BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 1450 (Garcia) - Redevelopment: revenues from property tax
override rates.
Amended: August 27, 2014 Policy Vote: G&F 8-2
Urgency: Yes Mandate: Yes
Hearing Date: August 28, 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 derived from specified
extraordinary property tax rates approved by voters to pay for
pension obligations (pension tax rates) to a Redevelopment
Property Tax Trust Fund (RPTTF), except as specified. 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, after paying enforceable obligations of the former
RDA. This bill would instead allocate revenues derived from
pension tax rates to the cities and counties that imposed the
supplemental rate, except for specific amounts pledged by the
former RDA to pay obligations, as determined by an oversight
board. 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
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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, 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 both 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
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rates for pensions relied on those revenues to finance
redevelopment activities.
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, except as
specified. 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 to request that an
oversight board prohibit revenues derived from a pension tax
rate from being deposited into an RPTTF. Based on substantial
evidence that a former RDA made a pledge of revenues that
specifically included revenues derived from a pension tax rate,
an oversight board may deny such a request in an amount not to
exceed the amount of revenues pledged by the former RDA.
AB 1450 also requires that any allocations of revenues derived
from voter-approved 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 before July 1, 2014.
This bill also declares that the Legislature is aware of pending
litigation between the City of San Jose and Santa Clara County,
and expresses legislative intent that no party in that
litigation be in any way prejudiced by the passage of this act.
Therefore, the provisions of this bill shall not apply to the
City of San Jose Successor Agency, except that revenues derived
from a pension tax rate that were allocated to the RPTTF shall
be allocated to the city or county that levied that tax rate.
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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 were 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.