BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 536 HEARING: 4/6/11
AUTHOR: DeSaulnier FISCAL: Yes
VERSION: 2/17/11 TAX LEVY: No
CONSULTANT: Weinberger
PROPERTY TAX ALLOCATION
FROM PUBLIC UTILITY PROPERTY (URGENCY)
Creates a special formula for allocating unitary property
tax revenues to the Oakley Redevelopment Agency.
Background and Existing Law
The California Constitution requires the State Board of
Equalization (BOE) to assess public utilities for property
tax purposes. The BOE assesses a regulated utility's
property as a unit, instead of assessing the individual
value of separate properties owned by the utility. State
law allocates the property tax revenues from state-assessed
public utilities differently than the property tax revenues
from locally-assessed properties.
Until 1988-89, state law allocated property tax revenues
from all state-assessed property on a situs basis among tax
rate areas. The complexity and administrative cost of
tracking property holdings and allocating property tax
revenues among thousands of small geographic locations led
the Legislature to create the current countywide method for
allocating unitary property tax revenues (AB 2890,
Hannigan, 1986).
Under the countywide method, the BOE allocates the unitary
assessed value of utility property among the counties based
on the amount of property within each county. County
auditors allocate the property tax revenues from unitary
properties using a formula based on the amount of unitary
revenues received by the county's taxing jurisdictions in
1987-88. For years after 1987-88, each taxing jurisdiction
receives up to 102% of its prior year unitary property tax
revenues. The county auditor allocates the remaining
property tax revenue from the county's unitary roll to all
taxing jurisdictions in proportion to their shares of
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property tax revenues derived from locally-assessed
property.
In other words, this unitary tax allocation method creates
a countywide pool of property tax revenues generated by
growth in the value of state-assessed properties. Each
local taxing agency gets a share of the countywide pool,
regardless of whether any state-assessed property is within
that agency's boundaries.
The Legislature has created some exceptions to this
countywide unitary tax allocation method. When the City of
Chula Vista (San Diego County) was willing to accept a
proposed electrical power plant, legislators directed that
the resulting property tax revenues would be allocated to
schools and the county government under the unitary tax
method, but the share that would have gone to all cities in
San Diego County under the unitary tax method would instead
go just to Chula Vista (AB 1108, Peace, 1993). The
Legislature approved similar exceptions for an electrical
power plant in the City of Escondido (AB 2558, Plescia,
2004), a PG&E education and training center in the City of
Livermore (SB 53, Lockyer, 1991), and a PacBell computer
center in the City of Fairfield, (AB 454, Klehs, 1987).
The Legislature also 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, 2006).
The Community Redevelopment Law allows local officials to
set up redevelopment agencies, adopt redevelopment plans,
and finance redevelopment activities using property tax
increment revenues. When a redevelopment agency adopts a
redevelopment plan for a project area and selects a base
year, the agency "freezes" the amount of property tax
revenues that schools and other local governments receive
from the property in that area. In future years, as the
project area's assessed valuation grows above the frozen
base, the resulting property tax revenues - the property
tax increment - go to the redevelopment agency instead of
going to the schools and the other underlying local
governments. State law requires redevelopment officials to
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make pass-through payments to schools and other local
governments to mitigate the long-term fiscal effects of
property tax increment financing (AB 1290, Isenberg, 1993).
State law also requires redevelopment officials to set
aside 20% of an agency's property tax increment revenues to
increase, improve, and preserve the supply of affordable
housing (AB 3674, Montoya, 1976).
The California Energy Commission is considering a proposal
to construct a 600 megawatt power plant within a
redevelopment project area in the City of Oakley (Contra
Costa County). Oakley officials say that the modified
allocation method created by the 2006 Torlakson bill
doesn't allocate enough revenue to their redevelopment
project area. They want the Legislature to create an
exception to that modified allocation method to send more
unitary property tax revenues from the proposed power plant
to the Oakley Redevelopment Agency.
Proposed Law
Senate Bill 536 creates a new method for allocating unitary
property tax revenues from new public utility-owned,
state-assessed, "qualified property."
