Laws, Regulations & Annotations

Property Taxes Law Guide – Revision 2014
 

California Constitutional Provisions

Article XIII B Constitution Government Spending Limitation


ARTICLE XIII B Constitution Government Spending Limitation

[Sections 1 through 11 added by amendment adopted November 6, 1979.]

Section 1. Total annual appropriations; limitation. The total annual appropriations subject to limitation of the state and of each local government shall not exceed the appropriations limit of the entity of government for the prior year adjusted for the change in the cost of living and the change in population, except as otherwise provided in this article.

History.—The amendment of June 5, 1990, substituted "the" for "such" after "limit of", substituted "the change" for "changes" after "adjusted for", added "the change in" before and a comma after "population", and substituted "article" for "Article".

Construction.—This article does no more than place a ceiling on the expenditure of general state and local tax revenues and does not encompass special assessments and federal grants for the financing of the cost of acquisitions and construction of improvements in a sewer assessment district. Placer County v. Corin, 113 Cal.App.3d 443. This article does not limit the ability to expend government funds collected from all sources. With respect to local governmental entities, limits are placed only on the authorization to expend the proceeds of taxes levied by or for that entity, in addition to proceeds of state subventions. Oildale Mutual Water Co. v. North of the River Mun. Water Dist., 215 Cal.App.3d 1628. This Article does not violate the prohibition against impairment of contracts relating to a local government's retirement obligations. Although Section 5 includes contributions to retirement funds within the limitations, this Article does not repudiate or even modify any contractual right or obligation. San Francisco Taxpayers Assn. v. Board of Supervisors, 2 Cal.4th 571.

The purpose of this article is to hold government expenditures at their 1978–79 level, adjusted for changes in the cost of living, population and transfers of responsibilities from one entity of government to another. The subsequent enactment of Health and Safety Code Section 33678 is not violative of such purpose. Brown v. Community Redevelopment Agency, 168 Cal.App.3d 1014.

Transit fees imposed on developers of new office buildings as a condition of issuance of certificates of completion and occupancy are not "proceeds of taxes" within the meaning of this article since the fee was not a special tax within the meaning of Article XIII A, Section 4 of the Constitution and was not within the ambit of Article XIII A. Russ Building Partnership v. San Francisco, 199 Cal.App.3d 1496; Pacific Gateway Assoc. Joint Venture v. San Francisco, 199 Cal.App.3d 1496; Crocker National Bank v. San Francisco, 199 Cal.App.3d 1496. If a fee is not a special tax within the meaning of Article XIII A, it is not the type of revenue intended to be controlled by Article XIII B. Trend Homes, Inc. v. Central Unified School District, 220 Cal.App.3d 102.

Payment of money judgments.—The initiative limitations on taxing and spending contained in Article XIII A, Article XIII B, and Article XIII C do not preclude judicial enforcement by writ of mandate of a judgment imposing inverse condemnation liability, an obligation imposed by statutory . Payment of such a judgment does not implement a municipal "purpose" within the meaning of the Articles' provisions; rather, such payment acts solely to vindicate the constitutional rights of the landowner. F & L Farm Co. v. City Council of the City of Lindsay, 65 Cal.App.4th 1345. This article prohibits a county from levying property taxes in excess of 1 percent to pay a money judgment under Harbors and Navigation Code Section 6361 and Government Code Sections 970 through 971. Although Section 6361 authorizes a board of supervisors to levy a special tax sufficient to meet a port district's annual estimate of the amount of money it will need "for all purposes," that statute has been superseded by the statutes implementing Proposition 13 insofar as they are inconsistent. Formulae for the distribution of tax funds to local agencies and districts have been enacted by the Legislature (Rev. & Tax. Code, Sec. 93 et seq.), and a district can no longer expect a county to levy taxes to raise whatever sum the district budget calls for. (Disapproving F & L Farm Co. v. City Council, 65 Cal.App.4th 1345 to the extent it holds to the contrary.) Ventura Group Ventures, Inc. v. Ventura Port District, 24 Cal.4th 1089.

Sec. 1.5. Review of annual calculation. The annual calculation of the appropriations limit under this article for each entity of local government shall be reviewed as part of an annual financial audit.

History.—New section added by amendment adopted June 5, 1990.

Recalculation.—A county board of supervisors' act of recalculating its appropriations limit and thereby increasing it was legal and statutorily authorized by Government Code Section 7910 where another proper accounting method for calculating the limit was used. That it was done by resolution was immaterial, since it was in substance and effect an ordinance. Santa Barbara County Taxpayers Ass'n. v. Board of Supervisors, 209 Cal.App.3d 940.

