BILL ANALYSIS                                                                                                                                                                                                    Ó




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  SCA 9                       HEARING:  5/15/13
          AUTHOR:  Corbett                      FISCAL:  No
          VERSION:  12/18/12                    TAX LEVY: No
          CONSULTANT:  Grinnell                 

                         SPECIAL TAXES: VOTER APPROVAL
          

          Lowers the vote threshold to levy, increase, or extend  
          special taxes for community and economic development  
          projects from 2/3 to 55%.


                           Background and Existing Law  

          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 (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 (1986) prohibited local  
          agencies from imposing general taxes without majority  
          approval of local voters, and a 2/3 vote for special taxes.  
           Proposition 218 (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.  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).

          Current law additionally allows local agencies to levy  
          qualified special taxes that are uniform as applied to all  
          taxpayers with 2/3 vote of the electorate.  The district  
          may implement these taxes, for as long as it wants, spend  
          the proceeds for any purpose, and apply any tax rate it  
          chooses.  

          Cities and counties may also impose transactions and use  
          taxes, basically additional sales and use taxes levied in  




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          their jurisdiction, provided that the combined rate in the  
          county does not exceed 2 percent, upon a 2/3 vote of the  
          local agency's governing board and voter approval according  
          to the above.  

          Citing a significant State General Fund deficit, Governor  
          Brown's 2011-12 budget proposed eliminating RDAs and  
          returning billions of dollars of property tax revenues to  
          schools, cities, and counties to fund core services.  Among  
          the statutory changes that the Legislature adopted to  
          implement the 2011-12 budget, ABx1 26 (Blumenfield, 2011)  
          dissolved all RDAs.  The California Supreme Court's 2011  
          ruling in  California Redevelopment Association v.  
          Matosantos  upheld AB X1 26, but invalidated AB X1 27  
          (Blumenfield, 2011), which would have allowed most RDAs to  
          avoid dissolution.  RDAs' dissolution deprived many local  
          governments of the primary tool they used to increase the  
          supply of affordable housing.  


                                   Proposed Law  

          Senate Constitutional Amendment 4 lowers the vote threshold  
          for local agencies imposing, extending, or increasing a  
          special tax to fund local community and economic  
          development projects within their jurisdiction to 55%.  The  
          constitutional amendment defines a project as one that  
          improves, upgrades, or revitalizes areas within the local  
          government's jurisdiction that have become blighted because  
          of deterioration, disuse, or unproductive economic  
          conditions.  The measure also makes conforming changes to  
          the Constitution.


                               State Revenue Impact
           
          No estimate.  


                                     Comments  

          1.   Purpose of the bill  .  According to the author, "SCA 9  
          proposes to California voters an amendment to the state  
          Constitution to allow local governments to impose, extend,  
          or increase a special tax for economic development  
          projects, upon approval of 55 percent, instead of  





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          two-thirds, of the voters within the appropriate  
          jurisdiction.  Local government will require alternative  
          financial tools, if it is to continue economic development.  
          The Governor's plan for dissolving the redevelopment  
          program, also proposed a constitutional amendment to allow  
          local voters to approve tax increases and general  
          obligation bonds for economic development by a 55 percent  
          majority, instead of by a supermajority (two-thirds) vote.   
          Without alternative financing options, local governments  
          will have to use their General Fund to pay for  
          redevelopment projects - a fund that is  overburdened for  
          most cities."

          2.   More or less  .  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 due to fears  
          about its ability to use its power 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 others 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 United States  
          Constitution 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 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 (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.

          SCA 9 adds another layer onto the complex system above.  If  
          enacted, local agencies can enact special taxes for  
          community and economic development purposes at 55% vote,  
          paralleling Proposition 39's similar allowance for school  
          bonds.  However, the measure doesn't affect thresholds for  





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          any other kind of tax.  The first policy question for the  
          Committee is: 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.  The second is:  
          should the thresholds be different based on the use of the  
          tax proceeds, like community and economic development  
          projects?  The Committee may wish to consider the reasons  
          for affording community and economic development projects  
          special treatment when contemplating the overall system of  
          voter thresholds necessary to increase taxes.     

          3.   Who pays  ?  An old piece of tax policy wisdom attributed  
          to Louisiana Governor Russell Long states that, "Don't tax  
          you, don't tax me, tax the man behind the tree."  SCA 9  
          lowers the threshold on parcel taxes, among others, 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.  The Committee may wish  
          to consider whether lowering the vote threshold for new  
          parcel taxes is equitable when many voters do not bear the  
          cost, and those who may bear the cost cannot vote.

