California Sales Tax Calculator

Document Sample
California Sales Tax Calculator Powered By Docstoc
					      MMC Policy Update
      Analysis of AB 1221 (as amended April 21, 2003)

      M M C CALIFORNIA
                                                                            May 30, 2003


                                                                           WWW.MUNISERVICES.COM




ANALYSIS OF AB 1221 - THE CALIFORNIA BALANCED COMMUNITY ACT OF 2003
Previously, MMC issued an evaluation of AB 1221 (Campbell & Steinberg) and a calculator for clients to evaluate
the impact of this bill on their jurisdictions, which can be found at http://www.muniservices.com/. This bill
proposes to replace a portion of local governments’ current sales tax revenues with an equal amount of property
tax revenues. This report was prepared for clients requesting additional information on AB 1221 and may be used
to assist in assessing the likely overall effect of the bill on their jurisdictions. Refer to the Legislature’s website at
www.leginfo.ca.gov for up-to-date bill information.

The report is organized as follows:

        EXECUTIVE SUMMARY (PAGES 2-3)
        INTRODUCTION: LEAGUE’S POSITION AND PROCESS OVERVIEW (PAGE 4)
        CITY AND COUNTY CASH FLOW ISSUES (PAGES 4-5)
        TIMING: IMPACT OF OTHER POLICY-RELATED ISSUES (PAGES 5-6)
        IMPLEMENTATION CONFUSION & CONCERNS (PAGES 6-8)
        INDEXING METHODOLOGY (PAGES 8-10)
        REDEVELOPMENT AGENCY IMPACT (PAGE 11)
        RESIDENTIAL SERVICE COSTS (PAGES 11-12)


Please contact your MMC Client Services Representative or Fran Mancia, Director of Government Relations at
(800) 800-8181 (extension 5013) with any questions or comments.
EXECUTIVE SUMMARY
City and County Cash Flow Issues

The issues discussed in this section will potentially generate negative cash flow unless addressed in the bill.

   Sales tax revenues received on a monthly basis are being replaced with property tax revenues received on
    interim basis between November and August of the following year.
   Delays in the “reimbursement amount” payments because of counties’ need to interpret how the bill is to be
    implemented (similar to what happened with Proposition 13 and AB 8).
   Mandated costs related to AB 1221, either now or in the future, may not be funded.
   Subsequent year “replacement revenues” can be dramatically less to local governments on a statewide basis
    depending on the economic conditions at the time the bill is implemented. (Please see sections “Single Base
    Year” and “Indexing Methodology” for expanded detail.)

Timing: Impact of Other Policy-Related Issues

There are a number of policy-related issues that could generate additional sales and use tax revenues in the near
future. Some examples include the extension of sales tax to services, collection of use tax on Internet, catalog and
mail order sales, and the elimination of some current sales and use tax exemptions. If any additional generated
sales tax revenues are not accounted for in the “reimbursement amount” calculation (the exchanged amount of
sales taxes for property taxes) then local jurisdictions would lose the exchanged portion of the additional sales and
use tax revenues generated.

Implementation Confusion & Concerns

AB 1221 currently lacks important detail, including specifics as to how the bill is to be implemented. A similar
situation occurred with the implementation of Proposition 13. Even with a number of additional bills and
initiatives, there are still lingering issues surrounding Proposition 13’s implementation. By providing specific
implementation guidance in the legislation, AB 1221 should be more uniformly applied, reducing county-to-
county differences. In addition, a number of other concerns noted in this section should be addressed in AB 1221
before it is enacted:

   AB 1221 does not indicate that an analysis has been performed to determine if the ERAF funds are sufficient
    to cover the “reimbursement amount.” Also, the authors should consider including provisions to fund the
    replacement property tax from the State’s general fund in the event of any future ERAF shortfalls.
   AB 1221 does not currently address how the State would meet its educational funding obligation under
    Section 8, of Article XVI of the Constitution if a shortfall in funding occurs.
   AB 1221 does not address how local governments’ sales and property tax sharing agreements will be impacted
    when the revenues specified in the agreement to be shared are no longer being received.
   AB 1221 does not address any changes in the costs for the BOE to administer the sales and use tax paid to
    local government even though the revenues received by local government will be reduced by about half.
    Should the State absorb the administrative cost for the exchange portion of tax that it will receive? In
    addition, it would appear that under SB 2557 formulas, any county cost to administer AB 1221 not recovered
    by State mandate will be recovered from local governments and RDAs.
   AB 1221 requires the BOE to establish the “reimbursement amount” from fiscal 2003-04 revenues, but the
    bill does not specify how growth factors will be applied going forward. As drafted the bill states that for FY

