BILL ANALYSIS �
AB 68
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Date of Hearing: April 6, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 68 (Beall) - As Introduced: December 14, 2010
Policy Committee: Local
GovernmentVote:9-0
Urgency: No State Mandated Local Program:
Yes Reimbursable: Yes
SUMMARY
This bill requires the auditor of Santa Clara County to redirect
$2 million in property taxes collected within Santa Clara County
from school districts to the cities of Cupertino, Los Altos
Hills, Monte Sereno, and Saratoga. Specifically, this bill:
1)Deletes, beginning in the 2012-13 fiscal year, the requirement
that the Santa Clara County auditor reduce the amount of
property tax revenues allocated to the cities of Cupertino,
Los Altos Hills, Monte Sereno, and Saratoga by the Educational
Revenue Augmentation Fund (ERAF) reimbursement amount.
2)States that the Legislature finds and declares that a special
law is necessary because of the unique fiscal pressures being
experienced by several cities in the County of Santa Clara.
FISCAL EFFECT
Increase in General Fund expenditures of $2 million annually to
backfill local property taxes shifted from school districts to
four specified cities in Santa Clara County. Minor state-
reimbursable costs to the auditor of Santa Clara County for
recalculating the property tax allocations.
COMMENTS
1)Rationale . AB 68 is sponsored by the cities of Cupertino, Los
Altos, Hills, Monte Sereno, and Saratoga. They state that
while earlier legislation has made significant improvements,
the four cities are still being treated inequitably in that no
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other cities are subject to the same diversions of property
tax. According to the author, AB 68 will finally resolve
three decades of inequality for these four cities by treating
them like every other city in the state.
2)Background no/low property tax cities . About 30 cities that
never levied a property tax before Proposition 13 are called
no property-tax cities. Another 60 cities that levied only
low property tax rates are known as low property-tax cities.
By law counties must shift some of their own property tax
revenues to these no/low cities in the form of tax equity
allocation (TEA) payments. In most counties, TEA payments to
the no/low cities are equal to 7 % of the property tax
revenues generated within their city limits. However, Santa
Clara County was allowed to allocate no more than 55 % of the
total TEA funding that the four no/low cities in the county
would otherwise be qualified to receive. The 55 % limit was
codified as the result of a 1989 agreement reached through
negotiations between Santa Clara County and the cities of
Cupertino, Los Altos Hills, Monte Sereno and Saratoga.
3)Background-ERAF . The Educational Revenue Augmentation Fund
(ERAF) was set up in the early 1990s to facilitate a shift of
property taxes from cities, counties, and special districts to
school districts (the increased property taxes to schools
helped the state balance its budget because under Proposition
98, additional local property taxes allocated to school
districts offsets, dollar for dollar, the required state
contribution to schools. Each year, cities, counties and
special districts allocate a portion of their property taxes
to ERAF, which is then used to fund school districts' budgets.
4)Previous efforts to address concerns of cities. These four
cities have argued that the limit on their TEA payments kept
them from adequately funding city services. AB 117 (Cohn),
Chapter 342, Statutes of 2006, was introduced to respond to
this concern and eliminated the 55 percent TEA cap. In
exchange, the cities provided additional services that reduced
county costs. The elimination of the cap would have allowed
the four cities to receive the full 7 % of the property tax
generated within city limits.
Given the way the ERAF contribution calculations are made, the
shift in property taxes from the county to the four cities as
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originally proposed in AB 117, would have resulted in a net
reduction in ERAF payments to school districts of about $1.4
million in 2006. To avoid the impact on the General Fund, AB
117 required that the four cities give up to ERAF, and school
funding, some of the increase in TEA payments that would have
otherwise occurred when the cap was raised.
5)Previous legislation. This bill is substantially similar to
AB 1827 (Beall, 2008), which was held on the Suspense File of
this committee.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081