BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
SB 446 (Cannella) - San Benito County: property tax revenue
allocation errors.
Amended: April 18, 2013 Policy Vote: G&F 7-0
Urgency: No Mandate: No
Hearing Date: May 13, 2013 Consultant: Mark McKenzie
This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 446 would forgive past property tax allocation
errors that resulted in reduced allocations to the Educational
Revenue Augmentation Fund (ERAF) in San Benito County.
Fiscal Impact: One-time foregone General Fund savings of
$3,415,673 in school aid. The bill would forgive a debt to the
ERAF in San Benito County. Absent the bill, any repayments to
ERAF would offset General Fund obligations to schools in the
county, pursuant to minimum funding guarantee formulas in
Proposition 98.
Background: County auditors allocate property tax revenues to
cities, county government, special districts, and schools. In
addition to these allocations, existing law requires counties to
shift property taxes to the Educational Revenue Augmentation
Fund (ERAF) in each county. Allocations to ERAF offset state
General Fund obligations to schools, pursuant to minimum funding
guarantees related to Proposition 98. To check the accuracy of
the county auditors' work and to protect the State General
Fund's fiscal interests in ERAF, the State Controller (SCO)
regularly audits the counties' property tax allocations.
SCO audits of San Benito County's property tax allocations in
1998, 2005, and 2009 found that the county incorrectly
apportioned property tax revenues to the ERAF from the 1993-94
fiscal year through 2001-02, resulting in an underallocation to
ERAF. The 1998 audit indicated that the ERAF was underfunded by
approximately $514,016, and this amount was subsequently
forgiven through legislative action in SB 1096 (Budget and
Fiscal Review), Chap 211/2004. The 2005 audit discovered that
the ERAF was also underfunded from 1997-98 through 2000-01 by an
additional $3,415,673. Existing law, enacted by AB 169
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(Wiggins), Chap 381/2001, limits the amount of recovery for
mistakes in allocations in fiscal years after 2000-01. As a
result of these caps, the 2005 SCO audit indicated that San
Benito County owes the ERAF an additional $439,284 for the
2001-02 fiscal year. San Benito County officials indicate that
they made an additional apportionment error when they attempted
to make corrections following the 1998 audit, and this
additional mistake was discovered in the 2005 audit. The 2009
SCO audit indicates that the county has fully corrected the
property tax system, but the ERAF is still owed a total of
$3,854,957.
Proposed Law: SB 446 would deem correct the property tax
apportionment factors applied in allocating property tax
revenues in the County of San Benito for each fiscal year
through 2000-01. For the 2001-02 fiscal year, the San Benito
County Auditor would be required to make property tax allocation
adjustments identified in the SCO audit, pursuant to limits and
repayment schedules identified in existing law. The bill would
require that property tax apportionment factors applied in
subsequent fiscal years be based upon factors for prior fiscal
years that have been fully corrected and adjusted.
Staff Comments: Allocating property tax revenues is a complex
process involving technical computations and statutory
interpretation by county officials. Many of these mistakes have
been discovered over the years through SCO audits, but it is
difficult to reallocate revenues that have already been spent by
local entities that may have benefited from the mistakes. Prior
to 2001, some counties were forgiven for past mistakes through
legislative action, and statutes were enacted in 2001 to
establish a statutory methodology for errors discovered
thereafter. San Benito County attempted to correct errors
discovered in the 1998 SCO audit, but made a subsequent error
that was not discovered until 2005. This bill would deem
correct any allocation errors made prior to the enactment of AB
169 in 2001, and follow the rules for repayment established in
that bill for underpayments to the ERAF that are attributable to
the 2001-02 fiscal year.
As a result of this bill, San Benito County's debt to the ERAF
through the 2000-01 fiscal year would be forgiven. Absent the
bill, the state General Fund would benefit from any repayments
to the ERAF that would offset state obligations to provide
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school funding pursuant to Proposition 98. As such, this bill
represents a loss of $3,415,673 in savings to the General Fund.
SB 446 would require the county to repay $439,284 of the 2001-02
debt to the ERAF over three fiscal years, or as negotiated by
the SCO.