In March 2004, California voters approved Proposition 57, the California Economic Recovery Bond Act, which authorized the issuance of up to $15 billion in bonds to close the State’s budget deficit. $10.9 billion of these bonds were issued in 2004 and the remainder in 2008.
To guarantee bond repayment, the state promulgated Revenue and Taxation Code Section 6201.5 which established an excise tax equal to one-quarter percent (.25%) of the sales price of property subject to the state’s sales and use tax and simultaneously lowered the Bradley-Burns Uniform Sales Tax 1% rate by one-quarter percent (.25%) to three-fourths of one percent (.75%). The bonds are repaid from the.25% excise tax plus transfers from the Budget Stabilization Account (BSA), a special reserve established in the State’s general fund approved by Proposition 58.
The quarter-percent reduction in local sales tax is recovered through a series of revenue swapping procedures. These exchanges are referred to as the “triple flip.” The triple flip will continue until the Economic Recovery Bonds are retired which the Department of Finance anticipated will occur in Spring 2015.
On August 5, 2015, the State's Finance Director notified the State Treasurer and the Board of Equalization Executive Director that escrow accounts had been established to fund all future principal, interest and administrative costs until the final maturity of the bonds in 2019. The notice served to end the revenue exchange period on December 31, 2015.
Therefore, the triple flip unwind process will be:
January 2016 - County Auditor-Controllers will disburse one-half SUTCF estimate. Estimate is based on 2Q15 takeaway.
May 2016 - County Auditor-Controllers will disburse one-half SUTCF estimate. Estimate is based on 2Q15 takeaway.
June/July 2016 - Final disbursement from state Fiscal Recovery Fund based on:
Starting with monthly advances in March 2016 which represents sales activity starting on January 1, 2016, and thereafter, Bradley-Burns allocations will revert back to the original 1% amount.
Final Triple Flip Reports for 2015-16 By County
Issue Update Triple Flip Unwind - March 2015
Issue Update Department of Finance Lays Groundwork for Triple Flip Unwind - August 2015
Letter From Department of Finance Regarding Triple Flip Unwind
Flip 1 0.25 of the one percent local sales and use taxes are shifted to the State to guarantee the bonds.
Flip 2 Revenue lost through the shift is backfilled to local agencies with property tax revenue from the County Education Revenue Augmentation Fund (ERAF).
Flip 3 Any shortfall in County ERAF monies needed to meet the minimum funding requirement for schools is backfilled from the State general fund.
No later than September 1st of each year, the State Department of Finance is required to send a notification to each County Auditor specifying the amount of the triple flip reimbursement (backfill payment) due to each jurisdiction in the county for the coming fiscal year. Reimbursements are based upon the estimated sales and use tax revenues allocated to the jurisdiction in the prior fiscal year, plus an adjustment based upon projected statewide growth or decline.
The triple flip reimbursements (backfill payments) are disbursed from this Fund in the amount set by the Department of Finance. Local jurisdictions receive disbursements from the Fund in two installments, 50% prior to the end of January, and 50% prior to the end of May. Some Auditors send the checks earlier where circumstances allow.
Given that the backfill payments are based on estimates, there is a “true-up” adjustment each year. The “true-up” adjustment is added to or deducted from the following year’s backfill payment. Some counties apply 100% of the “true-up” amount to the January backfill payment and some counties apply 50% of the “true-up” payment to the January payment and 50% to the May payment.
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