                                                                                                                        2
    2004-05 and thereafter Section 96.1 of the Revenue and Taxation Code shall fully incorporate the allocation
    adjustments made by that section but fails to identify the level of government where this should occur.
   AB 1221 does not address whether the “reimbursement amount” will be calculated on a cash or accrual basis,
    and does not contain provisions to address material adjustments to the base year after the “reimbursement
    amount” is calculated.

Indexing Methodology

Currently, AB 1221’s methodology to calculate the “reimbursement amount” could have a negative impact on
local government. The concerns discussed below should be considered before the bill is enacted.

   AB 1221 uses a single base year to determine the “reimbursement amount,” which is the exchanged amount
    of sales taxes for property taxes received by local government. Using a single base year can create abnormal
    increases and decreases in revenues based on where the respective revenues are in their economic cycles. The
    abnormal increases and decreases could be corrected by using a multi-year base period or a projected average
    base to determine the “reimbursement amount.” Both Proposition 13 and AB 8 used multi-year base periods
    to eliminate abnormalities.
   AB 1221 proposes to exchange an equal amount of property taxes in FY 2004-05 for the excess of the sales
    and use tax revenues actually received in FY 2003-04 over the amount that would have been received had the
    rate been .5% in that year (or .75 for counties). There is no provision in AB 1221 to adjust the
    “reimbursement amount” for the difference between the “reimbursement amount” calculated for FY 2003-04
    and what the “reimbursement amount” would have been if calculated for FY 2004-05.

Redevelopment Agency Impact

AB 1221 does not provide any protections for local governments’ redevelopment agencies. Local governments
with substantial redevelopment agencies will not benefit under this bill because redevelopment would reduce the
growth in local governments’ property tax revenues. Even though one of AB 1221’s stated goals is to develop
low- and moderate-income housing, without addressing the redevelopment issue, AB 1221 could eliminate future
redevelopment projects, which have been a good source of providing low- and moderate-income housing.

Residential Service Cost

Even after the proposed impact of AB 1221, the costs to provide services to the residential segment far exceed the
revenues generated from that segment. If additional housing is developed, the cost to supply services will continue
to create additional cash requirements for local government.




                                                                                                                      3
INTRODUCTION: LEAGUE’S POSITION AND PROCESS OVERVIEW
League’s Position

The League of California Cities strongly opposes AB 1221 predicated on the need for amendments to: i.) protect
local government revenues; ii.) address its substantial negative impacts on cities with redevelopment agencies; and
iii.) address its effects on tax sharing agreements, among other issues. The authors sent a letter to the League
offering to amend AB 1221 to address many of the concerns raised and to address the possibility of proposing a
related constitutional amendment. The League will continue its opposition to the bill in its current form. As
reported in the League’s May 16 edition of Priority Focus, Chris McKenzie, Executive Director, announced plans to
form a technical committee of city fiscal officers, city managers and consultants to determine how best to assess
the possible impacts of the legislation and possible amendments. MMC has been invited to serve on that
committee; clients with particular concerns should contact Fran Mancia at 800 800-8181 (extension 5013).

Process Overview

This analysis begins with an overview of the current proposed process under AB 1221.

   AB 1221 proposes that, beginning July 1, 2004, local government’s rate of sales tax revenues received will
    decrease to .5% for cities, and to .75% for counties. For FY 04-05 only, the sales tax revenue given up will be
    replaced by a property tax revenue amount equal to the city or county’s “reimbursement amount.”
   The “reimbursement amount” is defined as the dollar amount represented by the difference between the
    actual local sales tax revenue received in FY 03-04 and the amount of sale tax revenue the local jurisdiction
    would have received using the AB 1221 sales maximum rate of .5% for cities (or .75% for counties).
   AB 1221 uses a “single base year” method to determine the reimbursement amount. The State Board of
    Equalization (BOE) is required to make the “reimbursement amount” calculations for each city and county
    and transmit them to each county auditor by July 14, 2004.

