BILL ANALYSIS �
SB 536
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Date of Hearing: June 29, 2011
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
SB 536 (DeSaulnier) - As Amended: June 21, 2011
SENATE VOTE : 35-0
SUBJECT : Property tax revenue allocations: public utilities:
qualified property.
SUMMARY : Revises property tax formulas to allocate property tax
revenues from a proposed public utility power plant in Contra
Costa County to benefit the Oakley Redevelopment Agency (Oakley
RDA). Specifically, this bill :
1)Defines "qualified property" to mean both of the following:
a) All plant and associated equipment, including substation
facilities and fee-owned land and easements, placed in
service by a public utility in the Oakley RDA project area
on or after January 1, 2011, and related to the following:
i) Electrical substation facilities that meet either of
the following conditions:
(1) The high-side voltage of the facility's
transformer is 50,000 volts or more; or,
(2) The substation facilities are operated at
50,000 volts or more.
ii) Electric generation facilities that have a nameplate
generating capacity
of 50 megawatts or more; and,
iii) Electric transmission line facilities of 200,000
volts or more.
b) Any additions, modifications, reconductoring, or
equivalent replacements to the plant and associated
equipment made after the plant and associated equipment are
placed into service.
2)Provides, notwithstanding any other law, that all of the
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following shall apply, for the fiscal year (FY) 2011-12 and
each FY thereafter:
a) The revenue from the property tax assessed on qualified
property, which is owned by a public utility and assessed
by the Board of Equalization (BOE), shall be allocated
entirely within the county in which the qualified property
is located;
b) Provides that the county auditor shall allocate the
non-debt service portion of the property tax revenues as
follows:
i) First, 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 this section not been enacted;
ii) Second, to the East Contra Costa Fire Protection
District, an amount equal to 2%
of the property tax revenues;
iii) Third, to any special district formed pursuant to
the Regional Park, Park and Open-Space, and Open-Space
Districts Act, an amount of property tax revenues equal
to one thousand dollars ($1,000); and,
iv) Fourth, to the redevelopment agency governing the
project area in which the qualified property is located,
the balance of the property tax revenues.
c) Allocates revenues from the debt-service rate in two
steps:
i) Provides that 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;
and,
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ii) Provides that the balance of the revenues shall be
allocated pursuant to the general allocation statute.
3)Provides that a public utility shall provide to BOE a
description of the qualified property in the form prescribed
by BOE so that separate valuation can be determined.
4)Provides that BOE shall transmit to the auditor of Contra
Costa County the information necessary to identify the
qualified property and the corresponding assessed value data
necessary to make the property tax revenue allocations as
required under this bill.
5)States that the Oakley RDA shall develop one new housing unit
for each 40 jobs created on real property within the project
area that was, on September 1, 2010 owned by the Dupont
Corporation, commonly and formerly known as the Dupont Antioch
Plant, and provides that the housing obligation shall begin
upon placing the qualified property in service.
6)Provides that units newly developed shall:
a) Be affordable to, and occupied by, extremely-low income
persons;
b) Comply with the requirements of the Community
Redevelopment Law, except as otherwise provided in the
bill;
c) Be completed and occupied no later than 10 years, after
determination by the Oakley RDA;
d) Be located anywhere within the City of Oakley; and,
e) Be used to satisfy the City of Oakley's regional housing
needs allocation (RHNA).
7)Provides that the Oakley RDA shall determine the number of
jobs, full and part time, existing in the project area six
months prior to the approval of the RDA's five-year
implementation plan.
8)Provides that the Oakley RDA shall use data from a state or
federal agency in making the determination of the number of
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jobs existing in the project area.
9)States that the number of units required to be developed under
the provisions of this bill shall be 1/40th of the number of
jobs calculated by the Oakley RDA and shall be included in the
first applicable implementation plan.
10)Provides that for each subsequent implementation plan, the
number of additional units shall be based on the increase, if
any, in the number of jobs since the prior calculation.
11)States that the Legislature finds and declares that a special
law is necessary in order to ensure that the Oakley RDA
receives sufficient tax increment.
12)Provides that no reimbursement is required because the bill
provides for reimbursement to a local agency in the form of
additional revenues that are sufficient in amount to fund the
new duties established in this measure.
13)States that this bill is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety
in order to ensure that the Oakley Redevelopment Agency
receives sufficient funding to repay loans, or moneys advanced
to, or indebtedness incurred by, the redevelopment agency to
finance or refinance redevelopment projects.