SB 536 defines "qualified property" as all plant and
associated equipment, including substation facilities and
fee-owned land and easements, placed in service by a public
utility in the Oakley Redevelopment Project Area on or
after January 1, 2011 and related to:
Electrical substation facilities that either
operate at 50,000 volts or more or have a
transformer with a high-side voltage of 50,000 volts
or more.
Electric generation facilities that have a
nameplate generating capacity of 50 megawatts or
more.
Electric transmission line facilities of
200,000 volts or more.
SB 536's unitary property tax allocation method differs
from the countywide allocation method that applies
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generally to revenues from utilities' state-assessed
property and from the 2006 Torlakson bill's modified method
for allocating revenues from qualified electrical facility
property in three significant ways:
I. Non-debt service allocation . Generally, under the
countywide unitary tax allocation method, property tax
revenues from the non-debt service portion of the tax
applied to state-assessed property go into a countywide
pool which is then allocated by a formula that:
Establishes a unitary tax base for any jurisdiction which
had state assessed property within its boundaries in the
1987-88 fiscal year.
Annually increases each local agency's unitary base by up
to 2% (provided that there are sufficient revenues).
Allocates the remaining revenues to all local agencies in
the county in proportion to each agency's share of
non-unitary property tax revenues.
The modified method for allocating revenues from qualified
electrical facility property allocates revenues to a
county, school entities, and non-enterprise special
districts in proportion to the revenues they received from
the utility in the prior year under the countywide
allocation method. Of the remaining revenues, 90% goes to
the city or county where the electrical facility is built
and 10% goes to the local government that provides water
service to the qualified electrical facility property.
Senate Bill 536 requires the revenues from the property tax
assessed on public utility-owned, state-assessed qualified
property to be allocated entirely to the county in which
the qualified property is located. The county auditor then
allocates the property tax revenues derived from the
non-debt-service portion of the property tax on qualified
property as follows:
First, allocate 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 the bill not
been enacted.
Second, allocate to the East Contra Costa Fire Protection
District an amount equal to 2% of the property tax
revenues.
Third, allocate to any regional park district an amount
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of property tax revenues equal to the amount of property
tax revenues allocated to that special district in
2010-11.
Fourth, allocate to the redevelopment agency governing
the project area in which the qualified property is
located, the balance of the property tax revenues.
II. Debt service allocation . Generally, unitary property
tax revenues from the debt-service rate that applies to
state-assessed properties are allocated to each taxing
jurisdiction that levies a rate in excess of 1% for
voter-approved debt service in proportion to the percentage
of total property tax revenues each jurisdiction received
from taxes on state-assessed property in the prior year.
Under the modified allocation method for qualified
electrical facilities, revenues from the debt-service rate
are allocated using the general method, except that school
entities receive an amount equivalent to the same
percentage of property tax revenues they received from the
utility in the prior fiscal year.
Senate Bill 536 allocates revenues from the debt-service
rate in two steps:
First, 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.
Second, the balance of the revenues are allocated
pursuant to the general allocation statute.
III. Property valuation . Generally, the BOE annually
reassesses state-assessed property at its current market
value on January 1. The modified allocation method for
qualified electrical facilities excludes from the
definition of qualified property any additions,
modifications, reconductoring, or equivalent replacements
to the plant and associated equipment made after the plant
and associated equipment are placed in service.
Senate Bill 536 includes, in the definition of qualified
property, any additions, modifications, reconductoring, or
equivalent replacements to the plant and associated
equipment made after the plant and associated equipment are
placed into service.
SB 536 -- 2/17/11 -- Page 6
IV. Affordable housing . Senate Bill 536 requires the
Oakley Redevelopment Agency, once the qualified property is
placed in service, to develop one new housing unit for each
40 jobs created on real property within the specified
redevelopment project area. All of the new housing units:
Must be affordable to, and occupied by, extremely
low income persons, as defined in statute.
Must comply with the requirements of the Community
Redevelopment Law, with specified exceptions.
