BILL ANALYSIS Ó
SB 536
Page 1
SENATE THIRD READING
SB 536 (DeSaulnier)
As Amended June 21, 2011
2/3 vote. Urgency
SENATE VOTE :35-0
LOCAL GOVERNMENT 6-1 APPROPRIATIONS 16-1
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|Ayes:|Smyth, Alejo, Bradford, |Ayes:|Fuentes, Harkey, |
| |Campos, Gordon, Hueso | |Blumenfield, Bradford, |
| | | |Charles Calderon, Campos, |
| | | |Davis, Donnelly, Gatto, |
| | | |Hall, Hill, Lara, |
| | | |Mitchell, Nielsen, |
| | | |Solorio, Wagner |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Norby |Nays:|Norby |
| | | | |
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SUMMARY : Revises property tax formulas to allocate property tax
revenues from a proposed public utility power plant in Contra
Costa County to benefit the Oakley Redevelopment Agency (Oakley
RDA). Specifically, this bill :
1)Defines "qualified property" to mean both of the following:
a) All plant and associated equipment, including substation
facilities and fee-owned land and easements, placed in
service by a public utility in the Oakley RDA project area
on or after January 1, 2011, and related to the following:
i) Electrical substation facilities that meet either of
the following conditions:
(1) The high-side voltage of the facility's
transformer is 50,000 volts or more; or,
(2) The substation facilities are operated at
50,000 volts or more.
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ii) Electric generation facilities that have a nameplate
generating capacity
of 50 megawatts or more; and,
iii) Electric transmission line facilities of 200,000
volts or more.
b) Any additions, modifications, reconductoring, or
equivalent replacements to the plant and associated
equipment made after the plant and associated equipment are
placed into service.
2)Provides, notwithstanding any other law, that all of the
following shall apply, for the fiscal year (FY) 2011-12 and
each FY thereafter:
a) The revenue from the property tax assessed on qualified
property, which is owned by a public utility and assessed
by the Board of Equalization (BOE), shall be allocated
entirely within the county in which the qualified property
is located;
b) Provides that the county auditor shall allocate the
non-debt service portion of the property tax revenues as
follows:
i) First, 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 this section not been enacted;
ii) Second, to the East Contra Costa Fire Protection
District, an amount equal to 2%
of the property tax revenues;
iii) Third, to any special district formed pursuant to
the Regional Park, Park and Open-Space, and Open-Space
Districts Act, an amount of property tax revenues equal
to $1,000; and,
iv) Fourth, to the redevelopment agency governing the
project area in which the qualified property is located,
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the balance of the property tax revenues.
c) Allocates revenues from the debt-service rate in two
steps:
i) Provides that 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;
and,
ii) Provides that the balance of the revenues shall be
allocated pursuant to the general allocation statute.
3)Provides that a public utility shall provide to BOE a
description of the qualified property in the form prescribed
by BOE so that separate valuation can be determined.
4)Provides that BOE shall transmit to the auditor of Contra
Costa County the information necessary to identify the
qualified property and the corresponding assessed value data
necessary to make the property tax revenue allocations as
required under this bill.
5)States that the Oakley RDA shall develop one new housing unit
for each 40 jobs created on real property within the project
area that was, on September 1, 2010, owned by the Dupont
Corporation, commonly and formerly known as the Dupont Antioch
Plant, and provides that the housing obligation shall begin
upon placing the qualified property in service.
6)Provides that units newly developed shall:
a) Be affordable to, and occupied by, extremely-low income
persons;
b) Comply with the requirements of the Community
Redevelopment Law, except as otherwise provided in the
bill;
c) Be completed and occupied no later than 10 years, after
determination by the Oakley RDA;
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d) Be located anywhere within the City of Oakley; and,
e) Be used to satisfy the City of Oakley's regional housing
needs allocation (RHNA).
7)Provides that the Oakley RDA shall determine the number of
jobs, full and part-time, existing in the project area six
months prior to the approval of the RDA's five-year
implementation plan.
8)Provides that the Oakley RDA shall use data from a state or
federal agency in making the determination of the number of
jobs existing in the project area.
9)States that the number of units required to be developed under
the provisions of this bill shall be one-fortieth of the
number of jobs calculated by the Oakley RDA and shall be
included in the first applicable implementation plan.
10)Provides that for each subsequent implementation plan, the
number of additional units shall be based on the increase, if
any, in the number of jobs since the prior calculation.
11)States that the Legislature finds and declares that a special
law is necessary in order to ensure that the Oakley RDA
receives sufficient tax increment.
12)Provides that no reimbursement is required because the bill
provides for reimbursement to a local agency in the form of
additional revenues that are sufficient in amount to fund the
new duties established in this measure.
13)States that this bill is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety
in order to ensure that the Oakley Redevelopment Agency
receives sufficient funding to repay loans, or moneys advanced
to, or indebtedness incurred by, the redevelopment agency to
finance or refinance redevelopment projects.
