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<br />74 <br /> <br />State Law Limitations on Appropriations <br />Article XIIIB of the California Constitution limits the amount that local governments can <br />appropriate annually. The ability of the City to pay Lease Payments and other payments due <br />under the Leases may be affected if the City should exceed its appropriations limit. The State <br />may increase the appropriation limit of cities in the State by decreasing the State’s own <br />appropriation limit. The City does not anticipate exceeding its appropriations limit. See <br />“CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS – <br />Article XIIB of the State Constitution” above. <br /> <br />Property Tax Allocation by the State; Changes in Law <br />The responsibility for allocating general property taxes was assigned to the State by <br />Proposition 13, which stated that property taxes were to be allocated “according to law.” The <br />formula for such allocation was contained in Assembly Bill 8 (“AB 8”), adopted in 1978, which <br />allocates property taxes among cities, counties, and school districts. The formulas contained in <br />AB 8 were designed to allocate property taxes in proportion to the share of property taxes <br />received by a local entity prior to Proposition 13. See “CONSTITUTIONAL AND STATUTORY <br />LIMITATIONS ON TAXES AND APPROPRIATIONS, Article XIIIA of the State Constitution.” <br /> <br />Beginning in its fiscal year 1992–93, in response to its own budgetary shortfalls, the <br />State began to permanently redirected billions of dollars of property taxes Statewide from cities, <br />counties, and certain special districts to schools and community college districts. These <br />redirected funds reduced the State’s funding obligation for K–14 school districts by a <br />commensurate amount. In response, Proposition 1A of 2004, approved by State voters in <br />November 2004 and generally effective in Fiscal Year 2006–07, provided that the State may not <br />reduce any local sales tax rate, limit existing local government authority to levy a sales tax rate <br />or change the allocation of local sales tax revenues, subject to certain limitations. However, <br />pursuant to Proposition 1A and beginning in Fiscal Year 2008–09, the State could, upon <br />gubernatorial proclamation of fiscal hardship and following approval of two–thirds of both <br />houses of the legislature, and it did, shift to schools and community colleges up to 8% of local <br />government ad valorem property tax revenues, which amount must be repaid, with interest, <br />within three years. The State could also approve voluntary exchanges of local sales tax and <br />property tax revenues among local governments within a county. In November 2010, State <br />voters approved Proposition 22, which amends the State’s constitution to eliminate the State’s <br />authority to temporarily shift additional ad valorem property taxes from cities, counties and <br />special districts to schools, among other things. See “CONSTITUTIONAL AND STATUTORY <br />LIMITATIONS ON TAXES AND APPROPRIATIONS, Proposition 22.” The state last passed a <br />redirection or property tax shift applicable to fiscal years 2004–05 and 2005–06. <br /> <br />No assurance can be given that the State, the County or the City electorate will not at <br />some future time adopt initiatives, or that the State Legislature will not enact legislation that will <br />amend the laws of the State in a manner that could result in a reduction of the City’s property <br />tax allocations or its other revenues and therefore a reduction of the funds legally available to <br />the City to pay Lease Payments and other payments due under the Leases. <br /> <br />Early Redemption Risk <br />Early payment of the Lease Payments and early redemption of the Bonds may occur in <br />whole or in part, without premium, from the proceeds of title insurance, on any date, if the