BILL ANALYSIS Ó AB 1009 Page 1 Date of Hearing: April 8, 2015 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT Brian Maienschein, Chair AB 1009 (Cristina Garcia) - As Introduced February 26, 2015 SUBJECT: Local government: redevelopment: revenues from property tax override rates. SUMMARY: Enacts provisions that would allow revenues from a voter-approved pension property tax to be allocated to the city or county whose voters approved the tax, in specified conditions. 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 AB 26 X1 (Blumenfield), Chapter 5, Statutes of 2011-12 First Extraordinary Session, the Legislature intended that, upon dissolution of redevelopment agency (RDAs) in the State of California, property taxes that would have been allocated to RDAs are no longer deemed tax increment. AB 1009 Page 2 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 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 RDA dissolution process in a manner AB 1009 Page 3 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, 2015. 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 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 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 property tax rate are not deposited into a RPTTF as provided by 3) through 6) below. 3)Allows 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 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 or county to make payments in support AB 1009 Page 4 of pension programs 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 or 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 an RPTTF, and shall instead, be allocated to, and when collected shall be paid into, the fund of the city or county 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 or county to make payments in support of pension programs and levied in addition to the property tax rate limited by the California Constitution, made by any county auditor-controller prior to July 1, 2015, 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, 2015. 7)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. AB 1009 Page 5 8)Provides that the Legislature is aware of City of San Jose, etc. v. Sharma et al., Court of Appeal Case No. C074539, which is pending litigation. Declares the express intent of the Legislature that no party in that pending litigation be in any way prejudiced by the passage of this bill. Exempts the City of San Jose Successor Agency from the provisions of this bill, except for 2a) above. States, furthermore, that this bill shall not be indicative of any legislative intent concerning any issues before the courts in that litigation, and that no provision in this bill shall be relied upon in any way regarding the issues pending before the courts in that litigation. 9)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. 10)Contains an urgency clause, with the facts constituting the necessity as "in order to avoid underfunded pension programs as a result 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, being allocated first to successor agencies to make payments on the indebtedness incurred by the dissolved RDAs, with remaining balances being allocated in accordance with applicable constitutional and statutory provisions, instead of being paid entirely into the fund of the city, county, or city and county whose voters approved the tax." EXISTING LAW: 1)Dissolves RDAs and institutes a process for winding down their activities. 2)Defines "enforceable obligations." AB 1009 Page 6 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, 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; AB 1009 Page 7 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, 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 and contains a state-mandated local program. AB 1009 Page 8 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% to 0.45%. 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 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. AB 1009 Page 9 2)Bill Summary. This bill would authorize 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 would authorize an oversight board to deny this request based on substantial evidence that a former redevelopment agency made a pledge of revenues that specifically included revenues derived from the imposition of that property tax rate. This bill, for the 2015-16 fiscal year and each fiscal year thereafter, except to the extent an oversight board denies a request, would prohibit any revenues derived from the imposition of that property tax rate from being allocated to an RPTTF, and would, instead, require these revenues to be allocated to, and when collected to be paid into, the fund of the city or county whose voters approved the tax. This bill would require all allocations of revenues derived from the imposition of that property tax rate made by any county auditor-controller prior to July 1, 2015, to be deemed correct, and would prohibit any city, county, county auditor-controller, successor agency, or affected taxing entity from being subject to any claim, as specified. This bill would require, to the extent that revenues derived from the imposition of 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,are deposited into an RPTTF, the county-auditor controller to allocate moneys from each RPTTF to a city or county that levies a property tax as so described after certain other allocations have been made. This bill provides that the Legislature is aware of City of San Jose, etc. v. Sharma et al., which is pending litigation, and declares the express intent of the Legislature that no party in that pending litigation be in any way prejudiced by the passage of this bill. This bill also states, furthermore, AB 1009 Page 10 that this bill shall not be indicative of any legislative intent concerning any issues before the courts in that litigation, and that no provision in this bill shall be relied upon in any way regarding the issues pending before the courts in that litigation. This bill is author-sponsored. 3)Author's Statement. According to the author, "This measure addresses the question of where voter approved pension tax revenues go since the dissolution of RDAs. AB 1009 would distribute these taxes through the RPTTF to the cities after the pass through payments, enforceable obligations of the former agency and the administrative costs of the cities are paid. AB 1009 also creates a process for impacted cities to request that the pension funds not be deposited directly into the RPTTF." 4)Related Legislation. This bill is similar to AB 1450 (Garcia) and SB 663 (Lara), both from 2014. SB 663 would have required, 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 RPTTF pursuant to the RDA dissolution process. SB 663 was held in the Assembly Appropriations Committee. AB 1450 was different from SB 663 in that it specifically addresses the pending litigation in the City of San Jose, and also clarified that a city or county could retain tax increment revenues if it gets oversight board approval. AB 1450 was vetoed by the Governor, with the following message: The process laid out in this measure would put the state back on the hook, to the tune of $20 million dollars, for erstwhile local decisions to allow property tax growth from voter approved tax levies for pension obligations to be used by the redevelopment agency for redevelopment activities. I encourage the author and stakeholders to come up with a AB 1009 Page 11 solution to this issue without impacting general fund dollars. The Committee may wish to ask the author about plans to address the Governor's concerns with the prior bill. 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 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. Opponents, including the cities of Milpitas San Jose, and Sunnyvale, argue that this bill "would authorize the County of Santa Clara's illegal practice of withholding RPTTF revenues that are authorized for payment of enforceable obligations and for distribution to affected taxing entities", and that this bill "would overturn the Sacramento Superior Court ruling on this issue that is currently pending on an appeal by the County of Santa Clara." 7)Urgency Clause. This bill contains an urgency clause and requires a two-thirds vote of each house. REGISTERED SUPPORT / OPPOSITION: Support American Federation of State, County and Municipal Employees, District Council 36 City of Bell, Compton, Huntington Park, and Montebello AB 1009 Page 12 California Professional Firefighters Independent Cities Association Los Angeles County Police Chiefs Association Santa Clara County Board of Supervisors Opposition Cities of Milpitas, San Jose, and Sunnyvale Analysis Prepared by:Debbie Michel / L. GOV. / (916) 319-3958