BILL ANALYSIS                                                                                                                                                                                                    




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  AB 551                      HEARING:  7/3/13
          AUTHOR:  Ting                         FISCAL:  Yes 
          VERSION:  6/25/13                     TAX LEVY:  No
          CONSULTANT:  Lui                      

                       URBAN AGRICULTURE INCENTIVE ZONES
          

          Authorizes a county to establish, by ordinance, an "Urban  
          Agriculture Incentive Zone." 


                           Background and Existing Law  

          In efforts to conserve agriculture and open space and  
          discourage premature conversion of agriculture land to  
          urban uses, the Legislature enacted the California Land  
          Conservation Act of 1965, known as the "Williamson Act" (AB  
          2117, Williamson, 1965). The Williamson Act, which allows  
          landowners to contract with counties to conserve their  
          properties as farmland and open space, is comprised of  
          three key parts:
                 First, landowners and counties voluntarily sign and  
               enter into contracts for a period of ten years.   
               Landowners give up the right to develop their farms,  
               ranches, and open space lands.  In return, counties  
               must assess the contract lands to reflect these  
               enforceable restrictions.  
                 Second, county assessors rely on constitutional  
               authority and statutory formulas to determine "use  
               value" preferential tax assessments for contracted  
               lands (AB 1177, Knox, 1969; California Constitution  
               Article XIII, 8).  
                 Lastly, the state General Fund provides counties  
               with subventions to replace property tax revenues that  
               local governments forgo because of the preferential  
               tax assessments.  The state General Fund also pays  
               indirect subventions to school districts to replace  
               property tax revenues that are lost due to lower  
               property tax assessments on Williamson Act contracted  
               lands. 
          In efforts to address the state's budget deficit, Governor  
          Brown's 2011-12 Budget eliminated Williamson Act  
          subventions.  




          AB 551 -- 6/25/13 -- Page 2




          The Mills Act (1972) authorizes cities and counties to  
          enter into contracts with an owner of a qualified historic  
          property.  The owner pledges to restore, maintain, and  
          protect the historical and architectural character of the  
          property in exchange for property tax relief.  Mills Act  
          contracts are ten years with automatic yearly extensions  
          and stay with the property when transferred.  
          Property tax revenue remains in the county in which it was  
          collected and is used exclusively by local governments.  In  
          1978, voters approved Proposition 13, which capped the rate  
          of ad valorem taxes on real property on to a constitutional  
          maximum of 1%. The Legislature was responsible for  
          allocating the remaining property tax revenues.
          
          When assessing the value of land, an assessor must consider  
          the effect of any enforceable restriction on the use of the  
          land, including zoning, contracts with governmental  
          agencies, and solar-use easements. 

          In recent years, public interest in urban agriculture,  
          "farm-to-fork" practice, and access to healthy foods has  
          increased.  Community-based organizations, nonprofits, and  
          for profit organizations engage in urban agricultural  
          production within cities, and some small-scale producers  
          sell their products in local farmers' markets or on-site  
          produce stands.  Some nonprofits would like cities and  
          counties to facilitate urban farming by providing reduced  
          property tax rates on vacant property.     


                                   Proposed Law  

          Assembly Bill 551 establishes the "Urban Agriculture  
          Incentive Zones Act." 

          AB 551 authorizes a county or a city and county to, after a  
          public hering, establish, by ordinance, an Urban  
          Agriculture Incentive Zone (Zone) within its boundaries for  
          the purpose of entering into voluntary enforceable  
          contracts with landowners, for the use of vacant,  
          unimproved, or blighted lands for small-scale production of  
          agriculture crops. 

          A county that has established an Urban Agriculture  
          Incentive Zone within its boundaries can adopt rules and  





          AB 551 -- 6/25/13 -- Page 3



          regulations to implement and administer the Zone and  
          contracts related to the Zone.  

          The bill authorizes the county to impose a fee on  
          contracting landowners for the reasonable costs of  
          implementing and administering contracts and the incentive  
          zone. 

          After a county adopts the ordinance, it can enter into a  
          contract with a landowner to enforceably restrict the use  
          of land, subject to the contract, to uses consistent with  
          urban agriculture.  

          The bill requires the contract to include  all  of the  
          following provisions:
                 An initial term of not less than five years.
                 A requirement that the entire property subject to  
               the contract must be dedicated to agricultural use.
                 A prohibition against commercial uses, except as  
               those uses comply with the terms of the contract on  
               property subject to the contract, and
                 Either of the two following provisions: 
                  o         A restriction on property that is at  
                    least 0.10 acres and no more than three acres in  
                    size, or
                  o         A restriction on property that is larger  
                    than three acres in size, if before entering the  
                    contract, the board of supervisors makes a  
                    determination that the agricultural development  
                    of the property would result in a net increase in  
                    revenue to the county, or city and county,  
                    resulting from an increase in property value of  
                    one or more adjacent properties. 

