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 30, 2013
Consultant: Mark McKenzie
SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
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 (as proposed to be amended):
Unknown General Fund impact, likely less than $1 million
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
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contracts are automatically renewed annually, and an affirmative
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
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contracting landowners to cover the costs to implement and
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
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indeterminable at this time, but they would likely be
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. If assessed
values of land statewide were reduced by $100 million as a
result of the bill, the annual property tax losses would be $1
million, approximately half of which would accrue to K-14
schools.
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
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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
seek the reduced property tax benefits without converting the
land to an agricultural use.
PROPOSED AMENDMENTS would reinstate the maximum size of a
contracted property at 3.0 acres and sunset the authority to
approve new contracts on January 1, 2019.