BILL ANALYSIS Ó AB 2109 Page A Date of Hearing: April 28, 2014 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Raul Bocanegra, Chair AB 2109 (Daly) - As Amended: March 24, 2014 Majority vote. Fiscal committee SUBJECT : Parcel taxes: reports SUMMARY : Requires the State Board of Equalization (BOE) to annually report to the Governor certain information on locally assessed parcel taxes, as provided. Specifically, this bill : 1)Provides that the annual BOE report required to be submitted to the Governor shall also include information relating to the imposition of each locally assessed parcel such as: a) The type and rate of parcel tax imposed; b) The number of parcels subject to the parcel tax; c) The number of parcels exempt from the parcel tax; d) The sunset date of the parcel tax, if any; e) The amount of revenue received from the parcel tax; and, f) Any other information and suggestions deemed proper by the BOE. 2)Requires BOE to utilize existing funds and resources in providing this additional information regarding the locally assessed parcel taxes. 3)Requires the tax auditor of each county to provide to the BOE any information relating to the locally assessed parcel taxes, as specified. 4)States that BOE shall adopt regulations to prescribe the format by which the tax auditor shall report the required information to the BOE. AB 2109 Page B 5)Provides that, if the Commission on State Mandates determines that this bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code (GC). EXISTING LAW : 1)Authorizes cities, counties, and special districts to impose a general tax for general governmental purposes with the approval of a majority of the voters. Prohibits special purpose districts and agencies, including schools districts, from levying a general tax. 2)Authorizes cities, counties, and special districts to impose a special tax for specified purposes with the approval of two-thirds of the voters. Does not allow cities, counties, or special districts to impose an ad valorem tax on real property, or a transactions tax or sales tax on the sale of real property within that city, county, or special district. 3)Authorizes school districts to impose qualified special taxes, in accordance with specified procedures, including the approval of two-thirds of the voters in the district. Provides that "qualified special taxes" must apply uniformly to all taxpayers or all real property within the school district and do not include special taxes imposed on a particular class of property or taxpayers. 4)Requires the local agency's chief fiscal officer to file an annual report with the agency's governing body detailing the amount of special tax revenue the agency has collected and expended. [The Local Agency Special Tax and Bond Accountability Act (Article 3.5 (commencing with Section 50075) of the GC)]. 5)Requires the local agency to apply the tax proceeds only to those specific purposes for which the tax was levied and requires that the proceeds be deposited in a special account. (GC Section 50075.1). 6)Requires the State Controller's Office (SCO) to compile and publish information about local agencies' finances, including their revenue sources, based on financial information provided AB 2109 Page C by counties, cities, and special districts to the SCO. FISCAL EFFECT : According to the BOE staff, this bill will not impact state or local revenues. COMMENTS : 1)The Author's Statement . According to the author, "This bill seeks to provide transparency on parcel taxes, especially since over the past several decades, such taxes have become an increasingly popular option of cities, counties and special districts looking to raise revenue for various programs." 2)What Does this Bill Do ? Existing law requires BOE to annually report to the Governor the assessed value of state-assessed and locally assessed real and personal property in each county and incorporated city or town. This bill would add to the annual report specified information on each locally assessed parcel tax, including, but not limited to, the parcel tax type and rate, number of parcels subject to and exempt from the tax, sunset date, and amount of revenue received from the parcel tax. Each county auditor would be required to provide any information to BOE necessary to comply with the requirements in this bill. The auditors would then report this information to the BOE in a format prescribed by BOE regulations. This bill is sponsored by the California Taxpayers Association. 3)Arguments in Support . The proponents argue that in an era where resources are scarce but demand for public services is high, this bill "will provide valuable information for state and local lawmakers in determining how many past parcel taxes have been levied, how much revenue has been generated by those taxes, and what programs have benefited from the revenue." The proponents also assert that a detailed report on locally imposed parcel taxes would "help inform voters, who are asked to decide on upward of thirty or so local parcel tax measures throughout various parts of the state during each election." Finally, it would benefit businesses when they make "long-term business planning, expansion and relocation decisions." 4)Concerns Expressed by Local Governments . While the California State Association of Counties (CSAC) and the State Association of County Auditors do not formally oppose this bill, they have expressed concerns about this bill for fiscal reasons. The AB 2109 Page D CSAC states that "this bill would impose a clear state mandate without an appropriation." The State Association of County Auditors has also identified several issues "that may cause the mandate to be difficult and costly to comply with." Since this bill contains no definition of "parcel tax," county auditors will not be sure how to comply with the reporting requirements. Further, reporting a rate of tax would require "vast system modifications to accommodate all the potential measurements, or require county staff to personally review each resolution to ensure the 'rate' utilized per parcel." Third, counties "have no means of reporting 'the number of parcels exempt from the parcel tax,' as such