CITY AND COUNTY CASH FLOW ISSUES
Schedule of Payments

Cash flow implications regarding the implementation of AB1221 should be considered. Cities and counties
currently receive their sales and use tax revenues monthly, while property tax revenues are typically received
through an initial installment in November, with subsequent quarterly payments for the balance through August
of the following year. Payment schedules vary from county to county. Starting in July 2004, cities and counties
may immediately lose approximately half of their sales and use tax revenues, while facing potential delays in the
allocation of replacement property tax revenues through FY 2004-05 and into FY 2005-06. Because the rules
governing implementation are not well-defined, there will be ongoing concern that the counties will need to delay
allocations while interpreting the statute, preparing new calculations and adapting county property tax systems to
AB 1221. There is also no requirement that counties must act uniformly. These concerns are consistent with
those that occurred in the implementation of Proposition 13 and AB 8 (Greene).

Funding of Mandated Costs

Implementation of AB 1221 would significantly increase mandated costs for local agencies. Mandated costs to
local government have not historically been fully covered. In addition, any reimbursements typically lag behind the
required expenditures, sometimes as much as a whole fiscal year or longer, thus requiring local government to
                                                                                                                      4
front the costs. The Governor’s 2003-04 budget proposes to suspend 34 state-mandated programs and defer all
annual and accumulated mandate claim costs, for a savings of $32.9 million. It is reported that the Administration
intends to draft statutory language to repeal the funding for 27 of the 34 mandates proposed for suspension.
Considering the current Administration’s view toward State mandates, protection for funding these new mandated
costs should be addressed if local jurisdictions are to be kept whole.

TIMING:      IMPACT OF OTHER POLICY-RELATED ISSUES

The possible effects of other current and future legislation affecting local property and sales taxes should be
considered in evaluating AB 1221, particularly in relation to the “reimbursement amount” calculation. Any
changes that would generate additional sales and use tax revenues for local government that are not fully taken
into account in the language governing base year 2003-04 and the reimbursement calculation could result in local
governments losing approximately half of any new revenues unless corrective adjustments are added to AB 1221.
Some examples of the need for base year adjustments are described below.

Sales Tax Extended to Specialized Services

Senate Bill 400 (Florez) proposes to impose sales taxes on specialized services provided in the State. Gross
receipts in FY 2002-03 for services that would likely be impacted by SB 400 are estimated at $138 billion, which
would have provided sales tax revenues of about $11 billion, comprised of $3.1 billion for local government, $1.0
for special districts, and $6.9 billion for the State.
The author’s office has reported that SB 400 is on hold. Reports indicate that extending the sales tax to
specialized services could appear in the final 2003-04-budget package. The effective date of any such changes
would have an impact on the “reimbursement amount” calculation to cities and counties. An effective date after
July 1, 2003, for such legislation would cause AB 1221 to have a negative impact on cities and counties unless a
corrective adjustment to the base year calculation is provided.

Sales and Use Tax Collections on Internet, Catalog and Mail Order Sales

Senate Bill 103 (Alpert) would clarify prospectively the requirement for out-of-state taxpayers having agency
relationships with California persons to collect and report use tax on interstate sales. Generally speaking, the
Commerce clause of the federal constitution has been held to protect non-California retailers from the obligation
to collect California use tax unless there is an "agency" relationship between the out-of-state company and an in-
state person. Specifically, SB 103 proposes to clarify that a retailer is engaged in business in California if it
authorizes an employee, representative, or independent contractor operating in this state to perform certain
services on its behalf. These include repairing and servicing products sold to customers in this state.

