BILL ANALYSIS Ó ACA 21 Page 1 Date of Hearing: July 2, 2012 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Henry T. Perea, Chair ACA 21 (Feuer) - As Introduced: January 5, 2012 2/3 vote. SUBJECT : Property tax: educational entities: parcel tax. SUMMARY: Amends the California Constitution to lower the vote threshold for a school district, community college district, or county office of education to levy a parcel tax, subject to certain requirements. Specifically, this constitutional amendment : 1)Allows for the imposition, extension, or increase of a parcel tax on real property by a school district, community college district, or county office of education, as may otherwise be authorized by law, by approval of 55%, instead of two-thirds, of the voters in that district or county voting on the proposition, if all of the following conditions are met: a) The proposition is approved by a majority vote of the membership of the governing board of the school district, community college district, or county office of education. b) The proposition contains all of the following accountability conditions: i) A list of the specific purposes and programs to be funded. ii) A requirement that the proceeds be used only for the purposes and programs specified in the proposition, and not for any other purpose. iii) A requirement that the governing board of the school district, community college district, or county office of education does both of the following: (1) Conduct an annual independent financial audit of the amount of parcel tax proceeds collected and expended, and the specified purposes and programs ACA 21 Page 2 funded. (2) Establish a citizens' oversight committee to review all expenditures of proceeds and financial audits and report its findings to the governing board and to the public. c) Allows an exemption from tax, to be claimed under procedures established by the county, for any parcel that, as of January 1 of each year, is owned by, and upon which is located the principal residence of, a person or persons who satisfy one of the following requirements: i) Are 65 years of age or older, or, ii) Are receiving Supplemental Security Income for a disability, without regard to age. 2)Defines "parcel tax" to mean a special tax imposed upon a parcel of real property at a rate that is determined without regard to that property's value. 3)Limits the total amount of parcel tax impositions, increases, or extensions submitted to the voters for approval by a school district, community college district, or county office of education to $250, but allows this amount to be annually adjusted for inflation. 4)Prohibits the usage of proceeds of any parcel tax, as specified, to pay salaries of any administrator of any school district, community college district, or county office of education. 5)Does not limit the authority of a school district, community college district, or county office of education to impose a special tax approved in accordance with California Constitution Section 4 of Article XIII A or Section 2 of Article XIII C. 6)Makes technical and conforming changes to Section 4 of Article XIII A, Section 2 of Article XIII C, and Section 3 of Article XIII D of the California Constitution. EXISTING LAW: ACA 21 Page 3 1)Authorizes cities, counties, and special districts to impose a general tax for general governmental purposes with the approval of a majority of the voters. 2)Prohibits special purpose districts and agencies, including schools districts, from levying a general tax. 3)Authorizes cities, counties, and special districts to impose a special tax for specified purposes with the approval of two-thirds of the voters. 4)Does not allow cities, counties, or special districts to impose an ad valorem tax on real property or a transactions tax or sales tax on the sale of real property within that city, county, or special district. 5)Authorizes school and community college districts to impose qualified special taxes, in accordance with specified procedures, including the approval of two-thirds of the voters in the district. 6)Provides that "qualified special taxes" must apply uniformly to all taxpayers or all real property within the district and do not include special taxes imposed on a particular class of property or taxpayers. 7)Authorizes a school district to exempt from a "qualified special tax" a person 65 years of age or older or a person receiving Supplemental Security Income for a disability, regardless of age. 8)Allows school districts to create Community Facilities Districts and assess Mello-Roos Special Taxes for school facilities and maintenance services for elementary and secondary school sites and structures. Requires schools to give priority attendance access to students residing in community facilities districts. FISCAL EFFECT : None COMMENTS : 1)Author's Statement . The author states that, "If voters want to invest in their local schools, they should have that opportunity. Requiring more than 66 percent of voters to ACA 21 Page 4 approve added funding unfairly burdens parents and communities who just want to make sure their kids get a good education. As a result of the economic crisis, school districts that endured years of distressing cuts may need to cut even more. Local communities should have a fair choice to decide whether to fund their schools with their own tax dollars. "According to EdSource, from 1983 to 2010, voters approved 289 parcel taxes in 542 elections (a 53% approval rate), but 92% of the proposals received at least a majority vote. There are approximately 980 school districts in California. Clearly, there is a desire on the part Ýof] a majority of voters to help fund their local school districts. This bill is designed to help give voters that choice." 2)Arguments in Support. The proponents state that this measure "could enhance the ability of funding resources and mitigate the impact of the horrific cuts schools have taken these past several years." They believe that a 55% vote threshold for parcel taxes "to help provide additional funding for local school districts, community colleges, and County Offices of Education is a more realistic approach to the current funding shortfall our schools are facing." 