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Sec. 2. Return of excess revenues. (a) (1) Fifty percent of all revenues received by the state in a fiscal year and in the fiscal year immediately following it in excess of the amount which may be appropriated by the state in compliance with this article during that fiscal year and the fiscal year immediately following it shall be transferred and allocated, from a fund established for that purpose, pursuant to Section 8.5 of Article XVI.

(2) Fifty percent of all revenues received by the state in a fiscal year and in the fiscal year immediately following it in excess of the amount which may be appropriated by the state in compliance with this article during that fiscal year and the fiscal year immediately following it shall be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years.

(b) All revenues received by an entity of government other than the state, in a fiscal year and in the fiscal year immediately following it in excess of the amount which may be appropriated by the entity in compliance with this article during that fiscal year and the fiscal year immediately following it shall be returned by a revision of tax rates or fee schedules within the next two subsequent fiscal years.

History.—The amendment of November 8, 1988, added subdivision letter (a) and subdivision (a); added subdivision letter (b) and moved former paragraph of this section to subdivision (b); and substituted "except as provided in subdivision (a) of this section, revenues" for "Revenues" before "received" in subdivision (b). The amendment of June 5, 1990, added subsection number (1) and subdivision (a)(1); added subsection number (2) and moved former subdivision (a) to subdivision (a)(2); substituted "fifty percent of all" for "All" before "revenues", added "in a fiscal year and in the fiscal year immediately following it" after "state", substituted "the" for "that" after "excess of", substituted "may be" for "is" after "which", substituted "article during that fiscal year and the fiscal year immediately following it shall" for "Article, and which would otherwise be required, pursuant to subdivision (b) of this Section, to" after "with this", and deleted ", shall be transferred and allocated pursuant to Section 8.5 of Article XVI up to the maximum amount permitted by that section" after "fiscal years" in subdivision (a)(2); and substituted "All" for "Except as provided in subdivision (a) of this Section" before "revenues", substituted "an" for "any" after "received by", added "other than . . . following it" after "government,", substituted "the" for "that" after "excess of", substituted "may be" for "is" after "which", substituted "the" for "such" after "appropriated by", substituted "article" for "Article" after "this", substituted "that" for "the" after "during", and added "and the fiscal year immediately following it" after "that fiscal year" in subdivision (b).

Construction.—This section was designed to provide discipline in government spending by requiring the return of excess revenue. It applies, however, only to governmental entities that fully obtain tax receipts; it does not apply where a governmental entity that obtained tax receipts never had a ful right to obtain them. Rider v. San Diego County, 11 Cal.App.4th 1410.

Sec. 3. Adjustment of appropriations limit. The appropriations limit for any fiscal year pursuant to Sec. 1 shall be adjusted as follows:

(a) In the event that the financial responsibility of providing services is transferred, in whole or in part, whether by annexation, incorporation or otherwise, from one entity of government to another, then for the year in which such transfer becomes effective the appropriations limit of the transferee entity shall be increased by such reasonable amount as the said entities shall mutually agree and the appropriations limit of the transferor entity shall be decreased by the same amount.

(b) In the event that the financial responsibility of providing services is transferred, in whole or in part, from an entity of government to a private entity, or the financial source for the provision of services is transferred, in whole or in part, from other revenues of an entity of government, to regulatory licenses, user charges or user fees, then for the year of such transfer the appropriations limit of such entity of government shall be decreased accordingly.

(c) (1) In the event an emergency is declared by the legislative body of an entity of government the appropriations limit of the affected entity of government may be exceeded provided that the appropriations limits in the following three years are reduced accordingly to prevent an aggregate increase in appropriations resulting from the emergency.

(2) In the event an emergency is declared by the Governor, appropriations approved by a two-thirds vote of the legislative body of an affected entity of government to an emergency account for expenditures relating to that emergency shall not constitute appropriations subject to limitation. As used in this paragraph, "emergency" means the existence, as declared by the Governor, of conditions of disaster or of extreme peril to the safety of persons and property within the state, or parts thereof, caused by such conditions as attack or probable or imminent attack by an enemy of the United States, fire, flood, drought, storm, civil disorder, earthquake, or volcanic eruption.

History.—The amendment of June 5, 1990, added subsection number (1), deleted "of" after "event", added "is declared . . . of government", after "emergency", substituted "appropriations" for "appropriation" twice, and added "of the affected entity of government" after "limit" in subsection (1) of subdivision (c) and added subsection (2) of subdivision (c).

Construction.—A sales and use tax ordinance adopted by a redevelopment agency did not violate this Article because there was a transfer of financial responsibility to the agency within the meaning of this section and Health and Safety Code Section 33678. Huntington Park Redevelopment Agency v. Martin, 38 Cal.3d 100.

