BILL ANALYSIS Ó SENATE GOVERNANCE & FINANCE COMMITTEE Senator Lois Wolk, Chair BILL NO: SCA 5 HEARING: 4/27/11 AUTHOR: Simitian FISCAL: No VERSION: 12/6/10 TAX LEVY: No CONSULTANT: Grinnell TAXATION: EDUCATIONAL ENTITIES: PARCEL TAX Lowers the Vote Threshold for School Districts, Community College Districts and County Offices of Education to Levy Parcel Taxes from 2/3 to 55% Background and Existing Law The California Constitution states that taxes levied by local governments are either general taxes, subject to majority approval of its voters, or special taxes, subject to 2/3 vote (Article XIII A, XIII B, and XIII C). Proposition 13 (1978) required a 2/3 vote of each house of the Legislature for state tax increases, and 2/3 vote of local voters for local special taxes. Proposition 62 (1986) prohibited local agencies from imposing general taxes without majority approval of local voters, and a 2/3 vote for special taxes. Proposition 218 (1996) extended those vote thresholds to charter cities, and limited local agencies' powers to levy new assessments, fees, and taxes. Local agencies generally propose to increase taxes by adopting an ordinance or a resolution at a public hearing. The Constitution further bars school districts from imposing general taxes, but allows school districts, community college districts, and county offices of education to issue bonded indebtedness for school facilities with 55% percent approval (Proposition 39, 2000). Current law additionally allows school districts and community college districts to levy qualified special taxes that are uniform as applied to all taxpayers with 2/3 vote of the electorate; however, school districts may exempt persons over the age of 65 or those receiving Supplemental Security Income (SSI) from the tax. County offices of education have no direct taxing authority, but receive a share of the property tax, and counties may fund programs SCA 5 - 12/6/10 -- Page 2 delivered by the education offices. The district may implement these taxes, for as long as it wants, spend the proceeds for any purpose, and apply any tax rate it chooses. To date, local agencies have only assessed parcel taxes under this section. Proposed Law SCA 5 authorizes school districts, community college districts, or county offices of education to impose a parcel tax on real property by a 55 percent vote of the voters in the district or county under specified circumstances, including: The district governing board approves the proposition by 2/3 vote. The ballot proposition contains a specific list of programs and purposes to be funded, and a requirement that funds be spent solely for those programs and purposes, The ballot proposition includes a requirement for annual independent audit of the amount of tax proceeds collected and expended and the specified purposes and programs funded The ballot proposition requires the governing board to create a citizens' oversight board to review all expenditures of proceeds and financial audits, and report its findings to the governing board and the public. The ballot proposition allows for an exemption from the tax for parcels owned by persons over the age of 65 or those receiving SSI. The measure also defines "parcel tax" as a special tax imposed upon real property at a rate determined without regard to the property's value, and caps the total amount of parcel taxes imposed, increased, or extended by a district to $250 per parcel per year adjusted for inflation by the California Consumer Price Index. Tax proceeds may not be used to fund administrative salaries. SCA 5 also makes clarifying and conforming changes to the SCA 5 - 12/6/10 -- Page 3 Constitution. State Revenue Impact No estimate. Comments 1. Purpose of the bill. According to the Author, "Given the state's on-going financial crisis, school districts are now facing severe cutbacks in funding. Worse still, it is unlikely that the state will be able to provide adequate funds in the foreseeable future. Now more than ever, school districts need to find ways to help them maintain quality programs. SCA 5 provides school districts with much-needed flexibility in raising local educational funds. In addition to helping school districts raise revenues, SCA 5 will also give local districts more power to fund programs that are important to them. Much of state funding is earmarked for particular programs. When it comes to raising money that school districts can control, there's not much choice. A parcel tax is one of the very few ways local school districts can raise discretionary revenue. SCA 5 will increase local choice for local education needs, while ensuring that every dollar generated goes to the school district for locally identified purposes. In the past, school districts have used parcel tax money to enhance instructional programs, hire additional teachers, and support libraries, music, and arts programs- all reflecting local priorities in their local districts. California still lags behind most states in per pupil spending. Although the current financial crisis will lead to reduced state spending on education, schools do not have to languish as a result. Voters can take local action to keep education strong, as they did when they approved a similar proposition on local school construction bonds, lowering the approval threshold from two-thirds to 55 percent. SCA 5 conforms the threshold required for parcel taxes to the voter-approved threshold for school bonds." 2. "Don't tax me? Tax the guy behind the tree" posits an old piece of tax policy wisdom. SCA 5 lowers the threshold on parcel taxes, which are taxes on landowners. Therefore, SCA 5 - 12/6/10 -- Page 4 resident non-landowners, like renters, are able to vote in the election, but do not pay any of the taxes except as passed through in rents. In the reverse, non-resident landowners are not able to vote in the election, but must pay the tax if the voters approve the measure. In addition, districts may exempt taxpayers 65 years or older, thereby creating another class of voters who do not bear the incidence of the tax. The Committee may wish to consider whether lowering the vote threshold for new parcel taxes is equitable when many voters do not bear the cost, and those who may bear the cost cannot vote. 3. Signed, sealed, delivered . California uniquely among the states allows school districts to levy parcel taxes, which are different in many ways from property taxes and general obligation bonds. First, parcel taxes are not ad valorem, or assessed based on the value of a property; instead they are a flat rate assessed per parcel or per square foot, regardless of its size. Essentially, parcel taxes are a flat tax on property ownership. Secondly, the proceeds of general obligation bonds must be spent on the acquisition and improvement of property, or on school construction. Parcel taxes give the imposing authority considerably more flexibility to spend as they see fit. Proceeds are not limited to certain uses; revenues may be used for ongoing expenses, programs, or buildings at the local agency's discretion, although parcel taxes imposed at a lower voter approval rate under SCA 5 cannot be used for administrative salaries, among other restrictions. Parcel taxes are flexible ways of raising revenues at the local level, but are subject to certain requirements. Parcel tax elections must be held on "established election dates", which means in March, April, or November of an even-numbered year, or March, June, or November in an odd-numbered year. 