BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 267
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          Date of Hearing:  May 11, 2009

                     ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
                             Charles M. Calderon, Chair

                AB 267 (Torlakson) - As Introduced:  February 11, 2009

          Majority vote.

           SUBJECT  :  Education finance districts:  qualified special taxes.

           SUMMARY  :  Authorizes an education finance district, as defined,  
          to impose a qualified special tax, as defined, within the  
          district.  Specifically,  this bill  :  

          1)Provides that, subject to Section 4 of Article XIII A of the  
            California Constitution, an education finance district may  
            impose qualified special taxes within the district.

          2)Prescribes the procedures that must be followed by an  
            education finance district in imposing a qualified special  
            tax.

          3)Defines "education finance district" as three or more  
            contiguous school districts located wholly or partially within  
            the same county,  two school districts within a county  
            containing only two school districts, or one school district  
            within a county containing only one school district, where the  
            governing body of each school district adopts a resolution by  
            a majority vote stating:

             a)   Its willingness to participate in the district for  
               purposes of imposing a special tax; and,

             b)   Mutual agreement with all other school districts  
               participating in the education finance district on the  
               division and expenditure of revenues raised by the tax. 

           EXISTING LAW  :

          1)Authorizes cities, counties, and special districts to impose a  
            general tax for general governmental purposes with the  
            approval of a majority of the voters.

          2)Prohibits special purpose districts and agencies, including  








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            schools districts, from levying a general tax.  

          3)Authorizes cities, counties, and special districts to impose a  
            special tax for specified purposes with the approval of  
            two-thirds of the voters.  

          4)Does not allow cities, counties, or special districts to  
            impose an ad valorem tax on real property or a transactions  
            tax or sales tax on the sale of real property within that  
            city, county, or special district. 

          5)Authorizes school districts to impose qualified special taxes,  
            in accordance with specified procedures, including the  
            approval of two-thirds of the voters in the district.

          6)Provides that "qualified special taxes" must apply uniformly  
            to all taxpayers or all real property within the school  
            district and do not include special taxes imposed on a  
            particular class of property or taxpayers.  

          7)Authorizes a school district to exempt from a "qualified  
            special tax" person 65 years of age or older or persons  
            receiving Supplemental Security Income for a disability,  
            regardless of age.

          8)Allows property-related fees and charges to be imposed or  
            increased upon the approval of a majority of the property  
            owners of the property subject to the fee or charge or, at the  
            option of the local agency, a two-thirds vote of the  
            electorate residing in the affected area. 
           
           FISCAL EFFECT  :  Unknown, but Committee staff estimates a  
          possible revenue gain to local school districts. 

           COMMENTS  :   

          1)The author states that, "California's budget crisis must be  
            resolved without breaking the state's commitment to education.  
             Local revenue generation and local control for our schools  
            must be a component to how we get ourselves out of this budget  
            mess.  The lower school bond threshold has been instrumental  
            in reviving California's school facilities.  A majority vote  
            for local education finance districts promises to similarly  
            rebuild the education of our children."









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          2)The proponents argue that local communities should be able to  
            explore local resources to meet local priorities and should be  
            able to tax themselves, if needed, to invest in education.   
            The proponents assert that the percentage of school district  
            revenues coming from the state has increased significantly  
            over the last 30 years, eroding local control over resources  
            and priorities.  As state funding is being reduced, school  
            districts have very few options to cope with the loss of  
            funding.  The proponents believe that AB 267, in partnership  
            with ACA 10, would give education finance districts the tools  
            necessary to navigate these uncertain economic times, by  
            addressing their needs at the local level and relying less on  
            the timely passage of a state budget.   

          3)The opponents argue that expanding the tax authority to  
            education finance districts could cause duplicative and/or  
            increased taxation and overburdening of taxpayers who already  
            live and operate in an enormously high-tax state.