Must be completed and occupied no later than 10
years after a specified date.
May be located anywhere within the City of Oakley.
The number of units required is not affected by
whether the units are within a project area.
May be used to satisfy the City of Oakley's
regional housing needs allocation.
To determine the number of jobs created in the specified
project area, Senate Bill 536 requires the redevelopment
agency to determine the number of full and part time jobs
existing in the specified redevelopment project area six
months before the approval of an agency's five-year
implementation plan. The agency must use data from a state
or federal agency in making the determination. The number
of housing units that the agency must develop is 1/40th of
the number of jobs calculated and must be included in the
first applicable implementation plan. For each subsequent
implementation plan, the number of additional units must be
based on any increase in the number of jobs since the prior
calculation.
V. Other provisions . Senate Bill 536 also requires a
public utility to provide the BOE with a description of the
qualified property in the form prescribed by the BOE so
that the BOE can determine the separate valuation. The BOE
must transmit to the Contra Costa County auditor the
information necessary to identify the qualified property
and the corresponding assessed value data necessary to make
the property tax revenue allocations required by the bill.
SB 536 requires the county auditor to make any necessary
pro rata reductions in the allocations of property tax
revenues attributable to the qualified property to
jurisdictions other than those receiving an allocation
under the bill's provisions. The bill requires the Oakley
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Redevelopment Agency to reimburse the county auditor's
actual and reasonable costs for administering the property
tax allocation requirements.
The bill contains legislative declarations to support its
special provisions applying to the Oakley Redevelopment
Agency.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Recognizing the need to rapidly
expand the state's electrical generating capacity, and the
impact that new generating facilities have on local
communities, the 2006 Torlakson bill compensates
communities that accept those energy projects with bigger
shares of future unitary property tax revenues. However,
that law compensates only cities or counties, not
redevelopment agencies. SB 536 expands that modified
allocation method by providing the Oakley Redevelopment
Agency with a similar augmentation of future unitary
property tax revenues from a power plant built within its
boundaries. SB 536's allocation of property tax revenues
from Oakley's power plant may generate over $2 million of
additional revenue per year over the life of the power
plant for the Agency. These revenues will help to fund the
Agency's activities and mitigate the power plant's impact
within the redevelopment project area.
2. Not increment I . SB 536 is similar to SB 1398
(DeSaulnier, 2010), which died while awaiting a concurrence
vote on the Senate Floor. Unlike the version of SB 1398
that the Senate Local Government Committee approved last
year, SB 536 does not require the unitary property tax
revenues received by the Oakley Redevelopment Agency to be
included in the agency's property tax increment. However,
the bill's legislative findings and declarations - in
Sections 3 and 5 - still cite the need for the Agency to
receive "sufficient tax increment funding." To clarify
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that the revenues allocated to the Oakley Redevelopment
Agency under SB 536's provisions are not part of the
agency's property tax increment, the Committee may wish to
consider amending the bill to delete the remaining
references to "tax increment."
3. Not increment II . By not including the additional
unitary property tax revenues from the Oakley power plant
in the Agency's tax increment, SB 536 exempts those
revenues from the extensive statutory requirements that
usually apply to redevelopment agencies' tax increment
revenues. For example, the Agency will not have to make
additional pass-through payments to some other local
governments based on the additional revenues. The Agency
will not have to set aside 20% of its additional revenues
for affordable housing. By receiving property tax revenues
that are not included in tax increment, the Oakley
Redevelopment Agency may become a "taxing entity" under
state law, which could make it eligible to claim
reimbursement for state mandates. The Committee may wish
to consider whether, by not including the property tax
revenues that it allocates to the Oakley Redevelopment
Agency in the Agency's tax increment, SB 536 sets a
precedent for future exceptions to the Community
Redevelopment Law's requirements.
