BILL ANALYSIS Ó
SB 663
Page 1
Date of Hearing: June 25, 2014
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
K.H. "Katcho" Achadjian, Chair
SB 663 (Lara) - As Amended: June 18, 2014
SENATE VOTE : Vote not relevant
SUBJECT : Local government: redevelopment: revenues from
property tax override rates.
SUMMARY : Requires, for the 2014-15 fiscal year and each year
thereafter, voter-approved pension property tax revenues to be
allocated to the fund of the city or county whose voters
approved the tax, rather than the revenues being allocated to
the Redevelopment Property Tax Trust Fund pursuant to the
redevelopment agency (RDA) dissolution process. Specifically,
this bill :
1)Finds and declares all of the following:
a) The California Constitution limits property-based tax
levies, with exceptions to these limits only when a local
jurisdiction obtains the approval of its voting electorate
to use additional property-based tax levies for specific
purposes approved by the voting electorate, in accordance
with applicable constitutional and statutory provisions.
b) With the enactment of Chapter 5 of the 2011-12 First
Extraordinary Session (Assembly Bill 26), the Legislature
intended that, upon dissolution of RDAs in the State of
California, property taxes that would have been allocated
to RDAs are no longer deemed tax increment. Instead, those
taxes are deemed property tax revenues and are to be
allocated first to successor agencies to make payments on
the indebtedness incurred by the dissolved RDAs, with
remaining balances allocated in accordance with applicable
constitutional and statutory provisions.
c) It is the intent of the Legislature in enacting this act
to do all of the following:
i) If an RDA had previously pledged revenues derived
from the imposition of a property tax rate, approved by
the voters of a city, county, or city and county to make
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payments in support of pension programs and levied in
addition to the property tax rate limited by the
California Constitution, to pay a portion of the debt
service due on indebtedness incurred by the former RDA on
an approved Recognized Obligation Payment Schedule
(ROPS), then the successor agency shall continue to
pledge those revenues, in a commensurate rate going
forward. For example, if revenues derived from a pension
tax rate approved by the voters of a city, county, or
city and county were pledged to pay up to 25% of the
annual debt service for the indebtedness approved in a
ROPS, the successor agency shall continue to pay up to
25% of the annual debt service on the indebtedness until
maturity. Any and all excess pledged revenues derived
from the pension property tax rate that are not necessary
to pay the debt service on the indebtedness shall be
allocated and paid to the city, county, or city and
county whose voters approved the pension property tax
rate;
ii) Ensure that the use of revenues derived from the
imposition of a property tax rate approved by the voters
of a city, county, or city and county, to make payments
in support of pension programs and levied in addition to
the property tax rate limited by the California
Constitution, is consistent with the use approved by the
voters of a city, county, or city and county, once
revenues from such property tax rates are not needed to
pay approved indebtedness of a former RDA;
iii) Implement the allocation and distribution of
voter-approved, property-based tax revenues for pension
programs under the redevelopment dissolution process in a
manner that would have been consistent with the
allocation and distribution of those revenues had RDAs
not been dissolved, in accordance with applicable
constitutional provisions; and,
iv) It is the intent of the Legislature that this act
not affect any property tax allocations that occurred
prior to July 1, 2014.
