BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
SB 636 (Hill) - Redevelopment Property Tax Trust Fund: excess
ERAF
Amended: As Introduced Policy Vote: G&F 6-0
Urgency: No Mandate: No
Hearing Date: May 23, 2013 Consultant: Mark McKenzie
SUSPENSE FILE.
Bill Summary: SB 636 would repeal statutory provisions related
to the disposition of certain property tax revenues following
the dissolution of RDAs, which would result in additional
property tax revenues being allocated to Marin, Napa, and San
Mateo Counties.
Specifically this bill would repeal a provision enacted in a
trailer bill pertaining to the dissolution of redevelopment
agencies (RDAs) that currently prohibits a county auditor from
using additional property tax revenues allocated to schools and
a county's Educational Revenue Augmentation Fund (ERAF) as a
result of RDA dissolution to calculate the amount of "excess
ERAF" that is redistributed to counties, cities, and special
districts as a result of the "Triple Flip" and "VLF Swap" (see
below).
Fiscal Impact: Unknown ongoing General Fund impacts to backfill
property tax revenues shifted away from schools and the ERAF in
three specified counties. Recent information provided by the
counties indicates initial losses of approximately $500,000,
down from their previous estimates of $1 million to $5 million
on an identical trailer bill last year. An initial estimate
from the Legislative Analyst's Office (LAO) on that bill was as
high as $17 million. Updated information from the LAO is
currently unavailable.
Staff notes that current proposals to dramatically restructure
school financing could increase the uncertainty related to the
fiscal impacts of this bill because those proposals are likely
to affect school revenue limits statewide. In addition, the
ongoing dissolution of RDAs will continue to affect the amount
of property taxes distributed locally, which could have a
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corresponding impact on this bill's fiscal estimates in future
years. Lastly, future fiscal impacts will be affected by the
expiration of the Triple Flip (currently estimated to occur in
2016-17) because excess ERAF amounts will no longer be used to
compensate local agencies as a result of that mechanism.
Background: Proposition 57 (2004), the California Economic
Recovery Bond Act, allowed the state to purchase $15 billion in
general obligation bonds to reduce the state budget deficit. To
secure these Economic Recovery Bonds (ERBs), accompanying
legislation significantly changed the distribution of sales and
use taxes and other local revenues through what is commonly
known as the "Triple Flip" (AB X5 9, Oropeza, Chap 2/2003, 5th
Extraordinary Session; SB 1096, Budget Committee, Chap
211/2004). The Triple-Flip reduced the local sales and use tax
rate by 0.25% and dedicated that portion of the sales and use
tax revenues to paying off the deficit financing bonds. To
compensate local governments, the Triple-Flip transferred
property tax revenues from a county's ERAF into a Sales and Use
Tax Compensation Funds. Because transferring funds out of ERAF
results in lower property tax revenues to schools, the state
General Fund backfills the funds transferred out of ERAF to
maintain minimum funding guarantees to schools pursuant to
Proposition 98. The Triple Flip will remain in effect until the
ERBs are paid off, which is anticipated to occur by the 2016-17
fiscal year.
Existing state law imposes an annual vehicle license fee (VLF)
at the time of vehicle registration, which is in lieu of a
personal property tax on California motor vehicles, at a rate
based on the taxable value of the vehicle. The taxable value of
a vehicle is established by the purchase price, depreciated
annually according to a statutory schedule. The VLF tax rate is
currently 0.65 percent of the value of a vehicle, but the
historical rate beginning in 1948 was 2 percent. Beginning in
1998, the state reduced the VLF rate and offset the loss of
local revenues from the General Fund. As part of the 2004
budget agreement, the Legislature repealed the offset system,
reduced the VLF rate to 0.65 percent, and replaced lost local
revenues with ERAF property taxes that would otherwise have gone
to schools (known as the "VLF-Property Tax Swap), which are
deposited into each county's Vehicle License Fee Property Tax
Compensation Fund (VLFPTCF). The state General Fund backfills
schools for any lost property tax revenues. Unlike the
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Triple-Flip, the VLF Swap is a permanent mechanism.
