BILL ANALYSIS Ó AB 654 Page 1 Date of Hearing: April 29, 2015 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT Brian Maienschein, Chair AB 654 (Brown) - As Amended April 22, 2015 SUBJECT: Redevelopment: revenues from property tax override rates. SUMMARY: Prohibits a county auditor from allocating revenues derived from a property tax rate approved by voters in a city, county, or special district, to pay for the State Water Project to the Redevelopment Property Tax Trust Fund, except as specified. 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 redevelopment agencies in the State of California, property taxes that would have AB 654 Page 2 been allocated to redevelopment agencies are no longer deemed tax increment; c) It is the intent of the Legislature in enacting this act to do all of the following: i) If a redevelopment agency 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, or special district to make payments in support of the State Water Project and levied in addition to the property tax rate limited by subdivision (a) of Section 1 of Article XIII A of the California Constitution, to pay a portion of the debt service due on indebtedness incurred by the former redevelopment agency 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 water project property tax rate approved by the voters of a city, county, city and county, or special district 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 water project property tax rate that are not necessary to pay the debt service on the indebtedness shall be allocated and paid to the city, county, city and county, or special district whose voters approved the State Water Project-related 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, city and county, or special district to make payments in support of the State Water Project AB 654 Page 3 and levied in addition to the property tax rate limited by subdivision (a) of Section 1 of Article XIII A of the California Constitution, is consistent with the use approved by the voters of a city, county, city and county, or special district once revenues from such property tax rates are not needed to pay approved indebtedness of a former redevelopment agency; and, iii) Implement the allocation and distribution of voter-approved, property-based tax revenues for the State Water Project under the redevelopment dissolution process in a manner that would have been consistent with the allocation and distribution of those revenues had redevelopment agencies not been dissolved, in accordance with applicable constitutional provisions. d) Declares the intent of the Legislature that this act not affect any property tax allocations that occurred prior to July 1 of an unspecified year. 2)Requires the county auditor-controller, prior to allocating moneys in each Redevelopment Property Tax Trust Fund (RPTTF), pursuant to the specified formula in existing law, to additionally deduct the revenues allocated as follows: a) On January 2, 2016, and each January 2 and June 1 thereafter, to a city, county, or special district that levies a property tax rate, approved by the voters of a city, county, or special district to make payments in support of the State Water Project and levied in addition to the property tax rate limited by the California Constitution, an amount of property tax revenues equal to the amount of revenues derived from the imposition of that tax rate that were allocated to the RPTTF for that fiscal period. Provides that this paragraph shall not apply to the extent that revenues derived from the imposition of a AB 654 Page 4 property tax rate are not deposited into an RPTTF as provided by 3) through 6) below. 3)Allows a city, county, or special district that levies a property tax rate, approved by the voters of a city, county, or special district to make payments in support of the State Water Project and levied in addition to the property tax rate limited by the California Constitution, to make a request to an oversight board to prohibit revenues derived from the imposition of that property tax rate from being deposited into an RPTTF. 4)Provides, based on substantial evidence that a former RDA made a pledge of revenues that specifically included revenues derived from the imposition of a property tax rate, approved by the voters of a city, county, or special district to make payments in support of the State Water Project and levied in addition to the property tax rate limited by the California Constitution, that an oversight board may deny a request pursuant to 3), above, in an amount not to exceed the amount of revenues pledged by the former RDA. 5)Provides, notwithstanding any other law, for the 2015-16 fiscal year and each fiscal year thereafter, except to the extent an oversight board denies a request as provided in 4), above, that any revenues derived from the imposition of a property tax rate, approved by the voters of a city, county, or special district to make payments in support of the State Water Project and levied in addition to the property tax rate limited by the California Constitution, shall not be allocated to an RPTTF, and shall instead, be allocated to, and when collected shall be paid into, the fund of the city, county, or special district whose voters approved the tax. 6)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 special district to make payments in support of the State Water Project and levied in addition to the property tax rate limited by the AB 654 Page 5 California Constitution, made by any county auditor-controller prior to July 1, of an unspecified year, shall be deemed correct and shall not be affected by this bill. Provides that a city, 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. 7)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. 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 RPTTF, as specified; and, AB 654 Page 6 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. 