EXISTING LAW :
1)Provides for the following allocation formula pursuant to SB
1317 (Torlakson), Chapter 872, Statutes of 2006, for qualified
public utility-owned electrical facilities built after January
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1, 2007, and meeting specified conditions:
a) Counties, K-14 schools, and non-enterprise special
districts receive the same percentage of these property tax
revenues as they received in the previous year;
b) The city in which the electrical facility is located
receives 90% of the remaining property tax revenues;
c) The city or water districts that provide water service
to the electrical facilities receive the remaining 10% of
the property tax revenues; and,
d) The other entities that would have previously received a
share of the property tax revenues do not receive any of
the revenues.
2)Authorizes redevelopment agencies to utilize tax increment
financing to fund projects in a redevelopment area.
3)Requires redevelopment agencies to make payments to affected
taxing entities to alleviate the financial burden or detriment
that the affected taxing entities may incur as a result of the
redevelopment plan.
4)Establishes a fixed mathematical formula for the amount of tax
increment that redevelopment agencies must pay affected taxing
entities during the life of the redevelopment plan.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, this bill would not change the amount of property tax
revenues ultimately derived from the Oakley power plant, but
would change the distribution of those revenues. The Oakley
Redevelopment Agency would gain annually $2.7 million at the
expense of other local governments in Contra Costa County. Of
this total, approximately $500,000 would be from the City of
Oakley (where the redevelopment agency is located) and $2.2
million from various Contra Costa water, sanitary, park,
hospital and other special districts.
There is no net state impact because the bill requires the
county auditor to allocate property tax revenues to all K-12
schools in the county in an amount that they would have received
in the absence of this bill and prior to making the allocation
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to the Oakley Redevelopment Agency.
COMMENTS : In recent years, there has been a trend of moving
toward situs-based allocation for certain new major projects
assessed by the state. Prior to this point, incremental growth
revenues from state-assessed properties were distributed to
nearly all governmental agencies and school entities in the
county in proportion to each entity's share of the county's
total ad valorem property tax revenues in the prior year. Under
the countywide system, all entities received a share in the
revenues, regardless of whether any of the value growth occurred
within its jurisdictional boundaries.
AB 81 (Migden), Chapter 57, Statutes of 2002, was enacted to
change the revenue allocation of power plants divested by public
utilities and sold to private operators, as well as those newly
constructed by merchant power plant owners, to provide for
situs-based revenue allocation. In 2005, San Diego Gas and
Electric sought and received special revenue allocations for a
proposed new power plant to be constructed in the City of
Escondido ŬAB 2558 (Plescia), Chapter 640, Statutes of 2004].
In 2006, the Legislature 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 ŬSB 1317 (Torlakson)].The result is that SB 1317
compensates a community that accepts an energy project with a
bigger share of future unitary property tax revenues. However,
the SB 1317 formula only provides compensation for cities or
counties, not redevelopment agencies.
According to the author, current law creates a disincentive for
the City of Oakley to support a new power generating facility
within its boundaries. The author notes that the residents of
Oakley will be the most impacted if a power plant is built
within their community and without the financial incentive that
can be used to reduce blight in the community and provide the
necessary services to the facility. The author notes that the
SB 1317 (Torlakson) allocation method will apportion
insufficient revenues to their redevelopment project area.
This bill revises property tax allocation formulas to allow
property tax revenues from a new public utility power plant
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proposed to be built in Contra Costa County to be allocated to
the Oakley RDA. The California Public Utilities Commission
(PUC) recently considered a proposal to construct a 600 megawatt
power plant to be located within a redevelopment project area in
the City of Oakley, in East Contra Costa County. The power
plant is slated to use General Electric's latest technology, be
powered by natural gas, and will eventually be owned by Pacific
Gas and Electric (PG&E) at commercial operation.
The project was initially denied by the Public Utilities
Commission (PUC) in July 2010, although the PUC did give PG&E
permission to resubmit the Oakley project at a later date under
specific conditions. However, in December of 2010, the
resubmitted project was approved, with an extension to the
delivery date of the project from June 2014 to June 2016. In
May 2011, the PUC voted to dismiss a request for rehearing for
the project by the Division of Ratepayer Advocates and
environmental groups like Californians for Renewable Energy,
Communities for a Better Environmental, Sierra Club, and The
Utility Reform Network (TURN).
This bill requires the Oakley RDA to reimburse the county
auditor for the actual and reasonable costs incurred by the
county auditor in implementing the bill. The bill's provisions
specify that property tax revenues allocated to the RDA shall
not be counted as property tax revenues or property tax
increment for the purposes of specified pass-through agreements,
including affordable housing set-asides. Instead, the bill
requires the Oakley RDA to develop one new housing unit for each
40 jobs created within the project area known as the Dupont
Antioch plant. The housing units developed are required to be
affordable for extremely-low income persons, and the development
is required to be completed within 10 years after the Oakley RDA
does its calculation to determine the number of jobs that are
created.
