BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 536
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          SENATE THIRD READING
          SB 536 (DeSaulnier)
          As Amended  September 2, 2011
          2/3 vote.  Urgency

           SENATE VOTE  :35-0  
           
           LOCAL GOVERNMENT    6-1         APPROPRIATIONS      16-1        
           
           ----------------------------------------------------------------- 
          |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                     |
          |     |                          |     |                          |
           ----------------------------------------------------------------- 

           SUMMARY  :  Revises property tax formulas to allocate property tax 
          revenues from a proposed public utility power plant in Contra 
          Costa County to benefit the City of Oakley.  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 City of Oakley 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 the City of Oakley, 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 








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                 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 City of Oakley 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 City of Oakley;

             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 City of Oakley, by January 1, 2014, and by 
            January 1 each five years thereafter, shall determine the 








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            number of jobs, full and part-time, existing in the area.

          8)Provides that the City of Oakley shall use data from a state 
            or federal agency in making the determination of the number of 
            jobs existing in the 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 and shall be included in the City of 
            Oakley's 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 City of Oakley 
            has sufficient affordable housing and receives sufficient 
            funding to repay loans, or moneys advanced to, or indebtedness 
            incurred by the City of Oakley.

          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 City of Oakley has sufficient 
            affordable housing and receives sufficient funding to repay 
            loans, or moneys advanced to, or indebtedness incurred by, the 
            City of Oakley 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 
            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 








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               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.
           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 City of 
          Oakley would gain annually $2.7 million at the expense of other 
          local governments in Contra Costa County.  Of this total, $2.2 
          million would be from various Contra Costa water, 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 
          to the City of Oakley.    

           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 ÝAB 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 








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          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 ÝSB 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.

          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 the City of Oakley.

          This bill revises property tax allocation formulas to allow 
          property tax revenues from a new public utility power plant 
          proposed to be built in Contra Costa County to be allocated to 
          the City of Oakley.  The California Public Utilities Commission 
          (PUC) recently considered a proposal to construct a 600 megawatt 
          power plant to be located 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).  

          Previous versions of this bill revised property tax revenue 
          allocations to benefit Oakley's Redevelopment Agency.  
          Amendments taken on September 2, 2011 strike the allocation to 
          the Oakley RDA and instead allocate property tax revenues to the 








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          City of Oakley.  This partially addresses the concerns raised by 
          the Department of Finance that "the provisions and protections 
          afforded property tax allocations by Proposition 1A did not 
          extend to RDAs."  Department of Finance noted that "the property 
          tax shift from special districts to an RDA arising from Ýprior 
          versions of the bill] could violate Article XIII, Section 25.5 
          of the California Constitution."

          Additionally, 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."

          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. 

          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.

          Support arguments:  Supporters argue that this bill will remedy 
          on oversight in existing law regarding property tax allocation 
          revenue for public utilities. 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 








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          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 


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