BILL ANALYSIS Ó SENATE COMMITTEE ON ELECTIONS AND CONSTITUTIONAL AMENDMENTS Senator Norma J. Torres, Chair BILL NO: SCA 7 HEARING DATE: 6/18/13 AUTHOR: WOLK ANALYSIS BY: Darren Chesin AMENDED: 2/26/13 FISCAL: NO SUBJECT Local government financing: public libraries: voter approval DESCRIPTION Taxes Existing law , pursuant to the California Constitution states that taxes levied by local governments are either general taxes, subject to majority approval of its voters, or special taxes, subject to 2/3 vote (Article XIII C). Proposition 13 of 1978 required a 2/3 vote of each house of the Legislature for state tax increases, and 2/3 vote of local voters for local special taxes. Proposition 62 of 1986 prohibited local agencies from imposing general taxes without majority approval of local voters, and a 2/3 vote for special taxes. Proposition 218 of 1996 extended those vote thresholds to charter cities, and limited local agencies' powers to levy new assessments, fees, and taxes. Local agencies generally propose to increase taxes by adopting an ordinance or a resolution at a public hearing. Existing law provides that cities and counties that operate libraries can fund them out of general tax revenue; library districts are often funded from a share of the property tax. Existing law additionally allows cities, counties, or library districts to levy parcel taxes to fund libraries. The agency may implement these taxes, for as long as it wants, spend the proceeds for any purpose, and apply any tax rate it chooses. Voters must approve the taxes by a 2/3 supermajority. Additionally, cities and counties may form Community Facilities Districts, also known as Mello-Roos Districts, to levy special taxes (parcel taxes). A Mello-Roos Community Facilities District (CFD) issues bonds against these special taxes to finance the public works projects. Like all special taxes, Mello-Roos Act special taxes require 2/3 voter approval. If there are fewer than 12 registered voters, the affected land-owners vote. City and counties can also impose transactions and use taxes to fund libraries, provided that the combined rate in the county does not exceed 2 percent, upon 2/3 vote of the local agency's governing board and 2/3 voter approval. This constitutional amendment would authorize cities, counties, or special districts to impose a special tax by a 55% vote of the voters in the district or county under specified circumstances, including: The district governing board approves the proposition by majority vote. The ballot proposition contains a specific list of programs and purposes to be funded, and a requirement that funds be spent solely for those programs and purposes. The ballot proposition includes a requirement for annual independent audit of the amount of tax proceeds collected and expended and the specified purposes and programs funded. The ballot proposition requires the governing board to create a citizens' oversight committee to review all expenditures of proceeds and financial audits, and report its findings to the governing board and the public. Bonds Existing law , pursuant to the California Constitution requires counties, cities, and school districts to obtain voter approval for long-term debt. Counties, cities, school districts, community college districts, and some special districts can issue general obligation (GO) bonds, secured by ad valorem property tax revenues, with 2/3-voter approval. The Constitution further bars school districts from imposing general taxes, but allows school districts, community college districts, and county offices of education to issue bonded indebtedness for school facilities with 55% percent approval (Proposition 39, 2000). This constitutional amendment would allow cities, counties, and SCA 7 (WOLK) Page 2 special districts to issue bonded indebtedness to construct, reconstruct, rehabilitate, or replace public libraries, including furnishings, equipment, or leasing real property. The measure requires the following accountability measures be in place as part of the ballot measure: A requirement that bond proceeds be used solely to construct, reconstruct, rehabilitate, or replace public libraries, including furnishings, equipment, or leasing real property, and not for any other purpose, including personnel and operating expenses. A list of the specific public library facility projects to be funded. Certification that the local agency has evaluated the degree to which existing facilities are inadequate to meet the needs of the residents of the area, and the degree to which proposed facilities will meet the needs. A requirement for an annual independent performance audit ensuring that bond proceeds have been used solely for the listed projects. A requirement for an annual independent financial audit of the bond proceeds until all have