information would have to be generated from the levying agency." Next, the county auditors "would not have any knowledge regarding the sunset date of the parcel tax" because levying agencies are the ones required to certify that the assessment or parcel tax is valid. Finally, the State Association of County Auditors notes that not all counties would be able to comply with the requirements of this bill. Consequently, the auditors recommend that the levying agencies report the parcel tax information directly to the BOE. 5)Parcel Taxes: Background . In 1978, Proposition 13 limited both the tax rates and assessments, thus significantly reducing property tax revenues, eliminating the ability of local governments and special districts to levy an incremental ad valorem tax on real property and forcing the state to replace the lost revenues in district revenue limits. Proposition 13 also restricted the ability of local governments and special districts to levy non-ad valorem taxes by requiring voter approval for the imposition of local taxes. Under existing law, cities, counties and special districts may, by a two-thirds vote of the qualified electors in that jurisdiction, impose special taxes, except ad valorem taxes on real property or a transaction tax or sales tax on the sale of real property within that jurisdiction. While Proposition 13 did not define the term "special tax", the courts, over time, have opined that a tax is a "special tax" whenever expenditure of its revenues is limited to specific purposes, i.e. the proceeds of the tax are earmarked or dedicated in some manner to a specific project or projects. In contrast, a tax is a "general tax" only when its revenues are placed into the General Fund and are available for expenditure for any and all AB 2109 Page E governmental purposes. [Bay Area Cellular Telephone Co. v. City of Union City (2008) 162 Cal. App.4th 686; Howard Jarvis Taxpayers Assn. v. City of Roseville (2003) 106 Cal.App.4th 1178.] Since school districts are prohibited from imposing general taxes, any tax levied by a school district, by definition, is considered to be a special tax subject to a two-thirds voter approval. The California Constitution specifies that only two types of taxes may be imposed upon a parcel of property: an ad valorem property tax and a special tax receiving two-thirds voter approval pursuant to Section 4 of Article XIIIA. The Legislature allowed school districts and 15 other types of local agencies to impose "qualified" special taxes that applied uniformly to all taxpayers or real property within the district. A parcel tax is a special tax and may not be based on the property's value. It is a flat fee imposed by a city, county, or special district on each parcel, residential as well as commercial, rather than on the assessed value of property, located within the local entity's jurisdiction. Because the same dollar amount of tax is assessed on each parcel of property, whether the parcel is one acre or 100 acres, parcel taxes are generally regressive, which means owners of smaller parcels of land pay a larger percentage of tax compared to owners of larger parcels of land. Existing law does not limit how the special tax proceeds may be spent and, therefore, a local government or a special district can specify in the ballot measure how the funds will be used. Districts can use revenues in almost any way that serves local needs, such as ongoing expenses, programs, or buildings. Generally, local parcel taxes provide secure funding for schools, among other purposes. Counties collect parcel taxes with property taxes, and then remit funds to the district imposing the tax. Property tax law generally guides parcel tax collection. 6)The Oversight of Locally Imposed Parcel Taxes . Existing law requires the State Controller's Office (SCO) to compile and publish on its Web site annual reports summarizing local agencies' finances, including their revenue sources. These reports are based on the financial data submitted to the SCO by the counties, cities and special districts and detail the aggregate amount of various taxes collected by each local government or special district, including the county allocation of ad valorem taxes on real property, AB 2109 Page F voter-approved taxes, property assessments, and special assessments. This information is not independently verified by the SCO and appears to include parcel tax revenues under the heading of "other taxes." Under existing law, the BOE does not collect, nor does it have direct access to, information regarding locally imposed special taxes. The BOE is only required to review county assessors' valuation procedures. It appears that SCO, rather than the BOE, is better equipped to receive and process additional information from local governments regarding their parcel tax revenues. The Committee may wish to consider whether the SCO, instead of the BOE, should be required to include specified information regarding the locally imposed parcel taxes in its annual reports of local government finances. 7)Increased Transparency vs. Administrative Costs . The purpose of this bill is to increase transparency and oversight of locally imposed parcel taxes. The sponsor states that many taxpayers should understand how the taxes are assessed, collected, and how the funds are used.<1> Unlike taxes imposed by the state, local taxes must be affirmatively approved by the voters themselves based on the information contained in the ordinance or resolution presented to them. As such, it seems that the taxpayers' lack of knowledge would not be due to the lack of transparency. Even taxpayers who did not vote on the tax measure (because they were not qualified voters, for example) still had access to the information about the purpose, rate, and type of the tax proposed to be levied. Furthermore, as noted by the BOE staff in its analysis of this bill, counties publicly provide contact information for each agency imposing the charge, often on the annual property tax bill, so that "owners can contact the levying local agency directly with any questions." Generally, counties provide this information "to minimize the workload impact and resultant costs that they would otherwise incur to redirect inquiring property owners." However, what is less readily available to the public is the information regarding the amount of parcel tax revenue collected and the way the funds are used by the levying --------------------------- <1> The Other Property Tax, an Overview of Parcel Taxes in California, Policy Brief, California Taxpayers Association, March 2013, p.3. AB 2109 Page G agency. As noted by the Legislative Analyst Office (LAO) in its report Understanding California's Property Taxes, the LAO was unable to locate any information on the statewide amount of parcel tax revenue collected by cities, counties, and special districts.