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 SCA 9 - 12/18/12 -- Page 2 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 SCA 9 - 12/18/12 -- Page 3 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 SCA 9 - 12/18/12 -- Page 4 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 SCA 9 - 12/18/12 -- Page 5 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 SCA 9 - 12/18/12 -- Page 6 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 SCA 9 - 12/18/12 -- Page 7 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