BILL ANALYSIS
AB 1341
Page A
CONCURRENCE IN SENATE AMENDMENTS
AB 1341 (Bonnie Lowenthal)
As Amended August 2, 2010
Majority vote
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|ASSEMBLY: | |(May 18, 2009) |SENATE: |34-0 |(August 18, 2010) |
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(vote not relevant)
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|COMMITTEE VOTE: |9-0 |(August 26, 2010) |RECOMMENDATION: |concur |
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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 (JC) 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 (BOE), the courts, and other involved
parties regarding the interpretation of the term "independent"
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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 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)Provide 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 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 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)Provide 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
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improvements are used by the nongovernmental entity as commercial
office space, retail space, or paid parking spaces not designated
for use for governmental purposes or court facilities.
4)Provide 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)Take immediate effect as a tax levy.
EXISTING LAW :
1) Provides that all property is taxable, unless otherwise
specified by the California Constitution or federal law.
2) 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."
3) 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.
AS PASSED BY THE ASSEMBLY , this bill:
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<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."
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1)Deleted obsolete references to the disabled veterans' basic
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 could 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.
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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.
Constitutional Considerations: Article XIII, Section 1 of the
California Constitution provides that all property is taxable,
unless otherwise specified by the California Constitution or
federal law. Some may argue that AB 1341 attempts to exempt a
specific possessory interest statutorily in violation of this
constitutional provision. Supporters of AB 1341, however, would
likely counter that this bill merely provides legislative
guidance regarding the independence prong of the existing
three-factor analysis. As BOE notes in its staff analysis of
this bill, in City of San Jose v. Carlson (1997) 57 Cal.App.4th
1348, the court acknowledged the appropriateness of legislative
action to set parameters on the element of durability. A similar
argument could be made in this case with respect to the element
of independence.
Will AB 1341 Establish a Precedent?: It is very clear that the
author of this measure does not intend for AB 1341 to establish a
precedent for future legislation. This bill is, by its very
terms, limited to a single project. Moreover, the bill's
provisions are uncodified. Finally, in the absence of this
measure, the cost of any possessory interest tax assessed on the
private developer would likely be passed on to the JC and, in
turn, the state.<2> Nevertheless, today's special circumstance
often becomes tomorrow's rule. While it may be appropriate to
provide a safe harbor in cases where state-owned property will be
leased to a private entity but used exclusively for a public
purpose, it is conceivable that, in the future, less deserving
public-private partnerships may seek similar protections.
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916) 319-2098
FN: 0006810
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<2> Ostensibly, this is because the original RFP specified that the
Judicial Council would bear the cost of any applicable tax.
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