Senate Bill 157 (Bowen) proposes the establishment of a legislatively controlled board to represent the State at the
Streamlined Sales Tax Project. Currently, individuals in the State purchasing from such out-of-state vendors are
required to pay a “use tax” directly to the State on their purchases, but most people are not aware of the law and
do not pay these taxes. This segment of the economy is growing. It was estimated that the State missed out on
approximately $1.75 billion in sales and use tax revenues on goods sold over the Internet in 2001 alone, which
represents about an 8% increase in sales tax revenues and approximately a quarter of a billion dollars. If
unchecked, this loss is anticipated to grow to $5.9 billion annually by 2006. Concurrently, efforts are underway in
the Legislature (SB 1009, Alpert) and at BOE to increase consumer reporting of use tax by adding a question to
the personal income tax return. The 2002 FTB income tax instructions also include guidance for such filings.



                                                                                                                       5
Removal of Sales and Use Tax Exemption Status
The repeal of any sales and use tax exemptions would generate additional sales or use taxes. The effective date of
those changes in relation to the “reimbursement amount” calculation could have a negative impact on city and
county revenues unless an adjustment is provided.

IMPLEMENTATION CONFUSION & CONCERN
Lack of Direction – Learning from Proposition 13

Assembly Bill 1221 does not provide adequate guidance concerning its implementation, and the responsible
parties for the bill’s implementation and oversight. It took four to six years from the passage of Proposition 13 to
resolve its similar problems. Formulas used under Proposition 13 to allocate the property tax revenue within each
tax rate area are based on AB 8 language. AB 8 still has many interpretive problems and remains controversial. Its
extensive provisions mandated changes to property tax levy rates, valuation criteria, allocation formulas and
schedules before the distribution of property tax revenues could occur.

This Proposition 13 transition process involved a lack of uniformity in the application of the regulatory and
procedural steps from the BOE-to-county, county-to-county, county-to-city, BOE-to-redevelopment agencies
(RDA), county-to-RDA, etc. Cities and counties faced significant losses of tax revenues and delays of other tax
allocations from state and local assessments. These impediments in the property tax allocation process took
several years to resolve, and created budget crises for many local government agencies.

Even though AB 1221 does not present the same depth of complexity as Proposition 13, there are similar timing,
legal and practical interpretive issues inherent in the bill. The authors should provide local governments with the
specifics governing the intricate issues posed by the bill.

Implementation Concerns

Given the lack of precise rules in AB 1221 there are several underlying assumptions that may be drawn from
authors’ comments related to its intended impact on local government. First, it is assumed that the present
valuation, assessment and allocation of property taxes under AB 8 and tax increment revenue allocations to RDAs
under Section 33670 of the Community Redevelopment Law (CRL) remain intact. Second, it is assumed that the
State property tax source for reimbursement is from the Education Revenue Augmentation Funds (ERAF) only.
Based on these assumptions, the following concerns should be reviewed and addressed:

ERAF sufficiency. Are the ERAF funds authorized under Section 97 of the Revenue and Taxation Code
sufficient to cover the “reimbursement amount” under AB 1221? Local governments may wish to request authors
to provide an analysis of this issue as well as some provision to restore any future ERAF shortfalls.

State education funding. The State’s obligation to maintain its aggregate educational funding obligations under
Section 8, of Article XVI of the Constitution is cited in AB 1221 and would prevail if educational shortfall funding
occurs. AB 1221 currently does not address how the State would meet this obligation given the unknown impacts
of the funding source swap envisioned in the bill.

Sharing agreements. Many local government agencies have sales and property tax sharing agreements with
other local government agencies or private parties. Most of these agreements were written with the intent that
they would be funded with the sales or property tax revenues that the sharing agency is currently receiving. Based

                                                                                                                       6
on the language governing determination of the amount to be shared, either as a revenue percentage, a fixed
amount or a percentage of the gross receipts of the private party, some local governments may have to fund these
agreements from revenue sources other than the ones contemplated. A policy and legal question is posed as to
whether existing sharing agreements should be grandfathered to protect the legislation from constitutional attack.

Bradley-Burns statutory sharing. RTC Section 7202 (a) authorizes a county rate of 1.25% on all taxable sales
and uses in the county against which taxpayers are entitled to credit, under subdivision 7202 (h), the actual amount
of sales and use taxes that they are required to pay to cities in the county. Under RTC subdivision 7202 (h) (1) the
city rate may be 1% or less. In some counties, cities have been required to cede a portion of their maximum 1%
rate to the county to persuade it to adopt a sales tax ordinance. (The original Bradley-Burns maximum county rate
was 1%.) Thus, many cities may have a rate that is less than the maximum 1%.