Existing law contained in the Health and Safety Code declares
that it is the policy of the state, with respect to
redevelopment "to protect and promote the sound development and
redevelopment of blighted areas and the general welfare of the
inhabitants of the communities in which they exist by remedying
such injurious conditions through the employment of all
appropriate means." Additionally, the Legislature finds and
declares that "a fundamental purpose of redevelopment is to
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expand the supply of low- and moderate-income housing, to expand
employment opportunities for jobless, underemployed, and
low-income persons, and to provide an environment for the
social, economic, and psychological growth and well-being of all
citizens."
Redevelopment is financed primarily by tax increment revenue.
In 1952, California voters adopted Article XVI, Section 16 of
the California Constitution, which provides for tax increment
financing for redevelopment projects. Tax increment financing
is based on the assumption that a revitalized project area will
generate more property taxes than were being produced prior to
redevelopment. When a redevelopment project area is adopted,
the current assessed values of the property within the project
area are designated as the base year value. Tax increment comes
from the increased assessed value of property, not from an
increase in tax rate. Any increases in property value, as
assessed because of change of ownership or new construction,
will increase tax revenue generated by the property, the
majority of which goes to the agency in the form of tax
increment. Taxing entities such as the county, school
districts, and special districts that serve the project area
continue to receive all the tax revenues they were receiving the
year the redevelopment project was formed (called the base
year).
The provisions of this bill make a fundamental shift in the
funding for RDAs and would allow the Oakley RDA to utilize these
additional funds for any purpose since the funds would be deemed
property tax revenue and not tax increment. The Legislature may
wish to consider whether it is prudent to make such a
fundamental shift in policy concerning redevelopment law. Also,
the Legislature may wish to consider the provisions in the bill
that require the Oakley RDA to develop one new housing unit for
each 40 jobs created on the Dupont site will provide an adequate
number of housing unit compared to what would have been built
using the 20% set aside if the funds were considered tax
increment.
Under existing law, a local jurisdiction hosting a power
generation facility is able to capture additional property tax
revenues to assist in providing local community services to
their residents. Cities, counties, and special districts
provide various services to their residents; however,
redevelopment agencies do not provide services. The Legislature
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may wish to ask the author why additional compensation is needed
by the redevelopment agency when no new services are being
provided to residents by the redevelopment agency.
Under the existing SB 1317 (Torlakson) method of modified
unitary property tax allocation, the City of Oakley will receive
augmented future unitary property tax revenues from the proposed
power plant within its borders. The City of Oakley could share
some or all of the revenues from the new power plant with the
Oakley RDA, making it unnecessary for a bill to enact statutory
changes to the property tax allocation formula. The Legislature
may wish to ask the author why a bill is necessary, when a
transfer of funds from the City of Oakley to the RDA may be
sufficient.
The Department of Finance, in opposition, writes that "the
property tax allocation formulas contained in existing law were
enacted in 2006 in a statewide compromise negotiated among power
plant operators and their surrounding special districts. An
exception to existing law redirecting additional property tax
revenues to the Oakley RDA, to the detriment of other Contra
Costa County special districts, would establish an undesirable
precedent for subsequent exemptions elsewhere and is contrary to
previous agreements."
A substantially similar bill, SB 1398 (DeSaulnier), was heard by
the Assembly Local Government Committee last year. SB 1398
ultimately died after passing the Assembly Floor because of
timing.
This bill changes the pro rata shares in which ad valorem
property tax revenues are allocated among local agencies in a
county, and therefore, requires a two-thirds vote of the
membership of each house of the Legislature (Proposition 1A of
2004). This bill is also an urgency statute, which requires a
two-thirds vote of the membership of each house.
The Department of Finance notes that "the provisions and
protections afforded property tax allocations by Proposition 1A
did not extend to RDAs. The property tax shift from special
districts to an RDA arising from this bill could violate Article
XIII, Section 25.5 of the California Constitution. While
Section 25.5 allows the Legislature to shift property taxes
between cities, counties and special districts by a two-thirds
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vote, this section does not authorize shifting property tax
revenues from these entities to RDAs."
Support arguments: Supporters argue that this bill will remedy
on oversight in existing law regarding property tax allocation
revenue for public utilities. Supporters state that existing
law does not recognize that some power generating facilities are
sited within redevelopment project areas. The City of Oakley
notes that the power generation facility will provide
substantial jobs during the construction phase of the facility,
but will not necessarily provide significant annual revenues to
the hosting jurisdiction if this bill does not pass.
Opposition arguments: The Howard Jarvis Taxpayers Association
(HJTA) believes that this bill "establishes a dangerous trend of
reducing or eliminating property tax allocations to other local
districts." HJTA is concerned that the exemption from the
requirement to make pass-through payments will force struggling
special districts and other local government entities to pass
the loss of revenues onto their customers. Additionally, HJTA
believes that "government has a role to play in job creation,
but it is not to pick winners and losers in the private sector."
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958
FN: 0001972