P-172 Distribution and the Math.
Per state law, the California Department of Tax & Fee Administration (CDTFA) collects the Public Safety half-cent sales tax, and the State Controller’s Office (SCO) apportions it to each of the state’s 58 counties. Counties then distribute to eligible agencies within the county, retaining about 90% of the revenues.
The P-172 funding methodology relies on two elements:
- Pro-rata factor derived from the most recent calendar year 1% Bradley-Burns sales tax results (countywide Bradley-Burns/statewide total = factor), and
- Statewide Public Safety Sales Tax revenues (50% of the Bradley-Burns).
pro-rata factor * statewide public safety revenues = monthly P-172 allocation
Why the Revenue Fluctuations?
As a part of the above equation, any changes in statewide sales tax revenues will affect P-172 results. Additionally, as the multiplier against statewide public safety revenues, the county pro-rata factors play a critical role. Because pro-rata factors represent an agency’s proportional share of the total statewide Bradley-Burns, large increases or decreases in countywide Bradley-Burns revenues over a calendar year period will influence the statewide P-172 results. Here are several recent examples:
Pandemic pendulum (primarily one-time change). Changes in sales tax revenues during calendar year 2020 and into 2021, fueled by the intensity of the pandemic, demonstrably affected statewide P-172 allocations. Coastal, urban, metropolitan, and tourist-dependent regions saw their Bradley-Burns sales tax revenues decrease dramatically – and many inland and rural communities experienced the opposite, enjoying unexpected growth. This shift caused a temporary redistribution in the overall Bradley-Burns sales tax and resultant P-172 allocations. As the pandemic influence ebbed, those counties that experienced significant losses largely recovered, and the ratio of statewide sales swung back.
Online sales & fulfillment centers (recurring change). Where a retailer is located and how it operates its business dictates the allocation of the local Bradley-Burns 1% per current State law. California fulfillment centers owned and operated by a retailer which fill in-state orders, are places of sale – and agencies with these fulfillment centers receive direct sales tax allocations. Commencing with the fourth quarter of 2020, California experienced a significant movement of sales tax revenues out of the countywide use tax pools (indirect) into direct allocation. This was due to some retailers modifying their fulfillment center operations and/or enlarging their California in-state sales footprint. At this point, we assume this is a permanent shift of sales tax, which greatly affected the statewide Bradley-Burns and resultant pro-rata factors – and P-172 allocations.
CDTFA audit adjustments & taxpayer changes (one-time & recurring). The CDTFA has been active in several large taxpayer audits, causing redistribution of sales tax. One-time corrections (both positive and negative) and the ongoing change in reporting can greatly affect statewide Bradley-Burns sales tax allocations. Separately, large taxpayers that open/close/move their operations will have a similar impact on sales tax.
Will P-172 change again?
Statewide public safety revenues will grow in line with the overall Bradley-Burns. However, any significant changes in Bradley-Burns sales tax, whether from the economy, audits, or taxpayer changes, will influence pro-rata factors and likely cause P-172 revenue fluctuations.
Tracy Vesely has held leadership positions in California local government for over 30 years, serving as Finance Director and Administrative Services Director for several cities in California, as well as holding senior positions at the county and state level. Ms. Vesely has been an active member of several public-sector organizations, including the League of California Cities and the Government Finance Officers Association (GFOA). Ms. Vesely holds a B.A. from Arizona State University and has participated in many leadership programs, including the Harvard Kennedy School – Senior Executives in State & Local Government program.
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