BILL ANALYSIS AB 1341 Page A CONCURRENCE IN SENATE AMENDMENTS AB 1341 (Bonnie Lowenthal) As Amended August 2, 2010 Majority vote ----------------------------------------------------------------- |ASSEMBLY: | |(May 18, 2009) |SENATE: |34-0 |(August 18, | | | | | | |2010) | ----------------------------------------------------------------- (vote not relevant) Original Committee Reference: REV. & TAX. SUMMARY : Provides that there is no taxable possessory interest if the possession is pursuant to a project agreement entered into by the Judicial Council with a nongovernmental entity for the purpose of replacing the Long Beach Courthouse, and if other specified criteria are met. The Senate amendments delete the Assembly version of this bill, and instead: 1)Include the following legislative findings: a) The existing courthouse located at 415 West Ocean Boulevard in the City of Long Beach is in unsatisfactory physical condition, is a potential public safety risk to court staff and the public, and is in need of immediate replacement; b) This bill is designed to expedite the facility's replacement by resolving a disputed property tax issue that could potentially delay the replacement project and add an element of unpredictable financial risk to the project's public sponsor; c) It is the Legislature's intent in enacting this bill to provide legislative direction to county assessors, the State Board of Equalization, the courts, and other involved parties regarding the interpretation of the term "independent" as it relates to the Long Beach Courthouse; and, d) A special law is necessary because of the need to resolve the property tax issues potentially delaying the AB 1341 Page B Long Beach Courthouse replacement project and to mitigate the attendant risks of that delay to the citizens of Los Angeles County and the State of California. 2)Provides that there is no "independent" possession or use of land or improvements (and, therefore, no taxable possessory interest) if the possession is pursuant to a project agreement entered into by the Judicial Council (JC) with a nongovernmental entity in accordance with Government Code (GC) Section 70391.5 for the purpose of replacing the Long Beach Courthouse, and if all the following conditions are met: a) The nongovernmental entity is required to design, build, finance, operate, and maintain the Long Beach Courthouse; b) The JC establishes performance expectations and benchmark criteria for the court facility proposal in accordance with GC Section 70391.5 that serve as the basis for selecting the nongovernmental entity; c) The JC and other governmental entities have exclusive use and control of the Long Beach Courthouse for court and related activities for 35 years; d) The JC holds title to the land and improvements of the Long Beach Courthouse; e) The nongovernmental entity is not treated as the owner of the improvements of the Long Beach Courthouse for any purpose, including federal income tax purposes, and does not deduct any depreciation on the improvements; and, f) Any lease-leaseback of land and improvements of the Long Beach Courthouse with the nongovernmental entity is solely for the purpose of providing security for the payment by the JC of the service fee for services provided by the nongovernmental entity in connection with a court facility. 3)Provides that this possessory interest safe harbor shall not apply to any lease of, or improvements to, the Long Beach Courthouse by the JC with a nongovernmental entity to the extent the land or improvements are used by the nongovernmental entity as commercial office space, retail space, or paid parking spaces not designated for use for AB 1341 Page C governmental purposes or court facilities. 4)Provides that, notwithstanding existing law, the state shall not reimburse any local agency for any property tax revenue lost as a result of this bill. 5)Takes immediate effect as a tax levy. EXISTING LAW : 1) Requires all property subject to tax to be assessed at its full value. For property tax purposes, full value generally equals the post-Proposition 13 acquisition price, adjusted annually for inflation (not to exceed 2%). Although public land is exempt from property tax, private real property interests held in connection with public land may be taxed as "possessory interests." 2) Provides that, for a taxable possessory interest to be found, the possession must generally be "independent," "durable," and "exclusive" of rights held by others in the property.<1> Possession is considered "independent" if the holder has the ability to exert control over the property's management, separate and apart from the public owner's rules and policies. In other words, a possession or use is independent if it is sufficiently autonomous to constitute something more than a mere agency. 3)Provides that, if specified conditions are met, there is no "independent" possession of land or improvements if the possession is pursuant to a contract that includes a long-term lease for the private construction, renovation, or maintenance of housing for active duty military personnel and their dependents. AS PASSED BY THE ASSEMBLY , this bill: 1)Deleted obsolete references to the disabled veterans' basic --------------------------- <1> Property Tax Rule 20(a)(1) additionally requires that the possessor derive a "private benefit" from the property's use. A "private benefit" means "that the possessor has the opportunity to make a profit, or to use or be provided an amenity, or to pursue a private purpose in conjunction with its use of the possessory interest." AB 1341 Page D exemption amount of $40,000 and the low-income exemption amount of $60,000, which were increased by the Legislature in 1989 to $100,000 and $150,000, respectively. 2)Corrected a transposition error in Revenue and Taxation Code (R&TC) Section 276, intending a cross reference to R&TC Section 4985, rather than Section 4895, relating to a disabled veterans' partial exemption for outstanding property taxes. 3)Made a minor, technical change to the provision relating to the procedure for canceling outstanding property taxes when a claim for the exemption is filed late. FISCAL EFFECT : This bill would result in foregone possessory interest taxes in Los Angeles County of between $4 million and $5 million. However, the JC indicates that, in the absence of this bill, the state would be required to pay any possessory interest taxes related to the Long Beach Courthouse on behalf of the nongovernmental entity, which could result in annual General Fund payments of $4 million to $5 million. COMMENTS : The author has provided the following statement in support of this bill: 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. The Administrative Office of the Courts 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, AB 1341 declares that the unique needs and nature of the Long Beach courthouse project exempt its state functions from possessory interest taxation. AB 1341 Page E If the courthouse were funded the traditional way, possessory tax revenue would of course not exist. Likewise, if the courthouse construction were postponed, there would be no economic activity of any kind to tax. Any revenue to be gained by applying possessory tax to this project is an illusion. Committee staff notes that this bill was substantially amended in the Senate and the Assembly-approved provisions of this bill were deleted. This bill, as amended in the Senate, is inconsistent with Assembly Actions. Analysis Prepared by : M. David Ruff / REV. & TAX. / (916) 319-2098 FN: 0006072