BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1191 HEARING: 6/13/12
AUTHOR: Huber FISCAL: Yes
VERSION: 1/23/12 TAX LEVY: No
CONSULTANT: Weinberger
LOCAL SALES TAX AND
VEHICLE LICENSE FEE REIMBURSMENTS (URGENCY)
Allows a county in which all school districts are "basic
aid" districts to receive reimbursement for lost sales tax
and vehicle license fee revenues diverted under state law.
Background and Existing Law
In response to state budget deficits in the early 1990s,
the Legislature reduced State General Fund spending on
education by permanently shifting property tax revenues
from local governments into an Educational Revenue
Augmentation Fund in each county to benefit schools (the
so-called ERAF shifts).
Proposition 57 (2004), the California Economic Recovery
Bond Act, allowed the state to purchase bonds to reduce the
state budget deficit. To secure the bonds, accompanying
legislation significantly changed the distribution of sales
and use taxes and other local revenues through what is
commonly known as the "Triple Flip" (AB X5 9, Oropeza,
2003; SB 1096, Budget Committee, 2004). The Triple-Flip
reduced the local sales tax by 0.25% and dedicated that
portion of the sales tax to paying off the deficit
financing bonds. To compensate local governments, the
Triple-Flip transferred property tax revenues from a
county's ERAF into a Sales and Use Tax Compensation Funds
(SUTCF). Because transferring funds out of ERAF results in
lower property tax revenues to schools, State General Fund
revenues backfill the funds transferred out of ERAF to
maintain Proposition 98's minimum funding guarantee.
The 2004 legislation also implemented the so-called
"VLF-Property Tax Swap," under which VLF allocations from
the State General Fund were replaced by property tax
revenues transferred from ERAF into a Vehicle License Fee
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Property Tax Compensation Fund (VLFPTCF). In turn, the
State General Fund backfills schools for their lost ERAF
money.
If the amount of funds available in a county's ERAF is
insufficient to cover the amount of sales tax and VLF
revenue diverted from the county by the Triple Flip and the
VLF Swap, state law allows a county to divert the needed
funds from property taxes allocated to K-12 school and
community college districts. The State General Fund
backfills the districts' lost revenues. However, counties
cannot divert property tax revenues allocated to "basic
aid" school districts, which are districts that receive
sufficient local property tax revenues to meet the
Proposition 98 minimum funding requirements, because the
State General Fund would not automatically backfill those
lost revenues.
If all of the school districts in a county are basic aid
districts, the statutory mechanism for transferring
property tax dollars to local governments to replace
revenues lost to the Triple Flip and VLF Swap doesn't work.
A county in which 100% of schools are basic aid cannot
divert property taxes from ERAF or from any school
districts. During the 2010-11 fiscal year, all of the
school districts in Amador County were basic aid districts.
The Governor's revised 2012-13 budget proposes $1.5
million in funding for Amador County to compensate for
revenues that the county lost to the Triple-Flip and VLF
Swap and was unable to recover from schools' property
taxes.
County officials want the Legislature to create a permanent
process for reimbursing a 100% basic aid county for
revenues diverted by the Triple-Flip and VLF Swap.
Proposed Law
For the 2012-13 fiscal year and each subsequent fiscal
year, if insufficient property tax revenues are available
to offset the full amount of sales and use tax revenues
lost within a county as a result of the Triple Flip's 0.25%
reduction in local sales and use rate tax authority,
Assembly Bill 1191 requires the county auditor to submit a
claim to the State Controller. The amount of the claim,
AB 1191 -- 1/23/12 -- Page 3
calculated by the county auditor, must be the difference
between the countywide adjustment amount for that fiscal
year and the in lieu local sales and use tax revenues
actually received by the county and each city in that
county. The Controller, upon appropriation by the
Legislature, must deposit the amount of the claim into the
Sales and Use Tax Compensation Fund (SUTCF) and the county
auditor must allocate the funds to the county and to each
city in that county the amount that was calculated by the
county auditor.
