BILL ANALYSIS                                                                                                                                                                                                    Ó



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          SENATE THIRD READING
          SB 1257 (Ed Hernandez)
          As Amended  June 11, 2012
          Majority vote 

           SENATE VOTE  :38-0  
           
           LOCAL GOVERNMENT    9-0         REVENUE & TAXATION              
          9-0                 
           
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          |Ayes:|Smyth, Gordon, Williams,  |Ayes:|Perea, Harkey, Beall,      |
          |     |Bradford, Beall, Davis,   |     |Charles Calderon, Cedillo, |
          |     |Hueso, Knight, Norby      |     |Fletcher, Fuentes, Gordon, |
          |     |                          |     |Nestande                   |
          |     |                          |     |                           |
           ------------------------------------------------------------------ 
           SUMMARY  :  Exempts from utility user taxes (UUTs) the consumption 
          of compressed natural gas (CNG) and electricity as a motor 
          vehicle fuel for public transit vehicles by local agencies or 
          public transit operators.  Specifically,  this bill  :   

          1)States that it is the Legislature's intent to recognize that 
            public transit operators are moving towards the use of 
            electricity as a primary fuel source to meet air quality 
            objectives at the state and regional levels, as well as to 
            provide vital public transportation services to 
            transit-dependent citizens in California.  

          2)Notes that the Mills-Hayes Act ŬRevenue and Taxation Code 
            (R&TC) Section 8655] provides that a tax shall not be imposed 
            upon the use of fuel by public transit operations.  

          3)States that this legislation will clarify that, pursuant to 
            the Mills-Hayes Act, the consumption of electricity as a motor 
            vehicle fuel by an electric public transit bus shall be exempt 
            from any taxes imposed upon the consumption of electricity.   

          4)Exempts from any UUT, imposed by a local jurisdiction, a local 
            agency's or public transit operator's consumption of:

             a)   CNG dispensed by a gas compressor, within a local 
               jurisdiction, that is separately metered and is dedicated 
               to providing CNG as a motor vehicle fuel for use by the 








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               local agency or public transit operator; and,

             b)   Electricity used to charge electric bus propulsion 
               batteries, within a local jurisdiction, that is separately 
               metered and is dedicated to providing electricity as a 
               motor vehicle fuel for use by an electric public transit 
               bus.

          5)Defines a "local jurisdiction" to mean "any city, county, city 
            and county, including any chartered city, county, or city and 
            county, district, or public or municipal corporation."

          6)Defines a "public transit operator" to mean a local or 
            regional transit agency or a joint powers agency operating bus 
            transportation service as described pursuant to Public 
            Utilities Code Section 99200 et seq.     

          7)Finds and declares that this UUT exemption will ensure 
            statewide uniformity and fairness in the overall cost of 
            providing vital public transportation services to transit 
            dependent citizens in California.  Therefore, the exemption is 
            a matter of statewide concern, and not a municipal affair, as 
            that term is used in California Constitution Article XI, 
            Section 5.  

           EXISTING LAW  :

          1)Allows charter cities to levy taxes that are not preempted by 
            the state or federal governments.   

          2)Authorizes any county to levy a UUT on the consumption of 
            electricity, gas, water, sewer, telephone, telegraph, and 
            cable television services in the county's unincorporated area. 
             ŬR&TC Section 7284.2(a)].  For purposes of this 
            authorization, "gas" does not refer to the consumption of CNG 
            dispensed by a gas compressor, within a local jurisdiction, 
            that is separately metered and is dedicated to providing CNG 
            as a motor vehicle fuel for use by the local agency or public 
            transit operator.  ŬR&TC Section 7284.2(b)].  

          3)Prohibits the imposition of use fuel tax upon fuel used by any 
            transit district, transit authority, or city owning and 
            operating a local transit system itself or through a wholly 
            owned nonprofit corporation.  ŬR&TC Section 8655(b)(1)].  








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           FISCAL EFFECT  :  Unknown.  The Assembly Revenue and Taxation 
          Committee staff estimates that this bill will not impact General 
          Fund revenues.    

