BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Patricia Wiggins, Chair
BILL NO: SB 684 HEARING: 4/1/09
AUTHOR: Cogdill FISCAL: Yes
VERSION: 2/27/09 CONSULTANT:
Weinberger
PROPERTY TAX SHIFTS TO COUNTIES
Background and Existing Law
Proposition 13 (1978) reduced local property tax revenues
by 57%. The Legislature responded by bailing out local
governments with $858 million in block grants; $436 million
went to the counties (SB 154, Rodda, 1978). The
Legislature also cut counties' payments for health and
welfare programs by $1 billion.
In 1979, the Legislature permanently restructured the
allocation of property taxes (AB 8, L. Greene, 1979). AB 8
shifted some of the schools' property tax revenues to local
agencies and replaced the schools' losses with increased
subventions from the State General Fund. The AB 8 formula
shifted additional property taxes to counties in an amount
equal to their 1978-79 block grants, plus a portion of Aid
to Families with Dependent Children (AFDC) costs not
covered by the state buyout, minus the new state grants for
county health services. This three-part package was
intended to provide proportionate bailout to all counties.
For six counties (Alpine, Lassen, Mariposa, Plumas,
Stanislaus, and Trinity), the state grants for health
services exceeded their 1978-79 block grants plus the
adjustment for AFDC costs. Consequently, rather than
shifting additional property tax revenue from schools to
these counties, these counties shifted property tax revenue
to schools. In these so-called "negative bailout
counties," property tax revenues were reduced rather than
augmented to balance the relatively larger health and
welfare payments.
In 1982, the State Department of Finance discovered that
the six counties had not been shifting their "negative
bailout" amounts to schools. The Legislature forgave the
past $5.5 million miscalculations, clarified that some
counties would receive a "negative bailout" amount, and
SB 684 -- 2/27/09 -- Page 2
required counties to shift their "negative bailout" amounts
in future years (AB 2162, Condit, 1983).
Since 1983, Stanislaus County has transferred more than $52
million in "negative bailout" to the schools. Its
"negative bailout" increases annually, just as property tax
revenues grow. Stanislaus County officials argue that the
"negative bailout" payments are an unintended consequence
of AB 8 because the Legislature wanted to relieve the
fiscal pressures on counties, not increase them.
Stanislaus County officials want the Legislature to freeze
the growth in their "negative bailout" payments.
Proposed Law
Beginning in 2011-12, Senate Bill 684 requires the county
auditor of a "negative sum" county, when determining the
reduction of property tax revenues to the county, to apply
a reduction amount equal to its 2010-11 reduction amount.
SB 684 makes findings and declarations supporting this
action.
Comments
1. Cap the losses . When the Legislature bailed out local
agencies after Proposition 13, six counties lost property
tax revenues under the new state formulas. In the 1990s,
when the Legislature shifted $3.4 billion in property taxes
to schools, many lawmakers reconciled the ERAF shifts as a
way to reclaim state bailout revenues. Every county took a
fiscal hit, even the six counties that never received
additional property tax revenues. Not only are these six
counties making "negative bailout" payments, they lose
money because of the ERAF shifts. The negative bailout
counties want to limit their future losses. SB 684 caps
the six counties' "negative bailout" payments at their
2010-11 levels.
2. Fair's fair . To temper Proposition 13's revenue
losses, the Legislature gave counties a three-part package:
an AFDC buyout, a state grant for health services, and an
increased share of property tax revenues. This bailout
package provided equal relief to all counties. In six
counties, the state's new health grants were so large that
they offset the other aid. Instead of receiving additional
SB 684 -- 2/27/09 -- Page 3
property tax revenues, these counties actually lost
property tax revenues. The AFDC buyout and health grants
still exist, although they've changed form. The Committee
may wish to consider why legislators should change one
piece of the package to benefit six counties when the
original package was designed to be fair to all counties.
3. Zero-sum game . Every reallocation of property tax
revenues produces winners and losers; for every winner
there must be an equal loser. By capping the negative
bailout amounts at their 2010-11 levels, SB 684 makes
winners out of the six "negative bailout counties." In
future years, those counties will benefit from the growth
in property tax revenues. SB 684 also means that the
schools in those counties will not benefit from that
property tax revenue growth. The fiscal loser will be the
State General Fund which must backfill the property tax
revenues that the schools won't get. The annual cost to
the State General Fund will grow in the future as property
tax revenues grow.
4. Pay later . SB 684 delays its effects until 2011. In
2011, Governor Schwarzenegger and many legislators will no
longer hold their current offices. The Committee may wish
to consider whether today's elected officials should push
the fiscal effects of SB 684 onto their successors'
shoulders.
5. State mandate . The California Constitution requires
the state to reimburse local governments for the costs of
new or expanded state mandated local programs. Because SB
684 imposes new duties on county auditors in allocating ad
valorem property tax revenues, Legislative Counsel says
that the bill imposes a new state mandate. SB 684
disclaims the state's responsibility for providing
reimbursement by citing offsetting savings to local
agencies.
6. Try, try again . SB 684 is not the six counties' first
attempt to cap their "negative bailout payments." In 1996,
AB 698 (Cannella, 1996) died in the Senate Appropriations
Committee and AB 1069 (Cardoza, 1996) died in the Assembly
Appropriations Committee. In 1997, Governor Wilson vetoed
AB 472 (Cardoza, 1997), arguing that the counties received
additional fiscal relief when the state took over trial
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court funding. The Senate Local Government Committee
passed SB 756 (Denham, 2003), SB 9 (Denham, 2006), and SB
215 (Denham, 2007), but those bills died on the Senate
Appropriations Committee's suspense file.
Support and Opposition (3/26/09)
Support : Stanislaus County.
Opposition : Unknown.