BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 900|
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THIRD READING
Bill No: AB 900
Author: De Leon (D), et al
Amended: 8/27/10 in Senate
Vote: 27 - Urgency
PRIOR VOTES NOT RELEVANT
SUBJECT : Property taxation: City of Bell: refunds for
overpayment
SOURCE : State Controller John Chiang
DIGEST : This bill 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.
ANALYSIS : 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
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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.
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.
This bill 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.
This bill 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
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on its idle funds during those years.
This bill requires the County of Los Angeles to refund the
amount it receives from the City of Bell to any property
taxpayers of the City of Bell who overpaid, in a manner
generally consistent with the County of Los Angeles tax
refund practices. This bill 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
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.
This bill promptly corrects this injustice by returning
the unlawfully obtained property tax revenues, with accrued
interest, directly to those taxpayers who paid the
excessive amounts.
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, this bill significantly
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reduces these potential General Fund savings.
The 1985 Roos legislation tried to deter local officials
from levying excessive extraordinary 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.
The California Constitution prohibits special legislation
when a general law can apply. This bill contains findings
and declarations explaining the need for legislation that
applies only to the City of Bell.
Related Legislation
This bill 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 8/30/10)
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State Controller John Chiang (source)
County of Los Angeles
Howard Jarvis Taxpayers Association
ARGUMENTS IN SUPPORT : The State Controller's Office, the
sponsor of the bill, has determined that for years the City
of Bell had charged property taxes at rates higher than
allowed by State law. Property owners in the city paid an
estimated $3 million in extra taxes over the past three
years. The Controller's auditors discovered that Bell's
City Council began raising property tax rates in 2007 to
pay for pension obligations, even though State law caps
those taxes at the rate used in fiscal year 1983-84.
Property taxpayers saw their assessments for pension
obligations rise almost 50 percent from 2007 to 2010. The
Controller states that he has instructed the County to
reduce the property tax rates as quickly as possible. The
lower rates would deliver an estimated $250 in annual
savings for a property worth $275,000. Unfortunately,
existing state law prohibits the overpayments from being
returned to the property owners who were victimized by the
Bell City Council. This bill will rectify that problem.
AGB:nl 8/30/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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