CSAC Bulletin Article

Triple-Flip Unwind Final Payment Set for July 7

June 30, 2016

The final payment to counties under the “triple-flip” is now underway following the paydown of the state’s Economic Recovery Bonds last year. County Auditor-Controllers and Treasurer-Tax Collectors should have received notice via email from the Department of Finance dated June 30 with the notice and final close-out payment amounts, with including allocation by jurisdiction and actual sales and use tax revenue losses.

DOF has stated that county treasurers should ensure that the payment from the State Controller’s Office, which is expected on July 7, is placed into the Sales and Use Tax Compensation Fund of that county. Questions regarding the final payment should be directed to DOF’s Colby White or Jacqueline Pecor at (916) 322-2263.

Background (provided by the Legislative Analyst’s Office)

In 2004, voters approved Proposition 57, which authorized the state to issue up to $15 billion in deficit financing bonds (also known as economic recovery bonds, or ERBs). Proceeds from these bonds were used to address the state’s budget shortfall. To repay the ERBs, the state pledged one-quarter cent of the local Bradley-Burns sales tax. In particular, it reduced by one-quarter cent the Bradley-Burns sales tax, which cities and counties use for general and transportation purposes, and replaced it with a one-quarter cent state special fund sales tax for repayment of the bonds. To hold local governments harmless, the state initiated a complex series of revenue exchanges commonly referred to as the “triple flip,” which we describe below, to continue until the ERBs are repaid.

  • Flip 1: Shifted one-quarter cent of the Bradley-Burns sales tax to the state to repay the ERBs.
  • Flip 2: Replaced the diverted local sales taxes, dollar for dollar, with property taxes shifted from school and community college districts—specifically, from county Educational Revenue Augmentation Funds (ERAF).
  • Flip 3: The school and community college district tax losses from the redirection of ERAF to cities and counties, in turn, are offset by increased state education aid under the Proposition 98 minimum guarantee.

Overall, the intent of this mechanism was that cities, counties, and school and community college districts would not experience any net change in revenue from the triple flip.

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