BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 1341|
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THIRD READING
Bill No: AB 1341
Author: Bonnie Lowenthal (D)
Amended: 8/2/10 in Senate
Vote: 21
SENATE REVENUE & TAXATION COMMITTEE : 5-0, 7/1/10
AYES: Wolk, Walters, Alquist, Ashburn, Padilla
ASSEMBLY FLOOR : Not relevant
SUBJECT : Property taxation: possessory interests: Long
Beach
Courthouse
SOURCE : Judicial Council of California
DIGEST : This bill provides legislative direction that
the Long Beach Courthouse Project Agreement is not
independent for possessory interest tax purposes.
ANALYSIS : Long Beach is ready for its new courthouse.
In fact, it is long overdue. Experts say its existing
50-year-old facility is perhaps the worst in the state when
it comes to security, safety and overcrowding. Its failure
as a public building was best illustrated when paramedics
carried a juror in cardiac arrest down a crowded flight of
stairs, rather than whisk him down an elevator, delaying
his transport to the emergency room, because he happened to
be on a floor not serviced by elevators when his heart
attack occurred.
CONTINUED
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The Administrative Office of the Courts (AOC) has found a
way to deliver the project three years earlier than might
otherwise occur, by use of a public-private partnership.
Unfortunately, a dispute over property tax has arisen,
which, if left unresolved, could increase the cost of the
project to the point it would no longer be fiscally viable.
To resolve this problem without creating precedent or
altering existing code, this bill declares that the unique
needs and nature of the Long Beach Courthouse project
exempts its state functions from possessory interest
taxation.
Background
Completed in 1957, the Long Beach Courthouse is undersized
and dilapidated according to the AOC. AOC states that the
Long Beach Courthouse project is direly needed because the
existing structure is in unsatisfactory condition and poses
a risk to staff and the public. When seeking to replace
the aging Long Beach Courthouse, AOC decided to use a
"performance-based infrastructure delivery model," where a
private party builds, operates, and maintains a facility on
land owned by AOC instead of building it themselves, where
AOC would not pay property taxes because it is a public
agency. According to AOC, it elected to use the
performance-based infrastructure delivery model because of
its anticipated value for money and timely completion of
the project. AOC acknowledged in its request for proposals
that if a possessory interest existed, AOC will reimburse
the nongovernmental entity for its share. AOC selected a
consortium headed by Meridiam Infrastructure as the
preferred proposer on the project.
The Long Beach Courthouse project financing mechanism is
substantively different than the lease-leaseback process.
For this project, the nongovernmental entity never takes
ownership of the building; instead, the services agreement
that sets forth the nongovernmental entity's
responsibilities, the obligation of the AOC to pay the
nongovernmental entity, and the nongovernmental entity's
right to evict the AOC and use the building for private
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commercial space if AOC defaults constitute the
nongovernmental entity's interest. Because no private
ownership exists, the nongovernmental entity cannot deduct
depreciation. According to AOC, the Courthouse project is
the first or second transaction of this kind in California.
The Los Angeles County Assessor asserts that the project
contains a possessory interest, and plans to tax the
project accordingly; AOC disagrees, and is advancing this
bill to provide legislative direction to the Los Angeles
County Assessor not to assert a possessory interest. The
section of law the Legislature added in 1996 does not apply
because the public agency pays rent to the nongovernmental
entity, or lessee. AOC argues that this financing model
results in better value and a quicker project completion,
and does not require a large General Fund appropriation to
finance construction that would be necessary if AOC built
the project themselves. AOC states that the bidders on the
project did not factor in as part of their costs any
possessory tax implications, and adds that legislative
direction regarding the existence of a possessory interest
is necessary because the Department of Finance may not
approve the added costs of $4 to $5 million in possessory
interest tax liability. Without approval, AOC will have to
begin the entire courthouse procurement process again from
the beginning, which would delay the project by an
estimated three years.
Prior legislation . AB 1467 (Nunez and Perata), Chapter 32,
Statutes of 2006, amended the Streets and Highways Code to
provide that any lease entered into by the Department of
Transportation or regional transportation agencies with a
private entity for the construction and lease of toll road
projects does not constitute a possessory interest. While
similar, AB 1341 provides an exemption for only the Long
Beach Courthouse in an uncodified section of law.
Additionally, AOC has stated that it will account for the
possessory interest tax for all future projects; however,
this may not stop other proponents of so-called
"public-private partnerships" from seeking future
legislative exemptions despite this narrowly tailored bill.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
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Local: Yes
SUPPORT : (Verified 7/27/10)
Judicial Council of California (source)
Long Beach City Council
Los Angeles Superior Court
OPPOSITION : (Verified 7/27/10)
California Assessors Association
DLW:mw 8/2/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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