3.5 PROPERTY TAX

Prior to the passage of Proposition 13 (Prop 13) in 1978, local agencies with taxing authority individually adopted specific tax rates for their own jurisdictions. The annual tax rate (along with the annual property assessment) allowed each agency to control the primary source of its discretionary revenue and thus, substantially control its own budget from the standpoint of meeting community needs.

The passage of Prop 13 and implementing measure Assembly Bill 8 reduced local agency property tax revenue to approximately 25 percent of the historical levels. Prop 13 limited general property taxes to one percent of the assessed value of properties. Assembly Bill 8 limited property tax sharing ratios (sometimes called Tax Apportionment Factors) to pre-Prop 13 property tax rates for each agency. Sutter County normally received 31 percent of local property taxes with the remainder going to cities, school districts and other special districts.

Subsequent to Prop 13, the State provided additional funding to the local agencies to support mandated programs. During the 1980's this additional funding (subvention funding) as well as mandatory reimbursement levels to local agencies steadily declined. The economic recession of the early 1990's led to the elimination of subvention funding and reductions in the percentage of local property taxes returned to the County. These changes have resulted in the County's portion of local property taxes being reduced from 31 percent to 17 percent. This translated into a 3.9 million dollar loss for Sutter County in fiscal year 1993-1994. A one half cent sales tax increase was made permanent by a statewide ballot measure that is estimated to provide approximately $751,000 of additional revenue to the County based on 1992 retail sales figures.

While cities, as well as counties, lost a significant portion of their property tax revenues and their ability to directly set tax rates, cities are able to indirectly affect property tax revenues more effectively than counties can. Since the passage of Prop 13 there has been a substantial increase in new incorporation and annexations in California. At the time of a new incorporation or an annexation, part of the county's share of property tax revenues are transferred to the city. In the case of a new incorporation the amount of property tax transfer is determined by provisions of law. In the case of an annexation, the amount of transfer is subject to negotiation between the county and city.

Cities also have another distinct advantage over counties with the use of redevelopment project areas. When an area is declared a redevelopment project area, the property tax base is "frozen" for the life of the redevelopment project, often as long as 30 years. The redevelopment fund then collects the difference between the property tax on the "frozen base" and the property tax on the current assessed value (referred to as the "tax increment"). In the early years of a redevelopment project this is a relatively small sum. Over time, as improvements are made and properties change hands, the property tax increment can be quite substantial. When the base is frozen, the county is deprived of increased revenues from the property tax increment. The redevelopment agency is required by State law to use 20 percent of these revenues for low and moderate income housing. Although increased commercial and industrial development within a city has a relatively small impact on many county services, residential development within a city, particularly low and moderate income housing, can significantly increase demand for county services.

3.6 FINDINGS

The agricultural industry continues to provide a substantial portion of the economic base for Sutter County.

Sutter County is increasingly becoming a bedroom community for commuters who are employed outside the County in a variety of professional and related occupations.

The retail sector in Sutter County currently predominates with 30% of the total 1995 employment.

Sutter County exhibits the characteristically high unemployment rate found in most rural agricultural jurisdictions.

Most of the job growth in Sutter County over the past decade has been associated with increases in population. This trend is expected to continue, with services, retail, local government and education employment growing at the fastest rate because of population increases. Manufacturing, wholesale, and agriculture are expected to provide moderate growth.

3.7 PERSONS CONSULTED

Cervantes, Debbie. Labor Market Information Division, Employment Development Department

Dominguez, Laura. Harter Tomato Products, Company

3.8 BIBLIOGRAPHY

Employment Development Department. "Annual Planning Information, Yuba City Metropolitan Statistical Area, 1994".

Sacramento Area Council of Governments. "1995 Regional Housing, Population and Employment Projections", February 1996.

U.S. Census.