Legal Alerts

Measure Prevents the Borrowing/Shifting of Property Taxes, State Fuel Taxes and Vehicle License Fees

California voters yesterday adopted Proposition 22, the “Local Taxpayer, Public Safety, and Transportation Protection Act of 2010,” which will reduce or eliminate the state’s authority to take the following actions:

• Use state fuel tax revenues to pay debt service on state transportation bonds.
• Borrow or change the distribution of state fuel tax revenues.
• Redirect redevelopment agency property taxes to any other local government.
• Temporarily shift property taxes from cities, counties and special districts to schools.
• Use vehicle license fee (VLF) revenues to reimburse local governments for state mandated costs.

The proponents of Prop 22 sought to conclusively and completely prohibit the state Legislature from seizing, diverting, shifting, borrowing, transferring, suspending, or otherwise taking or interfering with revenues that are dedicated to funding services provided by local government or funds dedicated to transportation improvement projects and services.  In regard to the portion of Proposition 22 that addresses the shifting of property taxes from cities, counties and special districts, the measure eliminates certain provisions in the State Constitution that permit the State to temporarily borrow or redirect some city, county and special district funds.  Prop 22 came about as a result of recent actions by the state Legislature to borrow or shift property taxes, which were dedicated to local government, and instead use said funds to help close the state budget deficit. 

A previous ballot measure, Proposition 1A, was passed in November of 2004 with the intent of protecting the property tax revenues of local government.  However, Prop 1A included certain exceptions, including the ability of the state to borrow local government property taxes on the condition that they be paid back within three years and such an action could only be taken by a two-thirds vote of each house of the Legislature. 

Last year, the State Budget deal included the election by the Legislature to tap into $1.9 billion of local government property tax revenues under the above-mentioned borrowing provisions of Prop 1A.  For the 2009-10 fiscal year, the amount of ad valorem property tax revenue, which would otherwise be distributed to each city, county and special district, was reduced by 8% of the total amount of such tax revenue received by that local agency for the 2008-09 fiscal year.  Said revenues were then transferred to certain State educational funds. 

Prop 22 now prohibits such a temporary shift of property taxes by the state Legislature and will prohibit similar tax shifts that impact state fuel tax revenues, redevelopment agency property taxes and VLF revenues.  With the adoption of Prop 22, local governments will no longer be subject to losing such revenues to the state as the Legislature attempts to balance future state budgets.