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