          4)Committee staff notes all of the following:

              a)   Background  .  Prior to 1970, the state's K-12 schools  
               largely relied on local property taxes levied at different  
               rates and yielding different amounts per pupil in more than  
               1,000 schools districts in this state.  State court rulings  
               in the Serrano v. Priest equalization cases forced the  
               state to revise basic school finance and established the  
               revenue limit system.  [Serrano v. Priest (1971) 5 Cal.3d  
               584; Serrano v. Priest (1976) 18 Cal.3d 728; Serrano v.  
               Priest (1977) 20 Cal. 3d 25)].  In order to conform to the  
               court's decision and reduce the differences in per-pupil  
               amounts, the state created the revenue limit system that  
               combines local property tax revenues with state general aid  
               and allows the state to control the two revenue sources on  
               a per pupil basis.  The state does not fund basic aid  
               districts, where local property taxes met or exceeded the  
               revenue limit.  In 1978, Proposition 13 limited both the  
               tax rates and assessments, thus significantly reducing  
               property tax revenues, eliminating the ability of school  
               districts to levy an incremental ad valorem tax on real  
               property and forcing the state to replace the lost revenues  
               in district revenue limits.  School districts still have  
               limited authority to generate local revenues from qualified  
               special taxes, but most school funding is either received  
               from the state or federal governments, or controlled by the  








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               state through revenue limits required to equalize per-pupil  
               funding. 

              b)   What is a "qualified special tax"?   Under existing law,  
               a school district may impose a qualified special tax within  
               that district; however, the special tax must apply  
               uniformly to all taxpayers (other than persons over the age  
               of 65) or real property within the district and must be  
               approved by a two-thirds vote of the qualified electors of  
               the district.  While Proposition 13 did not define the term  
               "special tax", the courts, over time, have opined that a  
               tax is a "special tax" whenever expenditure of its revenues  
               is limited to specific purposes, i.e. the proceeds of the  
               tax are earmarked or dedicated in some manner to a specific  
               project or projects.  In contrast, a tax is a "general tax"  
               only when its revenues are placed into the General Fund and  
               are available for expenditure for any and all governmental  
               purposes.  [Bay Area Cellular Telephone Co. v. City of  
               Union City (2008) 162 Cal. App.4th 686; Howard Jarvis  
               Taxpayers Assn. v. City of Roseville (2003) 106 Cal.App.4th  
               1178].  School districts and special districts are  
               prohibited from imposing general taxes (Proposition 218)  
               and thus, by definition, any tax levied by a school  
               district or community school district is considered to be a  
               special tax subject to a two-thirds voter approval.   
               Furthermore, school districts are not allowed to impose a  
               special tax that is imposed on a particular class of  
               property or taxpayers.  Therefore, thus far, school  
               districts have only imposed "qualified special taxes",  
               under Government Code Section 50079, in the form of a  
               parcel tax.  

              c)   Parcel Tax.   A parcel tax is a flat fee imposed by a  
               city, county, or special district on each parcel,  
               residential as well as commercial, rather than on the  
               assessed value of property, located within the local  
               entity's jurisdiction.  Because the same dollar amount of  
               tax is assessed on each parcel of property, whether the  
               parcel is one acre or 100 acres, parcel taxes are generally  
               regressive, which means owners of smaller parcels of land  
               pay a larger percentage of tax compared to owners of larger  
               parcels of land.  

             Some districts levy a rate at a fixed amount per square foot  
               of taxable land, and many include an annual inflation  








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               adjustment.  Existing law does not prescribe a maximum rate  
               of tax nor does it limit the period within which the  
               qualified special tax may be imposed.   Therefore, the rate  
               of tax varies significantly among different school  
               districts.  For example, EdSource reports that, in 2008, 21  
               school parcel tax propositions were placed on the November  
               4, 2008 ballot in 21 school districts. Seventeen of those  
               parcel tax propositions were approved, ranging from $23 per  
               parcel in Santa Barbara County to $193 per parcel in Marin  
               County, with terms as short as three years, and as long as  
               nine years.  A number of school districts have adopted  
               permanent parcel taxes. 

             Existing law does not limit how the special tax proceeds may  
               be spent, and therefore, a local school board can specify  
               in the ballot measure how the funds will be used.   
               Generally, local parcel taxes provide secure funding for  
               teacher salaries, books, materials and supplies, computers,  
               and art, music and sports programs. 

             As a special tax, a parcel tax levied by a school district  
               requires approval at an election of at least two-thirds of  
               the qualified electors of such district.  Court have  
               interpreted the phrase "qualified electors of such  
               district" to mean the registered voters voting in the  
               election concerning the proposed tax.  [Neilson v. City of  
               California City (2005) 133 Cal. App.4th 1296, 1312].   
               Generally, nonresident landowners are not registered voters  
               and are not included among the voters voting on the  
               proposed parcel tax.  On the other hand, some registered  
               voters who do not own land within the district's boundaries  
               are able to vote on the parcel tax even though they will  
               not be paying that tax (at least not directly). 