          Additionally, should cities and counties choose to impose  
          local transactions and use taxes at 55% voter approval  
          under SCA 9, any taxpayer purchasing tangible personal  
          property in the city or county's jurisdiction will pay  
          slightly more in tax.  Ostensibly, the city or county will  
          use the proceeds to build a project themselves, or use the  
          redevelopment model whereby funds are given to developers  
          to build projects in specific areas.  As such, everyone who  
          makes a purchase within the jurisdiction pays for community  
          and economic benefits that may be place or  
          project-specific.  The Committee may additionally wish to  
          consider the equity and efficiency of local taxes to spur  
          community and economic development when determining whether  
          to lower the vote threshold to enact them.

          4.    Signed, sealed, delivered  .  California uniquely among  
          the states allows school districts to levy parcel taxes,  
          which are different in many ways from property taxes and  





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          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.   
          While subject to the 2/3 vote, Proceeds are not limited to  
          certain uses; revenues may be used for ongoing expenses,  
          programs, or buildings at the local agency's discretion,  
          although parcel taxes imposed at a lower voter approval  
          rate under SCA 5 cannot be used for administrative  
          salaries, among other restrictions.  

          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 some 
          being permanent.  

          5.   Give it a go  .  SCA 9 lowers vote thresholds for special  
          taxes enacted for community and economic development  
          projects.  However, no city or county has yet assessed, or  
          tried to assess, a special tax for this purpose under the  
          existing 2/3 vote standard, unlike special taxes for  
          education and transportation that have.  Does the  
          Legislature know enough about how a special tax for  
          economic and community development projects would work to  
          lower the vote threshold for it?  The Committee may wish to  
          consider deferring action on SCA 9 until a local agency  
          first tries to assess a special tax for this purpose at the  
          current threshold.

          6.   Lead and follow  .  SCA 9 lowers vote thresholds for  
          special taxes enacted for community and economic  
          development projects, defined as "projects that improve,  
          upgrade, or revitalize areas within the local government's  
          jurisdiction that have become blighted because of  
          deterioration, disuse, or unproductive economic  





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          conditions."  While this definition is broad, the  
          Legislature can enact a statute following enactment of the  
          SCA 9 filling in its details, such as more specifically  
          delineate the kinds of projects and areas for which local  
          agencies can assess taxes at lower voter thresholds.  Doing  
          so is consistent with other Constitutional changes, where  
          voters have enacted the broad strokes of change, but let  
          the Legislature subsequently fill in the details in  
          statute.

          7.   Join the party  .  The Committee will hear five other  
          measures that change the vote threshold for special taxes:
                 SCA 3 (Leno) - allows school districts, community  
               college districts, and county office of education to  
               levy parcel taxes at 55% vote.
                 SCA 4 (Liu) - SCA 4 (Liu) - allows local agencies  
               to levy, extend, or increase special taxes at 55% vote  
               for local transportation projects.
                 SCA 7 (Wolk) - lowers the vote threshold for bonded  
               indebtedness incurred to construct, reconstruct,  
               rehabilitate, or replace public libraries; al-lows  
               local agencies to levy, extend, or increase special  
               taxes at 55% vote to fund public libraries.
                 SCA 8 (Corbett) - identical to this measure except  
               for the restriction on local agencies spending  
               proceeds from new taxes until completing capital  
               projects from previously imposed taxes.
                 SCA 11 (Hancock) - allows local agencies to levy,  
               extend, or increase special taxes at 55% vote for any  
               purpose.


                        Support and Opposition  (05/09/13)

           Support  :  California Special Districts Association;  
          California State Association of Counties; League of  
          California Cities

           Opposition  :  Apartment Association of Greater Los Angeles;  
          Apartment Association California Southern Cities; Apartment  
          Association of Orange County; Associated Builders and  
          Contractors of California; California Ambulance  
          Association; California Apartment Association; California  
          Business Properties Association; California Chamber of  
          Commerce; California Farm Bureau Federation; California  
          Grocers Association; California Manufacturers and  





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          Technology Association, California Retailers Association;  
          California Taxpayers Association; East Bay Rental Housing  
          Association; National Federation of Independent Business;  
          Nor Cal Rental Property Association; Orange County  
          Association of Realtors; Orange County Business Council;  
          San Diego County Apartment Association; Santa Barbara  
          Rental Property Association; Southwest California  
          Legislative Council; Western Manufactured Housing  
          Communities Association