          AB 551 prohibits a contract from prohibiting the use of  
          structures that support agricultural activity, including  
          toolsheds, greenhouses, produce stands, and instructional  
          space.   

          The bill provides that a contract that prohibits the use of  
          pesticide or fertilizers on properties under contract must  
          permit pesticides or fertilizers allowed by the U.S.  
          Department of Agriculture's National Organic Program. 

          Property subject to a contract must be assessed pursuant to  
          state law that requires how an assessor must consider the  





          AB 551 -- 6/25/13 -- Page 4



          effect on value of any enforceable restriction when  
          assessing land. 

          The bill prohibits a county from establishing a Zone within  
          any portion of a city or the city's sphere of influence,  
          unless that city has adopted an ordinance that authorizes  
          an Urban Agriculture Incentive Zone within the city's  
          boundaries or spherefs of influence. 

          The bill also requires an assessor, when assessing land, to  
          consider the effect on the value of any enforceable  
          restriction to which the use of the land may be subjected,  
          including a contract entered to the Urban Agriculture  
          Incentive Zones Act. 

          AB 551 defines the following terms:
                 "Urban" means an area within the boundaries of an  
               urbanized area, as that term is used by the U.S.  
               Census Bureau, which includes at least 50,000 people. 
                 "Urban Agriculture Incentive Zone" is an area  
               within a county or a city and county comprised of  
               individual properties designated as urban agriculture  
               preserves by the county or the city and county for  
               farming purposes.

          The bill makes findings and declarations to support its  
          purpose.


                               State Revenue Impact
           
          No estimate. 


                                     Comments  

          1.   Purpose of the bill  .  According to the author, "Urban  
          agriculture provides many benefits to city residents  
          including education about fresh, healthy food and the  
          effort it takes to produce it; environmental benefits for  
          the city including modeling grounds for new, energy saving  
          and environmentally sustainable technologies;  
          community-building; vibrant green spaces and recreation;  
          and a source of economic development including increased  
          neighboring home values.  One of the biggest obstacles to  
          expanding the number of Californians who enjoy these  





          AB 551 -- 6/25/13 -- Page 5



          benefits of urban agriculture is access to land -- both its  
          supply and cost in urban jurisdictions.  This legislation  
          provides an incentive to private landowners to make more  
          land available for urban agriculture, while at the same  
          time enabling them to do so at a lowered cost.  AB 551 will  
          incentivize the use of private land for urban agricultural.  
           In exchange for signing a contract with a county to place  
          privately held land into urban agricultural use, private  
          landowners will have their property assessed at a lower  
          property tax rate based on its agricultural use rather than  
          its market value."  AB 551 retains local governments'  
          decision-making ability -- determining funding priorities  
          with local property taxes. 

          2.   Incentive vs. reward  .  Proponents state that this bill  
          would encourage local governments to look favorably on  
          urban agriculture by providing landowners incentives of  
          reduced property tax liability.  Incentives, like tax  
          credits, seek to promote or encourage specific behavior.   
          However, AB 551 would provide an incentive that may not be  
          necessary.  For example, Contra Costa County already has  
          plans to establish an Agriculture Zone in the North  
          Richmond area.  Given the recent movement calling for more  
          locally sourced food and increased access to address food  
          security, urban agriculture enjoys growing support at the  
          local level.  Rather than creating a new incentive, AB 551  
          may only be a reward for landowners, who would already be  
          inclined to use their property for urban agriculture. 

          3.   Passed costs  .  AB 551 allows a county to impose a fee  
          on contracting landowners for the costs of implementing and  
          administering the contracts.  But, it also allows a county  
          to charge landowners for the cost of the incentive zone.   
          If a county sees declines in property tax revenues, a  
          county could assess contracting landowners the cost in  
          reduced property taxes.  It is unclear whether it was the  
          author's intent to pass along the uncertainty of the costs  
          of the incentive zone to contracting landowners.  The  
          Committee may wish to consider amending the bill to  
          eliminate language that authorizes a county to impose a fee  
          on landowners for the cost of the incentive zone. 
           
