BILL ANALYSIS �
SENATE COMMITTEE ON BUDGET AND FISCAL REVIEW
Mark Leno, Chair
Bill No: SB 1030
Author: Committee on Budget and Fiscal Review
As Amended: August 23, 2012
Consultant: Mark Ibele
Fiscal: Yes
Hearing Date: August 30, 2012
Subject: Budget Act of 2012: Dissolution of redevelopment
agencies (RDAs) and excess educational revenue augmentation
fund (ERAF) revenues.
Summary: The bill removes language that was contained in
AB 1484 (Committee on Budget), Chapter 26, Statutes of
2012, the redevelopment trailer bill, relating to the
disposition of certain additional property tax revenues
that would result from the elimination of RDAs. The removal
of the language would result in specified additional
property taxes going to cities, counties and special
districts receiving excess ERAF.
Background: Each county has a fund into which are
deposited property tax revenues that have been shifted from
cities, counties, and special districts for the support of
K-14 education. The fund is known as ERAF and was
established in 1992 to support local school districts and
offset General Fund payments to education required by Prop
98. ERAF is distributed in inverse proportion to the
receipt of property taxes by school districts in order for
each district to be brought up to the revenue limit. No
basic aid school districts receive ERAF funding. Basic aid
school districts are those that reach or exceed the revenue
limit based only on the receipt of local property taxes
without any state funding.
Following the 2004 enactment of the vehicle license fee
(VLF) "swap" (which shifted property taxes from school
districts to local governments, thus replacing the General
Fund VLF backfill resulting from the VLF reduction) and the
"triple flip" (which shifted property taxes from school
districts to local governments to compensate for local
sales tax reductions related to the issuance of the
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Economic Recovery Bonds), ERAF funds have been used to
reimburse local governments for their revenue losses
associated with these revenue shifts. As a result of the
establishment of ERAF and subsequent revenue shifts
discussed above, county auditor-controllers are required to
determine (but not distribute) the amount of ERAF required
for K-14 revenue limit funding. Any amounts in excess of
this required amount are generally distributed to cities,
counties and special districts in proportion to their ERAF
contributions. Amounts remaining after this initial
distribution are used to compensate for local governments'
revenue losses from the VLF swap and the triple flip. In
situations where ERAF is insufficient to compensate for the
revenue shifts, non-basic aid school district property
taxes are shifted to local governments. In this case,
General Fund backfills the revenue losses to schools.
Section 30 of AB 1484, adopted as a budget trailer bill to
the 2012 Budget Act, contains a provision, Section 34188
(d) of the Health and Safety Code, that stipulates that any
additional excess ERAF attributable to the dissolution of
RDAs should not be construed in a manner that results in
increased allocations of these moneys to cities, counties,
or special districts. Additional ERAF from RDA dissolution
can result both from additional "freed-up" property tax
going to schools as well as additional property tax amounts
going to ERAF. There is no indication in the language of
where this additional excess is to go; however, in order
for any state benefit to result from this provision, any
additional excess ERAF would be required to go to schools
to supplant General Fund Prop 98 support. This would occur
if, for example, ERAF resources were insufficient to
replace local revenue losses due to the VLF swap and the
triple flip and school district property taxes were used
for this purpose. In this case, the state Prop 98
obligation would be reduced as a result of additional
excess ERAF going to schools and offsetting state General
Fund support.
Proposed Law: The proposal encompassed in this bill would
remove the language that stipulates that additional excess
ERAF that may result from the dissolution of RDAs should
not be construed to increase allocations of these moneys to
cities, counties, or special districts. As a result of
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this bill, any additional excess ERAF created under the
dissolution would go to cities, counties and special
districts.
Fiscal Effect: The current data indicates that three
counties-Marin, Napa and San Mateo-are receiving funds from
excess ERAF and would be affected by the provision in
current law enacted in AB 1484. Based on information
provided by these counties, the fiscal impact of
redirecting additional excess ERAF from the former property
tax increment would likely be in the range of $4 million.
A preliminary analysis by the Legislative Analyst's Office
indicates potential impacts of up to $16 million. As RDA
debts are extinguished and depending upon revenue limits
and other factors, additional counties-or potentially fewer
counties-could be affected by the diversion of a portion of
excess ERAF, as directed under current law. These changes
would affect fiscal impacts in future years. In addition,
if the provision applies to assets of former RDAs as well,
there could be unknown, additional fiscal impacts.
Support:County of Marin
County of Napa
County of San Mateo
Opposed: Unknown
Comments: The Legislative Counsel Bureau has issued a
letter regarding the provision of AB 1484 that relates to
the disposition of additional excess ERAF. The letter
states that Section 25.5 of Article XIII of the California
Constitution limits the authority of the Legislature to
modify the apportionment of ad valorem property taxes to
reduce amounts received by cities, counties and special
districts. It further notes that by modifying revenue
allocation shifts from ERAF, thereby increasing the share
of ad valorem property tax revenues allocated to school
districts, the measure may result in reducing the
percentage going to cities, counties and special districts,
and be in contravention of the California Constitution.
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