<2> While Committee staff appreciates the need for transparency, the question remains as to what constitutes the most effective and convenient way of providing the information. Should it be included in an annual report to the Governor? Would the convenience of having this information summarized in one report outweigh the administrative burdens of collecting and organizing it on a statewide basis? The Committee may wish to consider whether it would be more efficient to require each levying local agency to create its own local report and publish it on its Web site, instead of requiring BOE to collect this information from local governments, summarize it and then include it in its annual report for the Governor. 8)The BOE Implementation Concerns : The BOE staff notes several implementation concerns with this bill, including, but not limited to, following issues: a) The definition of "parcel tax" is needed . While the term "parcel tax" is commonly used, it is not defined in the Revenue and Tax Code. Generally, property tax bills include numerous other charges, assessments, and fees. Taxpayers may view these other charges as "parcel taxes." This bill should expressly state that those assessments and charges should not be included in the report. Furthermore, this bill should expressly exclude Mello Roos special taxes for community facility districts, which may also be imposed on parcels. In order to provide clarity, the BOE staff suggests the following definition for this term: "Parcel tax" means a tax levied by a local agency upon any -------------------------- <2> "Recent election reports and financial data suggest that parcel taxes represent a significant and growing source of revenue for some local governments. Specifically, between 2001 and 2012, local voters approved about 180 parcel tax measures to fund cities, counties, and special districts, and about 135 measures to fund K-12 districts. The most recent K-12 financial data (2009-2010) indicate that schools received about $350 million from this source. We were not able to locate information on the statewide amount of parcel tax revenue collected by cities, counties, and special districts." AB 2109 Page H parcel of property identified using the assessor's parcel number system or upon any person as an incident of property ownership pursuant to Section 4 of Article XIIIA of the California Constitution that is collected via the annual property tax bill. b) The phrase "tax type" needs clarification . This phrase may be interpreted to mean the purpose for which a special tax is levied, instead of the way the tax is calculated, i.e. whether it is a flat rate type, street frontage, room count or square footage. It may be beneficial to clarify what the phrase "tax type" means. It may also be advisable to collect other basic data such as the name and contact information for each levying local agency, a description of the parcel tax, the reasons for parcel tax exemption and the statutory authority for the imposition of the tax. c) Reporting should be limited to parcel taxes invoiced on the annual property tax bill . County auditors have very limited information about locally imposed parcel taxes because they do not certify the validity of local parcel taxes nor do they monitor the actual imposition of those taxes. Their source of parcel tax information is the annual property tax bills. However, a special tax does not need to be collected via the annual property tax bill and local agencies may use other collection methods, such as directly billing the property owner or contracting with a third party collector. The BOE staff suggests an amendment to specify that the BOE "should not be required to report the information for any county if the auditor of that county did not provide the information to the board as required by this bill." 9)Double Referral . This bill was double-referred to the Assembly Committee on Local Government and passed out of that Committee on a 9-0 vote. 10)Related Legislation . AB 892 (Daly) was substantially similar to this bill. AB 892 was held in the Assembly Appropriations Committee. REGISTERED SUPPORT / OPPOSITION : Support AB 2109 Page I California Taxpayers Association [SPONSOR] Acclamation Insurance Management Services Allied Managed Care Apartment Association of Greater Los Angeles Building Owners and Managers Association of California California Apartment Association California Asian Pacific Chamber of Commerce California Building Industry Association California Business Properties Association California Chamber of Commerce California Chapter of American Fence Association California Fence Contractors' Association California Grocers Association California Hotel & Lodging Association California Manufacturers & Technology Association California Retailers Association Coalition of Small and Disabled Veteran Business Engineering Contractors Association Flasher Barricade Association International Council of Shopping Centers Marin Builders Association NAIOP of California, the Commercial Real Estate Development Association National Federation of Independent Business Orange County Taxpayers Association Santa Barbara Rental Property Association Simi Valley Chamber of Commerce West Coast Lumber & Building Material Association Western Manufactured Housing Communities Association Opposition None on file Concerns California State Association of Counties State Association of County Auditors Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916) 319-2098 AB 2109 Page J