been expended. This constitutional amendment also makes other clarifying and conforming changes to the Constitution. BACKGROUND Majorities and Super Majorities . Majority rule is a two-edged sword: democratically elected governments are supposed to enact policies that the voters want, but both federal and state systems of government restrict the majority's ability to oppress minority interests. For the great majority of public issues, fifty-percent plus one of a legislative body or an electorate rule. But for some issues, the United States and California Constitutions provide that a majority is not enough and a higher threshold is necessary, such as amending the U.S. Constitution, removing a president from office, ratifying a treaty, or overriding a veto. States largely import the 2/3 vote from the U.S. Constitution SCA 7 (WOLK) Page 3 into their own for those same purposes, but also require 2/3 vote on taxes or other measures. In a series of voter initiatives, Californians have elevated local special tax increases and legislatively enacted state tax increases to this level, while almost every other change to the law can be enacted by majority vote; local agencies can enact general taxes, and voters can approve tax initiatives increasing state taxes by majority vote, as they did with Proposition 30 of 2012. As such, local agencies need a majority vote to assess taxes and spend the proceeds on whatever purposes they want to, but 2/3 if they restrict the use of the tax proceeds. Supermajorities of the Legislature are necessary to increase taxes, but only majorities of voters can. Parcel Taxes . California allows cities, counties, and library districts to levy parcel taxes, which are different in many ways from property taxes and general obligation bonds. First, parcel taxes are not ad valorem, or assessed based on the value of a property; instead they are a flat rate assessed per parcel or per square foot, regardless of its size. Essentially, parcel taxes are a flat tax on property ownership. Secondly, the proceeds of general obligation bonds must be spent on the acquisition and improvement of property, or on school construction. Parcel taxes give the imposing authority considerably more flexibility to spend as they see fit. Proceeds are not limited to certain uses; revenues may be used for ongoing expenses, programs, or buildings at the local agency's discretion Parcel taxes are flexible ways of raising revenues at the local level, but are subject to certain requirements. Parcel tax elections must be held on "established election dates", which means in March, April, or November of an even-numbered year, or March, June, or November in an odd-numbered year. Parcel taxes do not have a cap; parcel tax proposals voted on in the last ten years varied from $26 per parcel to $765 per parcel, with terms as short as two years, and others enacted permanently. COMMENTS SCA 7 (WOLK) Page 4 1.According to the Author : SCA 7 would give local communities the opportunity to decide if they would like to levy a tax for the support of library services. Libraries provide vital services to the state's educational system and communities across the state. More than 21 million people use California's public libraries each year. As public schools are increasingly cutting library services and even closing all together, citizens rely on public libraries more than ever before. Children, students, families, and seniors all depend on public libraries for a variety of services from literacy programs to resources for students. In addition public libraries play a critical role in bridging the digital divide and connecting people with technology who would otherwise not have access to it. While demand for library services is growing, many libraries are struggling to meet the needs of their users, especially in the current economic climate. In 2007, the California State Library conducted a thorough "Needs Assessment," and determined that there were 662 library projects pending in the state, totaling $8 billion. Many libraries' facilities are old and their technology is inadequate. According to a special report issued by the California State Library, entitled, "Thirty Years of California Library Ballot Measures - 1980-2009," they note, "Those library-related measures in California which only required a simple majority were approved 77% of the time, which is very close to the overall national average of 80%. However, library measures which required a supermajority were approved only 45% of the time. Lowering the voter threshold to 55 percent to raise revenue for libraries would give local governments the ability to keep libraries open and support their communities with the resources they need. 2.Who pays ? SCA 7 lowers the threshold on parcel taxes, which are taxes on landowners. Therefore, resident