BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1450 HEARING: 8/6/14
AUTHOR: Garcia FISCAL: Yes
VERSION: 7/1/14 TAX LEVY: No
CONSULTANT: Weinberger
REVENUES FROM EXTRAORDINARY PROPERTY TAX RATES (URGENCY)
Directs how a county auditor must allocate specified
revenues derived from an extraordinary property tax rate
approved by voters to pay for pension programs.
Background and Existing Law
Proposition 13 (1978) limited property tax rates to 1%.
The power to allocate the remaining property tax revenues
became the Legislature's duty.
The Legislature responded by allocating property tax
revenues to counties, cities, special districts, and school
districts based on each agency's pro rata share of the
property taxes collected within a county in the three
fiscal years prior to 1978-79 (SB 154, Rodda, 1978). In
1979, the Legislature permanently restructured the
allocation of property taxes, using SB 154's property tax
allocations as a base (AB 8, L. Greene, 1979).
The 1% limit on property tax rates did not apply to ad
valorem property taxes or special assessments needed to pay
the interest and redemption charges on any indebtedness
approved by voters before July 1, 1978. In its 1982
decision in Car-man v. Alvord, the California Supreme Court
ruled that extraordinary property tax rates (outside the
usual 1% ad valorem rate) imposed to fund employee pension
systems approved by the voters before July 1, 1978 are
valid under Proposition 13.
In response to confusion over how local officials used
their extraordinary property tax rates when calculating
property tax allocations under AB 8, the Legislature
imposed a temporary moratorium on property tax rates for
indebtedness other than bonds (AB 377, Roos, 1983). In
1985, the Legislature made the moratorium on extraordinary
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property tax rates permanent (AB 13, Roos, 1985). AB 13
froze extraordinary tax rates for pensions approved by
voters before Proposition 13 at their 1982-83 levels.
Nearly all of the 25 cities and one county that were
allowed to continue to impose extraordinary property tax
rates to fund an employee pension system also had
established redevelopment agencies.
Until 2011, the Community Redevelopment Law allowed local
officials to set up redevelopment agencies (RDAs), prepare
and adopt redevelopment plans, and finance redevelopment
activities. RDAs used property tax revenues generated by
growth in the assessed value of properties in a project
area - commonly known as tax increment revenues - to
finance their redevelopment activities. In some
jurisdictions that had established an RDA and levied an
extraordinary property tax rate to pay for pension costs,
RDAs did not divert the property tax increment revenues
that were attributable to the extraordinary rate. Some
RDAs received tax increment revenues associated with an
extraordinary property tax rate for pensions, but chose to
return those funds to the city that levied the rate instead
of using them for redevelopment purposes. Other RDAs that
received the tax increment revenues associated with
extraordinary property tax rates for pensions relied on
those revenues to finance redevelopment activities.
Citing a significant State General Fund deficit, Governor
Brown's 2011-12 budget proposed eliminating RDAs and
returning billions of dollars of property tax revenues to
schools, cities, and counties to fund core services. Among
the statutory changes that the Legislature adopted to
implement the 2011-12 budget, AB X1 26 (Blumenfield, 2011)
dissolved all RDAs. The California Supreme Court's 2011
ruling in California Redevelopment Association v.
Matosantos upheld AB X1 26, but invalidated AB X1 27
(Blumenfield, 2011), which would have allowed most RDAs to
avoid dissolution.
AB X1 26 established successor agencies to manage the
process of unwinding former RDAs' affairs. With the
exception of seven cities that chose not to serve as
successor agencies, the city or county that created each
former RDA now serves as that RDA's successor agency. Each
successor agency has an oversight board that is responsible
for supervising and approving its actions. The Department
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of Finance (DOF) can review and request reconsideration of
an oversight board's decisions.
One of the successor agencies' primary responsibilities is
to make payments for enforceable obligations entered into
by former RDAs. The statutory definition of an
"enforceable obligation" includes bonds, specified
bond-related payments, some loans, payments required by the
federal government, obligations to the state, obligations
imposed by state law, legally required payments related to
RDA employees, judgments or settlements, and other legally
binding and enforceable agreements or contracts that are
not otherwise void as violating the debt limit or public
policy.