EXISTING LAW :
1)Provides for the following allocation formula pursuant to SB
1317 (Torlakson), Chapter 872, Statutes of 2006, for qualified
public utility-owned electrical facilities built after January
1, 2007, and meeting specified conditions:
a) Counties, K-14 schools, and non-enterprise special
districts receive the same percentage of these property tax
revenues as they received in the previous year;
b) The city in which the electrical facility is located
receives 90% of the remaining property tax revenues;
c) The city or water districts that provide water service
to the electrical facilities receive the remaining 10% of
the property tax revenues; and,
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d) The other entities that would have previously received a
share of the property tax revenues do not receive any of
the revenues.
2)Authorizes redevelopment agencies to utilize tax increment
financing to fund projects in a redevelopment area.
3)Requires redevelopment agencies to make payments to affected
taxing entities to alleviate the financial burden or detriment
that the affected taxing entities may incur as a result of the
redevelopment plan.
4)Establishes a fixed mathematical formula for the amount of tax
increment that redevelopment agencies must pay affected taxing
entities during the life of the redevelopment plan.
FISCAL EFFECT : According to the Senate Appropriations
Committee, this bill will result in an annual gain of $2.5 - $3
million to the Oakley RDA, with corresponding loss to other
local entities.
COMMENTS :
1)In recent years, there has been a trend of moving toward
situs-based allocation for certain new major projects assessed
by the state. Prior to this point, incremental growth
revenues from state-assessed properties were distributed to
nearly all governmental agencies and school entities in the
county in proportion to each entity's share of the county's
total ad valorem property tax revenues in the prior year.
Under the countywide system, all entities received a share in
the revenues, regardless of whether any of the value growth
occurred within its jurisdictional boundaries.
AB 81 (Migden), Chapter 57, Statutes of 2002, was enacted to
change the revenue allocation of power plants divested by
public utilities and sold to private operators, as well as
those newly constructed by merchant power plant owners, to
provide for situs-based revenue allocation. In 2005, San
Diego Gas and Electric sought and received special revenue
allocations for a proposed new power plant to be constructed
in the City of Escondido �AB 2558 (Plescia), Chapter 640,
Statutes of 2004]. In 2006, the Legislature created an
exception to the countywide unitary tax allocation method for
all newly constructed public-utility-owned large-scale
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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].The result
is that SB 1317 compensates a community that accepts an energy
project with a bigger share of future unitary property tax
revenues. However, the SB 1317 formula only provides
compensation for cities or counties, not redevelopment
agencies.
2)According to the author, current law creates a disincentive
for the City of Oakley to support a new power generating
facility within its boundaries. The author notes that the
residents of Oakley will be the most impacted if a power plant
is built within their community and without the financial
incentive that can be used to reduce blight in the community
and provide the necessary services to the facility. The
author notes that the SB 1317 allocation method will apportion
insufficient revenues to their redevelopment project area.
3)This bill revises property tax allocation formulas to allow
property tax revenues from a new public utility power plant
proposed to be built in Contra Costa County to be allocated to
the Oakley RDA. The California Public Utilities Commission
(PUC) recently considered a proposal to construct a 600
megawatt power plant to be located within a redevelopment
project area in the City of Oakley, in East Contra Costa
County. The power plant is slated to use General Electric's
latest technology, be powered by natural gas, and will
eventually be owned by PG & E at commercial operation.
The project was initially denied by the Public Utilities
Commission (PUC) in July 2010, although the PUC did give PG &
E permission to resubmit the Oakley project at a later date
under specific conditions. However, in December of 2010, the
resubmitted project was approved, with an extension to the
delivery date of the project from June 2014 to June 2016. In
May 2011, the PUC voted to dismiss a request for rehearing for
the project by the Division of Ratepayer Advocates and
environmental groups like Californians for Renewable Energy,
Communities for a Better Environmental, Sierra Club, and The
Utility Reform Network (TURN).
4)This bill requires the Oakley RDA to reimburse the county
auditor for the actual and reasonable costs incurred by the
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county auditor in implementing the bill. The bill's
provisions specify that property tax revenues allocated to the
RDA shall not be counted as property tax revenues or property
tax increment for the purposes of specified pass-through
agreements, including affordable housing set-asides. Instead,
the bill requires the Oakley RDA to develop one new housing
unit for each 40 jobs created within the project area known as
the Dupont Antioch plant. The housing units developed are
required to be affordable for extremely-low income persons,
and the development is required to be completed within 10
years after the Oakley RDA does its calculation to determine
the number of jobs that are created.
5)Existing law contained in the Health and Safety Code declares
that it is the policy of the state, with respect to
redevelopment "to protect and promote the sound development
and redevelopment of blighted areas and the general welfare of
the inhabitants of the communities in which they exist by
remedying such injurious conditions through the employment of
all appropriate means." Additionally, the Legislature finds
and declares that "a fundamental purpose of redevelopment is
to expand the supply of low- and moderate-income housing, to
expand employment opportunities for jobless, underemployed,
and low-income persons, and to provide an environment for the
social, economic, and psychological growth and well-being of
all citizens."
