BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Dave Cox, Chair
BILL NO: SB 1398 HEARING: 4/19/10
AUTHOR: DeSaulnier FISCAL: Yes
VERSION: 4/14/10 CONSULTANT:
Weinberger
PROPERTY TAX ALLOCATION FROM PUBLIC UTILITY PROPERTY
Background and Existing Law
The California Constitution requires the State Board of
Equalization (BOE) to assess public utilities for property
tax purposes. The BOE assesses utility property as a unit,
instead of assessing the individual value of separate
properties owned by the utility. State law allocates the
property tax revenues from state-assessed public utilities
differently than the property tax revenues from
locally-assessed properties.
Until 1988-89, state law allocated property tax revenues
from all state-assessed property on a situs basis among tax
rate areas. The complexity and administrative cost of
tracking property holdings and allocating property tax
revenues among thousands of small geographic locations led
the Legislature to create the current countywide method for
allocating unitary property tax revenues (AB 2890,
Hannigan, 1986).
Under the countywide method, the BOE allocates the unitary
assessed value of utility property among the counties based
on the amount of property within each county. County
auditors allocate the property tax revenues from unitary
properties using a formula based on the amount of unitary
revenues received by the county's taxing jurisdictions in
1987-88. For years after 1987-88, each taxing jurisdiction
receives up to 102% of its prior year unitary property tax
revenues. The county auditor allocates the remaining
property tax revenue from the county's unitary roll to all
taxing jurisdictions in proportion to their shares of
property tax revenues derived from locally-assessed
property.
In other words, this unitary tax allocation method creates
a countywide pool of property tax revenues generated by
growth in the value of state-assessed properties. Each
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local taxing agency gets a share of the countywide pool,
regardless of whether any state-assessed property is within
that agency's boundaries.
The Legislature has created some exceptions to this
countywide unitary tax allocation method. When the City of
Chula Vista (San Diego County) was willing to accept a
proposed electrical power plant, legislators directed that
the resulting property tax revenues would be allocated to
schools and the county government under the unitary tax
method, but the share that would have gone to all cities in
San Diego County under the unitary tax method would instead
go just to Chula Vista. This exception would have lasted
for 10 years and then it would have sunsetted and the
regular unitary tax method would have applied (AB 1108,
Peace, 1993). The Legislature approved similar exceptions
for an electrical power plant in the City of Escondido (AB
2558, Plescia, 2004), a PG&E education and training center
in the City of Livermore (SB 53, Lockyer, 1991), and a
PacBell computer center in the City of Fairfield, (AB 454,
Klehs, 1987).
The Legislature also created an exception to the countywide
unitary tax allocation method for all newly constructed
public-utility-owned large-scale electrical generation,
substation, and transmission facilities. That exception
allocates a greater share of unitary property tax revenues
to the city or county in which a qualified electrical
facility is located (SB 1317, Torlakson, 2006).
The California Energy Commission is considering a proposal
to construct a 600 megawatt power plant to be located
within a redevelopment project area in the City of Oakley
(Contra Costa County). Oakley officials say that the
modified allocation method created by the Torlakson bill
allocates insufficient revenues to their redevelopment
project area. They want the Legislature to create an
exception to that modified allocation method to send more
unitary property tax revenues from the proposed Oakley
power plant on a situs basis to the Oakley Redevelopment
Agency.
Proposed Law
Senate Bill 1398 creates a new method for allocating
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unitary property tax revenues from new public
utility-owned, state-assessed "qualified property."
SB 1398 defines "qualified property" as all plant and
associated equipment, including substation facilities and
fee-owned land and easements, placed in service by a public
utility in the Oakley Redevelopment Project Area on or
after January 1, 2011 and related to:
Electrical substation facilities that either
operate at 50,000 volts or more or have a
transformer with a high-side voltage of 50,000 volts
or more.
Electric generation facilities that have a
nameplate generating capacity of 50 megawatts or
more.
Electric transmission line facilities of
200,000 volts or more.
SB 1398's unitary property tax allocation method differs
from the countywide allocation method that applies
generally to revenues from utilities' state-assessed
property and from the 2006 Torlakson bill's modified method
for allocating revenues from qualified electrical facility
property in three significant ways:
I. Non-debt service allocation . Generally, under the
countywide unitary tax allocation method, property taxes
from the non-debt service portion of the tax applied to
state-assessed property goes into a countywide pool and is
allocated by a formula that:
Establishes a unitary tax base for any jurisdiction which
had state assessed property within its boundaries in the
1987-88 fiscal year.
