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

           
           SENATE LOCAL GOVERNMENT COMMITTEE  :  4-0, 8/30/10
          AYES:  Aanestad, Kehoe, DeSaulnier, Price
          NO VOTE RECORDED:  Vacancy

           ASSEMBLY FLOOR  :  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  
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          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.  

          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  

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          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.
           
          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  

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          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  
          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.
           

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          FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  Yes

           SUPPORT  :   (Verified  8/30/10)

          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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