3)Arguments in Opposition . The opponents argue that, "While funding for school districts, community college districts and county offices of education may be a laudable goal, parcel taxes promote inequities among property owners." The opponents state that "a parcel tax promotes a highly regressive, onerous tax structure that runs counterintuitive to a basic fundamental theory of taxation - that is, taxes should be based on an individual's ability to pay the tax." Thus, a "high-income homeowner with a $1 million home would pay the same parcel tax amount as a homeowner of modest means with a modest residence." Finally, the opponents argue that "lowering the threshold to 55% will increase housing costs in California, even for renters, who will have to absorb costs from apartment owners." 4)Background . Prior to 1970, the state's K-12 schools largely relied on local property taxes levied at different rates and yielding different amounts per pupil in more than 1,000 schools districts in this state. State court rulings in the Serrano v. Priest equalization cases forced the state to revise basic school finance and established the revenue limit ACA 21 Page 5 system. ÝSerrano v. Priest (1971) 5 Cal.3d 584; Serrano v. Priest (1976) 18 Cal.3d 728; Serrano v. Priest (1977) 20 Cal. 3d 25)]. In order to conform to the court's decision and reduce the differences in per-pupil amounts, the state created the revenue limit system that combines local property tax revenues with state general aid and allows the state to control the two revenue sources on a per pupil basis. The state does not fund basic aid districts, where local property taxes met or exceeded the revenue limit. 5)Proposition 13 and Its Progeny : In 1978, Proposition 13 limited both the tax rates and assessments, thus significantly reducing property tax revenues, eliminating the ability of school districts to levy an incremental ad valorem tax on real property and forcing the state to replace the lost revenues in district revenue limits. Proposition 13 also specified that any local tax imposed to pay for specific governmental programs--a "special tax"--must be approved by two-thirds of the voters. It was followed by Proposition 62, which guaranteed that all local general tax increases be approved by voters. After Proposition 62, local governments resorted to the use of fees and assessments, which did not require voter approval, to fill the void. In November 1996, voters enacted Proposition 218, a Constitutional amendment intended to close the so-called "Proposition 13 loopholes" relative to excise taxes, benefit assessments, and fees, and to settle arguments over the applicability of Proposition 62, (the voting requirement for general taxes). Proposition 218 applies to all local government agencies, including charter cities, and controls how general taxes are levied. As a result, the Public Policy Institute of California notes that California has some of the strictest rules in the nation for raising local revenues. ÝEllen Hanak, Paying for Infrastructure: California's Choices, Public Policy Institute of California, 2009]. In 2000, Proposition 39 provided a narrow exception to the two-thirds vote requirement for special taxes by authorizing the passage of local school construction bond measures by approval of 55% of voters. 6)"Qualified Special Tax." School districts still have limited authority to generate local revenues from qualified special taxes, but most school funding is either received from the state or federal governments, or controlled by the state through revenue limits required to equalize per-pupil funding. While Proposition 13 did not define the term "special tax", ACA 21 Page 6 the courts, over time, have opined that a tax is a "special tax" whenever expenditure of its revenues is limited to specific purposes, i.e. the proceeds of the tax are earmarked or dedicated in some manner to a specific project or projects. In contrast, a tax is a "general tax" only when its revenues are placed into the General Fund and are available for expenditure for any and all governmental purposes. ÝBay Area Cellular Telephone Co. v. City of Union City (2008) 162 Cal.App.4th 686; Howard Jarvis Taxpayers Assn. v. City of Roseville (2003) 106 Cal.App.4th 1178]. School districts and special districts are prohibited from imposing general taxes (Proposition 218) and thus, by definition, any tax levied by a school district or community school district is considered to be a special tax subject to a two-thirds voter approval. Furthermore, a "qualified" special tax must apply uniformly to all taxpayers (other than persons over the age of 65) or real property within the district. Therefore, thus far, those districts have only imposed "qualified special taxes", under Government Code Section 50079, in the form of a parcel tax. 7)Parcel Tax. A parcel tax is a flat fee imposed by a city, county, or special district on each parcel, residential as well as commercial, rather than on the assessed value of property located within the local entity's jurisdiction. Parcel taxes do not have a cap. Parcel tax proposals voted on in the last ten years varied from $26 per parcel to $765 per parcel, with terms as short as two years, and some being permanent. Because the same dollar amount of tax is assessed on each parcel of property, whether the parcel is one acre or 100 acres, parcel taxes are generally regressive, which means owners of smaller parcels of land pay a larger percentage of tax, in comparison to owners of larger parcels of land. Some districts levy a rate at a fixed amount per square foot of taxable land, and many include an annual inflation adjustment. Existing law does not limit how the special tax proceeds may be spent, and therefore, a local school board can specify in the ballot measure how the funds will be used. Generally, local parcel taxes provide secure funding for teacher salaries, books, materials and supplies, computers, and art, music and sports programs. ACA 21 Page 7 Districts have increasingly turned to parcel taxes in recent years as a result of fiscal stress: in 2010, 38 districts placed parcel taxes on the ballot, compared to 31 in 2009, and 13 in 2006. Although all districts can propose a parcel tax to their community, they are relatively rare in most of the state. Between 2001 and June 2009, out of roughly 980 California school districts, 132 conducted parcel tax elections and 83 districts passed them. Only seven of those districts were located in Southern California, while 66 were within the nine-county San Francisco Bay Area. The districts that had successful elections generally serve fewer low-income students than the typical California school district. The median district levying a parcel tax had about 3,180 students of whom 15% qualified for free/reduced-price meals and 9% were English learners. They are also disproportionately small, with 66 (80%) of them serving fewer than 10,000 students. In 2006, the California voters rejected Proposition 88 that would have amended the California Constitution to levy an annual $50 real property tax on most parcels with the funds allocated to specified K-12 education programs. 