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Sec. 4. Establishment or change of appropriations limit. The appropriations limit imposed on any new or existing entity of government by this Article may be established or changed by the electors of such entity, subject to and in conformity with constitutional and statutory voting requirements. The duration of any such change shall be as determined by said electors, but shall in no event exceed four years from the most recent vote of said electors creating or continuing such change.

Sec. 5. Contingency, etc., funds. Each entity of government may establish such contingency, emergency, unemployment, reserve, retirement, sinking fund, trust, or similar funds as it shall deem reasonable and proper. Contributions to any such fund, to the extent that such contributions are derived from the proceeds of taxes, shall for purposes of this Article constitute appropriations subject to limitation in the year of contribution. Neither withdrawals from any such fund, nor expenditures of (or authorizations to expend) such withdrawals, nor transfers between or among such funds, shall for purposes of this Article constitute appropriations subject to limitation.

Construction.—A county could not exclude from its annual appropriations contributions to its employees' retirement fund, since they did not constitute excludable debt service within the meaning of Article XIII A, Section 1 and Section 9 of this Article. The specific language of this section stating that the contributions are subject to the limit prevails over the general provisions, since that interpretation accomplishes this Article's purposes of limiting the growth of appropriations and the expenditure of taxes. Also, the county could not exclude such contributions because the retirement board to which the contributions were made was totally distinct from the county. The section specifically deems the contributions as subject to limitation. Also, the section is not to be applied prospectively for purposes of determining whether an entity's contributions to its employees' retirement fund are subject to the limitation. "Each entity of government may establish such . . . retirement . . . funds", when viewed in the context of the entire provision, merely restates existing and specifically identifies those funds to which contributions are subject to the limitation. Santa Barbara County Taxpayers Assn. v. Santa Barbara County, 194 Cal.App.3d 674; San Francisco Taxpayers Assn. v. Board of Supervisors, 2 Cal.4th 571.

Retirement.—The word "retirement" in the section does not refer to the retirement of debt. Santa Barbara County Taxpayers Assn. v. Santa Barbara County, 194 Cal.App.3d 674.

Sec. 5.5. Prudent state reserve. The Legislature shall establish a prudent state reserve fund in such an amount as it shall deem reasonable and necessary. Contributions to, and withdrawals from, the fund shall be subject to the provisions of Section 5 of this Article.

History.—New section added by amendment adopted November 8, 1988.

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Sec. 6. State subvention of funds. (a) Whenever the Legislature or any state agency mandates a new program or higher level of service on any local government, the State shall provide a subvention of funds to reimburse that local government for the costs of the program or increased level of service, except that the Legislature may, but need not, provide a subvention of funds for the following mandates:

(1) Legislative mandates requested by the local agency affected;

(2) Legislation defining a new crime or changing an existing definition of a crime; or

(3) Legislative mandates enacted prior to January 1, 1975, or executive orders or regulations initially implementing legislation enacted prior to January 1, 1975.

(b) (1) Except as provided in paragraph (2), for the 2005–06 fiscal year and every subsequent fiscal year, for a mandate for which the costs of a local government claimant have been determined in a preceding fiscal year to be payable by the State pursuant to, the Legislature shall either appropriate, in the annual Budget Act, the full payable amount that has not been previously paid, or suspend the operation of the mandate for the fiscal year for which the annual Budget Act is applicable in a manner prescribed by .

(2) Payable claims for costs incurred prior to the 2004–05 fiscal year that have not been paid prior to the 2005–06 fiscal year may be paid over a term of years, as prescribed by .

(3) Ad valorem property tax revenues shall not be used to reimburse a local government for the costs of a new program or higher level of service.

(4) This subdivision applies to a mandate only as it affects a city, county, city and county, or special district.

(5) This subdivision shall not apply to a requirement to provide or recognize any procedural or substantive protection, right, benefit, or employment status of any local government employee or retiree, or of any local government employee organization, that arises from, affects, or directly relates to future, current, or past local government employment and that constitutes a mandate subject to this section.

(c) A mandated new program or higher level of service includes a transfer by the Legislature from the State to cities, counties, cities and counties, or special districts of complete or partial financial responsibility for a required program for which the State previously had complete or partial financial responsibility.

History.—The amendment of November 2, 2004, added subdivisions (b) and (c).

