BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 629 HEARING: 4/3/13
AUTHOR: Beall FISCAL: Yes
VERSION: 2/22/13 TAX LEVY: No
CONSULTANT: Weinberger
LOW-PROPERTY-TAX CITIES IN SANTA CLARA COUNTY
Makes the formula for calculating tax equity allocations to
no- and low-property tax cities in Santa Clara County the
same as the tax equity allocation formula in other
counties.
Background and Existing Law
About 30 cities which never levied a property tax before
Proposition 13 are called no-property-tax cities and about
60 cities which levied only low property tax rates are
known as low-property-tax cities. Counties must shift some
of their own property tax revenues to these no/low cities.
The payments to the no/low cities are called tax equity
allocations or TEA (AB 1197, W. Brown, 1988).
In most counties, TEA payments to the no/low cities are
equal to 7% of the property tax revenues generated within
their city limits. However, before 2006, an exception
allowed Santa Clara County to allocate only 55% of the TEA
funding that the four no/low cities in the county -
Cupertino, Los Altos Hills, Monte Sereno, and Saratoga -
would otherwise be qualified to receive (AB 1175, W. Brown,
1989). In 2006, the Legislature eliminated the 55% cap on
TEA funding for Santa Clara County's no/low cities,
effectively shifting additional property tax revenues from
the county to the four cities (AB 117, Cohn, 2006).
In response to state budget deficits in the early 1990s,
the Legislature reduced State General Fund spending on
education by shifting property taxes from counties, cities,
special districts, and redevelopment agencies to an
Educational Revenue Augmentation Fund (ERAF) in each
county. Every property tax dollar shifted to schools
through ERAF saves a dollar from the State General Fund.
SB 629 -- 2/22/13 -- Page 2
By shifting property tax revenue from Santa Clara County to
the no/low cities, the 2006 Cohn bill would have decreased
the net amount of property tax revenues available to
schools through the county's ERAF. To avoid having the
State General Fund backfill the lost ERAF funding, AB 117
required the four cities to reimburse ERAF with a portion
of their increased TEA revenues.
To make their cities' TEA allocations equivalent to those
in other no/low cities, Cupertino, Los Altos Hills, Monte
Sereno, and Saratoga officials want the Legislature to
repeal the requirement that their cities must reimburse
ERAF.
Proposed Law
Senate Bill 629 repeals the statutory requirement that the
Santa Clara County Auditor must reduce the amount of
property tax revenues allocated to specified cities and
increase the amount of property tax revenues allocated to
the county ERAF by a defined "ERAF reimbursement amount."
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Cupertino, Los Altos Hills, Monte
Sereno, and Saratoga are the only no-low property tax
cities that are required by state law to contribute a
portion of their tax equity allocation revenues to ERAF.
By eliminating this requirement, SB 629 makes those four
cities' property tax allocations consistent with property
tax allocations to every other no/low city. The additional
property tax allocations to the four cities will provide
them with vital general fund revenues to spend on local
priorities.
2. Zero-sum game . Allocating former RDAs' property tax
increment revenues is a zero-sum game; every reallocation
creates winners and losers. By repealing the 2006 Cohn
bill's ERAF reimbursement requirement, SB 629 makes winners
SB 629 -- 2/22/13 -- Page 3
out of Santa Clara County's four no/low cities. The fiscal
loser will be the State General Fund, which must backfill
approximately $2.1 million of property tax revenues that
Santa Clara County schools won't get from ERAF. The annual
loss to the State General Fund will grow in the future as
property tax revenues grow.
3. Try, try, again . SB 629 is not the first effort to
eliminate the Santa Clara no/low cities' ERAF reimbursement
requirement SB 629 is nearly identical to AB 68 (Beall,
2011) and AB 1827 (Beall, 2008). Both of those bills died
in the Assembly Appropriations Committee.
4. Special legislation . The California Constitution
prohibits special legislation when a general law can apply
(Article IV, �16). SB 629 contains findings and
declarations explaining the need for legislation that
applies only to Cupertino, Los Altos Hills, Monte Sereno,
and Saratoga.
5. Related legislation . AB 741 (Brown, 2013) establishes
a new formula for making tax equity allocations to
specified cities.
Support and Opposition (3/28/13)
Support : Cities of Cupertino, Los Altos Hills, Monte
Sereno, Saratoga.
Opposition : Unknown.