BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 975|
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CONSENT
Bill No: SB 975
Author: Committee on Governance and Finance
Amended: 3/29/16
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 4/6/16
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach,
Pavley
SUBJECT: Tax increment: property tax override rates
SOURCE: Author
DIGEST: This bill prohibits property tax increment financing
districts from diverting property tax revenues that are derived
from a voter-approved override property tax rate.
ANALYSIS:
Existing law:
1)Limits, generally, ad valorem property tax rates to 1%, but
exempts from the 1% limit:
Ad valorem property taxes or special assessments needed
to pay the interest and redemption charges on indebtedness
approved by voters before July 1, 1978; and,
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Ad valorem property tax rates to pay for voter-approved
general obligation bond indebtedness.
1)Allows local governments to form various types of tax
increment financing districts, including Infrastructure
Financing Districts (IFDs), Enhanced Infrastructure Financing
Districts (EIFDs), and Community Revitalization and Investment
Authorities (CRIAs). These tax increment financing districts
finance economic development projects by capturing property
tax revenues generated by increases in assessed property
values within the district.
This bill:
1)Prohibits a tax increment financing district, for the purpose
of any law authorizing the division of taxes levied upon
taxable property, from dividing revenues from a voter-approved
property tax rate levied in addition to the property tax rate
limited to 1% by the California Constitution.
2)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.
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
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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 local
governments participating in the district is "frozen" at the
amount that they received from property within a project area
prior to its 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 property tax
"increment" revenues --- go to the 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 prohibited 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
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economic development projects that were unrelated to the
purposes for which voters 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 IFDs, EIFDs, 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 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.
Comments
Purpose of this 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. This bill 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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified4/7/16)
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California Economic Summit
California State Association of Counties
County of Santa Clara
Howard Jarvis Taxpayers Association
League of California Cities
OPPOSITION: (Verified4/7/16)
None received
Prepared by:Brian Weinberger / GOV. & F. / (916) 651-4119
4/8/16 14:09:29
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