BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
BILL NO: AB 900 HEARING: 8/30/10
AUTHOR: de Le?n FISCAL: Yes
VERSION: 8/27/10 CONSULTANT:
Weinberger
CITY OF BELL
PROPERTY TAX OVERPAYMENT AND REFUNDS (URGENCY)
Background and Existing Law
Proposition 13 (1978) limited property tax rates to 1%,
cutting statewide property tax revenues by 57%. The power
to allocate the remaining property tax revenues became the
Legislature's duty.
The Legislature responded by allocating property tax
revenues to counties, cities, special districts, and school
districts based on each agency's pro rata share of the
property taxes collected within a county in the three
fiscal years prior to 1978-79 (SB 154, Rodda, 1978). In
1979, the Legislature permanently restructured the
allocation of property taxes, using SB 154's property tax
allocations as a base (AB 8, L. Greene, 1979).
The 1% limit on property tax rates did not apply to ad
valorem property taxes or special assessments needed to pay
the interest and redemption charges on any indebtedness
approved by voters before July 1, 1978. In its 1982
decision in Carman v. Alvord, the California Supreme Court
ruled that extraordinary property tax rates (outside the
usual 1% ad valorem rate) imposed to fund employee pension
systems approved by the voters before July 1, 1978 are
valid under Proposition 13.
In response to confusion over how local officials used
their extraordinary property tax rates when calculating
property tax allocations under AB 8, the Legislature
imposed a temporary moratorium on property tax rates for
indebtedness other than bonds (AB 377, Roos, 1983) and
directed the Legislative Analyst's Office to study local
agencies' extraordinary property tax rates. In 1985, the
Legislature made the moratorium on extraordinary property
tax rates permanent (AB 13, Roos, 1985). The Roos bill
froze extraordinary tax rates for pensions approved by
voters before Proposition 13 at their 1982-83 levels.
AB 900 -- 8/27/10 -- Page 2
To enforce this limit, the Legislature required a county
auditor to reduce a local agency's basic property tax
allocation by one dollar for every dollar of property tax
revenue that the agency received from a property tax rate
that exceeded statutory limits. The property tax revenues
subtracted from an agency's allocation are then reallocated
to school districts within the agency's jurisdiction in
proportion to average daily attendance.
An audit being conducted by the State Controller determined
that officials in the City of Bell (Los Angeles County),
during the three fiscal years between 2007 and 2010, levied
an extraordinary property tax rate to pay the City's
pension obligations that exceeded the rate allowed under
state law. As a result, property owners in Bell paid
approximately $2.9 million in excessive property taxes
during those three years. Under current law, the Los
Angeles County Auditor must lower Bell's property
allocation by this amount and pay the amount subtracted
from the City's allocation to the Los Angeles Unified
School District and the Montebello Unified School District,
which serve the City of Bell.
Instead, some legislators and local officials want to use a
portion of Bell's available reserve funds to provide direct
rebates to taxpayers who paid the excessive property taxes.
Proposed Law
Assembly Bill 900 prohibits the current law governing the
allocation of property tax revenue attributable to a rate
in excess of the maximum allowable rate from applying to
the City of Bell and the County of Los Angeles in
2007-2008, 2008-2009, and 2009-2010.
Instead, AB 900 requires the City of Bell to pay the County
of Los Angeles, by December 31, 2010, an amount equal to
the amount of excess ad valorem property tax collected in
2007-2008, 2008-2009, and 2009-2010, including interest
calculated at the average rate earned by the City of Bell
on its idle funds during those years.
AB 900 requires the County of Los Angeles to refund the
amount it receives from the City of Bell to any property
AB 900 -- 8/27/10 -- Page 3
taxpayers of the City of Bell who overpaid, in a manner
generally consistent with the County of Los Angeles tax
refund practices. AB 900 requires the City of Bell to
reimburse the county for the actual and reasonable costs of
administering the bill's provisions, including applicable
administrative and overhead costs as permitted by federal
standards.
If the County is unable to locate a taxpayer to make a
refund by December 31, 2011, the bill requires the amounts
remaining from the amounts paid by the City to the County
to be allocated to elementary, high school, and unified
school districts as provided under current law.