Each successor agency must, every six months, draft a list
of enforceable obligations that are payable in the next six
months. An oversight board must adopt this recognized
obligation payment schedule (ROPS), subject to review by
the DOF. Obligations listed on a ROPS are payable from a
Redevelopment Property Tax Trust Fund (RPTTF), which
contains the revenues that would have been allocated as tax
increment to a former RDA.
A few of the cities that are authorized to levy an
extraordinary property tax rate, including Beverly Hills
(Los Angeles County) and Fairfax (Marin County) never
established a redevelopment agency. Others cities, like
Glendora (Los Angeles County), no longer impose an
extraordinary property tax rate for pensions.
There are 21 remaining cities and one county in which a
successor agency is unwinding a former RDA's affairs and an
extraordinary property tax rate is levied to pay for
pensions: Albany (Alameda County), Oakland (Alameda
County), Richmond (Contra Costa County), Fresno (Fresno
County), Coalinga (Fresno County), Bell (Los Angeles
County), Compton (Los Angeles County), El Monte (Los
Angeles County), Huntington Park (Los Angeles County),
Inglewood (Los Angeles County), Lynwood(Los Angeles
County), Maywood (Los Angeles County), Monrovia (Los
Angeles County), Montebello (Los Angeles County), Monterey
Park (Los Angeles County), San Fernando (Los Angeles
County), San Gabriel (Los Angeles County), Huntington Beach
(Orange County), County of Santa Clara, Watsonville (Santa
Cruz County), Cloverdale (Sonoma County), and Oxnard
(Ventura County).
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Because state law requires that all of the property tax
increment revenues that were formerly payable to RDAs must
be deposited into the RPTTF, some local governments are no
longer receiving tax increment revenues from extraordinary
property tax rates that used to be available to them before
RDAs were dissolved. Because state law requires that funds
remaining in an RPTTF after specified obligations have been
paid must be distributed among all taxing entities within a
former RDA's jurisdiction, some local governments may be
receiving revenues from an extraordinary property tax rate
to which they would not otherwise be entitled. In
response, some local officials want the Legislature to
change the way that the statutes governing RDAs'
dissolution allocate tax increment revenues from
extraordinary property tax rates.
Proposed Law
Assembly Bill 1450, for the 2014-15 fiscal year and
following years, prohibits a county auditor from allocating
revenues from an extraordinary property tax rate approved
by voters to pay for pension programs to a Redevelopment
Property Tax Trust Fund (RPTTF). AB 1450 requires a county
auditor to pay those revenues into the fund of the city or
county whose voters approved the tax.
As an exception to this requirement, AB 1450 allows the
city or county whose voters approved the tax, in response
to a successor agency's written request, to allow the
successor agency to use the revenues from the city or
county's fund to pay any enforceable obligation on an
approved Recognized Obligation Payment Schedule (ROPS), as
specified in state law. If a city or county grants a
successor agency's written request, the bill requires a
county auditor to allocate revenues from an extraordinary
property tax rate approved by voters to pay for pension
programs to the successor agency, but only after all other
moneys deposited in the successor agency's RPTTF have been
exhausted.
Assembly Bill 1450 requires a county auditor to allocate to
a successor agency any revenues from an extraordinary
property tax rate approved by voters to pay for pension
programs that have been pledged as security for the payment
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of any indebtedness obligation. The bill requires an
auditor to allocate those revenues to the successor agency
after all other moneys deposited in the successor agency's
RPTTF have been exhausted, in the amount necessary to pay
that indebtedness obligation for an applicable ROPS cycle,
until such time as that indebtedness obligation has been
completely paid off. The bill directs that excess pledged
revenues derived from the pension property tax rate that
are not necessary to pay the debt service on the
indebtedness must be allocated and paid to the city or
county whose voters approved the pension property tax rate.
AB 1450 requires that, notwithstanding any other law,
allocations of revenues from an extraordinary property tax
rate approved by voters to pay for pension programs made by
county auditors before July 1, 2014 must be deemed correct
and not affected by the bill's provisions. AB 1450
prohibits a city, county, city or county, county
auditor-controller, successor agency, or affected taxing
entity from being subject to any claim for money, damages,
or reallocated revenues based on any allocation of such
revenues before July 1, 2014.
