BILL ANALYSIS �
AB 1676
Page 1
ASSEMBLY THIRD READING
AB 1676 (Alejo)
As Amended March 15, 2012
Majority vote
LOCAL GOVERNMENT 8-0 APPROPRIATIONS 17-0
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|Ayes:|Smyth, Alejo, Bradford, |Ayes:|Fuentes, Harkey, |
| |Campos, Davis, Hueso, | |Blumenfield, Bradford, |
| |Knight, Norby | |Charles Calderon, Campos, |
| | | |Davis, Donnelly, Gatto, |
| | | |Ammiano, Hill, Lara, |
| | | |Mitchell, Nielsen, Norby, |
| | | |Solorio, Wagner |
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SUMMARY : Addresses past property tax apportionment factors in
San Benito County. Specifically, this bill :
1)Deems as correct the property tax apportionment factors
applied in allocating property tax revenues in the County of
San Benito for each fiscal year (FY) through FY 2000-01,
inclusive.
2)Specifies that for FY 2001-02 and each FY thereafter, property
tax apportionment factors applied in allocating property tax
revenues in the County of San Benito shall be determined on
the basis of property tax apportionment factors for prior FYs
that have been fully corrected or adjusted, pursuant to the
review and recommendation of the State Controller.
3)Finds and declares that a special law is necessary because of
the uniquely severe fiscal difficulties being suffered by the
County of San Benito.
EXISTING LAW :
1)Requires each county's auditor to allocate property tax
revenue to local governments in accordance with specified
formulas and procedures.
2)Requires, generally, that each jurisdiction be allocated an
amount equal to the total received in the previous year plus
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its percentage of the property tax increment, as defined by
law.
3)Provides for the computation of apportionment factors based on
property tax allocations that are applied to actual property
tax revenues in each county in order to determine actual
amounts of revenue received by each jurisdiction.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1)Based on the audits they perform, the State Controller's
Office states the County of San Benito underfunded the
Education Revenue Augmentation Fund (ERAF) by a net of $3.8
million from July 1, 1991 and June 30, 2001. Absent this
bill, repayment of this amount would be subject to a
negotiated agreement with the Controller. Typically repayment
would occur over three to seven years. The repayment would
benefit the General Fund, which backfilled the underpayments
to ERAF.
2)Other counties are repaying the state for incorrect
misallocations of property tax. The enactment of this bill
could affect the willingness of other counties to repay the
state, increasing the impact of this bill on the General Fund.
COMMENTS : In 1992-93 and 1993-94, in response to serious
budgetary shortfalls, the Legislature and Governor permanently
redirected over $3 billion of property taxes from cities,
counties, and special districts to schools and community college
districts. Under Proposition 98, these redirected funds reduce
the state's funding obligation for K-14 school districts by a
commensurate amount.
The property tax shift is accomplished through contributions
that cities, counties, and special districts deposit into the
Education Revenue Augmentation Fund (ERAF), the proceeds of
which then are transferred to school districts within the
county. These contributions grow over time in line with the
property tax growth rate in each local jurisdiction. Property
tax allocations and annual contributions to ERAF are made by the
county auditor.
This bill is sponsored by the County of San Benito to rectify a
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local taxation problem. Following an audit by the State
Controller's Office, it was determined that San Benito County
underfunded ERAF for the fiscal years between July 1, 1993, and
June 30, 2001. The State Controller's Office and the County of
San Benito have had different interpretations of several
sections in the Revenue & Taxation Code and their applicability
to ERAF between the years of 1993 and 2001.
This bill will deem correct the amounts of property tax
allocated by San Benito County prior to and including FY
2000-01. According to the State Controller's Office, San Benito
County has been using the correct formulas and calculations from
FY 2001-02 onward, so there is no dispute past that point.
According to the State Controller's Office's audit findings, the
amount that was underfunded between 1993 and 2001 was $3.854
million in San Benito County.
The State Controller's office regularly audits apportionment and
allocation by counties of property tax revenues in accordance
with a statutory schedule contained in the Government Code -
some counties undergo annual audits, some are on three-year
schedules, and those with small populations, like San Benito
County, are on a five-year cycle. San Benito County was audited
by the Controller's office in 1998, 2005, and 2009. In the 1998
audit, the State Controller's Office determined that ERAF was
underfunded by $514,016. The county did not reimburse ERAF for
this amount. In a subsequent audit issued on July 28, 2005, the
same amount had grown to $3,929,689 because San Benito County
did not make the adjustments suggested by the Controller and the
amount of property tax not re-allocated grew to significant
levels.
In 2004, the Governor signed SB 1096 (Senate Budget and Fiscal
Review Committee), Chapter 211, Statutes of 2004, which
contained provisions in the Revenue & Taxation Code Section
96.81 that forgave county property tax allocation errors and
deemed correct any misapplication of apportionment factors for
any State Controller's audit conducted between July 1, 1993 and
June 30, 2001. According to the 2005 San Benito County audit,
Revenue & Taxation Code Section 96.81 forgave the initial amount
of $514,016, but the difference of $3,415,673 must be returned
to ERAF.
There is a precedent for deeming correct those property tax
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apportionment factors used in a county's calculations, and the
net effect is that it holds the local government harmless for
the erroneous calculation. Similar bills in the past have
required that the mistake or miscalculation is rectified on a
going-forward basis, but in this case, San Benito County has
already corrected their calculations. For instance, AB 1615
(Longville), Chapter 604, Statutes of 2000, dealt with a
situation in which the State Controller found that Riverside
County's property tax calculation methodology was deficient.
Riverside County disputed this interpretation in its response to
the original audit report from the Controller. After receiving
the same finding in a subsequent report, Riverside County
appealed through the established channels in the Controller's
Office. The end result of that process was an agreement by
Riverside County to create a new methodology based on the
state's interpretation of the statute.
Another bill, AB 1339 (V. Manuel P�rez) of 2009 was sponsored by
the County of Imperial to rectify a local taxation problem.
Following an audit by the State Controller's Office, it was
determined that an error in the property tax calculation had
given the Imperial County Free Library additional funds which
potentially would need to be paid back because the county
inadvertently left the library out of the ERAF cost shift. The
calculation was corrected and the library moved forward with a
substantially smaller revenue stream. This bill allowed the
prior calculation to stand and forgave over $950,000 that was
owed. AB 1339 died in the Senate Appropriations Committee.
Support argument: This bill deems correct those property tax
apportionment factors used by San Benito County that were
previously disputed by the State Controller's audit findings and
therefore holds San Benito County harmless. This bill would
bring closure to the long standing dispute and grant legislative
relief for San Benito County.
Opposition argument: Because entities within San Benito County
and the county itself underfunded ERAF between 1993 and 2001,
the state backfilled that loss to schools. The Legislature may
wish to discuss under what circumstances legislative relief
should be granted to local agencies for a consistent application
in the future.
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Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958
FN: 0003809