2)Requires the county auditor-controller, prior to allocating
moneys in each Redevelopment Property Tax Trust Fund pursuant
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to the specified formula in existing law, to additionally
deduct the revenues allocated as follows:
a) Notwithstanding any other law, for the 2014-15 fiscal
year (FY) and each FY thereafter, any revenues derived from
the imposition of a property tax rate, approved by the
voters of a city, county, or city and county to make
payments in support of pension programs and levied in
addition to the property tax rate limited by the California
Constitution, shall not be allocated to each Redevelopment
Property Tax Trust Fund and shall instead be allocated to,
and when collected shall be paid into, the funds of the
city, county, or city and county whose voters approved the
tax unless, following a written request with each ROPS
cycle from the successor agency to the city, county, or
city and county whose voters approved the tax, the city,
county, or city and county authorizes the use of the
revenues from the fund of the city, county, or city and
county by the successor agency to pay any enforceable
obligation, as defined, on an approved ROPS, as specified;
b) Subject to the approval of the city, county, or city and
county as provided in 2) a), above, the amounts necessary
to pay approved enforceable obligations shall be allocated
to the successor agency, as specified, from revenues
derived from the imposition of a property tax rate,
approved by the voters of the city, county, or city and
county to make payments in support of pension programs and
levied in addition to the property tax rate limited by the
California Constitution, as specified, but only after all
moneys deposited in the successor agency's Redevelopment
Property Tax Trust Fund have been exhausted; and,
c) Any revenues derived from the imposition of a property
tax rate, approved by the voters of a city, county, or city
and county to make payments in support of pension programs
and levied in addition to the property tax rate limited by
the California Constitution, as specified, that have been
pledged as security for the payment of any indebtedness
obligation shall be allocated to the successor agency,
after all other moneys deposited in the successor agency's
Redevelopment Property Tax Trust Fund have been exhausted,
in the amount necessary to pay that indebtedness obligation
for an applicable ROPS cycle, until such time as that
indebtedness obligation has been completely paid off. Any
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and all excess pledged revenues derived from the pension
property tax rate that are not necessary to pay the debt
service on the indebtedness shall be allocated and paid to
the city, county, or city and county whose voters approved
the pension property tax rate.
3)Provides, notwithstanding any other law, all allocations of
revenues derived from the imposition of a property tax rate,
approved by the voters of a city, county, or city and county
to make payments in support of pension programs and levied in
addition to the property tax rate limited by the California
Constitution, as specified, made by any county
auditor-controller prior to July 1, 2014, shall be deemed
correct and shall not be affected by this act. A city,
county, city and county, county auditor-controller, successor
agency, or affected taxing entity shall not be subject to any
claim for money, damages, or reallocated revenues based on any
allocation of such revenues prior to July 1, 2014.
4)Makes other conforming changes to the Community Redevelopment
Law (CRL) and the Dissolution Law, and adds conforming
language to the Revenue and Taxation Code.
5)States that no inference shall be drawn from the enactment of
this act with respect to the use, distribution, or allocation
of revenues derived from the imposition of a property tax
rate, approved by the voters of a city, county, or city and
county to make payments in support
of pension programs and levied in addition to the property tax
rate limited by the California Constitution, as specified,
made by any county auditor-controller prior to July 1, 2014.
6)Provides that reimbursement to local agencies and school
districts shall be made, if the Commission on State Mandates
determines that this act contains costs mandated by the state.
EXISTING LAW :
1)Dissolves RDAs and institutes a process for winding down their
activities.
2)Defines "enforceable obligations."
3)Requires successor agencies make payments due to enforceable
obligations, as specified.
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4)Requires successor agencies to prepare a ROPS, before each
six-month fiscal period, in accordance with specified
requirements, and requires the schedule to identify one or
more
of the following sources of payment:
a) Low- and Moderate-Income Housing Fund;
b) Bond proceeds;
c) Reserve balances;
d) Administrative cost allowance;
e) The Redevelopment Property Tax Trust Fund, as specified;
and,
f) Other revenue sources, including rents, concessions,
asset sale proceeds, interest earnings, and any other
revenues derived from the former redevelopment agency, as
approved by the oversight board.
5)Requires each successor agency to have an oversight board of
seven members to approve certain actions of the successor
agency.
6)Requires the Department of Finance (DOF) to review the actions
of an oversight board.
7)Requires DOF to issue a finding of completion to the successor
agency, within five business days, once the following
conditions have been met and verified:
a) The successor agency has paid the full amount as
determined during the due diligence reviews and the county
auditor-controller has reported those payments to DOF;
b) The successor agency has paid the full amount as
determined during the July True-up process; or,
c) The successor agency has paid the full amount upon a
final judicial determination of the amounts due and
confirmation that those amounts have been paid by the
county auditor-controller.
