 
          that are not included in tax increment, the Oakley 
          Redevelopment Agency may become a "taxing entity" under 
          state law, which could make it eligible to claim 
          reimbursement for state mandates.  The Committee may wish 
          to consider whether, by not including the property tax 
          revenues that it allocates to the Oakley Redevelopment 
          Agency in the Agency's tax increment, SB 536 sets a 
          precedent for future exceptions to the Community 
          Redevelopment Law's requirements. 

          4.   Future winners, future losers  .  Property tax allocation 
          is a zero-sum game; every reallocation of property tax 
          revenues produces winners and losers.  SB 536's exception 
          to the 2006 Torlakson bill's modified property tax 
          allocation method will leave some local governments in 
          Contra Costa County with higher future revenues, and others 
          with lower future revenues, than they would have received 
          under current law.  The Oakley Redevelopment Agency wins 
          under SB 536.  However, the bill also results in lower 
          future revenues to:

            Special districts  .  Some Contra Costa County special 
            districts will receive lower future unitary property tax 
            revenues under SB 536's allocation method and lower 
            future pass-through payments from the Oakley 
            Redevelopment Agency.  Those districts include the Diablo 
            Water District, the East Bay Regional Park District, and 
            the Contra Costa Mosquito and Vector Control District, 
            all of which serve the area in which the proposed power 
            plant will be built.  The Committee may wish to consider 





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            whether SB 536 places an additional fiscal burden on 
            already struggling special districts.
                
            Bond issuers  .  SB 536 modifies the method for allocating 
            the property tax revenues from the debt-service portion 
            of the tax rate that applies to qualified electrical 
            facility property.  While the implications of this change 
            are difficult to determine, the bill could result in some 
            Contra Costa County local governments, whose boundaries 
            do not include the proposed power plant, receiving lower 
            future property tax revenues for debt-service.  The 
            Committee may wish to consider whether SB 536's 
            allocation of unitary property tax revenues for debt 
            service could reduce the funds available to pay the debt 
            for some local governments' voter-approved public works.

          5.   More complexity  .  SB 536's provisions apply narrowly to 
          the proposed power plant project in the City of Oakley.  
          However, by creating an exception to the already complex 
          unitary tax allocation method that currently applies to all 
          qualified electrical facility property, the bill may invite 
          further exceptions.  The Committee may wish to consider 
          whether the precedent set by SB 536 will encourage other 
          communities to ask the Legislature to enact unique unitary 
          property tax allocation methods for revenues from other 
          state-assessed property, creating an even more confusing 
          patchwork of tax allocation statutes.

          6.   Back to the future  ?  The 1986 Hannigan bill responded 
          to the complexity and cost of allocating unitary property 
          tax revenues on a situs basis by creating a simpler 
          countywide allocation method.  To provide added revenues to 
          communities willing to accept large electric facilities, 
          the 2006 Torlakson legislation created a hybrid method for 
          allocating some unitary property tax revenues through the 
          countywide pool and some revenues on a situs basis to the 
          city or county in which the  electrical facility was 
          located.  In allocating a large share of the property tax 
          revenues from the Oakley power plant to the Oakley 
          Redevelopment Agency, SB 536 moves further away from the 
          1986 reforms and towards the old situs allocation method.  
          The Committee may wish to consider whether this shift back 
          towards situs-based allocation of unitary property tax 
          revenues will erode the cost savings and simplicity 
          achieved by the Hannigan bill.






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          7.   May be moot  ?  Governor Brown's 2011-12 State Budget 
          proposal calls for eliminating redevelopment agencies.  AB 
          101 (Assembly Budget Committee) and SB 77 (Senate Budget 
          and Fiscal Review Committee) contain the implementing 
          language.  The Committee may wish to consider whether SB 
          536 will be moot if the Oakley Redevelopment Agency ceases 
          to exist on July 1, 2011.

          8.   Mandate  .  The California Constitution requires the 
          state to reimburse local governments for the costs of new 
          or expanded state mandated local programs.  Because SB 536 
          imposes new duties on the Contra Costa County Auditor to 
          allocate property taxes from state-assessed property, 
          Legislative Counsel says that the bill imposes a new state 
          mandate.  SB 536 disclaims the state's responsibility for 
          providing reimbursement by citing the bill's requirement 
          that the Oakley Redevelopment Agency pay the county 
          auditor's additional costs.

          9.   Two-thirds vote  .  Regular statutes take effect on the 
          January 1 following their enactment; bills passed in 2011 
          take effect on January 1, 2012.  The California 
          Constitution allows bills with urgency clauses to take 
          effect immediately if they're needed for the public peace, 
          health, and safety.  SB 536 contains an urgency clause 
          explaining the need for the bill to take effect 
          immediately.  Additionally, Proposition 1A (2004) requires 
          approval by a 2/3 vote in each house of the Legislature for 
          any change in the pro rata shares in which ad valorem 
          property tax revenues are allocated among agencies in a 
          county.  SB 536 is subject to that constitutional 
          requirement.  For both of these reasons, the bill requires 
          a 2/3 vote on the Senate Floor.



                         Support and Opposition  (3/31/11)

           Support  :  City of Oakley Redevelopment Agency, California 
          Rural Legal Assistance Foundation, Western Center on Law 
          and Poverty.

           Opposition :  Unknown.   








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