BILL ANALYSIS
AB 2663
Page 1
ASSEMBLY THIRD READING
AB 2663 (Bonnie Lowenthal)
As Amended May 28, 2010
Majority vote
LOCAL GOVERNMENT 8-0 APPROPRIATIONS 12-5
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|Ayes:|Smyth, Caballero, |Ayes:|Fuentes, Ammiano, |
| |Arambula, Bradford, | |Bradford, |
| |Davis, Knight, Solorio, | |Charles Calderon, Coto, |
| |De La Torre | |Davis, |
| | | |Monning, Ruskin, Skinner, |
| | | |Solorio, Torlakson, |
| | | |Torrico |
| | | | |
|-----+--------------------------+-----+--------------------------|
| | |Nays:|Conway, Harkey, Miller, |
| | | |Nielsen, Norby |
| | | | |
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SUMMARY : Requires the state to delay borrowing from those
cities and counties that operate on the federal fiscal year.
Specifically, this bill :
1)Defines "federal fiscal year" to mean a fiscal year beginning
on October 1 and ending September 30.
2)Defines "federal fiscal year city, county, or city and county"
to mean any city, county, or city and county that observes the
federal fiscal year calendar.
3)Defines "state fiscal year" to mean a fiscal year beginning on
July 1 and ending June 30.
4)Provides that if the Legislature transfers, borrows, or
suspends revenues allocated to a federal fiscal year city,
county, or city and county, that the transaction shall be
suspended during the months of July, August, and September,
and instead, commence on October 1 and specifies that the
transaction shall be completed on or before June 30 of that
same state fiscal year.
5)Provides that the suspended transaction for federal fiscal
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year cities and counties shall apply to all of the following
transactions enacted by law on or after January 1, 2011,
involving the following funds and revenues:
a) The borrowing, transfer, or suspension of property tax
revenues, allocated in accordance with subdivision (a) of
Section 1 of Article XIII A of the California Constitution;
b) The borrowing, transfer, or suspension of revenues from
the Highway Users Tax Account (HUTA) required to be
apportioned to cities and counties pursuant to Chapter 3 of
Division 3 of the Streets and Highways Code [including the
revenues apportioned pursuant to Section 2103 of the
Streets and Highways Code, as amended by AB 9 X8 (Committee
on Budget), Chapter 12, Statutes of 2010];
c) The borrowing, transfer, or suspension of revenues from
the Transportation Investment Fund (TIF) allocated pursuant
to subdivision (b) of Section 1 of Article XIX B of the
California Constitution (Proposition 42 funds); and,
d) The borrowing, transfer, or suspension of funds
allocated to a redevelopment agency pursuant to subdivision
(b) of Section 16 of Article XVI of the California
Constitution.
6)Makes other findings and declarations about the impact of
borrowing local revenues on those cities and counties that
observe the federal fiscal year.
EXISTING LAW :
1)Provides that the Legislature can borrow a specified amount of
total property tax revenues from local governments if:
a) The Governor issues a proclamation of "severe fiscal
hardship;"
b) The Legislature enacts an urgency statute suspending
Proposition 1A property tax protection with a two-thirds
vote of each house; and,
c) The Legislature enacts a law providing for full
repayment of the borrowed funds plus interest within three
years.
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2)Redirects $1.7 billion of redevelopment property tax increment
revenues to K-12 school districts serving redevelopment areas
in 2009-10 and an additional $350 million in 2010-11 and
shifts an equivalent amount of existing property tax revenue
from those school districts to the Supplemental Revenue
Augmentation Fund.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1)No impacts in 2010-11, since the bill would not take effect
until January 1, 2011. In future years, the impacts would
depend on the extent and timing of borrowing and transfers
from local governments included in the state budget.
As an illustration, the five cities that currently use a
federal fiscal year account for about 2% of total property tax
payments and population in California. If the state were to
suspend $1 billion from all local sources on July 1, this bill
would result in the delay of $20 million in payments,
translating into $250,000 in interest costs.
2)Minor administrative costs to the state to determine the
amount of borrowed funds that would be delayed, and set up
alternative payment schedules for the local agencies involved.
COMMENTS : According to the author, there are five local
governments in California that operate on a federal fiscal year
including the cities of Long Beach, Huntington Beach, Inglewood,
El Segundo and South Lake Tahoe.
The federal fiscal year commences on October 1st, three months
after the beginning of the state's fiscal year. In previous
years, if the state intended to borrow money from local
governments, it usually did so at the start of the state's
fiscal year on July 1st. The author notes that "for the five
cities on the federal fiscal year, the state's borrowing comes
at the end of their budget cycles - when they are least able to
adapt to borrowing, placing an undue financial burden on those
cities." For those local governments that follow the state's
fiscal year, borrowing would typically occur at the beginning of
their calendar year, and those local governments would be better
able to plan for the borrowing, transfer, or suspension in an
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up-front manner.
This bill provides for a delay in state borrowing, transfer, or
suspension of revenues for the affected five cities, meaning
that state borrowing would start on October 1 and any
transactions for July, August, and September for those five
cities would be suspended. The bill lists the revenue streams
that this delay would apply to - property tax revenues, HUTA
funds, Proposition 42 transportation funds, and redevelopment
funds. Recent amendments require that any transferring,
borrowing, or suspension of revenues that commences on October 1
for the federal fiscal year cities shall be completed on or
before June 30 of that same state fiscal year.
As we've seen in recent years, there could be instances of
mid-year budget adjustments. This bill assumes that any
borrowing, suspension, or transfer would commence at the start
of the state's fiscal year in July, but this is not necessarily
the case in all situations.
Support arguments. The five cities that observe the federal
calendar year face a bigger financial burden than other cities
when state borrowing, transfer, or suspension of revenues
occurs. A delay that would coincide with the start of the
federal fiscal year makes sense from an administrative
standpoint for the five cities, and allows those local
governments to retain the ability to budget as necessary to
better absorb any borrowing, suspension, or transfer that might
occur.
Opposition arguments. This bill may create some minor
administrative work for the state in order to track such delays
through various processes.
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958
FN: 0004478