             In 2006, the California voters rejected Proposition 88 that  
               would have amended the California Constitution to levy an  
               annual $50 real property tax on most parcels with the funds  
               allocated to specified K-12 education programs.   

              d)   Education finance districts v. single school districts  .   
               According to the author, this bill is intended to allow  
               school districts to collaborate in their efforts to raise  
               money for local schools and to alleviate the inequality  
               between well-to-do communities and lower-income  
               communities.  According to EdSource, only 178 school  








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               districts out of nearly 1,000 have attempted to pass a  
               parcel tax at any time since 1983, and about 90% of those  
               elections were held in districts that served a lower than  
               average proportion of low-income students.  A common  
               explanation for this situation is that wealthier  
               communities are either better able or more willing to tax  
               themselves to improve their schools.  The author believes  
               that AB 267 would encourage partnerships among school  
               districts in various communities as well as "economy of  
               scale" decisions on a wide variety of programmatic and  
               operational costs.

             It is worth noting that 55% of California's districts serve  
               fewer than 2,500 students, and many of these districts are  
               located in rural areas.  Not many small school districts  
               have attempted to impose a parcel tax simply because of the  
               costs and efforts involved in placing a measure on the  
               ballot.  This bill would provide rural school districts  
               with a real possibility of raising much-needed funds by  
               imposing one parcel tax within the education finance  
               district's jurisdiction.  It may also allow small school  
               districts to reduce their operational costs by using the  
               funds from the imposition of the tax to create joint  
               programs (e.g., workforce development program, after-school  
               program, magnet schools, etc.).   

             It is less clear to the Committee staff, however, as to how  
               much of an impact this bill would have on eradicating the  
               persistent inequality between school districts in wealthier  
               communities and those in lower-income communities.  Will  
               the residents in higher income school districts be willing  
               to tax themselves to support students in economically  
               disadvantaged communities?  And if yes, then will the tax  
               proceeds be allocated equally to each student in the  
               education finance district?  Because a parcel tax is  
               regressive, the residents of the lower-income community  
               will be carrying a higher tax burden than higher-income  
               residents, in comparison to their respective incomes.   
               However, since a mutual agreement among districts allocates  
               the funds derived from the tax, no guarantee exists that  
               the students in the lower-income district will benefit as  
               much from the tax, in proportion to their tax burden, as  
               the students in the wealthier school districts.  Despite  
               the uncertainty, AB 267 provides an opportunity for  
               residents in various communities to make decisions about  








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               education of their students and, if willing, to address the  
               problem of inequality.

              e)   Suggested amendments  .  AB 267 allows an education  
               finance district to be formed by resolutions adopted by the  
               governing bodies of each school district stating its  
               willingness to participate in the education finance  
               district.  It is unclear to the Committee's staff what the  
               phrase "willingness to participate" means.  Committee staff  
               also suggests that this bill be amended to clarify that,  
               before the proposition is placed on the ballot, the school  
               districts must enter into a mutual agreement outlining  
               their respective responsibilities and the allocation of the  
               tax proceeds. 

              f)   Companion measure  .  The Committee will consider this  
               bill and ACA 10 (Torlakson), a companion measure, at its  
               May 11, 2009 hearing.  ACA 10, introduced in this  
               legislative session, reduces the vote threshold for special  
               taxes levied by education finance district from two-thirds  
               to a majority vote of the electorate.  If both this bill  
               and ACA 10 are enacted, then an education finance district  
               would be able to levy qualified special taxes with only a  
               majority vote of its electorate.  If only AB 267 is  
               enacted, then an education finance district would still be  
               able to impose those taxes but with a two-thirds vote of  
               the electorate. 

              g)   Related legislation  . 

             SB 1430 (Torlakson), introduced in the 2007-08 Legislative  
               Session, as amended on April 10, 2008, was identical to  
               this bill.  Its companion measure, SCA 18, also introduced  
               in the 2007-08 Legislative Session, would have reduced the  
               vote threshold for special taxes levied by an education  
               finance district from two-thirds to a majority of the  
               electorate.  Both SB 1430 and SCA 18 died in the Senate.

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          San Francisco Unifies School District
          Small School Districts' Association
          California School Employees Association, AFL-CIO








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          Riverside County Schools Advocacy Association
          CA Association of School Business Officials
          California School Boards Association
          California Teachers Association

           Opposition 
           
          California Taxpayers' Association
           
          Analysis Prepared by  :  Oksana G. Jaffe / REV. & TAX. / (916)  
          319-2098