AB 1221 amends Bradley-Burns so that the maximum county and city rates are .75% and .5% respectively, and the
maximum state rate is increased by .5%. If current law entitles a city to receive .9% of taxable amounts under its
ordinance, with the county retaining the additional .1%, the reimbursable amount calculation for the city will be
(.9% times 2003-04 taxable amounts) less (.5% times 2003-04 taxable amounts) or .4% times taxable amounts.
Under AB 1221 the .1% in this example and similar percentages in excess of the county .25% rate now being
received by any county will be received by the State, because of its .5% rate increase.

BOE administrative costs. Currently, the BOE withholds the costs of administering Bradley-Burns from the
cities’ and counties’ allocated sales tax revenues. Although the cost-allocation formula is not spelled out in the
statute, it is understood to be based on the gross sales tax revenues now being received by local government as a
percentage of the aggregate sales and use taxes. This bill does not address any changes in those cost recoveries
and should be amended to make the formula specifically based on the gross percentages of total revenues received
so that the cost allocation to local government will be reduced. Otherwise, cities and counties might find
themselves required to pay the same costs to the BOE to administer slightly more than half of the current
revenues.

County administrative costs. SB 2557, Statutes of 1990, authorized counties to recover property tax
administrative and allocation costs along with other county fees and services from cities and other taxing entities.
The administrative cost formula is calculated by factoring the total amount of the county’s property tax
administrative costs by the ratio of total property tax revenues received by each jurisdiction. Under the SB 2557
formulas, any county costs to administer AB 1221 that are not funded by the State will be recovered from local
governments and RDAs.

Inflation adjustments. AB 1221 requires BOE to calculate the “reimbursement amount” as equal to the
reduction in sales and use tax revenues that would have been experienced in base FY 2003-2004 if the reduced
.5% rate had been in effect. Property tax revenues equal in amount will be factored in later years by increases and
decreases in assessed values. However, the bill does not define whether these adjustments are to be made and
spread at the county, tax rate area or State levels.

Accrual or cash basis implementation. AB 1221 does not address whether the “reimbursement amount” will
be calculated on an accrual or cash basis, nor does it provide direction on whether past year sales tax revenue
adjustments are to be reflected in the calculation of the reimbursement amount. The question is whether the term
“sales tax received” refers to revenue received “in” a period, or revenue received “for” a period. The cash
methodology is implied since the date for the BOE to release the “reimbursement amount” calculations is set for
July 14th and accrual numbers are not known for the fiscal year at that point in time. The cash methodology,
however, has substantial fluctuation due to taxpayer late payments, BOE audit results and one-time allocation
adjustments covering past years. This methodology will substantially increase the possibility of establishing
                                                                                                                       7
“reimbursement amounts” that do not represent the local government’s current or future sales tax generating
capacity. There also appears to be no guidance for adjusting the reimbursement amount for later deficiency
assessments or refunds relating to the base year (2003-04). Later adjustments to property taxes for base year 2004-
05 would have a similar impact.

INDEXING METHODOLOGY
Single Base Year

AB 1221 uses a single base year (2003-04) to determine the “reimbursement amount,” which is the additional
amount of property tax revenues to be received in FY 2004-05. Using a single base year overlooks the effects of
economic cycles on increases or decreases in revenues. For instance, if sales tax revenues are at a low in their
economic cycle while property tax revenues are at a high in the single base year used to determine the
“reimbursement amount,” then as the growth rates return closer to the norm growth rates this would cause the
swap proposed by AB 1221 to result in a negative financial impact on local government. This scenario appears to
reflect the current economic position.

To illustrate this principle, the following examples of an AB1221 implementation in 1992-93 and 1999-2000
demonstrate the significant difference in total local government revenue depending on the economic conditions at
the time of the implementation. In 1992-93 the Sales/Use Tax was at a low point and recovering, while property
tax was entering a flat growth period.

Figure 1 shows that the exchange being proposed now by AB 1221 would not have worked well for local
government if it had become effective in 1992-93. On the other hand, if 1999-2000 had been chosen as the base
year, Figure 2 shows that local government would have fared well in the succeeding three years.