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8)Allows the successor agency, upon receiving the finding of
completion, to:
a) Retain dissolved redevelopment agency assets;
b) Place loan agreements between the former redevelopment
agency and sponsoring entity on the ROPS, as an enforceable
obligation, provided the oversight board makes a finding
that the loan was for legitimate redevelopment purposes;
and,
c) Utilize proceeds derived from bonds issued prior to
January 1, 2011, in a manner consistent with the original
bond covenants.
9)Requires, after DOF issues a finding of completion, the
successor agency to prepare a long-range property management
plan that addresses the disposition and use of the real
properties of the former redevelopment agency, and requires
the report to be submitted to the oversight board and DOF for
approval no later than six months following the issuance to
the successor agency of the finding of completion.
10)Limits property tax to 1% except for specific bonded debt,
pursuant to the California Constitution.
FISCAL EFFECT : This bill is keyed fiscal.
COMMENTS :
1)Background on voter-approved pension property tax levies .
There are some cities throughout the state whose voters
historically approved a tax for pension obligations for city
staff, including 12 cities in Los Angeles County. Some
pension levies were approved as early as the 1920s, with some
cities amending and increasing their levy through the late
1970s. The amounts of the levies also vary by city and range
from 0.05 percent to 0.45 percent. These rates are levied in
addition to the 1% general property tax rate.
Under redevelopment law, redevelopment agencies created
project areas that captured incremental property tax growth
within the project areas. For older RDAs, agencies received
growth in property tax revenue collected under the 1% rate, as
well as additional rates levied to fund debt - such as pension
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obligations. RDAs could then pass on to cities the portion of
tax increment that was intended by voters to be used for
pension obligations and other debts.
Under RDA dissolution, RDAs no longer pass on the tax
increment growth of pension tax revenues to cities. This is
because property tax increment is no longer allocated to RDAs.
Instead, a county auditor-controller deposits former RDA
property tax increment, including tax increment attributable
to pension taxes, into a trust fund. Revenues deposited to
the trust fund are first used to pay outstanding RDA
obligations. Remaining revenues are then distributed to the
other local governments whose jurisdiction overlaps with the
former RDA based on each local government's share of the 1%
property tax. As a result, some pension tax revenues that
RDAs previously passed on to cities are now being allocated to
other local governments, including schools.
2)Purpose of this bill . This bill, starting in the 2014-15
fiscal year and continuing in each fiscal year thereafter,
would prohibit tax increment revenues derived from the
imposition of a voter-approved property tax rate specifically
for pension programs, from being allocated to a Redevelopment
Property Tax Trust Fund and would instead require the pension
tax revenues to be paid into the fund of the city or county
whose voters approved the tax. The bill also would require
any revenues derived from the imposition of a voter-approved
property tax rate for pension programs that have been pledged
as security for the payment of any indebtedness obligation to
be allocated to the successor agency to pay that obligation.
This bill is author-sponsored.
3)Author's statement . According to the author, "SB 663 would
establish that pension related tax increment levies should be
allocated to the taxing entity (impacted cities or counties)
to pay for their pension obligations as voters approved and
intended and to prevent the ongoing loss of this pension tax
revenues, potential job loss and services in impacted cities.
[ Under the bill's provisions], the county would remit 100% of
the pension tax revenues to the taxing entity, including the
base revenues and the growth in revenues (currently being
inaccurately counted as [tax increment]. The measure also
includes language that would ensure that "pledged pension tax
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funding" would continue to be pledged in a commensurate
amount. This provision was included as a result of DOF
concerns that some cities had pledged some or all funding for
RDA project bonds."
4)Tentative ruling on City of San Fernando v. Watanabe . A
tentative ruling was issued on May 2, 2014, on whether the
City of San Fernando is entitled to receive revenues generated
by certain voter-approved local property taxes,
notwithstanding the adoption of the redevelopment Dissolution
law. The Court concluded that the City was entitled to that
revenue.
