BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



           ------------------------------------------------------------ 
          |SENATE RULES COMMITTEE            |                   SB 653|
          |Office of Senate Floor Analyses   |                         |
          |1020 N Street, Suite 524          |                         |
          |(916) 651-1520         Fax: (916) |                         |
          |327-4478                          |                         |
           ------------------------------------------------------------ 
           
                                         
                                 THIRD READING


          Bill No:  SB 653
          Author:   Steinberg (D)
          Amended:  5/31/11
          Vote:     21

           
           SENATE GOVERNANCE & FINANCE COMMITTEE  :  6-2, 5/4/11
          AYES:  Wolk, DeSaulnier, Hancock, Hernandez, Kehoe, Liu
          NOES:  Huff, La Malfa
          NO VOTE RECORDED:  Fuller

           SENATE APPROPRIATIONS COMMITTEE  :  6-2, 5/26/11
          AYES:  Kehoe, Alquist, Lieu, Pavley, Price, Steinberg
          NOES:  Walters, Runner
          NO VOTE RECORDED:  Emmerson


           SUBJECT  :    Local taxation:  counties:  school districts:  
          general 
                      authorization

           SOURCE  :     Author


           DIGEST  :    This bill authorizes counties, cities, county 
          offices of education and community college districts to 
          impose a local personal income tax, vehicle license fee, 
          transactions and use tax, extractive business activities 
          tax, oil severance tax, and excise tax, with voter 
          approval.

          NOTE:  Amendments were taken in Senate Appropriations 
          Committee to:  (1) extend the local tax authority to county 
                                                           CONTINUED





                                                                SB 653
                                                                Page 
          2

          offices of education and community college districts, and 
          specify that taxes imposed by a county office of education 
          will be apportioned to school districts on the basis of 
          average daily attendance; (2) authorize local personal 
          income taxes to be imposed retroactively to January 1, 
          2011.  All other local taxes would take effect immediately 
          upon voter approval; (3) require local agencies in which a 
          new tax is approved to notify the administering state 
          agency, as well as the Department of Finance and the 
          Legislature; (4) provide an exemption from the 
          Administrative Procedures Act for specified state agencies 
          administering a local tax for the implementation guidelines 
          or rules related to any local tax imposed under the 
          authority provided by the bill; and (5) make other 
          clarifying and necessary implementation changes.

           ANALYSIS  :    Under the California Constitution, local taxes 
          are either general taxes or special taxes.  A "general tax" 
          means any tax imposed for general governmental purposes.  A 
          "special tax" is any tax imposed for specific purposes.  
          Local general taxes require majority-voter approval.  
          Special taxes need two-thirds voter approval.

          Under the constitutional municipal affairs doctrine, 
          charter cities can levy taxes which are not preempted by 
          the state or federal governments.  In contrast to a charter 
          city, a general law city can impose those taxes allowed by 
          state statutes.  However, the Government Code allows all 
          general law cities to levy any tax which may be levied by 
          any charter city unless a different general law limits or 
          prohibits such a tax.  This blanket authority means that a 
          general law city's authority to tax is similar, but not 
          identical, to a charter city's authority.

          Counties can levy only the local taxes allowed by state 
          statutes.  Unlike charter cities, the charter counties 
          don't have constitutional authority to levy additional 
          taxes.  Counties can levy utility user taxes, business 
          license taxes, and transient occupancy (hotel) taxes.

          This bill authorizes the governing body of any county or 
          city and county, county office of education and community 
          colleges district, subject to constitutional voter approval 
          requirements, to levy, increase, or extend the following 

                                                           CONTINUED





                                                                SB 653
                                                                Page 
          3

          taxes:

                 A local personal income tax not to exceed one 
               percent on any of all of the residents of the county 
               or school district.

                 A local vehicle license fee not to exceed 1.35 
               percent.

                 An additional transactions and use tax which would 
               be excluded from the current two percent combined 
               county and city, community college district, or a 
               county office of education rate limit.  

          The bill allows for local excise taxes but does not limit 
          counties and school districts to these taxes.  
          Specifically, the bill allows:

                 Alcoholic beverage tax of five-cents per five 
               ounces and at a proportionate rate for any other 
               quantity.  The tax would be imposed on the seller, not 
               the consumer. 

                 Cigarette and tobacco products tax of up to five 
               cents per cigarette or one dollar per pack. 

                 Oil severance tax not to exceed 10 percent of the 
               gross value of the product upon a producer for the 
               privilege of severing oil from the earth or water in 
               the county for sale, transport, consumption, storage, 
               profit, or use, as authorized. 