Figure 1


                1992-93 Implementation




For the 1/2 % Sales Use Property Tax In
                                        Percent Received
  S/U Tax        Tax         Lieu


    1994         1,352          1,300         96%
    1995         1,385          1,300         94%
    1996         1,451          1,286         89%
    1997         1,550          1,277         82%
    1998         1,616          1,286         80%
    1999         1,682          1,315         78%
    2000         1,847          1,324         72%
    2001         1,748          1,428         82%
    2002         1,748          1,565         90%
    2003         1,800          1,642         91%



                                                                                                                      8
Figure 2


               1999-2000 Implementation




 For the 1/2       Sales Use      Property Tax         Percent
 % S/U Tax            Tax           In Lieu            Received



     2001              2,090              2,382          114%
    2002               2,090              2,611          125%
    2003               2,152              2,738          127%
Figures 1 & 2 in Constant 2003 millions of dollars

The authors may want to consider substituting a multi-year base period. Proposition 13 and AB 454 utilized a
three-year base to mitigate the effects of normal property valuation fluctuations in any given year. Using a single
base year can result in significantly different effects depending on the economic conditions in that year.

For example, if the bill had been implemented in 1993 instead of 2000 the results would have been significantly
different, as demonstrated in Figures 3 and 4. Another approach is to develop a normative revenue growth
curve utilizing linear regression of known revenues to establish the base property tax “in lieu” amount. This
methodology would moderate the effects of short-term economic cycles.

Figure 3

                                                                     Taxable Sales (Billions)
    500

    475

    450

    425

    400

    375

    350

    325

    300

    275

    250
                                                                                                                                                         2000



                                                                                                                                                                       2002
                                                                                                                                                                2001
            1980



                           1982

                                  1983

                                         1984

                                                1985

                                                       1986

                                                              1987

                                                                     1988

                                                                            1989

                                                                                   1990



                                                                                                 1992

                                                                                                        1993

                                                                                                               1994

                                                                                                                      1995

                                                                                                                             1996

                                                                                                                                    1997

                                                                                                                                           1998

                                                                                                                                                  1999
                    1981




                                                                                          1991




                                                                                                                                                                              9
Figure 4

                                                                   Net Assessed Value (Billions)

   3,000

   2,800

   2,600

   2,400

   2,200

   2,000

   1,800

   1,600

   1,400

   1,200

   1,000
           1980



                         1982

                                1983

                                       1984

                                              1985

                                                     1986

                                                            1987

                                                                     1988

                                                                            1989

                                                                                   1990



                                                                                                 1992

                                                                                                        1993

                                                                                                               1994

                                                                                                                      1995

                                                                                                                             1996

                                                                                                                                    1997

                                                                                                                                           1998

                                                                                                                                                  1999
                  1981




                                                                                          1991




                                                                                                                                                         2000



                                                                                                                                                                       2002
                                                                                                                                                                2001
Replacing 2004-05 Sales Tax Revenues with 2003-04 Sales Tax Revenues

Under AB 1221’s proposed tax swap, cities and unincorporated county areas will reduce their sales and use tax
rates in FY 2004-05 by .5% (Cities from 1% to .5% and Counties from 1.25% to .75%), and receive an amount of
property tax revenues from the ERAF fund equal to the amount of sales tax revenues actually received in FY
2003-04 for the .5% that was given up. This will result in the local governments not participating in the growth of
taxable sales for 2004-05. It should also be noted that the property tax growth provisions included in AB 1221 do
not take effect until after the calculation of the base year “reimbursement amount” has been completed.

If cities and counties expect their sales tax revenues to decline in FY 2004-05, as compared to 2003-04, then they
would benefit from this swap, for that year. On the other hand, if sales and use tax revenues in FY 2004-05
exceed those for 2003-04, then the cities and counties would lose revenues. In either case, AB 1221 would not
have a revenue neutral impact as the authors intend. In general, most economic forecasts are projecting a
recovery to begin in late 2003 or early 2004. If correct, most cities and counties would not benefit immediately
from the proposed exchange. For the bill to be truly revenue neutral in its first year, a provision should be added
to reflect any increased sales tax revenues in the subsequent year (2004-05) relative to the base year (2003-04)
amount. Of course such an amendment would not provide protection for later years.




