BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   SB 536|
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                              UNFINISHED BUSINESS


          Bill No:  SB 536
          Author:   DeSaulnier (D)
          Amended:  9/2/11
          Vote:     27 - Urgency

           
           SENATE GOVERNANCE & FINANCE COMMITTEE  :  9-0, 4/6/11
          AYES:  Wolk, Huff, DeSaulnier, Fuller, Hancock, Hernandez, 
            Kehoe, La Malfa, Liu

           SENATE APPROPRIATIONS COMMITTEE  :  8-0, 5/2/11
          AYES:  Kehoe, Alquist, Emmerson, Lieu, Pavley, Price, 
            Runner, Steinberg
          NO VOTE RECORDED:  Walters

           SENATE FLOOR  :  35-0, 5/19/11
          AYES:  Alquist, Anderson, Blakeslee, Calderon, Cannella, 
            Corbett, Correa, De León, DeSaulnier, Dutton, Emmerson, 
            Gaines, Hancock, Harman, Huff, Kehoe, La Malfa, Leno, 
            Lieu, Liu, Negrete McLeod, Padilla, Pavley, Price, Rubio, 
            Runner, Simitian, Steinberg, Strickland, Vargas, Walters, 
            Wolk, Wright, Wyland, Yee
          NO VOTE RECORDED:  Berryhill, Evans, Fuller, Hernandez, 
            Lowenthal

           ASSEMBLY FLOOR  :  62-15, 9/7/11 - See last page for vote


           SUBJECT  :    Property tax revenue allocations:  public 
          utilities:  qualified
                      property:  City of Oakley

           SOURCE  :     City of Oakley
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           DIGEST  :    This bill revises property tax allocation 
          formulas to allow the property tax revenues from a public 
          utility power plant in Contra Costa County to be allocated 
          to the Oakley Redevelopment Agency (RDA) at the expense of 
          other local entities in the county.

           Assembly Amendments  revise property tax formulas by 
          allocating the balance of property tax revenues to the City 
          of Oakley instead of the Oakley RDA after allocations as 
          specified, delete the property tax allocation to the East 
          Bay Regional Parks District, and delete references in the 
          bill to the Oakley RDA and instead, refer to the City of 
          Oakley.

           ANALYSIS  :    The California Constitution requires the 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).   

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

          This bill 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:


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           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.

          This bill's unitary property tax allocation method differs 
          from the countywide allocation method that applies 
          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:

          1.  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 two percent (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 percent goes to the city or 
             county where the electrical facility is built and 10 
             percent goes to the local government that provides water 

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             service to the qualified electrical facility property.

             This bill 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 two percent of 
                the property tax revenues.

                   Third, allocate to the City of Oakley the balance 
                of the property tax revenues.

          2.  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 one percent 
             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.  

             This bill 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 

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                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.

          3.  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. 

             This bill 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.

          4.  Affordable housing  .  This bill requires the City of 
             Oakley, 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.  

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                   May be used to satisfy the City of Oakley's 
                regional housing needs allocation.

                   Requires, by January 1, 2014 and each five years 
                thereafter, the City of Oakley to determine the 
                number of full and part time jobs existing in the 
                specified redevelopment project area.  The City 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 City of 
                Oakley's 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.
          
          5.  Other provisions  .  This bill 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.

             This bill 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.  This bill 
             requires the City of Oakley to reimburse the county 
             auditor's actual and reasonable costs for administering 
             the property tax allocation requirements.

          This bill contains legislative declarations to support its 
          special provisions applying to the City of Oakley in order 
          to ensure that the City has sufficient affordable housing 
          and receives sufficient tax increment.

           Comments  

          Under the countywide method, the BOE allocates the unitary 

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          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 percent 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 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 ŬPeace], Chapter 1045, 
          Statutes of 1993).  The Legislature approved similar 
          exceptions for an electrical power plant in the City of 
          Escondido (AB 2558 ŬPlescia], Chapter 640, Statutes of 
          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 ŬTorlakson], Chapter 872, 
          Statutes of 2006).

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          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 an RDA 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 RDA instead of going to the schools and the other 
          underlying local governments.  State law requires 
          redevelopment officials to make pass-through payments to 
          schools and other local governments to mitigate the 
          long-term fiscal effects of property tax increment 
          financing (AB 1290 ŬIsenberg], Chapter 942, Statutes of 
          1993).  State law also requires redevelopment officials to 
          set aside 20 percent 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 does 
          not 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 RDA.

          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 RDA with a similar augmentation of future unitary 
          property tax revenues from a power plant built within its 
          boundaries.  This bill's allocation of property tax 

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          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.

           Prior and Related Legislation  

          SB 1398 (DeSaulnier), 2009-10 Session, died while awaiting 
          a concurrence vote on the Senate Floor.  

          SB 1317 (Torlakson), Chapter 872, Statutes of 2006.

          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.  

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  Yes

          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.  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 Oakley Redevelopment Agency.

           SUPPORT  :   (Verified  5/3/11) (Unable to reverify at time 
          of writing)

          City of Oakley (source)
          California Rural Legal Assistance Foundation
          Oakley Redevelopment Agency
          Western Center on Law and Poverty

           OPPOSITION  :    (Verified  5/3/11) (Unable to reverify at 
          time of writing)

          Department of Finance
          Howard Jarvis Taxpayers Association

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           ARGUMENTS IN SUPPORT  :    According to the author's office, 
          " SB 536 is a district bill for the City of Oakley that 
          will provide greater financial benefits to the Oakley 
          Redevelopment Agency to host a power generating facility.  
          This bill adds the Oakley Redevelopment Agency to the 
          current definition of where power generating facilities can 
          be located for the purpose of capturing additional property 
          tax revenues, and will provide the Agency with additional 
          resources to meaningfully address revitalization within the 
          Project Area."

           ARGUMENTS IN OPPOSITION  :    The Department of Finance 
          states that "The property tax allocation formulas contained 
          in existing law were enacted in 2006 (SB 1317 ŬTorlakson], 
          Chapter 872, Statutes of 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."  
           

           ASSEMBLY FLOOR  :  62-15, 9/7/11
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Charles Calderon, Campos, 
            Carter, Cedillo, Chesbro, Davis, Dickinson, Eng, Feuer, 
            Fong, Fuentes, Furutani, Galgiani, Garrick, Gatto, 
            Gordon, Hall, Harkey, Hayashi, Roger Hernández, Hill, 
            Huber, Hueso, Huffman, Jones, Lara, Bonnie Lowenthal, Ma, 
            Mendoza, Mitchell, Monning, Nestande, Nielsen, Pan, 
            Perea, V. Manuel Pérez, Portantino, Skinner, Smyth, 
            Solorio, Swanson, Torres, Valadao, Wagner, Wieckowski, 
            Williams, Yamada, John A. Pérez
          NOES:  Conway, Cook, Donnelly, Fletcher, Beth Gaines, 
            Grove, Hagman, Halderman, Knight, Logue, Mansoor, Miller, 
            Morrell, Norby, Olsen
          NO VOTE RECORDED:  Gorell, Jeffries, Silva


          AGB:mw  9/8/11   Senate Floor Analyses 

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                         SUPPORT/OPPOSITION:  SEE ABOVE

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