For the 2012-13 fiscal year and each subsequent fiscal
year, if insufficient property tax revenues are available
to offset the full amount of vehicle license fee revenues
lost within a county as a result of the VLF Swap, AB 1191
requires the county auditor to submit a claim to the State
Controller. The amount of the claim, calculated by the
county auditor, must be the amount of property tax revenues
that the county was unable to allocate into the Vehicle
License Fee Property Tax Compensation Fund (VLFPTCF) to
reach the full countywide vehicle license fee adjustment
amount. The Controller, upon appropriation by the
Legislature, must deposit the amount of the claim into the
VLFPTCF and allocate that amount among the cities and
county in accordance with specified provisions.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . A combination of demographic
factors and economic conditions made all of the school
districts in Amador County "basic aid" districts in the
2010-11 fiscal year. Because state law explicitly
prohibits taking property tax revenues from basic aid
schools for both the VLF Swap and the Triple Flip, there is
no legally available revenue source from which to backfill
cities and counties for the loss of VLF or local sales tax
revenue. AB 1191 creates a process to remedy these
unintended consequences to ensure that all cities and
counties are treated equitably under the provisions of the
Triple Flip and the VLF Swap.
2. An imperfect solution . In most counties, using
AB 1191 -- 1/23/12 -- Page 4
property taxes from ERAF and non-basic aid school districts
allows the state to reimburse local governments promptly
and automatically for lost VLF and local sales tax
revenues. By contrast, under AB 1191's claims process
local governments aren't reimbursed in the same fiscal year
in which they lose revenues and must rely on a legislative
appropriation of funding, creating annual uncertainty about
reimbursements. While determining the basic aid status of
all of the districts in a county will unavoidably delay the
reimbursement claims process, state law could provide local
governments with more certainty about reimbursements by
guaranteeing that the State General Fund will reimburse
local governments for their losses related to the Triple
Flip and VLF Swap. The Committee may wish to consider
amending AB 1191 to make an ongoing appropriation of state
funds for the purpose of reimbursing claims submitted to
the Controller by 100% basic aid counties.
3. Just the beginning ? Earlier this year, the Governor's
budget included funding to reimburse Mono County, which was
also thought to have become a 100% basic aid county in
2010-11. While that did not prove to be true, the
Legislative Analyst's Office suggests that, in addition to
Mono County, a number of other counties could soon follow
in Amador County's footsteps, including: Inyo, Marin,
Plumas, San Mateo, and Sonoma. Legislators should be aware
that AB 1191 lays the groundwork for future reimbursement
claims that could involve larger amounts of lost revenues.
4. Let's be clear . AB 1191 is intended to allow Amador
County to submit a claim, during the 2012-13 fiscal year,
to reimburse Triple Flip and VLF Swap losses that it
incurred in the 2010-11 fiscal year. However, read
narrowly, the bill's language could be interpreted as
prohibiting a county from submitting a claim for revenues
that it lost before the 2012-13 fiscal year. The Committee
may wish to consider amending AB 1191 to clarify that a
county can submit a claim beginning in 2012-13 to reimburse
losses that it suffered in an earlier fiscal year.
5. Urgency clause . Regular statutes take effect on the
January 1 following their enactment; bills passed in 2012
take effect on January 1, 2013. The California
Constitution allows bills with urgency clauses to take
effect immediately if they're needed for the public peace,
health, and safety. AB 1191 contains an urgency clause to
AB 1191 -- 1/23/12 -- Page 5
provide immediate financial relief to local entities that
are not receiving the full allocations of property taxes to
compensate for their revenue losses under the Triple Flip
and VLF Swap.
Assembly Actions
Assembly Local Government Committee: 9-0
Assembly Appropriations Committee:17-0
Assembly Floor: 75-0
Support and Opposition (6/7/12)
Support : Amador County; Cities of Ione, Jackson, Plymouth,
and Sutter Creek; California State Association of Counties;
League of California Cities; Mono County; Regional Council
of Rural Counties.
Opposition : Unknown.