BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 636 HEARING: 4/3/13
AUTHOR: Hill FISCAL: Yes
VERSION: 2/22/13 TAX LEVY: No
CONSULTANT: Weinberger
ALLOCATION OF FORMER REDEVELOPMENT
PROPERTY TAX INCREMENT REVENUE
Allows a county auditor to include former redevelopment
property tax revenues when calculating the amount of excess
property tax revenues shifted to ERAF.
Background and Existing Law
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.
State law contains formulas that county auditors use to
send ERAF money to school districts, community college
districts, county offices of education, and special
education programs. In recent years, the amount of
property tax revenue that taxing entities shifted to ERAF
in Marin, Napa, and San Mateo counties has exceeded the
amount needed under the state's education funding formulas.
In these so-called "excess ERAF" counties, county auditors
return the excess property tax revenues to the county
government, the cities, and the special districts in
proportion to their ERAF contributions (SB 1396, Burton,
2000).
Two complex fiscal arrangements - the so-called
"VLF-property tax swap" and the "triple-flip" - use money
from ERAF to provide State General Fund reimbursements for
local government revenue losses:
The "Swap ." In lieu of a property tax on motor vehicles,
the state collects an annual Vehicle License Fee (VLF) and
SB 636 -- 2/22/13 -- Page 2
allocates the revenues, minus administrative costs, to
cities and counties. In 1998, the Legislature began
cutting the VLF rate from 2% to 0.65% of a vehicle's value.
The State General Fund backfilled the lost VLF revenues to
cities and counties. As part of the 2004-05 budget
agreement, the Legislature enacted the "VLF-property tax
swap," which replaced the backfill from the State General
Fund with property tax revenues that otherwise would have
gone to schools through the Educational Revenue
Augmentation Fund (ERAF). The State General Fund backfills
schools for their lost ERAF money.
The "Triple Flip ." Proposition 57 (2004), the California
Economic Recovery Bond Act, allowed the state to sell bonds
to reduce the state budget deficit. To secure the bonds,
accompanying legislation enacted the so-called
"triple-flip" (AB X5 9, Oropeza, 2003; SB 1096, Budget
Committee, 2004). The triple-flip reduced the local
government portion of the statewide sales tax rate by 0.25%
and dedicated that portion to paying off the deficit
financing bonds. To compensate local governments, the
triple-flip transferred property tax revenues from a
county's ERAF into a Sales and Use Tax Compensation Fund
(SUTCF). Because transferring funds out of ERAF results in
lower property tax revenues to schools, State General Fund
revenues backfill the funds transferred out of ERAF.
A basic aid school district is one in which local revenues
are sufficient to provide the district with its full
state-guaranteed funding level - its "revenue limit" -
without additional state funding. The State General Fund
backfills property taxes shifted away from non-basic aid
school districts. When the amount of money in ERAF is
insufficient to compensate local governments for revenues
lost under the "swap" and the "flip," a county auditor must
allocate non-basic aid school districts' property taxes to
local governments to make up the shortfall.
Citing a significant State General Fund deficit, Governor
Brown's 2011-12 budget proposed eliminating redevelopment
agencies (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
SB 636 -- 2/22/13 -- Page 3
AB X1 27 (Blumenfield, 2011), which would have allowed most
RDAs to avoid dissolution.
Last year, in a budget trailer bill modifying the
redevelopment dissolution process, the Legislature required
that additional property tax revenues allocated to schools
and ERAF as the result of an RDA's dissolution must not
increase the amount of excess property tax revenues a
county auditor distributes from ERAF to counties, cities,
and special districts (AB 1484, Assembly Budget Committee,
2012).
Marin, Napa, and San Mateo County officials worry that
excluding former redevelopment property tax revenues from
the calculation of excess ERAF could, in some
circumstances, deprive their counties of revenues that they
would otherwise receive. They want the Legislature to
repeal last year's statutory language governing excess ERAF
calculations.
Proposed Law
Senate Bill 636 repeals the statutory prohibition against a
county auditor's using additional property tax revenues
allocated to schools and ERAF as the result of an RDA's
dissolution to calculate the amount of excess property tax
revenues the auditor must distribute from ERAF to counties,
cities, and special districts.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Last year, Legislative Counsel
wrote a letter raising constitutional questions about the
statute governing "excess ERAF" allocations that was
enacted as a part of AB 1484. Specifically, the
Legislative Counsel expressed concern that the statute may
violate the State Constitution's prohibition against the
Legislature reallocating property tax revenues to reduce,
for any fiscal year, the percentage of the total amount of
countywide property tax revenues that are allocated to
SB 636 -- 2/22/13 -- Page 4
counties, cities, and special districts. Last year's
"excess ERAF" statute also raises questions of equity.
Under some circumstances, the statute may require that a
portion of State General Fund repayments to local
governments for the VLF swap and triple flip must be offset
with funds that would otherwise have gone to those local
governments. When the state committed to repaying local
governments through ERAF, local officials understood that
the repayments would come from State General Fund revenues,
not from local revenues. SB 636 resolves these questions
about constitutionality and equity by repealing the
problematic statute.
2. Zero-sum game . Allocating former RDAs' property tax
increment revenues is a zero-sum game; every reallocation
creates winners and losers. By allowing additional
property tax revenues generated by an RDA's dissolution to
be counted towards "excess ERAF," SB 636 makes winners out
of Marin, Napa, and San Mateo Counties. The fiscal loser
will be the State General Fund, which must backfill
additional property tax revenues shifted away from
non-basic aid schools pursuant to the "swap" and the
"flip."
3. Legislative history . SB 636 is nearly identical to SB
1030 (Senate Budget Committee, 2012), which Governor Brown
vetoed last year. The Governor's veto message suggested
that taxing entities in the excess ERAF counties will
receive a generous increase in property tax revenues due to
redevelopment dissolution and expressed reservations, in
light of General Fund uncertainties, about the bill's
potential cost.
Support and Opposition (3/28/13)
Support : Counties of Marin, Napa, and San Mateo;
California State Association of Counties.
Opposition : Unknown.