non-landowners, like renters, are able to vote in the election, but do not pay any of the taxes except as passed through in rents. In the reverse, non-resident landowners are not able to vote in the election, but must pay the tax if the voters approve the measure. In addition, districts may exempt taxpayers 65 years or older, thereby creating another class of voters who do not bear the incidence of the tax. Is it equitable to lower the SCA 7 (WOLK) Page 5 vote threshold for new parcel taxes when many voters do not bear the cost, and those who may bear the cost cannot vote? 3.Special vote thresholds for libraries ? If SCA 7 is enacted, local agencies would be able to enact special taxes for library purposes by a 55% vote, paralleling Proposition 39's similar threshold for school bonds. However, the measure doesn't affect thresholds for taxes dedicated to other purposes. This begs the question of what should be the voting threshold for local special taxes? The Legislative Analyst's Office says there's no right answer, as requirements vary across states, but adds that the process should be easy enough for voters to understand and reflect overarching objectives for voter participation in tax decisions. Furthermore, should the thresholds be different based on the use of the tax proceeds, like libraries? 4.The ties that bind . SCA 7 not only lowers the vote threshold for parcel taxes used for library purposes, but also extends to libraries the lower voter threshold of 55% for debt issuance the voters granted to school districts and community college districts in Proposition 39 (2000). Taxes and bonds are fundamentally different: a district's voters can repeal a tax by referendum, but once an agency issues a bond, it's irreversibly committed to pay principal and interest according to schedule until the bond is redeemed. While Proposition 39 led to more school facilities in a state with a large student population, it also led to savvy financial advisers coaxing districts into borrowing too much or using unwise debt structures: some districts issued bonds with 30 years of deferred principle and interest payments, but triggered twelve to one debt to principal ratios when repayments started becoming due in year 30. Additionally, school districts are filing lawsuits against potentially unsavory financial advisors: the Willits Unified School District is suing Caldwell Flores Winters, Inc., stating it had been "duped" into overpaying the firm hundreds of thousands of dollars. While school districts and libraries are very different, is there cause for concern that by lowering the vote threshold, SCA 7 could give rise to similar problems in libraries? The Assembly recently approved AB 182 (Buchanan), which substantially reforms school bond issuance in response to the above problems. SCA 7 (WOLK) Page 6 5.Related Legislation . SCA 3 (Leno) which is also on today's agenda allows school districts, community college districts, and county offices of education to levy parcel taxes by a 55% vote. SCA 4 (Liu), which is pending in the Senate Committee on Transportation and Housing, allows local agencies to levy, extend, or increase special taxes by a 55% vote for local transportation projects. SCA 8 (Corbett), which is also pending in the Senate Committee on Transportation and Housing, allows local agencies to levy, extend, or increase special taxes by a 55% vote for local transportation projects. SCA 9 (Corbett) which is also on today's agenda allows local agencies to levy, extend, or increase special taxes by a 55% vote for community and economic development projects. SCA 11 (Hancock), which is also on today's agenda allows local agencies to levy, extend, or increase special taxes by a 55% vote for any purpose. PRIOR ACTION Senate Governance and Finance Committee:5-2 POSITIONS Sponsor: California Library Association Support: Alameda County Library; Alpine County; California Library Services Board, Anne R. Bernardo, President; Benicia Library Board of Trustees; Berkeley City Council; Board of Library Trustees of the Altadena Library District; Burbank Board of Library Trustees; Burbank Public Library; Burbank Public Library, Burbank Library Services Director, Sharon Cohen; California County Librarians Association, Teresa Landers; California Labor Federation; California Library Association; California Library Association's Advocacy and Legislation Committee; California Park and Recreation Society; California State Association of Counties; Castro Valley Friends of the Library; City of Burbank, Dave Golonski, Mayor; City of Concord; City of Cotati; City of Huntington Beach, Stephanie Beverage, Director of Library Services; City of Lafayette; City of Oakland's Library Advisory SCA 7 (WOLK) Page 7 Commission; City of Pacific Grove; City of Pasadena; City of