Construction.—The purpose of this section is to preclude the State from shifting financial responsibility for carrying out governmental functions to local agencies, which are ill-equipped to assume increased financial responsibilities because of the taxing and spending limitations imposed by Articles XIII A and XIII B of the California Constitution. San Diego County v. State of California, 15 Cal.4th 68; Department of Finance v. Commission of State Mandates, 30 Cal.4th 727. The goal of Articles XIII A and XIII B of the California Constitution is to protect California residents from excessive taxation and government spending. A central purpose of this section of Article XIII B is to prevent the State's transfer of the cost of government from itself to the local level. Redevelopment Agency v. Commission on State Mandates, 55 Cal.App.4th 976. Proper construction of provision that reimbursement of local governments was required for any "new program or higher level of service" mandated by the state, but permissive for legislative mandates enacted prior to January 1, 1975, effective on July 1, 1980, was, for legislative mandates enacted between January 1, 1975, and July 1, 1980, that reimbursement was required but did not have to begin until the statute's effective date. City of Sacramento v. State of California, 156 Cal.App.3d 182. Local governments are not entitled to reimbursement for all increased costs mandated by state , only for those costs resulting from a new program or an increased level of service imposed upon them by the state. City of Richmond v. Commission on State Mandates, 64 Cal.App.4th 1190. A 1995 amendment to Penal Code Section 13519, which required local enforcement officers to receive domestic violence training, did not result in a reimbursable state-mandated program within the meaning of this Section. Training was already required, and the amendment did not mandate a "higher level of service". Los Angeles County v. Commission on State Mandates, 110 Cal.App.4th 1176. Costs incurred in providing state-mandated increases in unemployment insurance benefits but not reimbursed cannot be recaptured by judicial action. This section does not authorize courts to act if the Legislature fails to appropriate funds, and to order the Legislature to appropriate funds would constitute an unful judicial usurpation of the Legislature's exclusive power and discretion to appropriate state money. City of Sacramento v. California State Legislature, 187 Cal.App.3d 393. A "new program", for purposes of determining whether the program is subject to subvention under this section, is one which carries out the governmental function of providing services to the public, or s which, to implement a state policy, impose unique requirements on local governments and do not apply generally to all residents and entities in the state. Thus, costs incurred in providing state-mandated increases in workers' compensation benefits are not reimbursable under this section since workers' compensation is not a program administered by local agencies to provide service to the public. Los Angeles County v. State of California, 43 Cal.3d 46. Costs incurred as the result of increased employer contribution rates to the Public Employees' Retirement System, attributable to transfers of reserve funds to a special temporary benefits fund pursuant to an act of the Legislature, are not reimbursable under this section. Bearing costs of employment is not a "service" that the city is required by state to provide in its governmental function. City of Anaheim v. State of California, 189 Cal.App.3d 1478. Legislation defining a new crime or changing the definition of an existing crime is expressly excluded from the operation of this section by subdivision (b) thereof. Contra Costa County v. State of California, 177 Cal.App.3d 62. Statute authorizing counties to seek reimbursement from cities and other local entities for costs of booking into county jails persons who had been arrested by employees of the cities and the other entities does not establish a new program or higher level of service and does not shift costs so as to constitute a state "mandate" within the meaning of this section. City of San Jose v. State of California, 45 Cal.App.4th 1802. Legislation requiring local redevelopment agencies to contribute to a local Educational Revenue Augmentation Fund (ERAF) did not constitute a reimbursable state mandate under this section. A utilization of local property taxes in support of schools and community colleges was not a new program imposed by the state. Rather, the legislation was, in part, an exercise of the Legislature's authority to apportion property tax revenues. City of El Monte v. Commission on State Mandates, 83 Cal.App.4th 266. Statutes requiring school site councils and advisory committees for certain educational programs to provide notice of meetings and to post agendas for those meetings do not constitute a reimbursable state mandate. The claimants could not show that they were legally compelled to incur notice and agenda costs. Department of Finance v. Commission on State Mandates, 30 Cal.4th 727.

