BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 920
                                                                  Page  1

          Date of Hearing:  April 29, 2013

                     ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
                                Raul Bocanegra, Chair

                     AB 920 (Ting) - As Amended:  April 22, 2013

          Majority vote.  Fiscal committee.

           SUBJECT  :  Property Taxation:  tax bill information:  interest on  
          refunds

           SUMMARY  :  Establishes the Property Tax Transparency and  
          Accountability Program (Program) that would require  
          participating counties to include new information on each county  
          tax bill a comprehensive account of all services funded by local  
          governments and eliminates the requirement for counties to pay  
          interest on property tax refunds at a minimum of 3% per year.   
          Specifically,  this bill  :  

          1)Establishes the Program as a pilot program for participating  
            counties.

          2)Requires each participating county to include in each county  
            tax bill, in addition to the information specified in Revenue  
            and Taxation Code (R&TC) Section 2611.6, the following  
            information:

             a)   Beginning with the 2014-15 fiscal year (FY), information  
               that indicates the percentage of the general ad valorem  
               property tax that is allocated to each local government  
               jurisdiction, including the county, city, special district,  
               and school district in the tax rate area (TRA) in which the  
               property is located; and,

             b)   Beginning with the 2015-16 FY, a comprehensive account  
               of all the services funded by local governments including,  
               but not limited to, services provided by the county, city,  
               special district, and any school district in the TRA in  
               which the property is located.

          3)Provides that the Program will remain operative through the  
            2017-18 FY.

          4)Requires, upon the cessation of the pilot program, each of the  








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            participating counties to provide a report to the Legislature  
            regarding the implementation of the pilot program, including  
            any required technology upgrades, workload adjustments, tax  
            bill designs, costs, and any recommendations regarding how a  
            county can best increase transparency about the use of general  
            ad valorem property tax revenues by local governments.

          5)Eliminates the requirement that counties pay interest on  
            property tax refunds at the greater of 3% per year or the  
            "county pool apportioned rate," and instead, requires payment  
            only at the "county pool apportioned rate."

           EXISTING LAW  requires the: 

          1)Following information to be included on each county tax bill,  
            whether mailed or electronically transmitted or included in a  
            separate statement accompanying the bill (R&TC Section  
            2611.6):

             a)   Value of the locally assessed property; 

             b)   Tax rate of a maximum 1% amount of ad valorem tax  
               imposed on real property;

             c)   Rate or dollar amount of taxes levied in excess of the  
               1% limitation to pay for voter approved indebtedness  
               incurred before July 1, 1978, or bonded indebtedness for  
               the acquisition of improvement of real property;

             d)   Amount of any special taxes and special assessments  
               levied;

             e)   Amount of any tax rate reduction;

             f)   Amount of any exemptions;

             g)   Total taxes due and payable on the property covered by  
               the bill;

             h)   Instructions on tendering payment, including the name  
               and mailing address of the tax collector;

             i)   Any special parcel tax;

             j)   Information on the taxpayer's right to an informal  








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               assessment review if the taxpayer disagrees with the  
               assessed value on the tax bill and contacts the assessor's  
               office;

             aa)  Information on the taxpayer's right to file an  
               application for reduction in assessment for the following  
               year if the taxpayer and assessor are unable to agree on a  
               proper assessed value pursuant to the informal assessment  
               review;

             bb)  Address of the clerk of the county board of equalization  
               or the assessment appeals board; and,

             cc)  Notification that if property taxes are unpaid, it may  
               be necessary to pay delinquency penalties, costs,  
               redemption penalties, and a redemption fee.  (R&TC 2611). 

          2)Payment of interest on property tax refunds at the greater of  
            3% per year or the county pool apportioned rate.  (R&TC  
            Section 5151).

           FISCAL EFFECT  :  Unknown

           COMMENTS  :   

          1)The author has provided the following statement in support of  
            this bill:

               California property tax bills are complex and often  
               confusing to the taxpayer.  Many taxpayers are unaware that  
               all revenue from property taxes is kept exclusively at the  
               local level for vital services such as education, police  
               and fire protection, parks and recreation, and so much  
               more.  The tax bill includes payments for the general 1% ad  
               valorem property tax levied on all properties across the  
               state pursuant to Proposition 13, voter-approved debt rates  
               such as payments for school bonds, Mello-Roos taxes, parcel  
               taxes, and other assessments.  Currently, property tax  
               bills identify the purpose of each payment, except for the  
               general 1% ad valorem tax, the largest tax on the property  
               tax bill.  It is critical that they are provided a receipt  
               for their payment informing them of the local government  
               services funded by their payment, similar to any other  
               receipt they receive when conducting a financial  
               transaction.  AB 920 would give taxpayers a receipt  








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               indicating what services they receive for their property  
               tax payment.  This disclosure will increase transparency  
               and provide more information to taxpayers about the  
               important services, such as schools and public safety,  
               funded by property tax revenue.