Redevelopment is financed primarily by tax increment revenue.
In 1952, California voters adopted Article XVI, Section 16 of
the California Constitution, which provides for tax increment
financing for redevelopment projects. Tax increment financing
is based on the assumption that a revitalized project area
will generate more property taxes than were being produced
prior to redevelopment. When a redevelopment project area is
adopted, the current assessed values of the property within
the project area are designated as the base year value. Tax
increment comes from the increased assessed value of property,
not from an increase in tax rate. Any increases in property
value, as assessed because of change of ownership or new
construction, will increase tax revenue generated by the
property, the majority of which goes to the agency in the form
of tax increment. Taxing entities such as the county, school
districts, and special districts that serve the project area
continue to receive all the tax revenues they were receiving
the year the redevelopment project was formed (called the base
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year).
6)The provisions of this bill make a fundamental shift in the
funding for RDAs and would allow the Oakley RDA to utilize
these additional funds for any purpose since the funds would
be deemed property tax revenue and not tax increment. The
Legislature may wish to consider whether it is prudent to make
such a fundamental shift in policy concerning redevelopment
law. Also, the Committee may wish to consider the provisions
in the bill that require the Oakley RDA to develop one new
housing unit for each 40 jobs created on the Dupont site will
provide an adequate number of housing unit compared to what
would have been built using the 20% set aside if the funds
were considered tax increment.
7)Under existing law, a local jurisdiction hosting a power
generation facility is able to capture additional property tax
revenues to assist in providing local community services to
their residents. Cities, counties, and special districts
provide various services to their residents; however,
redevelopment agencies do not provide services. The Committee
may wish to ask the author why additional compensation is
needed by the redevelopment agency when no new services are
being provided to residents by the redevelopment agency.
8)Under the existing SB 1317 method of modified unitary property
tax allocation, the City
of Oakley will receive augmented future unitary property tax
revenues from the proposed power plant within its borders.
The City could share some or all of the revenues from the new
power plant with the Oakley RDA, making it unnecessary for a
bill to enact statutory changes to the property tax allocation
formula. The Legislature may wish to ask the author why a
bill is necessary, when a transfer of funds from the City to
the RDA may be sufficient.
9)The Department of Finance, in opposition, writes that "the
property tax allocation formulas contained in existing law
were enacted in 2006 in a statewide compromise negotiated
among power plant operators and their surrounding special
districts. An exception to existing law redirecting
additional property tax revenues to the Oakley RDA, to the
detriment of other Contra Costa County special districts,
would establish an undesirable precedent for subsequent
exemptions elsewhere and is contrary to previous agreements."
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10)A substantially similar bill, SB 1398 (DeSaulnier), was heard
by this Committee last year. SB 1398 ultimately died after
passing the Assembly Floor because of timing.
11)This bill changes the pro rata shares in which ad valorem
property tax revenues are allocated among local agencies in a
county, and therefore, requires a two-thirds vote of the
membership of each house of the Legislature (Proposition 1A,
2004). This bill is also an urgency statute, which requires a
two-thirds vote of the membership of each house.
The Department of Finance notes that "the provisions and
protections afforded property tax allocations by Proposition
1A did not extend to RDAs. The property tax shift from
special districts to an RDA arising from this bill could
violate Article XIII, Section 25.5 of the California
Constitution. While Section 25.5 allows the Legislature to
shift property taxes between cities, counties and special
districts by a two-thirds vote, this section does not
authorize shifting property tax revenues from these entities
to RDAs.
12)Support arguments: Supporters argue that this bill will
remedy on oversight in existing law regarding property tax
allocation revenue for public utilities. Supporters state
that existing law does not recognize that some power
generating facilities are sited within redevelopment project
areas. The City of Oakley notes that the power generation
facility will provide substantial jobs during the construction
phase of the facility, but will not necessarily provide
significant annual revenues to the hosting jurisdiction if
this bill does not pass.
Opposition arguments: The Howard Jarvis Taxpayers Association
(HJTA) believes that this bill "establishes a dangerous trend
of reducing or eliminating property tax allocations to other
local districts." HJTA is concerned that the exemption from
the requirement to make pass-through payments will force
struggling special districts and other local government
entities to pass the loss of revenues onto their customers.
Additionally, HJTA believes that "government has a role to
play in job creation, but it is not to pick winners and losers
in the private sector."
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REGISTERED SUPPORT / OPPOSITION :
Support
City of Oakley and Oakley Redevelopment Agency �SPONSOR]
California Rural Legal Assistance Foundation
Western Center on Law and Poverty
Opposition
Department of Finance
Howard Jarvis Taxpayers Association
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958