State executive orders requiring provision of protective clothing and equipment to county fire fighters constitute the type of "new program" that is subject to subvention. Fire protection is a peculiarly governmental function; and the orders manifested a state policy, imposed unique requirements on local governments, and applied only to those involved in fire fighting. Carmel Valley Fire Protection District v. State of California, 190 Cal.App.3d 521. A school district was entitled to reimbursement pursuant to this section for expenditures related to its efforts to alleviate racial and ethnic segregation in its schools, since an executive order, in the form of State Department of Education regulations, required a higher level of service and constituted a state mandate. The requirements of the order went beyond constitutional and case requirements in that they required specific actions to alleviate segregation. Long Beach Unified School District v. State of California, 225 Cal.App.3d 155. To the extent the state implemented the 1975 amendments to the federal Education of the Handicapped Act by freely choosing to impose new programs or higher levels of service upon local school districts, the costs therefor were state mandated and subject to subvention under this section. Hayes v. Commission on State Mandates, 11 Cal.App.4th 1564. The Legislature's 1982 exclusion of medically indigent adults from the Medi-Cal program resulted in the transfer of responsibility for providing health care for such persons to counties and, thereby, mandated a reimbursable new program under this section. Although the counties had originally shared Medi-Cal costs with the State, in 1979 the State permanently assumed the counties' share and, therefore, the subsequent shifting of the entire cost of health care for medically indigent adults to the counties in 1982 constituted a new program. Furthermore, the counties did not have discretion to deny eligibility or provision of services but instead were obligated by State to provide a minimal standard of health care to persons whose eligibility was established by statute. San Diego County v. State of California, 15 Cal.4th 68. A school district was entitled to reimbursement pursuant to this section for all costs incurred in carrying out the state mandate on mandatory expulsions since the mandatory expulsion of a student for possession of a firearm is a state mandate that does not implement a federal mandate, and no exception to the constitutional reimbursement requirement was applicable. Further, costs incurred in complying with state-mandated procedures for conducting discretionary student expulsions were reimbursable to the extent those procedures exceeded federal due process requirements. San Diego Unified School District v. Commission on State Mandates, 99 Cal.App.4th 1270.

In a class action by a city on behalf of all local governments in the state against the state, in which it was alleged that Stats. 1978, Ch. 2, extending mandatory coverage under the state's unemployment insurance to include state and local governments and nonprofit corporations, mandated a new program or higher level of service on local agencies for which reimbursement by the state was required under Article XIII B, the trial court did not err in granting summary judgment for the state on the ground that the local costs of providing such coverage were not subject to subvention under Article XIII B or parallel statutes. The state had not compelled provision of new or increased "service to the public" at the local level, nor had it imposed a state policy "uniquely" on local governments. City of Sacramento v. State of California, 50 Cal.3d 51. The requirements of Penal Code Section 987.9, funding by court for defense preparation for indigent defendants in capital cases, are not state mandated since, even in the absence of statute, counties would be responsible for providing services under federal constitutional guarantees. And even assuming that the provisions of the statute constitute a new program, it does not necessarily mean that the program is a state mandate. If a local entity has alternatives under the statutes other than the mandated contribution, that contribution does not constitute a state mandate. Los Angeles County v. Commission on State Mandates, 32 Cal.App.4th 805. State is not required by this section to reimburse county for costs incurred in implementing the Hazardous Materials Release Response Plans and Inventory Act (Health & Safety Code, Section 25500 et seq.) where county had the authority to charge fees to pay for the program. State is not required to reimburse water districts for costs incurred as the result of a statewide regulatory amendment which increases the level of purity required when reclaimed wastewater is used for certain types of irrigation, where the water districts have the authority (Water Code Section 35470) to levy fees to pay for the program. Connell v. Superior Court, 59 Cal.App.4th 382. Government Code Section 17556(d), which provides that costs are not state-mandated if agency has authority to levy charge or fee sufficient to pay for program, is constitutional. Fresno County v. State of California, 53 Cal.3d 482.

Government Code Section 17556(d), which provided that a cost was not mandated by the state where a local agency or school district has authority to levy fees sufficient to pay for a mandated program, did not conflict with this section, since nothing in the constitutional provision precluded the Legislature from enlarging the exceptions consistent with the initiative's purpose, and the ballot material available to the voters indicated that user fees were not within the scope of the initiative. San Bernardino County v. State of California, 227 Cal.App.3d 1115. Administrative procedures established by the Legislature in Government Code Section 17500 et seq., which are available only to local agencies and school districts directly affected by a state mandate, are the exclusive means by which the state's obligations under this section are to be determined and enforced. Because the right involved is given by the Constitution to local agencies and school districts, not individuals either as taxpayers or as recipients of government benefits and services, the statutory scheme adequately implements the section and, as enacted, does not encompass individuals. Kin v. State of California, 54 Cal.3d 326.

School districts seeking reimbursement for costs of a state mandated desegregation program waived their nonstatutory remedy for reimbursement of their costs incurred after the Legislature deleted funds in a claims bill to pay for the costs, since their statutory cause of action under Government Code Section 17612 accrued on that date and they could have avoided the imposition of state-mandated costs at any time after that cause of action accrued by timely use of the statutory remedy. Berkeley Unified School District v. State of California, 33 Cal.App.4th 350.

Judicial review.—The question of whether a is a state-mandated program or higher level of service under this section is a question of that is reviewed de novo. City of Richmond v. Commission on State Mandates, 64 Cal.App.4th 1190.

Legislative Counsel's analysis.—The Legislature has authorized the Commission on State Mandates, subject to judicial review, to determine what constitutes a state mandate. The initial determination by Legislature Counsel in a bill analysis is not binding on the Commission. City of Richmond v. Commission on State Mandates, 64 Cal.App.4th 1190; San Diego Unified School District v. Commission on State Mandates, 99 Cal.App.4th 1270.