Annually increases each local agency's unitary base by up
to 2% (provided that revenues are sufficient).
Allocates the remaining revenues to all agencies in the
county in proportion to the entity's share of non-unitary
property tax revenues.
The modified method for allocating revenues from qualified
electrical facility property allocates revenues to a
county, school entities, and non-enterprise special
districts in proportion to the revenues they received from
the utility in the prior year under the countywide
allocation method. Of the remaining revenues 90% go to the
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city or county in which the electrical facility is built
and 10% go to the local government that provides water
service to the qualified electrical facility property.
Senate Bill 1398 requires the revenue from the property tax
assessed on public utility-owned, state-assessed qualified
property to be allocated entirely to the county in which
the qualified property is located. The county auditor then
allocates the property tax revenues derived from the
non-debt-service portion of the property tax on qualified
property as follows:
First, allocate to the county in which the qualified
property is located and the K-12 school district or
districts that serve the parcel or parcels on which the
qualified property is located, the amount of property tax
revenues that would have otherwise been allocated to that
county and K-12 school district or districts had the bill
not been enacted.
Second, allocate to the redevelopment agency governing
the project area in which the qualified property is
located, the balance of the property tax revenues, which
shall be included in that redevelopment agency's tax
increment for the year.
II. Debt service allocation . Generally, unitary property
tax revenues from the debt-service rate that applies to
state-assessed properties are allocated to each taxing
jurisdiction that levies a rate in excess of 1% for
voter-approved debt service in proportion to the percentage
of total property tax revenues each jurisdiction received
from taxes on state-assessed property in the prior year.
Under the modified allocation method for qualified
electrical facilities, revenues from the debt-service rate
are allocated using the general method, except that school
entities receive an amount equivalent to the same
percentage of property tax revenues they received from the
utility in the prior fiscal year.
Senate Bill 1398 allocates revenues from the debt-service
rate in two steps:
First, the revenues go to taxing jurisdictions in those
Contra Costa County tax rate areas in which the qualified
electrical facility is located in an amount equivalent to
the BOE's current-year assessed value of the qualified
property multiplied by any override rate adopted by the
local agency for the year.
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Second, the balance of the revenues are allocated
pursuant to the general allocation statute.
III. Property valuation . Generally, the BOE annually
reassesses state-assessed property at its current market
value on January 1 of each year. The modified allocation
method for qualified electrical facilities excludes from
the definition of qualified property any additions,
modifications, reconductoring, or equivalent replacements
to the plant and associated equipment made after the plant
and associated equipment are placed in service.
Senate Bill 1398 includes, in the definition of qualified
property, any additions, modifications, reconductoring, or
equivalent replacements to the plant and associated
equipment made after the plant and associated equipment are
placed into service.
Additionally, Senate Bill 1398 requires a public utility to
provide the BOE with a description of the qualified
property in the form prescribed by the BOE so that separate
valuation can be determined. The BOE must transmit to the
Contra Costa County auditor the information necessary to
identify the qualified property and the corresponding
assessed value data necessary to make the property tax
revenue allocations required by the bill. SB 1398 requires
the county auditor to make any necessary pro rata
reductions in the allocations of property tax revenues
attributable to the qualified property to jurisdictions
other than those receiving an allocation under the bill's
provisions.
The bill contains legislative declarations to support its
special provisions applying to the Oakley Redevelopment
Agency.
Comments
1. Critical infrastructure, vital revenues . Recognizing
the need to rapidly expand the state's electrical
generating capacity, and the impact that new generating
facilities have on local communities, the 2006 Torlakson
bill compensates communities that accept those energy
projects with a bigger share of future unitary property tax
revenues. However, that law only compensates cities or
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counties, not redevelopment agencies. SB 1398 expands that
modified allocation method by providing the Oakley
Redevelopment Agency with a similar augmentation of future
unitary property tax revenues from a power plant built
within its boundaries. SB 1398's allocation of property
tax revenues from Oakley's power plant may generate over
$4,000,000 of additional revenue per year over the life of
the power plant for the Oakley Redevelopment Agency. These
revenues are vitally needed to fund the Agency's activities
and mitigate the power plant's impact within the
redevelopment project area.
