BILL ANALYSIS �
AB 1816
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Date of Hearing: April 18, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1816 (Beall) - As Introduced: February 21, 2012
Policy Committee: Local
GovernmentVote:7-0
Urgency: No State Mandated Local Program:
Yes Reimbursable: Yes
SUMMARY
This bill modifies property tax allocations for four cities in
Santa Clara County. Specifically, this bill:
1)Requires the Santa Clara County Auditor to make specified
allocation and calculation changes which will result in an
increase in property tax revenues allocated to the cities of
Cupertino, Los Altos Hills, Monte Sereno and Saratoga and a
commensurate reduction of payments to the Educational Revenue
Augmentation Fund (ERAF).
2)Provides that the payments change will occur over five years
with a change of 20 percentage points each year, i.e. the
first year the cities will receive 20% of the redirection from
ERAF.
3)Prohibits the Santa Clara County Auditor from making these
changes in any fiscal year in which Proposition 98 funding
level is determined by Test 1.
FISCAL EFFECT
Increase in General Fund expenditures to backfill local property
taxes shifted from school districts to four specified cities in
Santa Clara County. The amount of the backfill would begin at
$400,000 annually increasing yearly until reaching approximately
$2 million annually. The amount of the backfill would depend on
the Proposition 98 test that is applicable. The last time Test
1 was the applicable test was the 1988-89 fiscal year. Minor
state- reimbursable costs to the auditor of Santa Clara County
for recalculating the property tax allocations.
AB 1816
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COMMENTS
1)Rationale . AB 1816 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
other cities are subject to the same diversions of property
tax. According to the author, AB 1816 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 allocated to
schools helped the state 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. AB 117
(Cohn), Chapter 342, Statutes of 2006, was introduced to
respond to this concern and eliminated the 55% TEA cap. The
elimination of the cap allowed the four cities to receive the
full 7% of the property tax generated within city limits. To
offset the impact of the property tax reallocation on schools,
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ERAF payments to school districts of about $1.4 million. To
avoid the impact on the General Fund, AB 117 required that the
four cities remit about $1.4 million to ERAF, and school
funding, some of the increase in TEA payments that would have
otherwise occurred when the cap was raised. It is these
payments to ERAF that this bill seeks to reverse.
5)Previous legislation. This bill is substantially similar in
effect to AB 1827 (Beall, 2008) and AB 68 (Beall, 2010), both
of which were held on the Suspense File of this committee.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081