BILL ANALYSIS Ó SB 536 Page 1 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. SB 536 Page 2 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 SB 536 Page 3 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 SB 536 Page 4 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 SB 536 Page 5 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 SB 536 Page 6 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 SB 536 Page 7 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 SB 536 Page 8 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: 0002632