BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair


          AB 551 (Ting) - Urban agriculture incentive zones.
          
          Amended: August 13, 2013        Policy Vote: G&F 7-0
          Urgency: No                     Mandate: No
          Hearing Date: August 19, 2013                           
          Consultant: Mark McKenzie       
          
          This bill meets the criteria for referral to the Suspense File. 

          
          Bill Summary: AB 551 would authorize cities and counties to  
          establish Urban Agriculture Incentive Zones (UAIZs) and allow  
          landowners to enter into voluntary contracts restricting the use  
          of the land to agricultural purposes in exchange for reduced  
          property tax assessments.

          Fiscal Impact: 
                 Unknown General Fund impact, potentially millions in  
               increased school aid annually in future years, related to  
               reductions in assessed value of land placed under contract  
               in an Urban Agriculture Incentive Zone.  Approximately half  
               of all losses in property tax revenues would accrue to K-14  
               schools.  In general, any property tax proceeds diverted  
               from schools results in an equivalent General Fund cost,  
               pursuant to Proposition 98's minimum funding guarantees. 

                 Likely minor Board of Equalization costs to annually  
               publish the per acre land value of irrigated cropland in  
               California, and provide it to county assessors. 

          Background: Existing law, the California Land Conservation Act  
          of 1965 (Williamson Act), generally authorizes landowners to  
          enter into voluntary contracts with counties for a period of ten  
          years, pledging to conserve their property as farmland and open  
          space in exchange for reductions in assessed value of the land  
          under contract that reflects the enforceable restriction.   
          Similarly, existing law authorizes voluntary contracts between  
          landowners and cities and counties to create Farmland Security  
          Zones, which restricts the use of the land for a minimum of 20  
          years in exchange for lower assessed valuations for property tax  
          purposes.  Both Williamson Act and Farmland Security Zone  
          contracts are automatically renewed annually, and an affirmative  








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          action must be taken to "nonrenew" a contract.  Nonrenewal  
          initiates a period in which the property tax gradually increases  
          to market rate until the contract expires.  Up until 2008, the  
          state General Fund provided a subvention to local agencies to  
          partially offset their property tax losses resulting from these  
          contracts.  The General Fund also backfills school districts to  
          offset property tax revenues that are lost due to lower property  
          tax assessments on contracted lands.   

          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.

          When assessing the value of land, an assessor must consider the  
          effect of any enforceable restriction on the use of the land,  
          including zoning, recorded contracts with governmental agencies,  
          developmental controls, recorded conservation easements,  
          environmental constraints, and solar-use easements. 

          In recent years, public interest in urban agriculture,  
          "farm-to-fork" practice, and access to healthy foods in "food  
          deserts" 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.  

          Proposed Law: AB 551 would authorize the establishment of UAIZs  
          to allow a city or county to enter into voluntary contracts with  
          landowners for the use of vacant, unimproved, or blighted lands  
          for small-scale agricultural purposes.   Specifically, this bill  
          would:
                 Authorize a county or city and county to establish a  
               UAIZ within its boundaries by ordinance to allow for UAIZ  
               contracts, as specified.
                 Authorize a city within a county that has adopted a UAIZ  
               ordinance to also establish a UAIZ within its boundaries by  
               ordinance.
                 Authorize a city or county to impose a fee on the  
               contracting landowners to cover the costs to implement and  








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               administer the contracts.
                 Require a city or county to impose a fee for  
               cancellation of UAIZ contracts equal to the cumulative  
               value of the tax benefit received during the contract  
               period.
                 Define "agricultural use" to include cultivation and  
               tillage of soil; production, cultivation, growing, and  
               harvesting of any agricultural or horticultural products;  
               the raising of livestock, bees, fur-bearing animals,  
               dairy-producing animals, and poultry; agricultural  
               education; sale of products through retail and farm stands;  
               and any farming practices incident to or in conjunction  
               with farming.
                 Require a contract that enforceably restricts the use of  
               land to be for an initial term of not less than five years,  
               require restricted property to be at least 0.10 acres,  
               require the entire property to be dedicated to commercial  
               or non-commercial agricultural use, prohibit dwellings on  
               the property, and include a notification that a city or  
               county would assess a fee for cancellation of the contract.  
                
                 Require contracts to allow for the use of structures  
               that support agricultural activity.
                 Require contracts to permit the use of pesticides or  
               fertilizers allowed under a specified organic agricultural  
               program.
                 Prohibit a county from establishing a UAIZ within a  
               city's sphere of influence without prior approval by the  
               city's legislative body.
                 Prohibit the establishment of a UAIZ in an area that is  
               currently subject to a Williamson Act contract, or has been  
               subject to such a contract within the previous three years.
                 Require land subject to a UAIZ contract to be valued by  
               the assessor at a rate based upon the average per acre  
               value of irrigated cropland in California, as published by  
               the National Agricultural Statistics Service of the United  
               States Department of Agriculture (USDA).
                 Require the Board of Equalization to annually post the  
               per acre land value specified above on its website within  
               30 days of publication by the USDA, and provide the rate to  
               county assessors. 

          Staff Comments: The fiscal impacts of this bill are  
          indeterminable at this time, but they would likely be  








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          significant to the extent cities and counties wish to  
          incentivize urban agriculture.  Actual losses would depend upon  
          the number of counties, and cities within those counties, that  
          adopt ordinances authorizing the establishment of UAIZs, the  
          demand for contracts limiting land use to agricultural purposes,  
          and the difference between the assessed value of the land before  
          entering into the contract and the value of the land based on  
          its agricultural use.  Staff notes that any reductions in  
          property taxes as a result of UAIZ contracts would affect other  
          recipients of the property tax, including schools and special  
          districts.  Any reductions in the school share of property tax  
          must be backfilled by the state General Fund.

          There are currently no maximum limits on the size of properties  
          that could enter into UAIZ contracts.  Without established  
          limits, this tool could be used by large landowners, such as  
          business interests or developers to "bank" the land for a period  
          of time and benefit from reduced property tax assessments until  
          the land is needed for commercial uses.  For example, a  
          developer who owns a large area of land within a city's sphere  
          of influence that is planned for a future subdivision could  
          enter into a UAIZ contract until the economy improved enough to  
          warrant building homes on that land.  In the meantime, the  
          developer could lease the land for use as pasture for livestock  
          or other agricultural use. 

          The UAIZ contracts specified in the bill are for a minimum  
          duration of five years.  Presumably, those contracts would need  
          to be renewed on a regular basis when they expire to retain the  
          property for agricultural purposes.  Williamson Act, Farmland  
          Security Zone, and Mills Act contracts, on the other hand, are  
          automatically renewed annually, so there is a rolling duration  
          to the contracts until the local agency or landowner actively  
          "nonrenews" the contract, at which time the contract is allowed  
          to run its specified duration while the assessed value increases  
          each year until it is eventually back at market value.  These  
          rolling contracts ensure that the property is retained for the  
          intended incentivized use.  However, the rolling contracts also  
          results in a continuation of lower assessed values, and reduced  
          property taxes, until the period of "nonrenewal" is initiated.

          It is unclear who would enforce that property under a UAIZ  
          contract is used for agricultural purposes.  Without  
          enforcement, it is likely that unscrupulous landowners would  








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          seek the reduced property tax benefits without converting the  
          land to an agricultural use.

          Recommended Amendments: Staff recommends that the bill be  
          amended to reinstate the maximum size of a contracted property  
          at 3.0 acres.  In addition, the committee may wish to consider  
          amending the bill to include a five-year sunset, in order to  
          assess the impact of UAIZ contracts on assessed values, and  
          resulting General Fund revenue losses.