BILL ANALYSIS
SB 1398
Page 1
Date of Hearing: August 25, 2010
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
SB 1398 (DeSaulnier) - As Amended: August 20, 2010
SENATE VOTE : 30-3
SUBJECT : Property tax revenue allocations: public utilities:
qualified property.
SUMMARY : Revises property tax formulas to allocate property tax
revenues from a proposed public utility power plant in Contra
Costa County to benefit the Oakley Redevelopment Agency.
Specifically, this bill :
1)Defines "qualified property" to mean both of the following:
a) 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
the following:
i) Electrical substation facilities that meet either of
the following conditions:
(1) The high-side voltage of the facility's
transformer is 50,000 volts or more; or,
(2) The substation facilities are operated at
50,000 volts or more.
ii) Electric generation facilities that have a nameplate
generating capacity
of 50 megawatts or more; and,
iii) Electric transmission line facilities of 200,000
volts or more.
b) Any additions, modifications, reconductoring, or
equivalent replacements to the plant and associated
equipment made after the plant and associated equipment are
placed into service.
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2)Provides, notwithstanding any other law, that all of the
following shall apply, for the fiscal year (FY) 2011-12 and
each FY thereafter:
a) The revenue from the property tax assessed on qualified
property, which is owned by a public utility and assessed
by the Board of Equalization (BOE), shall be allocated
entirely within the county in which the qualified property
is located.
b) Provides that the county auditor shall allocate the
non-debt service portion of the property tax revenues as
follows:
i) First, to the county in which the qualified property
is located and to all of the school entities located in
that county, the amount of property tax revenues that
would have
otherwise been allocated to the county and school entities
or districts had this section not been enacted;
ii) Second, to the East Contra Costa Fire Protection
District, an amount equal to 2%
of the property tax revenues; and,
iii) Third, to any special district formed pursuant to
the Regional Park, Park and Open-Space, and Open-Space
Districts Act, an amount of property tax revenues equal
to the amount of property tax revenues allocated to that
special district in the 2010-11 fiscal year.
iv) Fourth, to the redevelopment agency governing the
project area in which the qualified property is located,
the balance of the property tax revenues.
c) Allocates revenues from the debt-service rate in two
steps:
i) Provides that 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
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override rate adopted by the local agency for the year;
and,
ii) Provides that the balance of the revenues shall be
allocated pursuant to the general allocation statute.
3)Provides that a public utility shall provide to BOE a
description of the qualified property in the form prescribed
by BOE so that separate valuation can be determined.
4)Provides that BOE shall transmit to the auditor of Contra
Costa County the information necessary to identify the
qualified property and the corresponding assessed value data
necessary to make the property tax revenue allocations as
required under this bill.
5)States that the Legislature finds and declares that a special
law is necessary in order to ensure that the Oakley
Redevelopment Agency receives sufficient tax increment.
6)Provides that no reimbursement is required because the bill
provides for reimbursement to a local agency in the form of
additional revenues that are sufficient in amount to fund the
new duties established in this measure.
7)Contains chaptering out amendments to ensure that there is no
conflict with AB 308 (Cook).
EXISTING LAW :
1)Provides for the following allocation formula pursuant to SB
1317 (Torlakson), Chapter 872, Statutes of 2006, for qualified
public utility-owned electrical facilities built after January
1, 2007, and meeting specified conditions:
a) Counties, K-14 schools, and non-enterprise special
districts receive the same percentage of these property tax
revenues as they received in the previous year;
b) The city in which the electrical facility is located
receives 90% of the remaining property tax revenues;
c) The city or water districts that provide water service
to the electrical facilities receive the remaining 10% of
the property tax revenues; and,
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d) The other entities that would have previously received a
share of the property tax revenues do not receive any of
the revenues.
2)Authorizes redevelopment agencies to utilize tax increment
financing to fund projects in a redevelopment area.
3)Requires redevelopment agencies to make payments to affected
taxing entities to alleviate the financial burden or detriment
that the affected taxing entities may incur as a result of the
redevelopment plan.
4)Establishes a fixed mathematical formula for the amount of tax
increment that redevelopment agencies must pay affected taxing
entities during the life of the redevelopment plan.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1) No direct effect on state costs or revenues, since the
bill does not impact property taxes going to school districts.
2) The bill redirects about $2.7 million of property taxes
within the county, and reduces funds that would otherwise be
available for low income housing. Of this total, $500,000
would be from the City of Oakley (where the redevelopment
agency is located) and $2.2 million from various water,
sanitary, park, hospital, and other special districts within
Contra Costa County.
COMMENTS :
ASSESMENT OF PUBLIC UTILITIES
1)In recent years, there has been a trend of moving toward
situs-based allocation for certain new major projects assessed
by the state. Prior to this point, incremental growth
revenues from state-assessed properties were distributed to
nearly all governmental agencies and school entities in the
county in proportion to each entity's share of the county's
total ad valorem property tax revenues in the prior year.
Under the countywide system, all entities received a share in
the revenues, regardless of whether any of the value growth
occurred within its jurisdictional boundaries.
