BILL ANALYSIS                                                                                                                                                                                                    




                     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). 





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          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  





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               "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  





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          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.