AB 1450 directs that no inference shall be drawn from the
bill's enactment with respect to a county auditor's use,
distribution, or allocation, before July 1, 2014, of
revenues from an extraordinary property tax rate approved
by voters to pay for pension programs.
The bill contains findings and declarations explaining the
need for the bill and detailing the Legislature's purpose
in enacting the bill's provisions.
Assembly Bill 1450 makes additional technical and
conforming changes to state law.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . AB 1450 clarifies the disposition
of revenues attributable to extraordinary property tax
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rates for pensions under the statutes governing RDA
dissolution. Under current law, incremental extraordinary
property tax rate revenues that had been available for
paying some communities' pension costs before RDAs were
dissolved are no longer available for that purpose. The
dissolution laws also appear to allow some of those
revenues to flow to taxing entities that are not authorized
to impose the extraordinary property tax rate and which
would otherwise not have received those revenues. Because
voters anticipated at the time that they approved these
extraordinary property tax rates that the revenues would be
used to pay for the costs of local government employees'
pensions, AB 1450 establishes this use of the funds as a
priority. The bill makes reasonable accommodations to
ensure the repayment of former RDA indebtedness that was
backed by a pledge of increment revenues from extraordinary
property tax rates. Some local government officials worry
that, without the changes proposed in AB 1450, current law
will impose significant financial hardships on some local
governments, jeopardizing their ability to pay for pension
programs and for other core services funded by property tax
revenues.
2. A deal is a deal . In practice, most RDAs received
property tax increment revenues attributable to
extraordinary property tax rates and chose to rely on those
revenues to finance redevelopment activities. The use of
those funds for redevelopment purposes, in turn, generated
growth in assessed value, which augmented the revenues that
are currently generated by the extraordinary rates. As a
result, RDA successor agencies should be able to use the
tax increment from the extraordinary rates to repay former
RDAs' remaining debts and obligations. By prohibiting
these revenues from being deposited into an RPTTF and
giving the local government that impose the rate discretion
over whether the funds can be used to repay some items on a
ROPS, AB 1450 may impair the repayment of some former RDA
debts. Additionally, by requiring that a successor
agency's use of tax increment revenues generated by an
extraordinary rate is only allowed after all other funds in
an RPTTF are exhausted, AB 1450 prioritizes the payment of
cities' pension costs over the return of property tax
revenues to other taxing entities that contributed
increment revenues towards redevelopment activities. AB
1450, in trying to prevent the diversion of funds that had
been available for some local governments' pension costs,
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may go too far and deprive successor agencies and other
taxing entities of funds that rightfully should be included
in the RDA dissolution process.
3. Middle ground ? As an alternative to the approach
proposed in AB 1450, state law could be amended to require
that the disposition of tax increment revenues from
extraordinary property tax rates under RDA dissolution must
mirror, as closely as possible, the manner in which each
jurisdiction disposed of those revenues before RDAs were
resolved. State law should allow a city or county that can
demonstrate that it never relied on extraordinary tax
increment revenues for redevelopment purposes to retain
those revenues separate from the RPTTF. By contrast, in
those jurisdictions in which extraordinary property tax
increment revenues were used for redevelopment, those
revenues should be deposited into the RPTTF and made
available for repayment of former RDA obligations. In
those jurisdictions, state law should allow a city or
county that imposes an extraordinary rate to recover a
reasonable proportion of any remaining funds in an RPTTF,
rather than allowing all such funds to be distributed among
taxing entities. To mirror the manner in which
extraordinary tax increment revenues were allocated before
RDAs' dissolution, the Committee may wish to consider
amending AB 1450 to:
Allow a city or county to retain the full amount of
extraordinary tax increment revenues if it gets
oversight board approval, based on substantial
evidence that a former RDA did not pledge, spend, or
otherwise rely on those revenues for redevelopment
purposes.
Allow a city or county that levies an extraordinary
property tax rate to recover and spend on pension
costs an appropriate proportion of any funds that
remain in an RPTTF before they are distributed to
other taxing entities.