4. Future winners, future losers . Property tax allocation
is a zero-sum game; every reallocation of property tax
revenues produces winners and losers. SB 536's exception
to the 2006 Torlakson bill's modified property tax
allocation method will leave some local governments in
Contra Costa County with higher future revenues, and others
with lower future revenues, than they would have received
under current law. The Oakley Redevelopment Agency wins
under SB 536. However, the bill also results in lower
future revenues to:
Special districts . Some Contra Costa County special
districts will receive lower future unitary property tax
revenues under SB 536's allocation method and lower
future pass-through payments from the Oakley
Redevelopment Agency. Those districts include the Diablo
Water District, the East Bay Regional Park District, and
the Contra Costa Mosquito and Vector Control District,
all of which serve the area in which the proposed power
plant will be built. The Committee may wish to consider
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whether SB 536 places an additional fiscal burden on
already struggling special districts.
Bond issuers . SB 536 modifies the method for allocating
the property tax revenues from the debt-service portion
of the tax rate that applies to qualified electrical
facility property. While the implications of this change
are difficult to determine, the bill could result in some
Contra Costa County local governments, whose boundaries
do not include the proposed power plant, receiving lower
future property tax revenues for debt-service. The
Committee may wish to consider whether SB 536's
allocation of unitary property tax revenues for debt
service could reduce the funds available to pay the debt
for some local governments' voter-approved public works.
5. More complexity . SB 536's provisions apply narrowly to
the proposed power plant project in the City of Oakley.
However, by creating an exception to the already complex
unitary tax allocation method that currently applies to all
qualified electrical facility property, the bill may invite
further exceptions. The Committee may wish to consider
whether the precedent set by SB 536 will encourage other
communities to ask the Legislature to enact unique unitary
property tax allocation methods for revenues from other
state-assessed property, creating an even more confusing
patchwork of tax allocation statutes.
6. Back to the future ? The 1986 Hannigan bill responded
to the complexity and cost of allocating unitary property
tax revenues on a situs basis by creating a simpler
countywide allocation method. To provide added revenues to
communities willing to accept large electric facilities,
the 2006 Torlakson legislation created a hybrid method for
allocating some unitary property tax revenues through the
countywide pool and some revenues on a situs basis to the
city or county in which the electrical facility was
located. In allocating a large share of the property tax
revenues from the Oakley power plant to the Oakley
Redevelopment Agency, SB 536 moves further away from the
1986 reforms and towards the old situs allocation method.
The Committee may wish to consider whether this shift back
towards situs-based allocation of unitary property tax
revenues will erode the cost savings and simplicity
achieved by the Hannigan bill.
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7. May be moot ? Governor Brown's 2011-12 State Budget
proposal calls for eliminating redevelopment agencies. AB
101 (Assembly Budget Committee) and SB 77 (Senate Budget
and Fiscal Review Committee) contain the implementing
language. The Committee may wish to consider whether SB
536 will be moot if the Oakley Redevelopment Agency ceases
to exist on July 1, 2011.
8. Mandate . The California Constitution requires the
state to reimburse local governments for the costs of new
or expanded state mandated local programs. Because SB 536
imposes new duties on the Contra Costa County Auditor to
allocate property taxes from state-assessed property,
Legislative Counsel says that the bill imposes a new state
mandate. SB 536 disclaims the state's responsibility for
providing reimbursement by citing the bill's requirement
that the Oakley Redevelopment Agency pay the county
auditor's additional costs.
9. Two-thirds vote . Regular statutes take effect on the
January 1 following their enactment; bills passed in 2011
take effect on January 1, 2012. The California
Constitution allows bills with urgency clauses to take
effect immediately if they're needed for the public peace,
health, and safety. SB 536 contains an urgency clause
explaining the need for the bill to take effect
immediately. Additionally, Proposition 1A (2004) requires
approval by a 2/3 vote in each house of the Legislature for
any change in the pro rata shares in which ad valorem
property tax revenues are allocated among agencies in a
county. SB 536 is subject to that constitutional
requirement. For both of these reasons, the bill requires
a 2/3 vote on the Senate Floor.
Support and Opposition (3/31/11)
Support : City of Oakley Redevelopment Agency, California
Rural Legal Assistance Foundation, Western Center on Law
and Poverty.
Opposition : Unknown.
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