Educational Revenue Augmentation Funds.—The 1992 legislation which reduced property taxes previously allocated to local governments and simultaneously placed an equal amount of property tax revenues into Educational Revenue Augmentation Funds (ERAF's) for distribution to school districts did not entitle counties to reimbursement under this section, since the legislation did not amount to the imposition of a state-mandated program or higher level of service. The legislation did not result in increased actual expenditures, and this section is expressly concerned with "costs" incurred by local government as a result of state-mandated programs. No duty of subvention is triggered where the local agency is not required to expend its tax proceeds.

Also, Proposition 98, which amended Article XVI, Section 8 of the Constitution to provide a minimum level of funding for schools, conferred no right of subvention on counties so as to require reimbursement under this section. It merely provides the formula for determining the minimum to be appropriated every budget year. Proposition 98 does not appropriate funds or result in some mandated county program or higher level of service that the counties had not previously supported through property tax allocations. The power to appropriate funds was left in the hands of the Legislature. Sonoma County v. Commission on State Mandates, 84 Cal.App.4th 1264.

Tax revenues.—Although this section does not expressly discuss the source of funds used by an agency to fund a program, the historical and contextual context of the section demonstrates that it applies only to costs recovered solely from tax revenues, which revenues do not include tax increment financing. Redevelopment Agency v. Commission on State Mandates, 55 Cal.App.4th 976.

No exception for Regional Water Boards.—The California Courts of Appeal held that Government Code section 17516, subdivision (c) is unconstitutional to the extent it exempts Regional Water Boards from the constitutional state mandate subvention requirement and to the extent it excludes "any order . . . issued by . . . any regional water . . . board pursuant to Division 7 (commencing with Section 13000) of the Water Code" from the definition of "'[e]xecutive order.'. The court held that subdivision (c)'s creation of an exception for Regional Water Boards, which are state agencies, contravenes the plain, unequivocal, and all-inclusive reference to "any state agency" in this section. Thus, counties or cities obligated by the Regional Water Quality Control Board to inspect industrial, commercial and construction water treatment facilities and to install and maintain trash receptacles at transit stops are entitled to have their "test claims" reviewed by the Commission on State Mandates to ascertain whether these two obligations in question constitute federal or state mandates, and, thus, whether the cities or counties are entitled to state reimbursement. County of Los Angeles v. Commission on State Mandates, 150 Cal.App.4th 898.

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Sec. 7. Bonded indebtedness. Nothing in this Article shall be construed to impair the ability of the state or of any local government to meet its obligations with respect to existing or future bonded indebtedness.

Construction.—A redevelopment agency's tax allocation bonds constitute "bonded indebtedness" exempt under this section from the strictures of this article. Bell Community Redevelopment Agency v. Woosley, 169 Cal.App.3d 24.

Sec. 8. Definitions. As used in this article and except as otherwise expressly provided herein:

(a) "Appropriations subject to limitation" of the state means any authorization to expend during a fiscal year the proceeds of taxes levied by or for the state, exclusive of state subventions for the use and operation of local government (other than subventions made pursuant to Section 6) and further exclusive of refunds of taxes, benefit payments from retirement, unemployment insurance, and disability insurance funds.

(b) "Appropriations subject to limitation" of an entity of local government means any authorization to expend during a fiscal year the proceeds of taxes levied by or for that entity and the proceeds of state subventions to that entity (other than subventions made pursuant to Section 6) exclusive of refunds of taxes.

(c) "Proceeds of taxes" shall include, but not be restricted to, all tax revenues and the proceeds to an entity of government, from (1) regulatory licenses, user charges, and user fees to the extent that those proceeds exceed the costs reasonably borne by that entity in providing the regulation, product, or service, and (2) the investment of tax revenues. With respect to any local government, "proceeds of taxes" shall include subventions received from the state, other than pursuant to Section 6, and, with respect to the state, proceeds of taxes shall exclude such subventions.

(d) "Local government" means any city, county, city and county, school district, special district, authority, or other political subdivision of or within the state.

(e) (1) "Change in the cost of living" for the state, a school district, or a community college district means the percentage change in California per capita personal income from the preceding year.

(2) "Change in the cost of living" for an entity of local government, other than a school district or a community college district, shall be either (A) the percentage change in California per capita personal income from the preceding year, or (B) the percentage change in the local assessment roll from the preceding year for the jurisdiction due to the addition of local nonresidential new construction. Each entity of local government shall select its change in the cost of living pursuant to this paragraph annually by a recorded vote of the entity's governing body.