               AB 920 would also stabilize property tax refund payments,  
               providing local governments another tool for greater fiscal  
               oversight.  Currently, any taxpayer owed a refund for  
               property tax overpayment will receive that payment with a  
               ceiling of three-percent interest or interest at the county  
               pool apportioned rate.  The county pool apportioned rate is  
               the annualized rate of interest earned on the total amount  
               of pooled idle funds held and invested by the county  
               treasurer.  The economic downturn has contributed to a fall  
               in many counties' pool rates, resulting in property tax  
               refunds paid with more interest than the county is earning.  
                This loss of local government revenue redirects money away  
               from schools and other important services.  AB 920 would  
               require property tax refunds to be paid at the county pool  
               rate, providing more oversight and stability to local  
               government revenues during the economic downturn.

          2)Proponents of this measure argue:

               AB 920 increases disclosure and transparency on property  
               tax statements.  Currently, it is impossible for taxpayers  
               to discern from their property tax bill what revenue is  
               kept at the local level for important services such as  
               schools, police, and fire.  To fix this problem, this bill  
               would require county governments to disclose on each  
               property tax bill the different types of local public  
               services funded by the property tax.

               This disclosure will help taxpayers understand their often  
               complex and confusing property tax bills.  Property taxes  
               are the most important revenue stream for local  
               governments, and this bill will promote transparency and  
               mutual understanding of the money that funds schools and  
               other important local services.

          3)Opponents of this measure argue:

               CalTax opposes AB 920, which, among other things, reduces  
               the interest rate paid by county tax collectors and  








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               treasurers on property tax refunds owed to taxpayers.   
               While we understand counties' desire to reduce their  
               interest costs, this proposal sets up a disparity between  
               the interest rate that counties charge taxpayers for  
               underpayments and the rate at which they pay taxpayers for  
               overpayments.

               It is our understanding that Sacramento County, for  
               example, charges taxpayers an annualized interest rate of  
               approximately 9 percent on underpayments, but under this  
               bill, would only pay taxpayers a rate of less than 3  
               percent on overpayments.  Such a policy unfairly  
               disadvantages taxpayers.  Interest is supposed to be  
               compensation for the use of money, not a revenue-raising  
               function or an additional penalty on taxpayers.

          4)Committee staff comments.

              a)   Property Tax Bills  .  According to the Legislative  
               Analyst's report, Understanding California's Property  
               Taxes, a property tax bill consists of many taxes and  
               charges including the 1% rate, voter-approved debt rates,  
               parcel taxes, Mello-Roos taxes, and assessments.  The  
               process of determining the property's taxable value is set  
               out in California's Constitution.  Id.  All of the revenue  
               from property tax remains within the county in which it is  
               collected and is used exclusively by local governments.   
               Id.  However, state law controls the allocation of property  
               tax revenue to more than 4,000 local governments.  Because  
               the allocation of local property taxes has evolved over  
               time through legislation and voter approved initiatives,  
               the property tax allocation system is complex, not well  
               understood, unresponsive to modern local needs, and not  
               transparent.  Id.  

              b)   How is the 1% ad valorem tax distributed  ?  The 1% rate  
               generates a large portion of the property tax at the local  
               level, about $43 billion in FY 2010-11.  Despite being the  
               largest tax on property, the 1% is listed as a "general tax  
               levy" with no indication as to which local governments  
               receive the revenue or the purpose for which the funds are  
               used.  Id.  The allocation of the 1% tax revenue is  
               distributed pursuant to state law, commonly referred to as  
               "AB 8," which was a long term response to the fiscal  
               austerity introduced by Proposition 13.  In general, AB 8  








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               provides a share of total property taxes collected within a  
               community to each local government that provides services  
               within that community.  Id.  The distribution is based on  
               the local government's proportionate county-wide share of  
               property taxes during the mid-1970s.  Limited information  
               is available on the distribution of revenue from parcel  
               taxes, Mello-Roos taxes, and assessments.  Id.

              c)   Implementing the Property Tax Transparency and  
               Accountability Program  .  In general, this bill provides for  
               two specific pieces of information to be included in a  
               property tax bill:  1) Beginning in the 2014-15 FY, the  
               county must provide information that indicates the  
               percentage of general ad valorem property tax that is  
               allocated to each local government jurisdiction; and, 2)  
               Beginning in the 2015-16 FY, the county must provide a  
               comprehensive account of all the services funded by local  
               governments.  As noted above, the property tax allocation  
               system is complex, not well understood, unresponsive to  
               modern local needs, and  not transparent  .  Therefore,  
               requiring the counties to provide the information as  
               specified in this bill appears to be beneficial to the  
               general public.