Comments
1. Righting a wrong . For over two decades, since the
passage of the 1985 Roos bill which limited extraordinary
property tax rates, the City of Bell levied an
extraordinary tax rate of 0.187554% to pay for the City's
pension obligations. In 2007, Bell officials began raising
this extraordinary property tax rate above the limit
imposed by state law, levying rates of 0.237554% in
2007-08, 0.257554% in 2008-09, and 0.277554% in 2009-10.
The additional taxes cost property owners in the City
approximately $2.9 million over those three years. AB 900
promptly corrects this injustice by returning the
unlawfully obtained property tax revenues, with accrued
interest, directly to those taxpayers who paid the
excessive amounts.
2. State cost . Under current law, the Los Angeles County
Auditor must reallocate the $2.9 million that the City of
Bell overcharged taxpayers from the City's property tax
allocation to local school districts. In most years, under
the provisions of Proposition 98, the additional property
tax revenues to school districts would offset State General
Fund spending in those school districts on a
dollar-for-dollar basis. By providing property tax refunds
directly to taxpayers, and allocating only the unpaid
refund amounts to local schools, AB 900 significantly
reduces these potential General Fund savings.
3. Unthinkable . The 1985 Roos legislation tried to deter
local officials from levying excessive extraordinary
AB 900 -- 8/27/10 -- Page 4
property tax rates by requiring county auditors to reduce
local agencies' basic property tax allocations by a dollar
for every dollar it raised from rates in excess of
statutory limits. It is unlikely that the Legislature
imagined that Bell, or any other local agency, would
disregard this deterrent and collect excess property taxes
that would be automatically offset against its base
allocation. Because Bell did, the Legislature must now
confront the question of whether reallocating the property
tax revenues to local school districts is the fairest way
to return the money to a community.
4. State mandate. Local request ? The California
Constitution requires the state government to reimburse the
costs of new or expanded state mandated local programs.
But the Legislature can avoid reimbursements if the
affected local agency asked for the mandate. Legislative
Counsel says that AB 900 creates a new state mandated local
program by imposing additional duties on county officials
in issuing refunds and reallocating ad valorem property tax
revenues. The bill requires the City of Bell to reimburse
the county's costs. However, some observers worry that the
City may file a claim seeking state reimbursement of its
costs under AB 900's provisions. To ensure that state
taxpayers do not have to reimburse the City the costs of
refunding its unlawfully obtained property taxes, the
Committee may wish to consider amending AB 900 to
substitute the so-called "local request disclaimer" for the
mandate disclaimer that is currently in the bill.
Legislators may then wish to consider obtaining guarantees
from Bell officials that the city council will take
official action requesting that the City be subject to the
requirements in the final enrolled version of the bill,
thereby allowing the state to invoke the Constitution's
local request exception.
5. Urgency clause . Regular statutes take effect on the
January 1 following their enactment; bills passed in 2010
take effect on January 1, 2011. The California
Constitution allows bills with urgency clauses to take
effect immediately if they're needed for the public peace,
health, and safety. AB 900 contains an urgency clause so
that the City of Bell and Los Angeles County can implement
the bill's requirements this year.
6. Special legislation . The California Constitution
AB 900 -- 8/27/10 -- Page 5
prohibits special legislation when a general law can apply.
AB 900 contains findings and declarations explaining the
need for legislation that applies only to the City of Bell.
7. Gut and amend . As introduced, AB 900 revised the state
law requiring persons who divert surface waters in the
state to file a statement of diversion and use with the
State Water Resources Control Board. The Committee never
heard that version of the bill. The August 20 amendments
deleted the bill's contents and inserted the language
relating to the City of Bell's property tax refunds.
8. Bell bills . AB 900 is not the Legislature's only
response to the City of Bell's fiscal decisions and
practices which became public this summer. There are at
least five other bills, including:
SB 501 (Correa) which is pending on the Assembly
Floor.
AB 192 (Gatto) which is in the Senate Rules Committee
for re-referral.
AB 194 (Torrico) which is in the Senate Rules
Committee for re-referral.
AB 827 (De La Torre) which the Committee will also
hear on August 30.
AB 1955 (De La Torre) which the Committee passed on
August 12.
AB 2064 (Huber) which is in the Senate Rules Committee
for re-referral.
Assembly Actions
Not relevant to the August 27, 2010 version of the bill.
Support and Opposition (8/27/10)
Support : State Controller John Chiang, County of Los
Angeles, and Howard Jarvis Taxpayers Association.
Opposition : Unknown.