           4.   Valuation  .  Unlike the Williamson Act, the bill does  
          not specify or prescribe valuation procedures, other than  
          requiring the assessor to consider the impact of the  
          enforceable restriction annually on the lien date. And, if  





          AB 551 -- 6/25/13 -- Page 6



          the value determined is lower than the Proposition 13  
          protected value, to reduce the value for that year.   
          Because AB 551 appears to targets "vacant, unimproved, or  
          blighted lands" for small-scale production of crops, the  
          base year value of the land may likely be low.  There won't  
          be any comparable sales of similar restricted properties at  
          the outset of the program to determine the current market  
          value of urban land used to grow crops.  As a result, the  
          assessor would likely have to apply an income approach on  
          the highest and best agricultural use to value the  
          property.  Further, because the bill allows parcels to have  
          retail sales, like produce stands, on site, the assessor  
          may start with the retail price and deduct sales,  
          marketing, and cultivation costs.  The Committee may wish  
          to consider amending the bill to include a valuation  
          process.  Because the bill omits valuation procedures, an  
          alternative approach would be to authorize a city or county  
          to rebate its share of the property tax from the property.   
          This approach eliminates the need for the assessor to  
          create a complicate appraisal process and potentially  
          limits revenue loss from property tax proceeds.   
          Alternatively, the Committee may wish to amend AB 551 to  
          pursue this alternative approach.
           
           5.   Workability  .  AB 551's current language raises the  
          following implementation and consistency issues: 
                  Proposition 13  .  The bill authorizes contracts for  
               property larger than three acres, if a board of  
               supervisors determines that agricultural development  
               results in a net increase in revenue from an increase  
               in adjacent property value.  This language appears  
               inconsistent with Proposition 13 (1978), which limits  
               rate of ad valorem taxes on real property to 1%.  A  
               county would not realize a net increase in revenue  
               unless there is a change of ownership in the  
               surrounding property.  Unless the county assumes a  
               rapid market sale of nearby properties, the county may  
               never be able to make a finding of net increase in  
               revenue, making a contract for property over three  
               acres unlikely. 
                  Early cancellation  .  If a landowner decides to  
               cancel a Williamson Act or Mills Act contract before  
               the full-term, the landowner is required to pay a  
               cancellation fee equal to 12.5% of the unrestricted  
               current fair market value of land.  The Committee may  
               wish to consider amending the bill to include a  





          AB 551 -- 6/25/13 -- Page 7



               similar provision.  
                 Commercial uses  .  AB 551 allows any commercial uses  
               that are consistent with the terms of a contract, but  
               the bill fails to provide any specificity on the types  
               of permitted commercial development.  Would this mean  
               farmer's markets or a small restaurant that serves  
               produce grown from the contracted land? The Committee  
               may wish to amend AB 551 to clarify what commercial  
               uses are authorized by the bill.
                  Structures  .  AB 551 permits structures that support  
               agricultural activity, like toolsheds, to be built on  
               contracted lands.  Because the list is noninclusive,  
               other agricultural-related structures could be built.   
               Would this authorize homestead structures, like in the  
               Williamson Act?  What about food processing  
               facilities?  The Committee may wish to amend AB 551 to  
               clarify what structure are permitted by the bill. 
                  Rolling contracts  .  The bill is silent whether the  
               contracts are limited five-year terms or are rolling  
               terms, meaning that contract is automatically renewed  
               for an additional year.  The author's office has  
               indicated that the contracts are to be limited for  
               five years.  The Committee may wish to amend the bill  
               to reflect the intent. 

          6.   A new model  .  The Williamson Act and Mills Act  
          recognize different types of properties that the government  
          deems valuable.  In the case of Williamson Act, the state  
          recognized its role in protecting open-space and preventing  
          premature conversion of prime agriculture land, and the  
          Mills Act offers local governments a tool to maintain  
          historical properties that are important to a community's  
          identity.  AB 551 blends parts of each program --  
          recognizing the value of agriculture from the Williamson  
          Act, and authorizing the rehabilitation or maintenance of  
          specified property like the Mills Act. 


                                 Assembly Actions  

          Assembly Agriculture:           7-0
          Assembly Local Government:  7-0
          Assembly Appropriations:      17-0
          Assembly Floor:               75-0







          AB 551 -- 6/25/13 -- Page 8



                         Support and Opposition  (6/27/13)

           Support  :  San Francisco Urban Agriculture Alliance;  
          Alchemist Community Development Corporation; American  
          Planning Association - California Chapter; The California  
          School Employees Association (CSEA), AFL-CIO; City and  
          County of San Francisco; City Slicker Farms; Greenhouse  
          Project; Hunger Action LA; Little City Gardens; Mission  
          Pie; Oakland Food Policy Council; Oakland Roots -- The  
          School of Urban Sustainability; Open Beach People's Organic  
          Food Market; President Craig McNamara, California State  
          Board of Food and Agriculture; Sacramento Natural Foods  
          Co-Op; San Francisco Supervisor David Chiu; Santa Clara  
          Open Space Authority; The Social Justice Learning  
          Institute; Soil Born Farms; SPUR; Sustainable Economies Law  
          Center; Ubuntu Green; Victory Garden San Diego; Women  
          Organizing Resources Knowledge and Services; three  
          individuals.

           Opposition :  Unknown.