                                                                                                                                                                              10
REDEVELOPMENT AGENCY IMPACT
Local Governments having Substantial Redevelopment Programs

Coleman Advisory Services reported that cities with a substantial number of redevelopment programs would not
benefit from AB 1221 because redevelopment would reduce growth in city property tax revenues. Once the
project area is closed, the city would receive an increased apportionment of the redevelopment tax increment. AB
1221 does not specifically address the impact on redevelopment agencies and the effect it will have on local
government revenues. AB 1221 will have an impact on the manner and frequency with which local governments
enter into redevelopment projects because of the overall potential loss of revenues that is likely to result under the
current scheme.

Redevelopment Agency Housing Resource

One of the goals of AB 1221 is to generate low- and moderate-income housing. The bill appears to overlook
redevelopment agencies as a viable source for providing such housing. Redevelopment agencies are required by
the Constitution and the Community Redevelopment Law to increase housing. A minimum of 20% of annual tax
increment revenue is required to be set aside for low- and moderate-income housing. Redevelopment agencies
must use or lose these housing set-asides. There are a substantial number of redevelopment projects focused on
providing housing, and as such, redevelopment agencies are a major resource for the State’s supply of new
housing. Under AB 1221, as currently written, this housing source would be materially diminished.

RESIDENTIAL SERVICE COST
Assembly Bill 1221’s stated intent as per the authors is to increase low- to moderate-income housing. With the
bill’s enactment, the cost of providing services to residential communities should be considered against the
revenues generated by the housing sector. To illustrate the impact of AB 1221, MMC utilized revenue and expense
data from the late 1990’s for a selected sample of 48 client cities to estimate the direct general fund tax revenue
from each of the displayed economic segments both before and after enactment. The results are displayed in
Figures 5 and 6 below.


Figure 5
  Business Segments                          Current       With AB 1221
                                            Revenue        New Revenue
  Business-to-business                    345,937,538         308,837,205    89%
  Commercial/industrial prop.             163,679,178         256,167,954   157%
  Financial institutions                    6,343,954           7,665,949   121%
  Governmental                             34,295,284          33,271,344    97%
  Hospitality                             336,004,770         294,415,737    88%
  Miscellaneous                            42,729,849          45,514,585   107%
  Residential property                  1,285,342,174       1,595,424,181   124%
  Retail businesses                       814,399,787         478,905,353    59%
  Service industry                        158,261,839         157,010,431    99%
  Vacant land                               8,520,176          14,440,725   169%
  Unable to classify                       18,885,815          22,746,901   120%

 Total                                  3,214,400,364       3,214,400,364   100%
                                                                                                                         11
Based on our analysis, AB 1221 would increase revenues generated by the residential segment by 24%, bringing
residential revenue contributions to 49.6% of total revenues. A previous cost study performed by MMC identified
the breakdown of municipal service cost to be approximately 70% residential and 30% non-residential. Figure 6
demonstrates that even after accounting for the impact of AB 1221, the cost to service the residential segment far
exceeds the revenues generated by that segment. These estimates suggest that AB 1221 would not succeed in
allowing local jurisdictions to provide current-level governmental services from residential development generated
revenues only

Figure 6

                                                                   Cost
                                    Revenue                                               Net
                                                          Amount             Percent

Residential                           1,595,424,181          2,250,080,255         70%   (654,656,074)
Non-Residential                       1,618,976,183           964,320,109          30%    654,656,074

Total                                 3,214,400,364          3,214,400,364        100%              0


SOURCES
MMC utilized the following sources in the preparation of this publication:

California Legislature (www.leginfo.ca.gov)
Coleman Advisory Services (www.californiacityfinance.com.)
Gary Jones, Municipal Property Tax Consultant (ggjdsl1@msn.com)
League of California Cities, Priority Focus (www.cacities.org)
Sacramento Bee (www.sacbee.com)
Office of Assembly Member Steinberg




                                                                                                                     12

				
DOCUMENT INFO
Description: California Sales Tax Calculator document sample