BILL ANALYSIS Ó
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
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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
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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.