(f) "Change in population" of any entity of government, other than the state, a school district or a community college district shall be determined by a method prescribed by the Legislature.

"Change in population" of a school district or a community college district shall be the percentage change in the average daily attendance of the school district or community college district from the preceding fiscal year, as determined by a method prescribed by the Legislature.

"Change in population" of the state shall be determined by adding (1) the percentage change in the state's population multiplied by the percentage of the state's budget in the prior fiscal year that is expended for other than educational purposes for kindergarten and grades one to 12, inclusive, and the community colleges, and (2) the percentage change in the total statewide average daily attendance in kindergarten and grades one to 12, inclusive, and the community colleges, multiplied by the percentage of the state's budget in the prior fiscal year that is expended for educational purposes for kindergarten and grades one to 12, inclusive, and the community colleges.

Any determination of population pursuant to this subdivision, other than that measured by average daily attendance, shall be revised, as necessary, to reflect the periodic census conducted by the United States Department of Commerce, or successor department.

(g) "Debt service" means appropriations required to pay the cost of interest and redemption charges, including the funding of any reserve or sinking fund required in connection therewith, on indebtedness existing or legally authorized as of January 1, 1979, or on bonded indebtedness thereafter approved according to by a vote of the electors of the issuing entity voting in an election for that purpose.

(h) The "appropriations limit" of each entity of government for each fiscal year is that amount which total annual appropriations subject to limitation may not exceed under Sections 1 and 3. However, the "appropriations limit" of each entity of government for fiscal year 1978–79 is the total of the appropriations subject to limitation of the entity for that fiscal year. For fiscal year 1978–79, state subventions to local governments, exclusive of federal grants, are deemed to have been derived from the proceeds of state taxes.

(i) Except as otherwise provided in Section 5, "appropriations subject to limitation" do not include local agency loan funds or indebtedness funds, investment (or authorizations to invest) funds of the state, or of an entity of local government in accounts at banks or savings and loan associations or in liquid securities.

History.—The amendment of June 5, 1990, substituted "article" for "Article" after "this" in the first sentence; substituted "means" for "shall mean" after "state", deleted "of this Article" after "Section 6", added a comma after "unemployment insurance", and substituted a period for a semicolon after "insurance funds" in subdivision (a); substituted "means" for "shall mean" after "government", deleted "of this Article" after "Section 6", and substituted a period for a semicolon after "taxes" in subdivision (b); substituted "(1) for "(i)" after "from", substituted "those" for "such" after "that", substituted "that" for "such" after "by", and substituted "(2)" for "(ii)" after "and" in the first sentence, and deleted "of this Article" after "Section 6" and substituted a period for a semicolon after "subventions" in the second sentence in subdivision (c); substituted "means" for "shall mean" after " 'Local government' " and substituted a period for a semicolon after "state" in subdivision (d); added subsection number (1), added "Change in the" before " 'Cost of living' ", substituted "cost" for "Cost", substituted "for the state, a school district, or a community college district means the percentage" for "shall mean the Consumer Price Index for the United States as reported by the United States Department of Labor, or successor agency of the United States Government; provided, however, that for purposes of Section 1, the change in cost of living from the preceding year shall in no event exceed the" after "living", substituted "the" for "said" after "from", and substituted a period for a semicolon after "year" in subdivision (e)(1); added subsection (2) of subdivision (e); substituted " 'Change in population' " for " 'Population' " before "of any", added "the state, "after "other than", added "or a community college district," after "school district," and deleted ", provided that such determination shall be revised, as necessary, to reflect the periodic census conducted by the United States Department of Commerce, or successor agency of the United States Government" after "Legislature" in the first paragraph of subdivision (f); created a new second paragraph from the former second sentence of subdivision (f), and substituted " 'Change in population' " for "The population", substituted "a" for "any" after "of", added "or a community college district" after "school district", substituted "the percentage change in the" for "such school district's" after "shall be", added "of the school district . . . fiscal year," after "attendance", and substituted a period for a semicolon after "Legislature" therein; added the third and fourth paragraphs of subdivision (f); substituted "means" for "shall mean" after " 'debt service' ", added a comma after "1979", and substituted "that" for "such" after "election for" in subdivision (g); substituted "is" for "shall be" after "fiscal year", substituted "Sections" for "Section" after "under", deleted "Section" after "and", and deleted "; provided" after "3" in the first sentence, substituted "However" for "however", deleted "that" after "However," substituted "is" for "shall be" after "1978–79", substituted "the" for "such" after "limitation of" in the new second sentence, and substituted "are" for "shall be" after "grants," in the third sentence of subdivision (h); and substituted "do" for "shall" after "limitation' " in subdivision (i).