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2)AB 81 (Migden), Chapter 57, Statutes of 2002, was enacted to
change the revenue allocation of power plants divested by
public utilities and sold to private operators, as well as
those newly constructed by merchant power plant owners, to
provide for situs-based revenue allocation. In 2005, San
Diego Gas and Electric sought and received special revenue
allocations for a proposed new power plant to be constructed
in the City of Escondido [AB 2558 (Plescia), Chapter 640,
Statutes of 2004]. In 2006, the Legislature 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),
Chapter 872, Statutes of 2006]. The result is that SB 1317
compensates a community that accepts an energy project with a
bigger share of future unitary property tax revenues.
However, the SB 1317 formula only provides compensation for
cities or counties, not redevelopment agencies.
PROPOSED OAKLEY POWER PLANT
3)According to the author, current law creates a disincentive
for the City of Oakley to support
a new power generating facility within its boundaries. The
author notes that the residents
of Oakley will be the most impacted if a power plant is built
within their community and without the financial incentive
that can be used to reduce blight in the community and provide
the necessary services to the facility. The author notes that
the SB 1317 allocation method will apportion insufficient
revenues to their redevelopment project area.
4)This bill revises property tax allocation formulas to allow
property tax revenues from a new public utility power plant
proposed to be built in Contra Costa County to be allocated to
the Oakley Redevelopment Agency. The Public Utilities
Commission (PUC) recently considered a proposal to construct a
600 megawatt power plant to be located within a redevelopment
project area in the City of Oakley, in East Contra Costa
County. The power plant is slated to use General Electric's
(GE) latest technology, be powered by natural gas, and will
eventually be owned by PG & E at commercial operation.
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5)The project was denied by the Public Utilities Commission
(PUC) in July 2010, although the PUC did give PG & E
permission to resubmit the Oakley project at a later date
under specific conditions. The Committee may wish to ask the
author to discuss further why the project was denied and
consider whether it makes sense to move forward with
legislation at this time.
6)The Division of Ratepayer Advocates (DRA), an independent
consumer advocacy division of the PUC, applauded the PUC's
decision to deny the construction of the Oakley power plant in
a press release dated July 29, 2010. In the release, DRA
noted that the project would have "pushed PG & E over its cap
on new capacity as authorized by the PUC in 2007," and also
noted that "the need for new power has not increased as
rapidly as expected and that the Oakley power plant is not
needed until at least 2018."
AMENDMENTS TO SB 1398
7)Amendments taken by the author on June 10, 2010 as suggested
by the Senate Appropriations Committee hold school districts
in Contra Costa County harmless, and also require the Oakley
Redevelopment Agency to reimburse the county auditor for the
actual and reasonable costs incurred by the county auditor for
implementing the bill. Additionally the author amended the
bill to allocate 2% of the property tax revenues, after
distribution to all school entities, to the East Contra Costa
Fire Protection District, since that is the district that will
provide services to the new power plant. In addition to the
amendments requested by the Senate Appropriations Committee,
the author, at that time, also added in language that said
that property tax revenues allocated to the redevelopment
agency under the provisions of this bill shall not be counted
as property tax revenues or property tax increment for the
purposes of specified pass-through agreements, including
affordable housing set-asides.
8)Amendments taken by the author on August 20, 2010 include a
future allocation to any special district formed pursuant to
the Regional Park, Park and Open-Space, and Open-Space
Districts Act, in an amount equal to the property tax revenues
allocated to that special district in the 2010-11 FY, and
re-order the formula of property tax allocation so that the
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allocation of property tax to the Oakley RDA follows the
allocation to Contra Costa County, the East Contra Costa Fire
Protection District, and any affected special district. The
August 20th amendments also delete language specifying that
property tax revenues allocated to the Oakley RDA shall be
included in the RDA's tax increment; therefore, these funds
would not be subject to the statutorily required pass-through
agreements or the low-mod housing set-aside made from the
RDA's tax increment revenues.
PURPOSE OF REDEVELOPMENT LAW AND TAX INCREMENT FINANCING IN
CALIFORNIA
9)Existing law contained in the Health and Safety Code declares
that it is the policy of the state, with respect to
redevelopment:
a) To protect and promote the sound development and
redevelopment of blighted areas and the general welfare of
the inhabitants of the communities in which they exist by
remedying such injurious conditions through the employment
of all appropriate means.
b) That the redevelopment of blighted areas and the
provisions for appropriate continuing land use and
construction policies in them constitute public uses and
purposes for which public money may be advanced or expended
and private property acquired, and are governmental
functions of state concern in the interest of health,
safety, and welfare
of the people of the state and of the communities in which
the areas exist.
c) The Legislature further finds and declares that a
fundamental purpose of redevelopment is to expand the
supply of low- and moderate-income housing, to expand
employment opportunities for jobless, underemployed, and
low-income persons, and to provide an environment for the
social, economic, and psychological growth and well-being
of all citizens.
10)Redevelopment is financed primarily by tax increment revenue.