4. More extraordinary rates . Some local governments levy
extraordinary property tax rates for purposes other than
paying for pension costs. For example, some local
governments levy extraordinary property tax rates to pay
for water contract obligations. Voters' approval of
Proposition 87 (1988) prohibited RDAs from diverting tax
increment revenues attributable to extraordinary rates for
General Obligation bonds approved by voters after January
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1, 1989. However, some extraordinary rates for GO bonds
approved before 1989 were subject to tax increment
diversion by RDAs. It is not clear why the state laws
governing RDA dissolution should distinguish between tax
increment revenues diverted from extraordinary property tax
rates levied for pensions and extraordinary rates levied
for other purposes. The Committee may wish to consider
amending AB 1450 to require that the statutes governing RDA
dissolution must treat all tax increment revenue
attributable to extraordinary property tax rates uniformly.
5. Litigation . The allocation of tax increment revenues
attributable to extraordinary property tax rates has been
the subject of litigation. A Los Angeles County trial
court decision in favor of the City of San Fernando found,
based on provisions in the San Fernando RDA's redevelopment
plan, that tax increment revenues generated by San
Fernando's extraordinary property tax rate are not required
to be deposited into the successor agency RPTTF. Another
case filed in Los Angeles County court by the city of
Huntington Park is still pending. In a case that the City
of San Jose filed against Santa Clara County, a trial court
ruled in favor of the City, finding that tax increment
revenues from the County's extraordinary tax rate are
included in the definition of tax increment and should be
deposited into the RPTTF to pay for some of the successor
agency's obligation. The county appealed the decision and
the case is now pending before the appellate court. City
of San Jose officials express concern that, as a matter of
policy, AB 1450 would undo the trial court ruling and may
have a prejudicial effect on the appellate court's eventual
decision. They want the Legislature to amend AB 1450 to
exclude the City of San Jose from the bill's provisions.
Santa Clara County officials suggest that the policy
questions addressed by AB 1450 are distinct from the legal
questions that are pending before the appellate court.
6. Let's get technical . In addition to amending the
statutes governing RDA's dissolution, AB 1450 amends
language into the Community Redevelopment Law, which was
rendered inoperative by the enactment of SBx1 26
(Blumenfield, 2011). To clarify the bill's purpose and
avoid potential misinterpretations, the Committee may wish
to consider amending AB 1450 to delete the amendments to
inoperative statutes in the Community Redevelopment Law.
AB 1450's provisions apply to a "city and county" in
AB 1450 -- 7/1/14 -- Page 9
addition to a city or a county. However, San Francisco,
which is California's only "city and county," does not levy
an extraordinary property tax rate to pay for pensions. To
avoid confusion, the Committee may wish to consider
amending AB 1450 to delete unnecessary references to a
"city and county."
7. Urgency . Regular statutes take effect on January 1
following their enactment; bills passed in 2014 take effect
on January 1, 2015. The California Constitution allows
bills with urgency clauses to take effect immediately if
they're needed for the public peace, health, and safety. AB
1450 contains an urgency clause declaring that it is
necessary for its provisions to go into effect immediately
to avoid underfunded pension programs.
8. Related bills . AB 1450 is nearly identical to SB 663
(Lara, 2014), which is on the Assembly Appropriations
Committee's suspense file. AB 1450 is also similar to SB
921 (Wright, 2014), which is in the Senate Rules Committee.
9. Gut and amend . As introduced and passed by the
Assembly, AB 1450 contained provisions relating to
cyber-bullying. The Senate Governance & Finance Committee
never heard that version of the bill. The July 1
amendments deleted AB 1450's contents and inserted the
current language relating to the allocation of revenues
from voter-approved property tax rates for local pension
obligations. Under Senate Rule 29.10, the Senate Rules
Committee referred AB 1450 to the Governance & Finance
Committee for a hearing on the bill's new contents.
Assembly Actions
Not relevant to the July 1, 2014 version of the bill.
Support and Opposition (8/4/14)
Support : County of Los Angeles; City of Bell ; City of
Huntington Park; City of Inglewood; American Federation of
State, County, and Municipal Employees, AFL-CIO; American
Federation of State, County, and Municipal Employees,
District Council 36; Independent Cities Association; League
of California Cities; League of California Cities, Los
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Angeles Division; Los Angeles County Police Chiefs
Association.
Opposition : City of San Jose.