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, AB 654 Page 7 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. 11)Allows a governing body, pursuant to Section 11652 of the Water Code entitled "Contracts with State Agencies" to, whenever necessary, levy upon all property in the state agency not exempt from taxation, a tax or assessment sufficient to provide for all payments under the contract then due or to become due within the then current fiscal year or within the following fiscal year before the time when money will be available from the next general tax levy. FISCAL EFFECT: This bill is keyed fiscal and contains a state-mandated local program. COMMENTS: 1)Bill Summary. This bill would authorize a city, county, or special district that levies a property tax override rate approved by the voters of that city, county, or special district to make payments in support of the State Water Project and levied in addition to the general property tax rate, to make a request to an oversight board to prohibit revenues derived from that property tax rate from being deposited into the RPPTF. The bill also authorizes an AB 654 Page 8 oversight board to deny the request, in certain circumstances, and would prohibit any revenues, except if the oversight board denies the request, derived from the imposition of that property tax rate from being allocated to the RPPTF, and would instead, require these revenues to be allocated to the fund of the city, county or special district whose voters approved the tax. This bill is sponsored by the San Bernardino Valley Municipal Water District (known as Valley District). 2)State Water Project and Burns-Porter Act of 1960. According to the Department of Water Resources (DWR), the California State Water Project is a water storage and delivery system of reservoirs, aqueducts, powerplants and pumping plants. Its main purpose is to store water and distribute it to 29 urban and agricultural water suppliers in Northern California, the San Francisco Bay Area, the San Joaquin Valley, the Central Coast, and Southern California. Of the contracted water supply, 70% goes to urban users and 30% goes to agricultural users. The project is maintained and operated by DWR, makes deliveries to two-thirds of California's population, and is also operated to improve water quality in the Delta, control Feather River flood waters, provide recreation and enhance fish and wildlife. The Project includes 34 storage facilities, reservoirs and lakes, 20 pumping plants, four pumping-generating plants, five hydroelectric power plants, and about 7,000 miles of open canals and pipelines. Local water agencies can levy ad valorem rates above the 1% rate to pay their annual obligations for water deliveries from the State Water Project. State courts have concluded that such costs were voter-approved debt because voters approved AB 654 Page 9 the construction, operation, and maintenance of the State Water Project in 1960. As a result, most water agencies that have contracts with the State Water Project levy a voter-approved debt rate. 3)Author's Statement. According to the author, "The measure would remedy the situation in which the revenues derived from voter-approved property tax overrides are being misallocated in the course of the RDA dissolution process in the County of San Bernardino. Currently the San Bernardino County Auditor- Controller is allocating the residual balances from each former RDA's Redevelopment Property Tax Trust Fund to taxing entities based on each agency's share of the 1% County General Tax levy without taking into account any specific debt service override tax. This results in Valley District's Debt Service Tax Override proceeds that are not needed for the payment of approved former RDA expenses to be allocated out to all taxing entities ignoring that a certain portion of that residual balance was derived directly from Valley District's tax override rate." 4)Related Legislation. AB 1009 (Garcia), pending in the Assembly Appropriations Committee, authorizes a city or county that levies a property tax rate, approved by the voters of a city or county to make payments in support of pension programs and levied in addition to the general property tax rate, to make a request to an oversight board to prohibit revenues derived from that property tax rate from being deposited into a Redevelopment Property Tax Fund. This bill takes the same approach as AB 1009, but instead, deals with property tax override rates approved by voters in support of the State Water Project. 5)Arguments in Support. According to the sponsor, "Prior to AB 654 Page 10 dissolution, $19.5 million (25%) of Valley District's property taxes derived from the State Water Project tax rate set by the Valley District board and Valley District's portion of the 1% General Tax levy was being diverted to RDAs. After almost 3 years of the RDA dissolution wind down process, Valley District is now receiving all but $10 million of the property taxes derived from its Debt Service Override Tax rate and its portion of the 1% General Tax levy. Valley District management recently determined that some of this remaining $10 million in annual property tax revenue is being allocated to other taxing entities. Further, if this error is not corrected the effect on Valley District's tax proceeds will increase significantly as the wind down process matures." 6)Arguments in Opposition. None on file. 7)Double-Referral. This bill is scheduled to be heard in the Housing and Community Development Committee on April 29, 2015, and will be heard by this Committee pending referral. REGISTERED SUPPORT / OPPOSITION: Support San Bernardino Valley Municipal Water District [SPONSOR] East Valley Water District AB 654 Page 11 Opposition None on file Analysis Prepared by:Debbie Michel / L. GOV. / (916) 319-3958