BILL ANALYSIS Ó AB 1009 Page 1 Date of Hearing: April 22, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair AB 1009 (Cristina Garcia) - As Introduced February 26, 2015 ----------------------------------------------------------------- |Policy |Local Government |Vote:|8 - 0 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: Yes State Mandated Local Program: YesReimbursable: Yes SUMMARY: This bill, an urgency measure, would prohibit a county auditor from allocating revenues derived from specified extraordinary property tax rates approved by voters to pay for pension obligations (pension tax rates) to a Redevelopment Property Tax Trust Fund (RPTTF), except as specified. These funds would instead be allocated to the city or county whose AB 1009 Page 2 voters approved the tax. In addition, this bill requires that any allocations of revenues derived from voter-approved pension tax rates that are made by county auditors before July 1, 2015, must be deemed correct and not affected by the bill's provisions. This bill also declares that the Legislature is aware of pending litigation between the City of San Jose and Santa Clara County, and expresses legislative intent that no party in that litigation be prejudiced by the passage of this act. FISCAL EFFECT: Significant General Fund costs, likely in the range of $10 million annually beginning in 2015-16, due to the diversion of revenues from pension tax rates from the RPTTF to the city or county that imposed the pension tax rate. Any amount of property tax revenue diverted away from schools would typically result in corresponding General Fund expenditures to meet the minimum funding guarantees of Proposition 98. An estimated $40 million in pension property tax revenues was deposited into RPTTFs in 2012-13 following the dissolution of redevelopment agencies (RDAs). These revenues are currently distributed to local taxing entities pursuant to dissolution statutes, after paying enforceable obligations of the former RDA. This bill would instead allocate revenues derived from pension tax rates to the cities and counties that imposed the supplemental rate, except for specific amounts pledged by the former RDA to pay obligations, as determined by an oversight board. This diversion is likely to result in approximately $10 million in reductions of property tax allocations to schools. AB 1009 Page 3 COMMENTS: 1)Purpose. 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." 2)Background. There are approximately 25 cities throughout the state whose voters approved a tax for pension obligations for city staff. Some pension levies were approved as early as the 1920s, with some cities amending and increasing their levy through the late 1970s. The levies 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 obligations. In 17 cities, including 12 cities in Los Angeles County, the tax increment from pension obligations was going to an RDA. 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, 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 AB 1009 Page 4 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. 3)Litigation. The allocation of tax increment revenues attributable to extraordinary property tax rates has been the subject of litigation. A Los Angeles County trial court decision in favor of the City of San Fernando found that tax increment revenues generated by San Fernando's extraordinary property tax rate are not required to be deposited into the successor agency RPTTF. In a case that the City of San Jose filed against Santa Clara County, a trial court ruled in favor of the City, finding that tax increment revenues from the County's extraordinary tax rate are included in the definition of tax increment and should be deposited into the RPTTF to pay for some of the successor agency's obligations. The county appealed the decision and the case is now pending before the appellate court. Considering the conflicting rulings on this issue in the courts, the Committee may wish to consider whether the Legislature should weigh in on one side of this issue at this time. 4)Prior Legislation. This bill is substantially similar to SB 663 (Lara), and AB 1450 (Garcia) 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 this Committee. AB 1450 was broader than SB 663 in that it also specifically addressed 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 never heard in this Committee, but was vetoed by the Governor. His veto message read, in part, ? I encourage the author and stakeholders to come up with a solution to this issue without impacting general fund dollars. AB 1009 Page 5 Analysis Prepared by:Jennifer Swenson / APPR. / (916) 319-2081