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League of California Cities Reacts to AB 1484, the Redevelopment Budget Trailer Bill

Predicts Bill Will Cause More Local-State Conflict and Litigation

June 27, 2012

Earlier this year, the California Supreme Court concluded the Legislature could not enact legislation exacting local redevelopment agency revenues in order to fund the state budget in violation of Proposition 22 (2010). Today — only six months later — the Legislature passed AB 1484, the 73-page budget “trailer bill,” containing unconstitutional sales and property tax clawback or garnishment provisions.

 

Like most budget trailer bills, AB 1484 appeared in print only yesterday morning, and city officials, who were excluded from the drafting of the bill, were deeply troubled by a number of provisions that are detailed below.

The measure provides that if a local successor agency does not make a payment of property taxes to other local taxing agencies by no later than July 12, 2012, the Department of Finance (DOF) is empowered to notify the Board of Equalization to suspend sales tax payments to the affected city, effective July 18. This unprecedented delegation of authority is both unnecessary and unconstitutional.

While the League recognizes and appreciates that AB 1484 contains some valuable features of AB 1585 (Pérez) concerning repayment of city loans to redevelopment agencies, the use of bond proceeds provisions of SB 986 (Dutton), and a process for inventorying and more rationally disposing of redevelopment real estate assets, the legislation gives DOF the authority to divert local sales and property taxes and impose $10,000 per day fines, putting local public safety and other vital services at risk while ignoring the state Constitution.

Even if this authorization was not legally infirm, the nonpartisan Legislative Analyst Office (LAO) pointed out to the Senate Budget Committee last night that the projections of redevelopment revenue contained in  the budget are most likely overly optimistic given the amount of local redevelopment debts that must first be paid. LAO further characterized AB 1484 as a significant expansion of the authority of DOF, including the unprecedented ability for it to delay and divert local sales and property taxes to satisfy the state’s cash demands. Moreover, the benefits of AB 1484 described above could be delayed or undermined because the bill empowers DOF to refuse to approve them even when a successor agency has fully complied with the law.

Reacting to the passage of the trailer bill, Chris McKenzie, League executive director, remarked: “I want to thank the legislators on both sides of the aisle who expressed their opposition to the excessive and unconstitutional provisions in this measure. We had hoped this year that state and local officials could pull together and fashion a trailer bill that truly worked for cities while balancing state needs. Unfortunately, the passage of this flawed measure today without the involvement of local officials in its drafting will only perpetuate conflict at a time when a more collaborative approach would have promoted unity. We agree with state leaders that we need to come together as a state, but the lack of consultation and collaboration with cities over the last 24 hours will very likely widen the divide and promotes more conflict and litigation. We hope the Legislature takes a second look at this measure and corrects its flaws before any more damage is done.”

Constitutional Flaws of AB 1484

Sales Tax Clawback: Article XIII, section 24 says the Legislature may not "reallocate, transfer, borrow, appropriate, restrict the use of, or otherwise use the proceeds of any tax imposed or levied by a local government solely for the local government's purposes." The Bradley-Burns sales and use tax is imposed by a local government solely for local government's purposes. AB 1484 "reallocates" the local sales tax to the taxing entities; "restricts the use of" the local sales tax to payment of a penalty; and "otherwise uses" the sales tax to transfer funds to the taxing entities. There is no exception in Article XIII, section 24 that allows the Legislature to "otherwise use" the sales tax to pay a penalty. The prohibition is clear and complete: the Legislature may not "use" the sales tax for any purpose, including payment of a penalty.

Property Tax Clawback: Cities, counties, and special districts cumulatively receive a percentage share of the $1 property tax rate. Article XIII, section 25.5(a) (1) (A) prohibits the Legislature from reallocating property tax so as to reduce this cumulative percentage share. Article XIII, section 25.5(a) (3) prohibits the Legislature from reallocating property tax as between cities, counties, and special districts except with a two-thirds vote. AB 1484 was not approved by two-thirds vote, yet it reallocates city (or county) property tax to other taxing entities if a successor agency does not make certain required payments. A portion of the reallocated property tax will go to school districts, thereby reducing the cumulative percentage share received by cities, counties, and special districts. Further, a portion of the reallocated property tax will go to special districts, thereby reallocating property tax as between cities, counties, and special districts with a majority vote. There is no exception in Article XIII, section 25.5 that allows the Legislature to reallocate property tax as a penalty. The prohibition is clear and complete: No reallocation of city, county or special district property taxes to schools is allowed at all, and no reallocation of property tax among cities, counties and special districts is possible without a two-thirds vote. 



 
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