                 Sweetened beverage tax not to exceed once cent per 
               fluid ounce.

                 Local medical marijuana tax.

           For the alcohol beverage tax  .  The bill states that any tax 
          imposed would not be regulatory within the meeting of 
          Section 22 of Article XX of the California Constitution, 
          which pertains to the regulation of the manufacture, sale, 
          purchase, possession and transportation of alcoholic 
          beverages.


                                                           CONTINUED





                                                                SB 653
                                                                Page 
          4

          This bill requires the Board of Equalization, the Franchise 
          Tax Board, and the Department of Motor Vehicles to perform 
          various functions related to the administration and 
          collection of a local tax if the county or city and county 
          contracts with the state agency to perform those functions. 
           

           For the oil severance tax  .  This bill exempts a stripper 
          well in which the average value of oil as of January 1 of 
          the prior year is less than thirty dollars ($30) per barrel 
          price of California oil.  The DOC provides notification of 
          all wells that have been certified as a stripper well.  A 
          "stripper well" means a well that has been certified by the 
          DOC as an oil well incapable of producing an average of 
          more than 10 barrels of oil per day during the entire 
          taxable month.

          The bill exempts from the local tax all oil owned or 
          produced by the state and any political subdivision's 
          proprietary share of oil produced under any unit, 
          cooperative, or other pooling agreement.

          No exemption is provided from payment of an ad valorem tax 
          related to equipment, material, or other property by reason 
          of the payment of the gross severance tax pursuant to the 
          Act.

          The local tax will be reduced to zero for a period of 10 
          years for oil produced from a well that qualifies as a 
          "hazardous well" or "idle-deserted well") or which has been 
          inactive for at least the preceding five consecutive years. 
           The DOC must determine which wells qualify under these 
          provisions.

           FISCAL EFFECT  :    Appropriation:  Yes   Fiscal Com.:  Yes   
          Local:  No

          According to the Senate Appropriations Committee analysis:

                          Fiscal Impact (in thousands)

           Major Provisions                2011-12     2012-13     2013-14  
           Fund  


                                                           CONTINUED





                                                                SB 653
                                                                Page 
          5

          Local revenue gains                          Unknown, very 
          major revenue gains to                        Local
                              counties and school districts that 
          impose
                              one or more local taxes.

          FTB one-time costs                           Unknown 
          significant startup costs to                        General
                              establish procedures and mechanisms for 

                              administering local income taxes
                              (reimbursement likely impractical)

          FTB ongoing costs                                 All 
          ongoing administrative costs paid                       
          Local
                              by local taxing entities on a 
          reimbursement basis

          BOE one-time costsUnknown significant fixed startup costs   
            General
                              that exceed reimbursement authority

          BOE ongoing costs                            Preparatory 
          costs for each new tax                             Local
                              reimbursed as they are incurred, and 
                              ongoing administrative costs reimbursed
                              upon collection

          DOC: certify stripper                             Annual 
          costs of up to $3,200 if all                            
          General/
          wells                                        wells require 
          certification                                               
           Special*

          DMV: VLF admin.                         $116 one-time 
          programming costs                           Special**
                              ongoing costs reimbursed by local 
                              tax entities

          Tax revenue loss                                  Maximum 
          one-time loss of $150,000                                
          General

                                                           CONTINUED





                                                                SB 653
                                                                Page 
          6

           (VLF deductions)   if all counties impose 1.35% VLF 
                              (losses reimbursed in the following 
                         year) 
          ____________
          * Oil, Gas, and Geothermal Administrative Fund
          ** Motor Vehicle Account

          According to the Senate Appropriations Committee analysis, 
          total local revenue gains will depend upon the number of 
          entities imposing a tax, which local taxes are imposed, and 
          the rates of those taxes.  For example, if the following 
          taxes were imposed statewide at the specified rates, annual 
          local revenue gains would be:

                 1% personal income tax on all residents: $8 billion
                 0.5% transactions and use tax: $2.2 billion
                 1.35% VLF on all vehicles: $4.6 billion
                 2% oil severance tax: $378 million
                 5 cents per cigarette ($1 per pack): $813 million
                 5 cents per drink alcoholic beverage tax: $16.1 
               million
                 Revenue impact of a 1 cent per ounce sweetened 
               beverage tax is unknown

          The bill would require a local taxing entity to contract 
          with FTB for the administration of a local income tax 
          approved by voters.  FTB indicates that additional staff 
          and General Fund resources would be necessary to implement 
          the bill without adversely affecting existing revenue 
          generating functions.  The reimbursement structure 
          established in the bill would require FTB to incur 
          significant costs until the local income tax generated new 
          revenues sufficient to provide reimbursement by the local 
          entity.  

