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 --