BILL ANALYSIS                                                                                                                                                                                                    Ó




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          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. 









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          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  









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            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  









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            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  









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            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,  









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            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.








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            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."








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               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 
           









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          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 













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