           SUPPORT  :   (Verified  5/31/11)

          American Federation of State, County, Municipal Employees
          California Federation of Teachers
          California Labor Federation
          California Nurses Association
          California Public Defenders Association
          California School Employees Association
          California State Association of Counties

                                                           CONTINUED





                                                                SB 653
                                                                Page 
          7

          California State Parent, Teacher Association
          Laborers' Locals 777 & 792
          Los Angeles Unified School District
          Peace Officers Research Association
          San Bernardino Unified School District
          San Diego County Court Employees Association
          San Francisco Unified School District
          Service Employees International Union, State Council
          State Council
          Yolo County.

           OPPOSITION  :    (Verified  5/31/11)

          Air Logistics Corporation
          American Council of Engineering Companies
          Anheuser-Busch Companies Inc.
          Association California Cable and Telecommunications 
          Association of California Cities: Orange County
          Association of California Life and Health Insurance 
          Companies
          California Aerospace Technology Association
          California Apartment Association
          California Association of Bed and Breakfast Inns
          California Attractions and Parks Association
          California Automated Vendors Association
          California Bankers Association
          California Beer and Beverage Distributors
          California Business Properties 
          California Chamber of Commerce
          California Farm Bureau Federation
          California Grocers Association
          California Hotel and Lodging Association
          California Independent Grocers Association
          California Manufacturers and Technology Association
          California New Car Dealers Association
          California Restaurant Association
          California Retailers Association
          California Spa & Pool Industry Education Council
          California State Automobile Association
          California Taxpayers Association
          California/Nevada Soft Drink Association
          Council on State Taxation
          Direct Selling Association
          Distilled Spirits Council of the United States

                                                           CONTINUED





                                                                SB 653
                                                                Page 
          8

          Family Winemakers of California
          Garden Grove Chamber of Commerce
          Granite Construction 
          Heineken USA; Insurance Brokers & Agents of the West
          Howard Jarvis Taxpayers Association
          Incorporated; Grocery Manufacturers Association
          Kern County Board of Supervisors
          LAX Coastal Area Chambers of Commerce
          Los Angeles County Business Federation
          MillerCoors
          Motion Picture Association of America
          National Association of Theatre Owners of California/Nevada
          National Federation of Independent Business
          Orange County Board of Supervisors
          Personal Insurance Federation of California
          San Francisco Chamber of Commerce
          San Gabriel Valley Legislative Coalition of Chambers
          South Bay Association of Chambers of Commerce
          TechAmerica
          Vending Plus
          Western Growers Association
          Western States Petroleum Association
          Wine Institute
          Worldwide Vending

           ARGUMENTS IN SUPPORT  :    The author's office introduced 
          this bill to let the bill decide on their level of services 
          in the county and school districts by choosing whether or 
          not to tax themselves.  The California Constitution reminds 
          us that "All political power is inherent in the people."  
          California certainly has a rich history of direct 
          democracy.  According to the author's office, if the voters 
          are not allowed to participate in the decision to extend 
          state taxes, the Legislature must explore alternative 
          methods of funding state and local programs.  Furthermore, 
          the author's office states that counties are political 
          subdivisions of the state which administer state and 
          federal programs for public safety, public health, child 
          welfare services, and other programs.  If state tax 
          extensions ultimately are not approved, state budget cuts 
          will burden counties with new program costs that could 
          jeopardize public health and safety.  This bill gives 
          counties and schools the tools to raise local revenues, if 
          their voters agree that revenues should be part of the 

                                                           CONTINUED





                                                                SB 653
                                                                Page 
          9

          solution.

           ARGUMENTS IN OPPOSITION  :    The groups and associations 
          that oppose this bill argue that these local taxes will 
          limit economic growth by lifting decades-old restrictions 
          that prohibit counties from proposing these local taxes.  
          They say that this bill effectively eliminates a business's 
          ability to plan out long-term costs, because business would 
          be forced to reckon with 58 tax jurisdictions, plus school 
          districts, each of which may impose taxes that have 
          different applications, regulations, and rates.  
           

          AGB:do  5/31/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

                                ****  END  ****
          


























                                                           CONTINUED