According to the ruling, "In April 1946, the voters of the
City of San Fernando approved a ballot measure authorizing the
levy of a special property tax to raise funds to pay the
City's annual obligations to the California Public Employees'
Retirement System (the "Pension Tax"). The City contents that
it has continuously collected the pension tax since 1946?.All
property in the City, including land in redevelopment areas,
is subject to the Pension Tax.
"In July 1994, the former San Fernando Redevelopment Agency
adopted a redevelopment plan for Redevelopment Project Area
No. 4. The redevelopment plan addressed how the proceeds of
the Pension Tax collected for property in the redevelopment
area should be handled. It provides that, from the taxes
levied in the project area and allocated to the redevelopment
agency as "tax increment" under Health & Safety Code 33670,
the portion attributable to the Pension Tax shall be allocated
and paid to the "Retirement Fund of the City of San Fernando."
According to Petitioners, that language expressly excludes
the Pension Tax proceeds from the definition of "tax
increment" revenue subject to distribution under the
Dissolution law?..
"When the City, in its capacity as the Successor Agency,
prepared its ROPS, the City listed this amount as an
enforceable obligation of the redevelopment agency. The ROPS
also listed a claim in the amount of $746,194 for Pension Tax
revenues that the City contends were improperly treated as
"tax increment" in calculating the Successor Agency's true-up
payment demand. DOF disallowed both items, concluding that
the items do not meet the definition
of 'enforceable obligations'."
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According to the ruling, "The primary question presented in
this case is whether the revenues generated by the Pension Tax
are 'tax increment' revenues, required to be deposited into
the RPTTF and subject to the 'waterfall' provisions of the
Dissolution Law. The court shall conclude that they are not.
"The waterfall provisions of the Dissolution Law apply only to
funds in the RPTTF. The RPTTF is a fund created within each
county's treasury to receive the property tax revenues related
to each former redevelopment agency.
"Not all property tax revenues collected are allocated to the
RPTTF. Only those revenues that would have been allocated to
the redevelopment agency as 'tax increment' pursuant to
article XVI, Section 16(b) of the California Constitution is
allocated to the RPTTF. The county auditor-controller is
required to determine the amount of property taxes that would
have been allocated to the redevelopment agency had the agency
not been dissolved and to deposit that amount in the RPTTF?..
"Because the Pension Tax revenues are not 'tax increment'
required to be deposited in the RPTTF, the County
Auditor-Controller should remit the Pension Tax revenues
directly to the City. It is not necessary for the revenues to
be funneled through the Successor Agency, or for the Successor
Agency to establish an 'enforceable obligation' to pay the
City. The Pension Tax revenues are separate property tax
revenues allocated directly to the City as the taxing agency."
In this situation, the former San Fernando RDA was able to
show through its redevelopment plan how the proceeds of the
pension tax would be collected and distributed. However,
there are other jurisdictions in California in which pension
tax levies were treated as tax increment (as an accounting and
distribution process), in which there was no formalized RDA
plan to show that jurisdiction's intent. In light of the
different treatment of pension tax levies by local
jurisdictions, the Committee may wish to consider whether a
statewide, one-size-fits all fix is justified and necessary.
5)Arguments in support . Supporters argue that this bill will
establish that pension related tax levies should be allocated
to the impacted taxing entities to pay for their pension
obligations as voters approved and intended, and that this
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bill is also necessary to prevent the ongoing loss of this
pension tax revenue, which today threatens municipal jobs and
services in impacted cities.
6)Arguments in opposition . Unknown.
7)Urgency clause . The author would like to add an urgency
clause into the bill and is awaiting approval by the Assembly
Rules Committee. Should that urgency clause be approved, the
amendments to add the urgency will be adopted in this
Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees,
District Council 36
Cities of Bell, Compton, Huntington Park, Inglewood, Lynwood,
and Monterey Park
Independent Cities Association
League of California Cities
Los Angeles County Board of Supervisors
Los Angeles County Division, League of California Cities
Los Angeles County Police Chiefs Association
Opposition
Unknown
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958