Title
Consider a recommendation from the Legislative Committee to adopt a resolution and engage in legislative advocacy efforts with Santa Cruz County in support of state property tax apportionment reform efforts.
Report
RECOMMENDATION:
It is recommended that the Board of Supervisors consider a recommendation from the Legislative Committee to adopt a resolution and engage in legislative advocacy efforts with Santa Cruz County in support of state property tax apportionment reform efforts.
SUMMARY:
Earlier this year, Santa Cruz County passed a resolution in support of property tax apportionment reform efforts. Santa Cruz County Supervisor Manu Koenig contacted Supervisor Luis Alejo asking that the County of Monterey adopt a similar resolution. At the September 9, 2024, Legislative Committee meeting, the Committee reviewed the issue and recommended that the Board adopt a resolution in support of state property tax apportionment reform efforts, request that the Legislative Analyst’s Office (LAO) update their AB 8 analysis from February 3, 2000, and work with Santa Cruz County on legislative advocacy efforts related to this issue.
DISCUSSION:
Over the last 45 years the County of Monterey has been operating under a property tax distribution formula which was established after the passage of Proposition 13. It has led to degradation of our infrastructure and critical vacancies in our staffing that disproportionately impact the County’s most vulnerable residents. This formula was created by the state legislature and can only be modified by the state legislature or a statewide ballot initiative. The attached resolution advocates for reform in California's property tax apportionment system to address the significant and unsustainable funding imbalance that has negatively impacted the County of Monterey.
California voters approved Proposition 13 in 1978 through the initiative process, creating an amendment to the California Constitution. Among other changes, Proposition 13 set the local property tax rate at 1% of the assessed value for real estate and limited the annual increase on the assessed value to not exceed 2% per year. Reassessment of a property was prohibited except in change in ownership or the completion of new construction.
Local property taxes were impacted not only through setting the rate of real estate assessments, but through Proposition 13 the state froze the allocation of these property taxes among local jurisdictions. For example, if before Proposition 13 the countywide property tax revenue had been $1 million and a school’s property tax revenue had been $100,000, the school’s share would be locked at 10%. The same is true for the percentage received by cities and special districts. The effect is a local governments’ share of property taxes before 1978 largely determined what they received after Proposition 13.
In the County of Monterey, tax revenue, including sales, hotel, and property taxes, make up about 16% of the County’s $1.92 billion budget. Property taxes account for the majority of this, 77%. However, only 15 cents (15%) of every property tax dollar paid goes to the County. This means for every dollar of property tax, only 15 cents is allocated to the County for services, with the remainder going to schools, local special districts, cities, and the libraries.
Analysis
The County of Monterey faces a unique challenge in its property tax apportionment. Despite many county residents living in the unincorporated area and depending on county services, the County receives just 15% of its local property taxes. This is one of the lowest apportionment ratios in the state. This disparity has had dire consequences on county infrastructure with the County’s Public Works, Facilities and Parks Department (PWFP) reporting over $1.6 billion in deferred maintenance costs:
1. County Roads: The County Road conditions are declining and need rehabilitation. The Pavement Condition Index (PCI) (where 0 is a failed condition and 100 is an excellent condition) indicates the Countywide average is a dismal 45, classified as “poor”. Deferred maintenance on county roads ($700 million), bridges ($300 million) and road appurtenances ($500 million) is over $1.5 billion, endangering public safety, and hampering economic development. Note that the Road Fund does not currently receive property tax money. The Road Fund relies solely on gas taxes, the local sales tax measure (Measure X), and a portion of County Transient Occupancy Tax (TOT), as well as grant funding when awarded.
2. County Facilities: Deferred maintenance on county facilities amounts to $100 million. This shortfall jeopardizes the delivery of essential services to residents and threatens the well-being of the community. This relies almost entirely on County General Fund dollars, which competes with other County departments for that limited funding source every budget cycle.
3. County Parks: Deferred maintenance at county parks totals $15 million, impacting recreational opportunities, tourism, and the overall quality of life for residents. Based on recent condition assessments, that deferred maintenance cost estimate is likely to increase substantially. This service relies on General Fund dollars as well as revenues generated by the County parks and lakes.
The County of Monterey is required to be the local safety net, yet because of its low share of property taxes and its mandate to provide general services, rural, disadvantaged, and low-income residents inevitably suffer even more. This is evident not only in our infrastructure needs, but also in our staffing needs. Neighboring counties that receive a higher share of their property taxes can offer more competitive salaries. The County of Monterey cannot compete and is left with critical vacancies.
Staff recognizes the importance of this issue in terms of the County’s property tax revenue, but notes that the allocation of property tax revenue is a zero-sum situation so increasing the County’s share would impact other agencies who receive a percentage of property tax revenue.
The attached resolution serves as a critical step in addressing these funding disparities and advocating for necessary reform. By adopting this resolution in support of state property tax apportionment reform efforts, the Board will request that the Legislative Analyst’s Office (LAO) update their AB 8 analysis from February 3, 2000, and work with Santa Cruz County on legislative advocacy efforts related to this issue.
OTHER AGENCY INVOLVEMENT:
The request for the County of Monterey to engage in this effort came from Santa Cruz County Supervisor Manu Koenig. The County Administrative Office, Auditor-Controller, and Public Works, Facilities and Parks departments contributed to this report.
FINANCING:
Approval of the recommendations contained in this report will have no impact on the General
Fund.
BOARD OF SUPERVISORS STRATEGIC INITIATIVES:
An increase in the County’s share of property taxes would positively impact funding across the organization.
Mark a check to the related Board of Supervisors Strategic Initiatives
X - Economic Development
X - Administration
X - Health & Human Services
X - Infrastructure
X - Public Safety
Prepared by: Annette D’Adamo, Legislative Program Manager, ext. 3045
Approved by: Nicholas E. Chiulos, Chief Assistant CAO, ext. 5145
Attachments:
Resolution
LAO Report: Reconsidering AB 8: Exploring Alternative Ways to Allocate Property Taxes (February 3, 2000)