BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 676| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 445-6614 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ CONSENT Bill No: AB 676 Author: Brewer (R) Amended: 5/27/99 in Senate Vote: 27 - Urgency SENATE LOCAL GOVERNMENT COMMITTEE : 7-0, 6/16/99 AYES: Baca, Johannessen, Johnston, Monteith, Perata, Polanco, Rainey ASSEMBLY FLOOR : 69-0, 4/22/99 (Passed on Consent) - See last page for vote SUBJECT : Property tax allocation study SOURCE : Orange County Taxpayers Association DIGEST : This bill requires the Legislative Analyst to prepare a report to the Legislature presenting alternatives for restructuring the property tax allocation system in a manner consistent with specified goals. ANALYSIS : When the voters passed Proposition 13 in 1978 to limit property taxes, they told the Legislature to allocate property tax revenues to local governments. For 1978-79, legislators gave counties, cities, special districts, and schools shares of the remaining property tax revenues in proportion to what they received in the past. Starting in 1979-80, legislators gave local governments their historic proportional shares of property taxes, plus some of the school districts' property tax revenues. The CONTINUED AB 676 Page 2 State General Fund backfilled the schools' losses (AB 8, Greene, 1979). Special districts didn't get their AB 8 shift amounts directly; the money went to a Special District Augmentation Fund (SDAF) for allocation by county supervisors. Acknowledging the loss of local property tax revenues, legislators allowed cities to levy a wider range of local taxes and slightly expanded counties' taxing powers. The Legislature increased local officials' ability to raise revenues with special taxes and benefit assessments. Legislators realigned counties' health, welfare, and trial court programs, and supplied more revenue by boosting the Vehicle License Fees and by providing more direct state funding. Starting in the mid-1980s, the Legislature required counties to shift some of their property tax revenues to the no- and low-property tax cities, those municipalities that had never received property taxes or had received only relatively low levels of property tax revenues. To balance the State Budget for 1992-93 and then again in 1993-94, the Legislature permanently shifted property tax revenues from counties, cities, and special districts to each county's Educational Revenue Augmentation Fund (ERAF) to benefit schools and the State General Fund. The ERAF shifts are pockmarked with special exceptions and adjustments. Proposition 172 replaced some of these losses, earmarking the new revenues for public safety programs. After 20 years of voter initiatives, legislative reactions, and local adjustments, the state/local fiscal relationship is nearly incomprehensible. The most obvious pathology is the variation in the property taxes allocated among counties, cities, special districts, schools, and redevelopment agencies. Statewide, counties get 19% of property tax revenues while Orange County gets just 6%. This bill states that California's system for allocating property taxes does not reflect (1) modern needs and preferences of local communities, or (2) the relative need for funding by cities, counties, special districts, AB 676 Page 3 redevelopment agencies, and schools to carry out their mandated and discretionary services; and, additionally, the current system centralizes control over property tax allocation in Sacramento and gives the state full authority to reallocate property taxes to offset state education funding obligations. This bill states the Legislature's wish to revamp the current system of property tax allocation to do the following: 1. Increase taxpayer knowledge of the allocation of property taxes. 2. Provide greater local control over property tax allocation. 3. Give cities and counties greater fiscal incentives to approve land developments other than retail developments. To assist the Legislature in the above effort, this bill requires the Legislative Analyst to prepare a report by December 31, 1999 presenting at least two alternatives for restructuring the property tax allocation system in a manner consistent with these goals. The Legislative Analyst must consider the option of establishing a minimum percentage of the property tax to be allocated to each county. This bill states that in order to minimize the local fiscal impact of changes, the Legislature intends to consider allocating an unspecified amount in additional revenues available to cities, counties, and special districts. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 6/17/99) Orange County Taxpayers Association (source) Costa Mesa Chamber of Commerce Cities of Costa Mesa, Moreno Valley, Newport Beach. AB 676 Page 4 ARGUMENTS IN SUPPORT : According to the Senate Local Government Committee analysis, there's a hard lesson to be learned about the allocation of property taxes and other revenues: there is no equity, there are only different forms of inequity. The allocation of property tax revenues is a zero-sum game in which there must be a loser for every winner. To increase one government's share of limited property tax revenues requires another government to lose. The AB 8 shift moved property tax revenues from schools to local agencies. The no- and low-property tax cities gained at their counties' expense. The ERAF shifts moved property tax revenues back from local agencies to schools. Although each change was expediently justified, the results are incoherent. This bill asks the Legislative Analyst to sort out the mess of the last 20 years and tell legislators how to achieve property tax equity. ASSEMBLY FLOOR : 69-0, 4/22/99 AYES Aanestad, Ackerman, Alquist, Aroner, Ashburn, Bates, Battin, Baugh, Bock, Briggs, Calderon, Campbell, Cardenas, Cedillo, Corbett, Correa, Cox, Cunneen, Davis, Dickerson, Ducheny, Dutra, Firebaugh, Florez, Floyd, Frusetta, Gallegos, Granlund, Havice, Hertzberg, Honda, House, Jackson, Keeley, Knox, Leach, Lempert, Leonard, Longville, Machado, Maddox, Maldonado, Margett, Mazzoni, McClintock, Migden, Nakano, Olberg, Pescetti, Reyes, Romero, Scott, Shelley, Soto, Steinberg, Strickland, Strom-Martin, Thompson, Thomson, Torlakson, Vincent, Washington, Wayne, Wesson, Wiggins, Wildman, Wright, Zettel, Villaraigosa NOT VOTING: Baldwin, Brewer, Cardoza, Kaloogian, Kuehl, Lowenthal, Oller, Robert Pacheco, Rod Pacheco, Papan, Runner LB:jk 6/16/99 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****