BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 1450 (Garcia) - Redevelopment: revenues from property tax
override rates.
Amended: July 1, 2014 Policy Vote: G&F 8-2
Urgency: Yes Mandate: Yes
Hearing Date: August 11, 2014
Consultant: Mark McKenzie
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 1450, an urgency measure, would prohibit a
county auditor from allocating revenues into a Redevelopment
Property Tax Trust Fund (RPTTF) if those revenues are derived
from specified extraordinary property tax rates approved by
voters to pay for pension obligations (pension tax rates).
These funds would instead be allocated to the city or county
whose voters approved the tax.
Fiscal Impact: Unknown General Fund costs, likely exceeding $10
million annually beginning in 2014-15, due to the diversion of
revenues from pension tax rates from the RPTTF to the city or
county that imposed the pension tax rate.
An estimated $40 million in pension property tax revenues was
deposited into RPTTFs in 2012-13 following the dissolution of
redevelopment agencies (RDAs). These revenues are currently
distributed to local taxing entities pursuant to dissolution
statutes. This bill would instead allocate revenues derived
from pension tax rates to the cities and counties that imposed
the supplemental rate, except for amounts dedicated to pay
recognized obligation bond issuances. This diversion is likely
to result in over $10 million in reductions of property tax
allocations to schools. Any amounts diverted away from schools
would typically result in corresponding General Fund
expenditures to meet the minimum funding guarantees of
Proposition 98.
Background: Article XIII A of the California Constitution
(Proposition 13 of 1978) limits the ad valorem (based on value)
property tax rate to 1% of a property's value. The 1% limit on
property tax rates did not apply to ad valorem property taxes or
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special assessments needed to pay the interest and redemption
charges on any indebtedness approved by voters before July 1,
1978, including extraordinary property tax rates imposed to fund
employee pension systems. As a result of legislation passed in
the wake of Proposition 13, extraordinary tax rates approved by
voters were frozen at their 1983-84 levels. Nearly all of the
25 cities and one county that were allowed to continue to impose
extraordinary tax rates to fund employee pension obligations had
also established RDAs.
Historically, the Community Redevelopment Law has allowed a
local government to establish RDAs and capture all of the
increase in property taxes that is generated within the project
area beyond the base year value (referred to as "tax increment")
over a period of decades. Prior to their dissolution pursuant
to ABx1 26 (Blumenfield) Chap 5/2011, RDAs used tax increment
financing, oftentimes issuing long-term debt in the form of tax
allocation bonds, to address issues of blight, construct
affordable housing, rehabilitate existing buildings, and finance
development and infrastructure projects.
Existing law establishes procedures for winding down RDA
activity, including a requirement that successor agencies
dispose of former RDAs' assets under direction of an oversight
board. Successor agencies are required to make any payments
related to enforceable obligations, as specified in an adopted
biannual recognized obligation payment schedule (ROPS), and
remit unencumbered balances of RDA funds to the county
auditor-controller for distribution to local taxing entities in
the county. The DOF reviews each ROPS to determine if the
listed payments meet the statutory criteria for repayment, and
has the authority to disallow any payments that do not meet
those criteria.
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.
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A few of the cities that are authorized to levy an extraordinary
property tax rate never established an RDA, while a few others
no longer impose an extraordinary property tax rate for
pensions. There are 21 remaining cities, including 12 in Los
Angeles County, and one county that imposed a pension tax rate
and are subject to the redevelopment dissolution process.
Proposed Law: AB 1450, for the 2014-15 fiscal year and each year
thereafter, would prohibit a county auditor from allocating
revenues from an extraordinary property tax rate approved by
voters to pay for pension programs to an RPTTF. Instead, the
county auditor must 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 ROPS, as specified. If a
city or county grants the request, the county auditor must
allocate revenues from a pension tax rate to the successor
agency, but only after all other moneys deposited in the
successor agency's RPTTF have been exhausted.
Assembly Bill 1450 would also require a county auditor to
allocate to a successor agency any revenues from a pension tax
rate that have been pledged as security for the payment of any
indebtedness obligation. The bill requires an auditor to
allocate those revenues to the successor agency after all other
moneys deposited in agency's RPTTF have been exhausted, in the
amount necessary to pay the debt obligations for an applicable
ROPS cycle, until such time as that obligation has been paid
off. Any excess pledged revenues that are not necessary for
debt service payments must be allocated to the city or county
whose voters approved the pension property tax rate.
AB 1450 requires that any allocations of revenues derived from
pension tax rates that are made by county auditors before July
1, 2014 must be deemed correct and not affected by the bill's
provisions. AB 1450 would prohibit a 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
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before July 1, 2014.
Staff Comments: 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. This bill is
intended to ensure that revenues derived from pension tax rates
are allocated to the city or county whose voters approved the
tax, rather than being distributed to other taxing entities.
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 obligations.
The county appealed the decision and the case is now pending
before the appellate court. Considering the conflicting rulings
on this issue in the courts, the Committee may wish to consider
whether the Legislature should weigh in on one side of this
issue at this time.