BILL ANALYSIS Ó AB 483 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 483 (Ting) As Amended September 4, 2013 2/3 vote. Urgency ----------------------------------------------------------------- |ASSEMBLY: | |(April 22, |SENATE: |34-4 |(September 9, | | | |2013) | | |2013) | ----------------------------------------------------------------- (Vote not relevant) ------------------------------------------------------------------------ |COMMITTEE VOTE: |8-1 |(September 11, |RECOMMENDATION: |concur | |(L. GOV.) | |2013) | | | ------------------------------------------------------------------------ Original Committee Reference: REV. & TAX. SUMMARY : Defines "specific benefit" and "specific government service" for the purposes of determining whether a levy is a tax pursuant to Article XIIIC of the California Constitution. The Senate amendments delete the Assembly version of this bill, and instead: 1)Define the following terms: a) "Specific benefit" to mean "a benefit that is provided directly to a payor and is not provided to those not charged. A specific benefit is not excluded from classification as a 'specific benefit' merely because an indirect benefit to a nonpayor occurs incidentally and without cost to the payor as a consequence of providing the specific benefit to the payor"; and, b) "Specific government service" to mean "a service that is provided by a local government directly to the payor and is not provided by those not charged. A specific government service is not excluded from classification as a 'specific government service' merely because an indirect benefit to a nonpayor occurs incidentally and without cost to the payor as a consequence of providing the specific government service to the payor. A 'specific government service' may include, but is not limited to maintenance, landscaping, marketing, events, AB 483 Page 2 and promotions." 2)State that the local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction imposed for a specific benefit for specific government services is not a tax, that the amount is no more than necessary to cover the reasonable costs to the local government in providing the specific benefit or government service, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the specific benefits or services received by the payor. 3)Include an urgency clause allowing this bill to take effect immediately upon enactment. 4)Make findings and declarations that the purpose of this bill is to clarify that business improvement district and tourism marketing district assessments are not taxes within the meaning of Article XIIIC of the California Constitution merely because they might generate indirect, secondary benefits for nonpayers, provided that those indirect, secondary benefits occur incidentally and without cost to the payors of the assessment. EXISTING LAW : 1)Allows, under the Property and Business Improvement District Law of 1994, property owners to petition a city or county to set up an improvement district to levy assessments on property owners or business owners for specified purposes. 2)Allows, under the Parking and Business Improvement Area Law of 1989, a city council or county board of supervisors to set up an "improvement area" and levy assessments on businesses to pay for several types of physical improvements or activities within the area. 3)Defines a "tax" in Article XIIIC to mean "any levy, charge or exaction of any kind imposed by a local government" with specified exceptions. 4)Provides in Article XIIIC that the local government bears the burden of providing by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the AB 483 Page 3 governmental activity, and that the manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the payor's burdens on, or benefits received from, the governmental activity. AS PASSED BY THE ASSEMBLY this bill made a technical, clarifying change to property tax law. FISCAL EFFECT : None COMMENTS : The formation of an assessment district allows local officials to charge benefit assessments on property owners to pay for public works and public services. Most assessments are levied against real property, and are generally collected on the property tax roll, secured by a lien against the assessed property, and subject to Proposition 218 (1996). Assessments levied in connection with business improvement districts, however, are levied on businesses, not real property, are not subject to Proposition 218, and are usually collected along with business license taxes and are not secured by a lien against real property. Business improvement districts (BIDs) are one model for how local governments use assessment financing to pay for projects to attract and retain businesses. The Parking and Business Improvement Area Law of 1989 allows a city council or county board of supervisors to set up an "improvement area" and levy assessments on businesses to pay for several types of physical improvements or activities within the area. The Property and Business Improvement District Law of 1994 allows property owners to petition a city or county to set up an "improvement district" and levy assessments on property owners to pay for promotional activities and physical improvements. Local officials may also use the 1994 law to assess business owners. One type of business assessment district is a tourism marketing district (TMD). TMDs are formed by local businesses to assess hotels and other lodging businesses to pay for marketing and other activities to promote tourism. According to the California Travel Association, California's 65 TMDs "spent more than $120 million to market and promote their destinations in 2010. Their efforts generated $8.9 billion in new, direct spending - a remarkable $70 return for each dollar invested." Proposition 26 (2010) amended Article XIIIC to broaden the definition of what constitutes a tax to include many payments previously considered fees or charges. Language in Proposition 26 AB 483 Page 4 lists seven exceptions to what constitutes a local tax, including two that are relevant to this bill: 1) A charge imposed for a specific benefit conferred or privilege granted directly to the payer that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege; and 2) A charge imposed for a specific government service or product provided directly to the payer that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of providing the service or product. According to the author, "The 2010 passage of voter-approved Proposition 26 created potential legal uncertainty over these Districts' ability to privately fund tourism marketing and promotional activities. In response to the ambiguity created by a lack of defined terms in Proposition 26, this bill clarifies that any incidental benefit from a TMD or BID to a business located outside a district's boundary does not violate the law." Absent a definition for a "specific benefit" or a "specific government service" there is legal uncertainty surrounding the application of Proposition 26 to business-based assessments. According to the Legislative Analyst's Office analysis of Proposition 26, "some business assessments could be considered to be taxes because government uses the assessment revenues to improve shopping districts (such as providing parking, street lighting, increased security, and marketing), rather than providing a direct and distinct service to the business owner." This bill defines the terms "specific benefit" and "specific government service" for the purpose of Article XIIIC of the Constitution. This bill also mirrors language in Article XIIIC added by Proposition 26 to state that the local government bears the burden of proving, by a preponderance of evidence, that the assessment charged for a specific benefit or government service is not more than necessary to cover the costs of providing the specific benefit or service, and that the costs are allocated are in proportion to the benefit and service received. This bill is an urgency measure and is sponsored by the California Travel Association. Support arguments: Supporters argue that this bill protects California's tourism industry by clarifying a few key terms related to the implementation of Proposition 26. AB 483 Page 5 Opposition arguments: Opposition argues that this bill undermines the will of the voters and changes the intent of Proposition 26. Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916) 319-3958 FN: 0002819