BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1021 HEARING: 4/9/14
AUTHOR: Wolk FISCAL: No
VERSION: 4/2/14 TAX LEVY: No
CONSULTANT: Grinnell
SCHOOL DISTRICT PARCEL TAXES
Allows school districts to impose parcel taxes on a square
foot basis, and tax parcels differently based on
classification.
Background and Existing Law
The California Constitution requires 2/3 voter approval
when a local agency wants to impose or increase a special
tax (Proposition 13, 1978). However, the Legislature must
authorize school or special districts to impose taxes
because these agencies have no plenary taxing powers.
Responding to Proposition 13's reduction in local revenue,
the Legislature generally authorized all local agencies to
impose special taxes with 2/3 voter approval (SB 785,
Foran, 1979), but voters subsequently approved an
initiative requiring the Legislature to grant specific
taxing power to local agencies to impose taxes (Proposition
62, 1986).
Prior to Proposition 62, school districts imposed parcel
taxes to fund education; however, the initiative prompted
school districts to seek specific legislative authorization
to ratify the existing taxes and clarify the authority to
impose new ones. The Legislature allowed school and
community college districts to impose qualified special
taxes that applied uniformly to all taxpayers or real
property within the district, and allowed districts to
exempt persons over the age of 65 from the tax (AB 1440,
Hannigan, 1988). In 1991, the Legislature additionally
allowed 15 types of local agencies to impose similar taxes;
however, the measure allowed local agencies to tax
unimproved property at a lower rate than improved property,
and contained no other exemptions. (SB 158, Committee on
Local Government, 1991).
SB 1021 (Wolk) -- 04/02/14 -- Page 2
Parcel taxes are not ad valorem, or assessed based on the
value of a property like property taxes; instead they are a
flat rate assessed per parcel or per square foot,
regardless of its size, meaning they are basically a flat
tax on property ownership. Districts can use revenues in
almost any way that serves local needs, such as ongoing
expenses, programs, or buildings. Counties collect parcel
taxes with property taxes, and then remit funds to the
school district imposing the tax. Property tax law
generally guides parcel tax collection.
Between 1983 and November 2012, voters approved 322 parcel
taxes in 584 elections. At least eight school districts
have passed variable rate parcel tax measures that utilize
separate rates, based on square footage or other property
improvements, according to the California School Boards
Association. For example, the Mountain View-Whisman School
District's parcel tax contains six rates that increase
according to the size of the parcel; other districts
structure their taxes to account for multifamily and
mixed-use housing by imposing the tax on those uses per
dwelling unit, while imposing a different rate for
single-family residential and other uses.
In 2013, George Borikas successfully challenged Alameda
Unified School District's Measure H, which imposed a
variable rate parcel tax, at rates of:
$120 per parcel per year for residential parcels,
and commercial and industrial parcels under 2,000
square feet, and
15 cents per square foot for commercial and
industrial property above 2,000 square feet, not to
exceed $9,500 per year.
The Court determined that because the school district
statute didn't also contain the language in SB 158 allowing
for a lower rate on unimproved property, districts couldn't
differentiate property by classification and assign
different tax rates to each class. ( Borikas v. Alameda
Unified School District, 214 Cal. App. 4th 135 ). The Court
pointed specifically to the differences between the two
statutes in its decision:
"Section 50079.1 (the Community College District
Statute) does not include exemptions for senior or
disabled taxpayers. It does, however, provide that
SB 1021 (Wolk) -- 04/02/14 -- Page 3
"unimproved property may be taxed at a lower rate than
improved property." The inclusion of this additional
language - expressly allowing community colleges to
classify and differentially tax real property - makes
manifest that the definitional language alone does not
allow [school] districts to establish rational
classifications and impose different tax rates. "
In Borikas , the Court eliminated school districts' ability
to apply different rates to property based on its
classification, or based on whether the property has
improvements. School districts want to restore flexibility
they thought they had before the Court's decision.
Proposed Law
SB 1021 responds to the Borikas case by defining "special
taxes that apply uniformly" to include one or more taxes
imposed:
On a per parcel basis,
According to the square footage of the parcel or
its improvements,
According to the residential, multifamily
residential, industrial, or commercial classification
of a parcel, so long as the same rate of tax is levied
on all properties of the same classification,
At a lower rate on unimproved property.
The measure also allows districts to combine multiple
parcels into one when they're commonly owned and constitute
one economic unit.
SB 1021 applies only to school district parcel taxes
imposed in the future; the measure contains "no inference"
language that directs courts to adjudicate cases similar to
Borikas under the law in place at the time the district
imposed the tax.
State Revenue Impact
No estimate.
Comments
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1. Purpose of the bill . According to the author, "Under
the recent court decision, school districts can no longer
apply higher or lower rates to parcels based on commercial,
industrial, or residential classification of the parcel.
Districts can't even tax an empty property at a lower rate
than an oil refinery or a research and development campus.
