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 




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          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 





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          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, 





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          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 





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          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 





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          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 





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            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 





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            Unified School District


           Opposition  :  California Taxpayers Association