BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
SB 629 (Beall) - Tax equity allocation formula: Santa Clara
County
Amended: As Introduced Policy Vote: G&F 6-0
Urgency: No Mandate: Yes
Hearing Date: May 23, 2013 Consultant: Mark McKenzie
SUSPENSE FILE.
Bill Summary: SB 629 would require the auditor of Santa Clara
County to permanently redirect approximately $2.1 million in
property taxes from the Educational Revenue Augmentation Fund
(ERAF) to the cities of Cupertino, Los Altos Hills, Monte
Sereno, and Saratoga, beginning in 2014-15 fiscal year.
Fiscal Impact: Increase in General Fund expenditures of over
$2.1 million in 2014-15, growing annually thereafter by the
property tax growth rate, to backfill property tax revenues
shifted from schools to four cities in Santa Clara County.
Minor state-reimbursable costs for the Santa Clara County
Auditor to revise property tax allocation formulas. It is
unlikely that the county would file a reimbursement claim.
Background: Prior to the passage of Proposition 13 in 1978,
local governments were authorized to set their own individual
property tax rates. Disparities in the amount of property tax
revenues received by individual cities have generally been
dependent upon the services provided by the city. Following the
passage of Proposition 13, a local government's share of
property tax was generally based upon the share received prior
to passage of the initiative. About 30 cities that never levied
a property tax before Proposition 13 are called no property-tax
cities, and about 60 cities that levied low property tax rates
are known as low property-tax cities.
AB 1197 (W.Brown), Chap 944/1988, established a minimum property
tax entitlement for no/low cities located in counties that chose
to participate in the Brown-Presley Trial Court Funding Act of
1988. That bill required participating counties to shift some
of their own property tax revenue to these no/low property tax
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cities pursuant to a tax equity allocation (TEA) formula. In
most counties TEA payments are equal to 7% of the property tax
revenue generated within the city's limits. However, as a result
of an agreement reached in 1989 between Santa Clara County and
the cities of Cupertino, Los Altos Hills, Monte Sereno, and
Saratoga, the TEA payments to these four cities were limited to
slightly less than 4% of the property taxes generated within
their boundaries (55% of the 7%, as established by AB 1175 (W.
Brown), Chap 65/1989). By the early 2000s, these four cities
protested that the lower limit impeded their ability to provide
adequate city services. Following negotiations between the
cities and the county, the 55% cap was lifted in 2006 and the
cities agreed to provide additional services that reduced the
county's costs. Key provisions of this agreement were included
in AB 117 (Cohn), Chap 342/2006.
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. Property tax revenues
allocated to each county's ERAF are used to fund schools and
every property tax dollar shifted to schools through ERAF saves
a dollar from the State General Fund.
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 the impact on the General Fund, the
final version of AB 117 required that the four cities give up
some of the increase in TEA payments that would have otherwise
occurred when the cap was raised. The county auditor is
required to calculate the impact on ERAF as a result of raising
the cap and allocate that amount to the ERAF out of the cities'
increased share of property taxes.
Proposed Law: This bill would delete the requirement that the
four cities accept reduced TEA payments. Specifically,
beginning in the 2014-15 fiscal year SB 629 would repeal the
requirement that the Santa Clara County Auditor reduce the
amount of property tax revenues allocated to specified cities
and increase the amounts allocated to the ERAF by a defined
"ERAF reimbursement amount."
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Staff Comments: As a result of this bill the cities of
Cupertino, Los Altos Hills, Monte Sereno, and Saratoga would
receive the "full" TEA amount of 7% of the property taxes
generated in their respective jurisdictions, and the
corresponding difference would be subtracted from the amount
received by ERAF. It is estimated that the net loss to ERAF is
currently worth about $2.1 million. It is likely that the pool
of property taxes in Santa Clara County will grow by the time
the shift is implemented in 2014-15. Any amounts shifted out of
the ERAF would be backfilled by the State General Fund, pursuant
the minimum funding requirements of Proposition 98. The impact
to the General Fund would be compounded each year thereafter at
the property tax growth rate.
SB 629 would also impose a state-mandated local program by
imposing new duties on county officials related to the
allocation of property taxes. Cost for the county auditor to
revise allocation formulas would be relatively minor, however,
and it is unlikely that Santa Clara County would submit a claim
for reimbursement.