SB 1021 restores this needed local control by allowing
school district boards to structure its tax according to
local values and priorities. Because these taxes must be
approved by 2/3 vote of local voters, school district
boards must forge a communitywide consensus to ensure
voters approve the tax, evident by the high approval rates
in parcel tax elections. The bill simply returns local
control to its state before the court case, and conforms
the school district law to 15 other laws that allow local
agencies to impose parcel taxes. The bill doesn't grant
any additional powers to districts they didn't have before
the case. The choice SB 1021 presents is clear: the
Legislature can decide who should and shouldn't pay local
taxes, or local voters can choose at the ballot box whether
the tax placed on the ballot by the locally elected school
board after a full, public process is worth it."
2. Back to the future . 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."
Landowners who own property in the school district
imposing a parcel tax must pay it regardless of where they
live, but resident non-landowners, like renters, can vote
in the election, but don't pay it, except to the extent
that property owners can pass through the taxes in rents.
In addition, districts may exempt taxpayers 65 years or
older or who receive SSI income, creating another class of
voters who do not bear the incidence of the tax. The
Borikas case didn't eliminate parcel taxes, but it did
ensure that owners of commercial and industrial property
won't pay parcel tax rates for their parcels that exceed
rates applied to residential ones, who are more likely to
have children who attend schools in the district imposing
the tax, thereby creating a demand for services. SB 1021
would restore the ability of districts to assign more of
the tax burden to those who can pay more by virtue of
owning commercial and industrial property, but aren't as
likely as residential property owners to consume the goods
and services the tax pays for. The Committee may wish to
SB 1021 (Wolk) -- 04/02/14 -- Page 5
consider whether SB 1021 strikes the right balance.
3. Ups and downs . Under Borikas , school districts can
only impose truly uniform taxes by applying the same rate
to all parcels, regardless of use or improvements, not
uniform rates that apply to each property in the same
class. School districts design these taxes to suit local
needs, and enact an ordinance in a public meeting, likely
after a robust public process because voters must approve
them by 2/3 vote. While SB 1021 restores the ability
districts used in the past to apply higher rates to
commercial and industrial use, the measure similarly
enables districts to apply lower rates too, which Borikas
currently prohibits. Additionally, districts cannot apply
lower rates on unimproved property under Borikas , unique
among all statutes authorizing qualified special taxes. SB
1021 also allows districts to combine and tax as a single
parcel those parcels under common ownership that constitute
one economic unit, such as a winery with production,
agricultural, and open space uses.
4. The old gray mare . SB 1021 restores some, but not all,
of the flexibility school districts enjoyed prior to
Borikas . Under the bill, a school district cannot simply
classify property as it wishes; instead, it can only
classify property into four different classifications
(commercial, industrial, single family residential,
multi-family residential), and must apply the same tax to
all properties within the classification, unlike Alameda's
Measure H that applied a higher rate to commercial parcels
above 2,000 square feet. Additionally, SB 1021 doesn't
retroactively bless previously imposed taxes that don't
comply with the decision, which previous unsuccessful bills
attempted (AB 59, Bonta, 2013). Instead, districts
currently contemplating new taxes to submit to voters in
the future would need to comply with SB 1021's new rules.
5. Vote key . While the California Constitution requires a
2/3 vote to increase state taxes on any taxpayer, the
Legislature can authorize local agencies to impose new or
higher taxes by majority vote. As such, Legislative
Counsel assigned SB 1021 a majority-vote key.
Support and Opposition (04/03/14)
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Support : Alameda Unified School District, California
Association of School Business Officials; California Labor
Federation; California School Boards Association;
California School Employees Association, California
Teachers Association; Davis Joint Unified School District,
Larkspur-Corte Madera School District; San Diego Unified
School District, San Francisco Unified School District,
Wiseburn School District.
Opposition : Air Logistics Corporation; Apartment
Association, California Southern Cities; Apartment
Association of Greater Los Angeles; Associated General
Contractors of California; Building Owners and Managers
Association of California; California Apartment
Association; California Association of Realtors; California
Attractions and Parks Association; California Bankers
Association; California Building Industry Association;
California Business Properties Association; California
Chamber of Commerce; California Grocers Association;
California Healthcare Institute; California Hotel and
Lodging Association; California Independent Petroleum
Association; California Manufacturers and Technology
Association; California Mortgage Bankers Association;
California Railroad Industry; California Restaurant
Association; California Retailers Association; California
Tank Lines, Inc.; California Taxpayers Association;
California; Chemical Transfer Company, Inc.; Council of
State Taxation; East Bay Rental Housing Association; Family
Business Association; Family Winemakers of California;
Howard Jarvis Taxpayers Association; International Council
of Shopping Centers; NAIOP of California, the Commercial
Real Estate Development Association; National Association
of Real Estate Investment Trusts; National Federation of
Independent Businesses; Nor Cal Rental Property
Association; Orange County Business Council; Orange County
Taxpayers Association; San Diego County Apartment
Association; Santa Barbara Rental Property Association;
Silicon Valley Leadership Group; Superior Tank Wash, Inc.;
TechAmerica; Tenet Health Care Corporation; West Coast
Leasing, LLC; West Coast Lumber and Building Material
Association.