BILL ANALYSIS
SB 1398
Page 1
SENATE THIRD READING
SB 1398 (DeSaulnier)
As Amended August 20, 2010
2/3 vote
SENATE VOTE :30-3
LOCAL GOVERNMENT 5-0 APPROPRIATIONS 12-4
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|Ayes:|Smyth, Caballero, |Ayes:|Fuentes, Bradford, |
| |Arambula, Coto, | |Huffman, Coto, Davis, De |
| | Solorio | |Leon, Gatto, Hall, |
| | | |Skinner, Solorio, |
| | | |Torlakson, Torrico |
| | | | |
|-----+--------------------------+-----+--------------------------|
| | |Nays:|Harkey, Miller, Nielsen, |
| | | |Norby |
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LOCAL GOVERNMENT 6-0
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|Ayes:|Smyth, Arambula, | | |
| |Bradford, Coto, Davis, | | |
| |Solorio | | |
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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 (RDA).
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 RDA 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
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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.
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;
iii) Third, to any special district formed pursuant to
the Regional Park, Park and Open-Space, and Open-Space
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Districts Act, an amount of property tax revenues equal
to the amount of property tax revenues allocated to that
special district in FY 2010-11; and,
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
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 RDA
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).
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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,
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
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would be from the City of Oakley (where the RDA is located)
and $2.2 million from various water, sanitary, park, hospital,
and other special districts within Contra Costa County.
COMMENTS :
ASSESSMENT OF PUBLIC UTILITIES: 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.
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: 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.
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The author notes that the SB 1317 allocation method will
apportion insufficient revenues to their redevelopment project
area.
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 RDA. The California 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.
The project was denied by the 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.
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: 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 RDA 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
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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.
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 FY 2010-11, and re-order the formula
of property tax allocation so that the 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: Existing law contained in the Health and Safety
Code declares that it is the policy of the state, with respect
to redevelopment:
1)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.
2)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.
3)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
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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.
4)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
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).
5)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: This bill 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 this bill, 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;
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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 this bill
make a fundamental shift in the funding for RDAs and would allow
the Oakley RDA to utilize these additional funds for any purpose
since the funds would be deemed property tax revenue and not tax
increment. The Legislature may wish to consider whether it is
prudent to make such a fundamental shift in policy concerning
redevelopment law.
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 Legislature
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.
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 RDA, making it unnecessary for a bill to
enact statutory changes to the property tax allocation formula.
The Legislature may wish to ask the author why a bill is
necessary, when a transfer of funds from the City to the RDA may
be sufficient.
This bill creates winners and losers - the Oakley RDA would
receive increased revenues under the bill's provisions; however,
several special districts in the area would lose revenue. The
Legislature 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.
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
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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 this bill does not pass.
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."
This bill 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.
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).
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958
FN: 0006779