Construction.—The appropriations limit herein is based on "appropriations subject to limitation," which consists primarily of the authorization to expend during a fiscal year the "proceeds of taxes". As to local governments, limits are placed only on the authorization to expend the proceeds of taxes levied by the local government, in addition to proceeds of state subventions; no limitation is placed on the expenditure of those revenues that do not constitute "proceeds of taxes". Placer County v. Corin, 113 Cal.App.3d 443. Special assessments levied for maintaining landscaped median islands on public streets within maintenance district, assessed on a "pro-rata" rather than ad valorem basis, do not constitute "proceeds of taxes". City Council of the City of San Jose v. South, 146 Cal.App.3d 320. The increment financing in conjunction with a redevelopment agency's proposed bond issue is not an "appropriation subject to limitation" as defined in this section. Bell Community Redevelopment Agency v. Woosley, 169 Cal.App.3d 24. Subvention is required only when the costs can be recovered solely from proceeds of taxes (subdivision (c)), and pursuant to Health and Safety Code Section 33678, a redevelopment agency's tax increment may not be deemed to be the proceeds of taxes within the meaning of Article XIII B of the California Constitution. City of El Monte v. Commission on State Mandates, 83 Cal.App.4th 266.

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Sec. 9. "Appropriations subject to limitation"; exclusions. "Ap-propriations subject to limitation" for each entity of government do not include:

(a) Appropriations for debt service.

(b) Appropriations required to comply with mandates of the courts or the federal government which, without discretion, require an expenditure for additional services or which unavoidably make the provision of existing services more costly.

(c) Appropriations of any special district which existed on January 1, 1978, and which did not as of the 1977–78 fiscal year levy an ad valorem tax on property in excess of 12½ cents per $100 of assessed value; or the appropriations of any special district then existing or thereafter created by a vote of the people, which is totally funded by other than the proceeds of taxes.

(d) Appropriations for all qualified capital outlay projects, as defined by the Legislature.

(e) Appropriations of revenue which are derived from any of the following:

(1) That portion of the taxes imposed on motor vehicle fuels for use in motor vehicles upon public streets and highways at a rate of more than nine cents ($0.09) per gallon.

(2) Sales and use taxes collected on that increment of the tax specified in paragraph (1).

(3) That portion of the weight fee imposed on commercial vehicles which exceeds the weight fee imposed on those vehicles on January 1, 1990.

History.—The amendment of June 5, 1990, substituted "do" for "shall" after "government" in the first sentence, added "Appropriations for" after "(a)" in subdivision (a), substituted "to comply" for "for purposes of complying" after "required" and substituted "provision" for "providing" after "make the" in subdivision (b), and added subdivisions (d) and (e).

Federal mandate.—Stats. 1978, Ch. 2, extending mandatory coverage under the state's unemployment insurance to include state and local governments and nonprofit corporations, implemented a federal "mandate" within the meaning of Article XIII B and prior statutes restricting local taxation, and thus, subject to superseding constitutional ceilings on taxation by state and local governments, an agency governed by Stat. 1978, Ch. 2, may tax and spend as necessary to meet the expenses required to comply with that legislation. City of Sacramento v. State of California, 50 Cal.3d 51.

Sec. 10. Effective date. This Article shall be effective commencing with the first day of the fiscal year following its adoption.

Sec. 10.5. Appropriations limit. For fiscal years beginning on or after July 1, 1990, the appropriations limit of each entity of government shall be the appropriations limit for the 1986–87 fiscal year adjusted for the changes made from that fiscal year pursuant to this article, as amended by the measure adding this section, adjusted for the changes required by Section 3.

History.—New section added by amendment adopted June 5, 1990.

Sec. 11. Adjustment of appropriations limit; provisions severable.
If any appropriation category shall be added to or removed from appropriations subject to limitation, pursuant to final judgment of any court of competent jurisdiction and any appeal therefrom, the appropriations limit shall be adjusted accordingly. If any section, part, clause or phrase in this Article is for any reason held invalid or unconstitutional, the remaining portions of this Article shall not be affected but shall remain in full force and effect.

Sec. 12. Exceptions to appropriations subject to limitations.
"Appropriations subject to limitation" of each entity of government shall not include appropriations of revenue from the Cigarette and Tobacco Products Surtax Fund created by the Tobacco Tax and Health Protection Act of 1988. No adjustment in the appropriations limit of any entity of government shall be required pursuant to Section 3 as a result of revenue being deposited in or appropriated from the Cigarette and Tobacco Products Surtax Fund created by the Tobacco Tax and Health Protection Act of 1988.

History.—New section added by amendment adopted November 8, 1988.

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