BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 536| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 CONTINUED SB 536 Page 2 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: CONTINUED SB 536 Page 3 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 CONTINUED SB 536 Page 4 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 CONTINUED SB 536 Page 5 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. CONTINUED SB 536 Page 6 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 CONTINUED SB 536 Page 7 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). CONTINUED SB 536 Page 8 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 CONTINUED SB 536 Page 9 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 CONTINUED SB 536 Page 10 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 CONTINUED SB 536 Page 11 SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED