BILL ANALYSIS Ó
AB 440
Page 1
Date of Hearing: April 22, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
440 (Alejo) - As Introduced February 23, 2015
-----------------------------------------------------------------
|Policy | Local Government |Vote:|9-0 |
|Committee: | | | |
| | | | |
| | | | |
|-------------+-------------------------------+-----+-------------|
| | | | |
| | | | |
| | | | |
|-------------+-------------------------------+-----+-------------|
| | | | |
| | | | |
| | | | |
-----------------------------------------------------------------
Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY: This bill would forgive past property tax allocation
errors that resulted in reduced allocations to the Educational
Revenue Augmentation Fund (ERAF) in San Benito County.
Specifically, this bill:
1)States the property tax apportionment factors applied in
AB 440
Page 2
allocating property tax revenues in the County of San Benito
for each fiscal year through 2001-02, inclusive, are correct.
2)Specifies for 2002-03 and each fiscal year thereafter,
property tax apportionment factors applied in allocating
property tax revenues in the County of San Benito shall be
determined on the basis of property tax apportionment factors
for that have been fully corrected or adjusted, pursuant to
the review and recommendation of the Controller.
FISCAL EFFECT:
One-time foregone General Fund savings of $3.9 million 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.
COMMENTS:
1)Purpose. According to the author, "This bill brings closure to
a longstanding property tax allocation error inadvertently
administered by San Benito County. The result of the error
was miscalculation of the contribution to the county's ERAF.
The error occurred in 1997 during an attempt to address audit
findings by the Controller and was not discovered until the
subsequent Controller's audit in 2005. Unfortunately for the
County, the "small" error that began in 1997 had grown to a
significant issue."
2)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 ERAF in each county. Allocations
AB 440
Page 3
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), Chapter 211, Statutes of 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 (Wiggins), Chapter 381,
Statutes of 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.
3)Prior Legislation.
AB 440
Page 4
a) Prior to 2001, there was a precedent for deeming correct
those property tax apportionment factors used in a county's
calculations, and holding the local government harmless for
the erroneous calculation. Prior to 2001, the Legislature
forgave past mistakes for several counties including Santa
Clara, Santa Barbara, Plumas and Riverside.
b) In 2001, AB 169 (Wiggins), Chapter 381, Statutes of
2001, created a standard approach to fixing these errors,
declaring the Controller's audits to be correct. If
adjustments are needed, the law requires repayments but
caps them at 1% of the current year's secured tax revenues,
paid in equal increments over the next three fiscal years.
This approach applies only to errors uncovered on or after
July 1, 2001.
c) Since 2001, following the passage of AB 169 (Wiggins),
bills for several counties including Colusa, Imperial,
Madera, Tuolumne, and San Benito have all stalled in the
Legislature. Most recently:
i. SB 446 (Cannella) of 2013, which was substantially
similar to this bill, was held on the Senate
Appropriations Committee Suspense File.
ii. AB 1676 (Alejo) of 2012, which was nearly identical
to this bill, failed passage in the Senate Governance and
Finance Committee.
AB 440
Page 5
Analysis Prepared by:Jennifer Swenson / APPR. / (916)
319-2081