Petaluma, Teresa Barrett, Councilmember; City of Petaluma, David Glass, Mayor ; City of Pleasanton Library Commission; City of Rancho Cordova; City of Riverside; City of San Diego Board of Library Commissioners; City of San Jose; City of Torrance, Frank Scotto, Mayor; Constance Tse, Retired Teacher; Contra Costa County Board of Supervisors; Contra Costa County Library Commission; County of Alpine Board of Supervisors; Daly City Public Library Associates, Paula Stillman, President; Danielle Maddox, President, Friends of the Sunnyvale Library; David Rabbitt, Sonoma County Board of Supervisors, Chair and Second District Supervisor; Defense Language Institute, Mary Kathleen Hanselmann, Chief Librarian; El Cerrito Commissioner, Steven M. Poulos; El Cerrito New Library Community Campaign; Escondido Public Library Board of Trustees, Gary Knight, President; Escondido Public Library, Cynthia Smith, Interim City Librarian; Friends of the Amador County Library, Susan Staggs, Board Member; Friends of the Castro Valley Library, Edward Lyke; President; Friends of the Fortuna Library; Friends of the Hemet Public Library; Friends of the Oakdale Library, Sharon Arpoika, President; Friends of the Oakland Public Library; Friends of the Riverside Public Library; Friends of the Sacramento Public Library; Friends of the Salinas Public Library; Friends of the San Benito County Free Library; Friends of the San Diego Public Library; Friends of the San Francisco Public Library, Deborah Doyle, Chair; Friends of the Santa Barbara Public Library Board, Elizabeth Bowman, Member; Friends of the Santa Cruz Public Libraries Board Member; Friends of the St. Helena Public Library; Friends of the Sunnyvale Library, Danielle Maddox, President; Friends of the Turlock Library, Joan Ahlstrand, Member; Glendale City Employees Association; Half Moon Bay Coastside Chamber of Commerce & Visitors' Bureau; Hercules Community Library Foundation; Huntington Beach Public Library, Stephanie Beverage, Director of Library Services; Jean Quan, Mayor, City of Oakland; JoAnn Levy, Award winning Author, Board member, California State Library Foundation; Kern County Library; League of California Cities; Library Advisory Board; Mendocino County SCA 7 (WOLK) Page 8 Librarian, Mindy Kittay; Michael J. Beck, City Manager, Pasadena; Morgan Hill Library Foundation; Mrs. Joan Putz, co-president Pacifica Friends of the Library; Ojai Valley Library Friends and Foundation; Organization of SMUD Employees; Pacific Grove, Bill Kampe, Mayor; Pacific Library Partnership, Teresa Landers; Pacifica Friends of the Library, Fran Larson, Treasurer; Pacifica Friends of the Library, Mrs. Caroline Barba, Co-president; Pacifica Library Foundation; Palos Verdes Library District; Pamona Public Library Foundation; Pasadena Public Library Commission; Patty Wong, Library Director Yolo County; Pomona Library Foundation; Redwood City Public Library Board; Retired Children's Librarian & Board Member; San Bernardino Public Employees Association; San Francisco Friends of the Library; San Luis Obispo County Employees Association; San Pablo City Council; San Rafael CA Library Board, Arlene Sukolsky, Trustee; San Rafael Library Foundation, Gary T. Ragghianti, Board member; San Rafael Public Library, Volunteer; Valerie Lambertson, Member; San Rafael Public Library Foundation, Jeffrey Schoppert, President; San Rafael Public Library Foundation;, Ann Rivo, Board Member; San Rafael Public Library, Sarah Houghton, Director; Santa Clara County Board of Supervisors; Santa Clara County Library District Joint Powers Authority Board; Santa Cruz City/County Library System, Teresa Landers; Santa Cruz Public Libraries Joint Powers Authority Board; Santa Cruz Public Libraries; Santa Maria Public Library; Santa Rosa City Employees Association; Sonoma County Board of Supervisors; Sonoma County Library Commission; Stanislaus County Library Advisory Board, Sheridan Beuving, Chairman; Stanislaus County, Library Director, Vanessa Czopek; Stanislaus Literacy Center, Karen Williams, Executive Director; Terry Woodrow, Chair, County of Alpine Board of Supervisors; The Humboldt Library Foundation; Torrance Library Commission; Town of Colma; Tulare County Public Law Library, Anne R. Bernardo, Director; Wendy Rianldi, Board of Friends of the San Francisco Public Library; Yolo County Board of Supervisors; Yolo County Library Advisory Board; SCA 7 (WOLK) Page 9 Oppose: Apartment Association California Southern Cities; Apartment Association of Orange County; California Association of Realtors; California Chamber of Commerce; California Farm Bureau Federation; California Taxpayers; East Bay Rental Housing Association; George Runner, Member Board of Equalization, District 2 (Ret.); Howard Jarvis Taxpayers Association; Nor Cal Rental Property Association SCA 7 (WOLK) Page 10