8)Voting (but not paying) and Paying (but not voting). Currently, as a special tax, a parcel tax levied by a school or community college district requires approval at an election of at least two-thirds of the qualified electors of such district. Courts have interpreted the phrase "qualified electors of such district" to mean the registered voters voting in the election concerning the proposed tax. ÝNeilson v. City of California City (2005) 133 Cal.App.4th 1296, 1312]. ACA 21 would lower the threshold to 55% of the voters of the district or county voting on the proposition. The incidence of a parcel tax is borne by landowners. Generally, nonresident landowners are not registered voters and are not included among the voters voting on the proposed parcel tax. On the other hand, some registered voters who do not own land within the district's boundaries are able to vote on the parcel tax even though they will not be paying that tax (at least not directly). The Committee may wish to consider whether it is equitable to lower the vote threshold for new parcel taxes when some voters will not bear the costs and some of those who bear the tax burden are precluded from voting. 9)Accountability. Special taxes are subject to certain ACA 21 Page 8 oversight and accountability provisions. Local agencies must issue a statement indicating the specific purpose of the tax and use the proceeds only for that purpose. Further, the agencies must create an account in which proceeds are to be deposited. Finally, they must issue an annual report that includes the amount of money collected and expended, along with the status of any project required or authorized by the tax measure. ACA 21 contains additional accountability requirements, which are identical to those included in Proposition 39. ACA 21 also limits the total amount of parcel tax submitted to the voters to $250 per parcel each year, adjusted for inflation. 10)County Offices of Education . ACA 21 gives the power to enact parcel taxes to County Offices of Education, which currently enjoy no taxing powers. School districts, community college districts, and other specified special districts may enact these taxes by statute, but never before has the Legislature allowed these powers to branches of county government. County offices of education support school districts by performing tasks that can be done more efficiently at the county level. County offices often help formulate new curricula, staff development and training programs, design business and personnel systems, and perform many other services to support school districts. They also provide a wide range of services, including special education, career technical education, programs for at-risk youth, and instruction in juvenile detention facilities (court schools). Additionally, county offices of education are responsible for monitoring districts for adequate textbooks, facilities, and teacher qualifications. There are 58 county offices of education. They are governed by elected boards and administered by elected or appointed county superintendents. If ACA 21 is enacted, the Legislature may need to specify statutory procedures for County Offices of Education to levy parcel taxes. 11)Effective date. If approved by the Legislature, this measure would appear on the next statewide election ballot and, if enacted by the voters, would take effect as soon as the election results are certified. 12)Related Legislation . ACA 21 Page 9 SCA 5 (Simitian), introduced in the 2011 legislative session, would lower the vote threshold for school districts, community college districts, and county offices of education to levy parcel taxes from a 2/3 vote to 55% of the voters in the district or county under specified circumstances. SCA 5 is currently pending in the Senate Committee on Elections and Constitutional Amendments. ACA 10 (Torlakson), introduced in the 2009-10 legislative session, would have amended the California Constitution to lower the constitutional vote requirement for approval of a special tax to be levied by an education finance district from two-thirds to a majority of the district voters. ACA 10 failed to pass out of the Assembly by the constitutional deadline. ACA 9 (Huffman), introduced in the 2009-10 legislative session, would have made changes to the voting requirements contained in the California Constitution for special taxes and bonded indebtedness for local government. ACA 9 failed to pass out of the Assembly by the constitutional deadline. ACA 15 (Arambula), introduced in the 2009-10 legislative session, would have lowered the constitutional vote requirements for approval of a special tax, specifically for providing funding for local transportation projects from two-thirds to a 55% majority. ACA 15 failed to pass out of the Assembly by the constitutional deadline. SCA 6 (Simitian), introduced in the 2009-10 legislative session, amends the California Constitution to authorize school districts, community college districts, and county offices of education to impose a parcel tax on real property by a 55% vote of the voters in the district or county. SCA 6 failed to pass out of the Senate by the constitutional deadline. REGISTERED SUPPORT / OPPOSITION : Support California Catholic Conference California School Employees Association California Teachers Association Community College League of California Riverside County School Superintendents' Association ACA 21 Page 10 San Diego Unified School District Opposition California Taxpayers Association Howard Jarvis Taxpayers Association Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916) 319-2098