               However, several organizations have raised concerns over  
               the implementation of the program.  Specifically,  
               organizations have noted that it would require an enormous  
               amount of staff time to create a document describing all  
               required information.  Concerns have also been raised as to  
               whether the information can be included as an insert along  
               with the tax bill or if the information has to be included  
               on the tax bill itself.  If the information has to be  
               included in the tax bill, software programs may have to be  
               updated.  According to one concerned organization,  
               Sacramento County reformatted its tax bill software in 2004  
               at a cost of $27,000.  The language of this measure states  
               that "each participating county shall include  in each  
               county tax bill  " information as specified.  Therefore, it  
               seems that participating counties may have to include the  
               information on the tax bill itself, potentially requiring  
               modification of the property tax bill software.  

               This measure also requires that the information provided be  
               based on the individual TRA.  The county auditor allocates  
               the property tax revenue to local governments by TRA, which  








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               is a small geographical area within the county that  
               contains properties that are all served by a unique  
               combination of local governments.  Id.  A single county may  
               have thousands of TRAs.  Id.  When distributing revenues, a  
               county auditor will first collect the revenue from the TRA  
               and then distribute to each local government within the  
               TRA, the same amount of revenue it received in the prior  
               year.  Id.  Because there may be thousands of TRAs in a  
               single county, it may increase the staff time needed to  
               ensure that the appropriate information for each individual  
               taxpayer matches their TRA.  

               Despite the initial costs and difficulties with  
               implementing this program, the information is available by  
               the county auditor and computer systems can be made  
               automated to match specific TRA information to the  
               appropriate taxpayer.  Additionally, if a tax bill software  
               requires updating, it may be done in a manner that  
               streamlines much of the required process, eliminating the  
               need for increased staff time.

              d)   Transparency  .  The author notes that the "disclosure  
               will increase transparency and provide more information to  
               taxpayers about the important services, such as schools and  
               public safety, funded by property tax revenue."  Again, as  
               noted above, our current tax allocation system is  
               incredibly difficult to understand and is not transparent.   
               Having additional information for property owners as a  
               ready database for individual TRAs may be beneficial for  
               both local taxpayers and statewide officials.  Despite the  
               enhanced transparency provided by this bill, it is  
               important to note that the information included in the tax  
               bill will still not be complete.  The state provides a  
               large portion of the revenues received for things such as  
               schools and court houses.  Therefore, the required  
               information under this bill may not necessarily provide a  
               complete and accurate picture as to how local government is  
               funded.  

              e)   Property Tax Interest  .  Under current law, counties must  
               pay interest on the property tax refunds at the greater of  
               3% per year or the "county pool apportioned rate."  The  
               statute defines the county pool apportioned rate as "the  
               annualized rate of interest earned on the total amount of  
               pooled idle funds from all accounts held by the county  








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               treasurer, in excess of the county treasurer's  
               administrative costs with respect to that amount."  (R&TC  
               Section 5151).  In 2012, the pool rate for all 58 counties  
               was below 3%, ranging from .0045% in Plumas County to 2.58%  
               in Tulare County.  The rates for the state's five largest  
               counties are:  Los Angeles (1.29%), Orange (.56%), San  
               Bernardino (.994%), and Santa Clara (.7903%).  Despite  
               having very low rates for refunds, penalties and interest  
               can be very high for individuals that do not pay certain  
               taxes on time.  For example, the taxes on the supplemental  
               roll become delinquent on December 10 for the first  
               installment.  If the taxes due are not paid before they  
               become delinquent, a penalty of 10% will be imposed plus  
               costs and penalties accruing at a rate of 1.5% per month.   
               (R&TC Section 2616, 2617, 2910.1, and 2922).


               The author states that the economic downturn has  
               contributed to a fall in many counties' pool rates,  
               resulting in property tax refunds paid with more interest  
               than the county is earning.  Because of this, local  
               government revenue has been directed away from schools and  
               other important services.  It is true that counties  
               currently earn less interest than what is paid out for  
               property tax refunds, and the imposition of interest is  
               generally provided for the cost of borrowing money.   
               However, as noted above, the imposition of interest has  
               also been used as a penalty, encouraging property owners to  
               pay their property tax bills on time.  

               Local governments greatly depend on property tax.  As such,  
               prompt receipt of property tax payments is vital to  
               providing local services.  However, lowering the interest  
               rate to the county pool rate for overpayment seems to  
               preclude its use as a penalty.  Property taxes may be  
               refunded for a variety of reasons, including taxes that  
               have been erroneously or illegally collected, and illegally  
               assessed or levied.  By maintaining an interest rate on  
               refunds that is higher than average county pool rate,  
               existing law encourages local governments to ensure that  
               taxes are levied and assessed in a constitutional and legal  
               manner.

              f)   Double referred  .  This bill was referred to the Assembly  
               Committee on Local Government on April 17, 2013, and passed  








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               out of that Committee on a vote of 7 to 0.

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          CALPIRG
          California Professional Firefighters
          AFSCME

           Opposition 
           
          California Taxpayers Association
           
          Analysis Prepared by  :  Carlos Anguiano / REV. & TAX. / (916)  
          319-2098