2. Future winners and losers . Property tax allocation is
a zero-sum game; every reallocation of property tax
revenues produces winners and losers. SB 1398's exception
to the Torlakson bill's modified property tax allocation
method will leave some local governments in Contra Costa
County with higher future revenues, and others with lower
future revenues, than they would have received under
current law. The Oakley Redevelopment Agency wins under SB
1398. However, the bill also results in lower future
allocations to:
School districts . Contra Costa school districts, except
for districts that serve the parcel on which the
state-assessed property is located, would receive lower
future property tax revenues from the proposed power
plant. In some districts, some of these foregone
revenues will be offset by higher pass-through payments
from the Oakley RDA. The State General Fund must make up
the difference between the lower property tax revenues
that some school districts will receive under SB 1398 and
the revenues that they would have received under current
law. The Committee may wish to consider whether SB 1398
creates a new, indirect state subsidy of the Oakley
Redevelopment Agency's activities.
Special districts . Special districts that would receive
lower future unitary property tax revenues under SB
1398's allocation method include the Contra Costa Water
District, the East Contra Costa Fire Protection District,
the East Bay Regional Park District, and the Contra
Costa Mosquito and Vector Control District, all of which
serve the area in which the proposed power plant will be
built. In some districts, some of these foregone
revenues will be offset by higher pass-through payments
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from the Oakley RDA. The Committee may wish to consider
whether SB 1398 places an additional fiscal burden on
already struggling special districts.
Bond issuers . SB 1398 modifies the method for allocating
the property tax revenues from the debt-service portion
of the tax rate that applies to qualified electrical
facility property. While the implications of this change
are difficult to determine, the bill could result in some
Contra Costa County local governments, whose boundaries
do not include the proposed power plant, receiving lower
future property tax revenues for debt-service. The
Committee may wish to consider whether SB 1398's
allocation of unitary property tax revenues for debt
service could reduce the funds available to pay the debt
for some local governments' voter-approved public works.
3. Precedent ? SB 1398's provisions apply narrowly to the
proposed power plant project in the City of Oakley.
However, by creating an exception to the complex unitary
tax allocation method that currently applies to all
qualified electrical facility property, the bill may invite
further exceptions. The Committee may wish to consider
whether the precedent set by SB 1398 will encourage other
communities to ask the Legislature to enact unique unitary
property tax allocation methods for revenues from other
state-assessed property, creating an even more confusing
patchwork of tax allocation statutes.
4. Back to the future ? In response to the complexity and
cost of allocating unitary property tax revenues on a situs
basis to local governments in which state-assessed property
is located, the 1986 Hannigan bill created a simpler
countywide allocation method. To provide added revenues to
communities in which large electric facilities are built,
the 2006 Torlakson legislation created a hybrid method for
allocating some unitary property tax revenues through the
countywide pool and some revenues on a situs basis to the
city or county in which the electrical facility was
located. SB 1398 moves further towards the situs
allocation method, granting a large portion of the property
tax revenues from the Oakley power plant to the Oakley
Redevelopment Agency. The Committee may wish to consider
whether this shift back towards situs-based allocation of
unitary property tax revenues will erode the cost savings
and simplicity achieved by the Hannigan bill.
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5. Unnecessary ? Under the Torlakson bill's modified
unitary property tax allocation method, the City of Oakley
would receive augmented future unitary property tax
revenues from the proposed power plant within its borders.
The City can share some or all of those revenues with the
Oakley Redevelopment Agency to spend on mitigation in the
project area where the power plant is to be located. The
Committee may wish to consider why it is necessary for the
Legislature to create an exception to the Torlakson bill to
allocate additional unitary property tax revenues directly
to the Oakley Redevelopment Agency if the Agency could
already receive the City's allocation without any change in
state law.
6. State mandate, state pays . The California Constitution
requires the state to reimburse local governments for the
costs of new or expanded state mandated local programs.
Because SB 1398 imposes new duties on the Contra Costa
County Auditor to allocate property taxes from
state-assessed property, Legislative Counsel says that the
bill imposes a new state mandate. The Legislature may wish
to consider an amendment that requires Oakley to pay for
the County's increased administrative costs.
7. Two-thirds vote . Proposition 1A (2004) requires
approval by a 2/3 vote in each house of the Legislature for
any change in the pro rata shares in which ad valorem
property tax revenues are allocated among agencies in a
county. SB 1398 is subject to that constitutional
requirement, which is why the bill requires a 2/3 vote on
the Senate Floor.
Support and Opposition (4/15/10)
Support : City of Oakley, Oakley Redevelopment Agency,
Diablo Water District, Ironhouse Sanitary District, Contra
Costa Building and Construction Trades Council, Oakley
Chamber of Commerce.
Opposition : California Special Districts Association.
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