BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNANCE AND FINANCE Senator Robert M. Hertzberg, Chair 2015 - 2016 Regular ------------------------------------------------------------------ |Bill No: |SB 975 |Hearing |4/6/16 | | | |Date: | | |----------+---------------------------------+-----------+---------| |Author: |Committee on Governance and |Tax Levy: |No | | |Finance | | | |----------+---------------------------------+-----------+---------| |Version: |3/28/16 |Fiscal: |No | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant|Weinberger | |: | | ----------------------------------------------------------------- Tax increment: property tax override rates Prohibits property tax increment financing districts from diverting property tax revenues that are derived from a voter-approved override property tax rate. Background From the early 1950s until they were dissolved in 2011, California redevelopment agencies (RDAs) used property tax increment financing to pay for economic development projects in blighted areas pursuant to the provisions of the Community Redevelopment Law. Generally, property tax increment financing involves a local government's forming a tax increment financing district to issue bonds and use the bond proceeds to pay project costs within the boundaries of a specified project area. To repay the bonds, the district captures increased property tax revenues that are generated when projects financed by the bonds increase assessed property values within the project area. To calculate the increased property tax revenues captured by the district, the amount of property tax revenues received by any local government participating in the district is "frozen" at the amount it received from property within a project area prior to the project area's formation. In future years, as the project area's assessed valuation grows above the frozen base, the resulting additional property tax revenues --- the so-called SB 975 (Committee on Governance and Finance) 3/28/16 Page 2 of ? property tax "increment" revenues --- go to the tax increment financing district instead of going to the participating local governments. After the bonds have been fully repaid using the incremental property tax revenues, the district is dissolved, ending the diversion of tax increment revenues from participating local governments. California's complex property tax laws complicate the process of allocating revenues to property tax increment financing districts. Proposition 13 (1978) generally limited ad valorem property tax rates to 1%. The 1% limit on property tax rates did not apply to ad valorem property taxes or special assessments needed to pay the interest and redemption charges on indebtedness approved by voters before July 1, 1978. For example, in its 1982 decision in Carman v. Alvord, the California Supreme Court ruled that property tax rates outside the base 1% ad valorem rate - commonly referred to as "override" rates - that are imposed to fund employee pension systems approved by the voters before July 1, 1978 are valid under Proposition 13. Subsequent amendments to the Constitution created additional exceptions to the 1% maximum rate, allowing local governments to levy override ad valorem property tax rates to pay for voter-approved general obligation bond indebtedness (Proposition 46 of 1986 and Proposition 39 of 2000). The California Constitution prohibits RDAs from diverting revenues generated by property tax rates levied to finance bonds approved by voters after 1988 (Proposition 87, 1988). However, some revenues generated by property tax override rates that had been approved by voters before 1988 were divided into property tax increment revenues, allocated to RDAs, and used by RDAs for economic development projects that were unrelated to the purposes for which voter originally approved the tax. Comingling property tax increment revenues generated by the 1% maximum general property tax rate with property tax increment revenues generated by voter-approved override property taxes has complicated the process of winding down RDAs' affairs. Language in statutes governing Infrastructure Financing Districts (IFDs), Enhanced Infrastructure Financing Districts (EIFDs), Community Revitalization and Investment Authorities (CRIAs), and other tax increment financing districts closely mirrors language that governed the division of former RDAs' tax increment revenues. Some observers worry that these other tax SB 975 (Committee on Governance and Finance) 3/28/16 Page 3 of ? increment financing districts could replicate some RDAs' practice of diverting revenues from voter-approved override property tax rates. They want the Legislature to prohibit any property tax revenues generated by voter-approved override rates from being divided into tax increment revenues that are allocated to tax increment financing districts. Proposed Law Senate Bill 975, notwithstanding any other law, for the purpose of any law authorizing the division of taxes levied upon taxable property prohibits the division of revenues from a voter-approved property tax rate levied in addition to the property tax rate limited by subdivision (a) of Section 1 of Article XIIIA of the California Constitution. SB 975 directs that its prohibition against dividing specified property tax revenues supersedes other laws, except that it does not apply to the allocation of property taxes pursuant to specified statutes governing redevelopment agencies' dissolution. State Revenue Impact No estimate. Comments 1. Purpose of the bill . Stimulating local economic development by building public projects financed with property tax increment revenues can be a sensible policy in many communities. However, this worthwhile policy should not rely upon the diversion of tax revenues that were never intended to be used for economic development purposes. Senate Bill 975 upholds the trust of California voters and taxpayers by ensuring that property tax revenues derived from voter-approved override rates will be used for the purposes intended by the voters rather than for unrelated economic development projects. Support and SB 975 (Committee on Governance and Finance) 3/28/16 Page 4 of ? Opposition (3/24/16) Support : California Economic Summit; California State Association of Counties; County of Santa Clara; Howard Jarvis Taxpayers Association; League of California Cities. Opposition : Unknown. -- END --