If the amount of funds available in a county's ERAF is
insufficient to cover the amount of sales tax and VLF revenue
diverted from the county by the Triple Flip and the VLF Swap,
state law allows a county to divert the remaining shortfall from
property taxes allocated directly to K-12 school and community
college districts, as long as they aren't "basic aid" districts.
The state General Fund backfills the districts' lost revenues.
Basic aid school districts are districts that receive 100% of
their funding from local property taxes to meet Proposition 98
minimum funding guarantees, and don't require additional funding
from the state General Fund. If a county fully meets schools'
funding requirements from both non-ERAF property tax allocations
and the ERAF, the "excess ERAF" is retained locally and returned
to the county, cities, and special districts in the same
proportion as their contributions to ERAF. Currently, this
mechanism applies in Marin, Napa, and San Mateo Counties.
Citing a significant State General Fund deficit, Governor
Brown's 2011-12 budget proposed eliminating RDAs and returning
billions of dollars of property tax revenues to schools, cities,
counties, and special districts to fund core services. Among
the statutory changes that the Legislature adopted to implement
the 2011-12 budget, AB x1 26 (Blumenfield, 2011) dissolved all
RDAs and established successor agencies to manage the process of
unwinding former RDAs' affairs. The remaining obligations of a
former RDA are payable from a Redevelopment Property Tax Trust
Fund on a regular schedule twice a year, which contains revenues
that would have been allocated as tax increment to a former RDA.
Once the obligations are paid, the remaining revenues are
distributed to the underlying taxing entities (cities, counties,
special districts, schools).
With the elimination of RDAs, the additional property tax
received by non-basic aid schools in the three excess ERAF
counties would have been available to backfill any city and
county losses related to the Triple Flip and VLF Swap, instead
of being retained by schools, which would otherwise offset state
General Fund backfills. To address this, the Legislature passed
AB 1484 (Assembly Budget Committee), Chap 26/2012, which
required that additional property tax revenues allocated to
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schools and ERAF as a result of an RDA's dissolution must not
increase the amount of excess property tax revenues a county
auditor distributes from ERAF to counties, cities, and special
districts.
The excess ERAF counties claim that this is inequitable and that
excluding former RDA property tax revenues from the calculation
of excess ERAF could deprive them of revenue they would
otherwise receive. These counties and Legislative Counsel note
a constitutional concern that this may be a violation of
Proposition 1A (2004) by modifying the apportionment of property
taxes in a way that may reduce the amounts received by cities,
counties, and special districts. The Department of Finance
disagrees with this interpretation because RDA property tax
revenues were not formerly city or county property tax, and such
a shift does not violate Proposition 1A. The Legislature passed
a subsequent trailer bill to delete that provision, but it was
vetoed by the Governor (see "related legislation" below).
Proposed Law: SB 636 would repeal the statutory provision that
prohibits a county auditor from using additional property tax
revenues allocated to schools and ERAF as a result of RDA
dissolution to calculate the amount of excess property tax
revenues the auditor must distribute from ERAF to counties,
cities, and special districts.
Related Legislation: SB 1030 (Senate Budget and Fiscal Review
Committee), which is substantively identical to this bill, was
vetoed by Governor Brown last year. The veto message stated the
following:
This bill would eliminate a provision in Assembly Bill 1484
(Chapter 26, Statutes of 2012) that alters the manner in
which "excess" Educational Revenue Augmentation Funds are
distributed in counties whose schools are fully funded to
their revenue limits using property tax revenues.
While I understand that the three counties impacted by the
provision in question believe they have been placed in an
unfair situation, I also note that these entities are
estimated to receive a generous increase in property tax
revenues due to redevelopment dissolution. Furthermore, given
the current General Fund uncertainties, it would not be
prudent to enact legislation when the potential cost is
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unclear.