           COMMENTS  :  The author has provided the following statement in 
          support of this bill:

               SB 1257 will clarify that electricity is a fuel used by 
               public transit agencies, and therefore is exempt from any 
               tax as per the Mills-Hayes Act.  Foothill Transit 
               operates not only in SD 24 ŬSenate District 24], but 
               throughout the San Gabriel and Pomona Valleys.  It 
               recently acquired a specific type of electric bus, and is 
               currently being charged a UUT on this particular type of 
               bus.  SB 1257 is a district bill, and specifically 
               applies only to the fast-charging electric buses used by 
               Foothill Transit.  They are the only transit agency in 
               the state that uses it.  Thus, this bill has very limited 
               applicability and impact.  It has no general fund impact, 
               because the UUT is strictly a local tax.  

          This bill is sponsored by the Board of Directors for Foothill 
          Transit (Foothill Transit).  By way of background, Foothill 
          Transit notes:

               In 2008, Foothill Transit sponsored AB 2009 that was 
               carried by then Assemblyman Ed Hernandez which was 
               enacted exempting a public transit agency's use of 
               compressed natural gas (CNG) to power its buses from 
               local utility users' taxes (UUT).  SB 1257 by Senator 
               Hernandez would exempt a public transit agency's use of 
               in-route battery charged electricity to power its buses 
               from local UUT's.  The introduction of the Ecoliner and 
               Foothill Transit's goal of continuing to convert a 
               portion of our fleet to zero emission all electric 
               battery charged buses has prompted us to seek legislation 
               that would exempt a public transit agency's use of 
               electricity to power its buses from being charged local 
               electric UUT's.  

               Foothill Transit's operation is centered in the San 
               Gabriel Valley, in eastern Los Angeles County.  We 
               provide regional transit services encompassing the 








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               Valley, Downtown Los Angeles and parts of Orange and San 
               Bernardino Counties.  With the introduction last year of 
               our Ecoliner, Foothill Transit became the first public 
               transit operator to use fast-charging electric buses as 
               part of its fleet.  Unfortunately, under current law, we 
               could be charged a utility users tax for the consumption 
               of electricity as a fuel in the operation of our Ecoliner 
               buses.  SB 1257 would clarify (as currently exists for 
               CNG fueled buses) that we would be exempt from the UUT 
               under the Mills-Hayes Act.  

          Assembly Revenue and Taxation Committee staff comments:

           UUTs  :  Cities may impose a UUT on the consumption of utility 
          services, including electricity, gas, water, sewer, telephone, 
          sanitation, and cable services.  The rate of the tax and the use 
          of its revenues are determined by the local agency.  A UUT may 
          be imposed as a special tax, earmarked for specific purposes, or 
          as a general tax.  
          Existing law also authorizes counties to levy a UUT on the 
          consumption of specified services in the county's unincorporated 
          area.  As of 2008, it was estimated that city and county UUTs 
          generate about $2 billion in revenues each year.    

           AB 2009  :  AB 2009 (Hernandez), Chapter 221, Statutes of 2008, 
          provided that,
          for purposes of the statute permitting counties to impose a UUT 
          on the consumption of gas, the term "gas" shall not be construed 
          to refer to CNG used as a motor vehicle fuel by a local agency 
          or public transit operator.  Like the present bill, AB 2009 was 
          sponsored by Foothill Transit, which noted at the time:

               ŬA]gencies that use diesel would not be subject to a 
              utility user tax.  This presents an uneven financial 
              playing field between agencies who have determined 
              using natural gas better suits their needs than those 
              using diesel fuels.  Also, if we are required to pay a 
              UUT, operating expenses will increase leading to likely 
              service reductions and fewer travel options for the 
              transit customer. 

           What would this bill do  ?  As noted by the Assembly Local 
          Government Committee, this bill takes the exemption provided by 
          AB 2009 a few steps further.  First, this bill expands the 








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          current exemption for CNG.  Currently, the exemption applies 
          only to county-imposed UUTs.  This bill would bar any local 
          jurisdiction (i.e., both counties and cities) from imposing a 
          UUT on the consumption of CNG used as a motor vehicle fuel by a 
          local agency or public transit operator.  Second, this bill 
          would bar local jurisdictions from imposing a UUT on electricity 
          used to charge electric bus propulsion batteries, as specified. 
                
                
           Analysis Prepared by :    M. David Ruff / REV. & TAX. / (916) 
          319-2098 


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