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. According to EdSource, between 1983 through November 2010, voters approved 289 parcel taxes in 542 elections, with 92% of proposals receiving at least a majority vote from the electorate during that time. Districts have increasingly turned to parcel taxes in recent years as a result of fiscal stress: in 2010, 38 districts placed parcel taxes on SCA 5 - 12/6/10 -- Page 5 the ballot, compared to 31 in 2009, and 13 in 2006. 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. EdSource also discusses some of the recent trends for districts imposing parcel taxes: 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. They are also disproportionately small, with 66 (80%) of them serving fewer than 10,000 students. In 2008-09, those districts that had parcel taxes reported total revenues of about $250 million, according to Ed-Data 4. If at first you don't succeed . SCA 5 is substantially similar to SCA 6 (Simitian, 2009), SCA 17 (Simitian, 2008), SCA 8 (Simitian, 2005), and ACA 4 (Simitian, 2003), all of which were not enacted. However, SCA 5 contains accountability provisions identical to those included in Proposition 39, which have previously only been included in last year's attempt. 5. Dueling exemptions . SCA 5 requires that parcel taxes enacted by 55% vote exclude persons over the age of 65 and those receiving SSI from the tax, exemptions that are permissive for local agencies seeking to enact the tax at the 2/3 vote threshold. Such a requirement reduces local flexibility, and reduces the tax base, causing the tax to be higher, and all things equal. SCA 5 parcel taxes must exclude persons with plenty of income and wealth by exempting persons from the tax because the exemption is based solely on the person's age. The Committee way wish to consider whether this requirement is necessary given districts' existing flexibility. Additionally, SB 874 (Hancock), also being heard by the Committee today, allows additional exemptions for parcel taxes enacted by school and community college districts. If both measures are enacted, the Author may want to conform the exemptions to ensure that allowing additional exemptions under SB 874 SCA 5 - 12/6/10 -- Page 6 doesn't affect a district's ability to use SCA 5's lower vote threshold. 6. First time for everything . SCA 5 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. If SCA 5 is enacted, the Legislature may need to specify statutory procedures for County Offices of Education to levy parcel taxes. Support and Opposition (04/25/11) Support : California Teachers Association; Riverside County School Superintendents' Association; Silicon Valley Leadership Group; Torrance Unified School District; California School Boards Association; Association of Low Wealth Schools; California School Employees Association; Association of California School Administrators; California State PTA; California Association of Suburban School Districts; Community College League of California; American Federation of State, County and Municipal Employees, AFL-CIO; Santa Barbara School Districts; Pajaro Valley Unified School District; Vallejo Unified School District; Blake School District; Jefferson Elementary School District; Manifee Union School District; Moraga School District; Old Adobe Union School District; Compton Unified School District; Newcastle Elementary School District; West Contra Costa Unified School District; Lafayette School District; Templeton Unified School District; Winship-Robbins Elementary School District; Hermosa Beach City School District; John Swett Unified School District; Denair Unified School District; Tracy Unified School District; El Monte Union High School District; Goleta Union School District; Gravenstein Union School District; Sonoma County Office of Education; Bear Valley Unified School District; Burlingame Elementary School District; Placentia-Yorba Linda Unified School District; Cascade Union Elementary School District; Blue Lake Union School District; Sebastopol Union School District; Jacoby Creek Charter School District; Merced Union High School SCA 5 - 12/6/10 -- Page 7 District; Beverly Hills Unified School District; Firebaugh-Las Deltas Unified School District; Carlsbad Unified School District; Evergreen School District; Trona Joint Unified School District; Carpinteria Unified School District; Oak Park Unified School District; Alpine County Office of Education; Northern Humboldt Union High School District; Newhall School District; Pleasant Ridge Union School District; Orinda Union School District; Little Lake City School District; Val Verde Unified School District; Farmersville Unified School District; Salinas Elementary School District; Arcata School District; Torrance Unified School District; Pittsburg Unified School District; South Bay Union School District; Etiwanda School District; Campbell Union High School District; Soquel Union Elementary School District; Bishop Unified School District; San Mateo County Board of Education; Dry Creek Joint Elementary School District; Woodside Elementary School District; Pacifica School District; Napa County Office of Education; Santa Monica-Malibu Unified School District; Mountain View Whisman School District; Albany Unified School District; Tamalpais Union High School District; Loma Prieta Joint Union Elementary School District; Calaveras Unified School District; Poway Unified School District; Fremont Union High School District; Los Altos School District; Sequoia Union High School District; San Mateo-Foster City School District; Alhambra Unified School District; Carmel Unified School District; Covina-Valley Unified School District; Simi Valley Unified School District; Laguna Beach Unified School District; Sunnyvale School District; Chico Unified School District; Sausalito Marin City School District; Freshwater School District; Folsom Cordova Unified School District; Palm Springs Unified School District; El Segundo Unified School District; Snowline Joint Unified School District; Foothill - De Anza Community College District; Hueneme Elementary School District; Las Virgenes Unified School District; San Rafael City Schools Joint District; Mill Valley School District; Mt. Diablo Unified School District; Walnut Creek School District; Moorpark Unified School District; Scotts Valley Unified School District; Brisbane School District; Los Gatos Union School District; California Tax Reform Association; San Bernardino County District Advocates for Better Schools; San Francisco SCA 5 - 12/6/10 -- Page 8 Unified School District Opposition : California Taxpayers Association