In 1952, California voters adopted Article XVI, Section 16 of
the California Constitution, which provides for tax increment
financing for redevelopment projects. Tax increment financing
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is based on the assumption that a revitalized project area
will generate more property taxes than were being produced
prior to redevelopment. When a redevelopment project area is
adopted, the current assessed values of the property within
the project area are designated as the base year value. Tax
increment comes from the increased assessed value of property,
not from an increase in tax rate. Any increases in property
value, as assessed because of change of ownership or new
construction, will increase tax revenue generated by the
property, the majority of which goes to the agency in the form
of tax increment. Taxing entities such as the county, school
districts, and special districts that serve the project area
continue to receive all the tax revenues they were receiving
the year the redevelopment project was formed (called the base
year).
11)According to Community Redevelopment Law, tax increment is to
be used for specific purposes that are listed in the agency's
Redevelopment Plan, and funds must be spent within the
redevelopment area. Tax increment is used to further the
goals of redevelopment law, including the eradication of
blight. Additionally, 20 % of tax increment revenues must be
spent on affordable housing. Tax increment revenues also go
toward paying off an agency's bonded indebtedness.
POLICY QUESTIONS
12)SB 1398 provides that the additional property tax revenues
that will go to the Oakley RDA will not count as tax
increment. This means that the additional revenues do not
have to be used pursuant to existing law which dictates the
use of tax increment, including requiring that 20% of the tax
increment is set aside for low and moderate income housing,
and the statutorily required pass-through payments made from a
redevelopment agency's tax increment revenues to other
affected jurisdictions. Instead, under SB 1398, the additional
revenues could be used for the redevelopment agency's
operations rather than on-the-ground projects that are
eradicating blight. Redevelopment agencies are not taxing
entities under the law; therefore, they do not receive direct
property tax revenue to be used for any purpose. RDAs may
only receive tax increment to be used specifically for the
eradication of blight and the creation of low and moderate
income housing. The provisions of SB 1398 make a fundamental
shift in the funding for RDAs and would allow the Oakley RDA
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to utilize these additional funds for any purpose since the
funds would be deemed property tax revenue and not tax
increment. The Committee may wish to consider whether it is
prudent to make such a fundamental shift in policy concerning
redevelopment law.
13)Under existing law, a local jurisdiction hosting a power
generation facility is able to capture additional property tax
revenues to assist in providing local community services to
their residents. Cities, counties, and special districts
provide various services to their residents; however,
redevelopment agencies do not provide services. The Committee
may wish to ask the author why additional compensation is
needed by the redevelopment agency when no new services are
being provided to residents by the redevelopment agency.
14)Under the existing SB 1317 method of modified unitary
property tax allocation, the City
of Oakley will receive augmented future unitary property tax
revenues from the proposed power plant within its borders.
The City could share some or all of the revenues from the new
power plant with the Oakley Redevelopment Agency, making it
unnecessary for a bill to enact statutory changes to the
property tax allocation formula. The Committee may wish to
ask the author why a bill is necessary, when a transfer of
funds from the City to the Redevelopment Agency may be
sufficient.
15)This bill creates winners and losers - the Oakley
Redevelopment Agency would receive increased revenues under
the bill's provisions; however, several special districts in
the area would lose revenue. The Committee may wish to
consider whether it is prudent to get in the middle of a local
issue by taking sides, thus picking winners and losers.
16)Support Arguments : Supporters argue that SB 1398 will remedy
on oversight in existing law regarding property tax allocation
revenue for public utilities. Supporters state that existing
law does not recognize that some power generating facilities
are sited within redevelopment project areas. The City of
Oakley notes that the power generation facility will provide
substantial jobs during the construction phase of the
facility, but will not necessarily provide significant annual
revenues to the hosting jurisdiction if SB 1398 does not pass.
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Opposition Arguments : The California Special Districts
Association (CSDA) writes that "supporters of SB 1398 argue
that not listing redevelopment agencies in SB 1317 was 'an
omission' - an assertion that is factually incorrect." CSDA
states that redevelopment agencies were specifically not
included in SB 1317 due to the incentive allocation of
property tax revenues that the siting city would receive from
the new power facility - in this case, the City of Oakley.
Additionally, CSDA writes that the "inclusion of redevelopment
agencies sets an unfortunate precedent and will ultimately
result in reducing or otherwise eliminating property tax
allocations to special districts as provided for in SB 1317."
17)SB 1398 contains chaptering out amendments to ensure that the
bill's provisions do not conflict with AB 308 (Cook). AB 308
(Cook) would preserve the current longstanding property tax
allocation method for the Mountain View Power Plant located in
Redlands, California, despite a recent change in ownership.
18)This bill changes the pro rata shares in which ad valorem
property tax revenues are allocated among local agencies in a
county, and therefore, requires a two-thirds vote of the
membership of each house of the Legislature (Proposition 1A,
2004).
SUPPORT / OPPOSITION :
Support
Oakley Redevelopment Agency [SPONSOR]
Contra Costa Building and Construction Trades Council
Diablo Water District
Ironhouse Sanitary District
Oakley Chamber of Commerce
Opposition
CA Special Districts Association
Howard Jarvis Taxpayers Association
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958