BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1021| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 1021 Author: Wolk (D) Amended: 4/2/14 Vote: 21 SENATE GOVERNANCE & FINANCE COMMITTEE : 5-2, 4/9/14 AYES: Wolk, Beall, DeSaulnier, Hernandez, Liu NOES: Knight, Vidak SUBJECT : School districts: parcel taxes SOURCE : California School Boards Association DIGEST : This bill allows school districts to impose parcel taxes on a square foot basis, and tax parcels differently based on classification. ANALYSIS : 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, 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 CONTINUED SB 1021 Page 2 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. In 1991, the Legislature additionally allowed 15 types of local agencies to impose similar taxes; however, the legislation allowed local agencies to tax unimproved property at a lower rate than improved property, and contained no other exemptions. (SB 158, Senate Local Government Committee, Chapter 70). This bill defines 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, and At a lower rate on unimproved property. This bill allows districts to combine multiple parcels into one when they are commonly owned and constitute one economic unit. This bill applies only to school district parcel taxes imposed in the future; it contains "no inference" language that directs courts to adjudicate cases similar to Borikas v. Alameda Unified School District, 214 Cal. App. 4th 135, under the law in place at the time the district imposed the tax. Background 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 SB 1021 Page 3 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: 1.$120 per parcel per year for residential parcels, and commercial and industrial parcels under 2,000 square feet, and 2.15 cents per square foot for commercial and industrial property above 2,000 square feet, not to exceed $9,500 per year. The Court determined in Borikas v. Alameda Unified School District that because the school district statute did not also contain the language in SB 158 allowing for a lower rate on unimproved property, districts could not differentiate property by classification and assign different tax rates to each class. 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 "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. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SB 1021 Page 4 SUPPORT : (Verified 4/15/14) California School Boards Association (source) AFSCME, AFL-CIO Alameda Unified School District Association of California School Administrators California Association of School Business Officials California Labor Federation California School Employees Association California Teachers Association Davis Joint Unified School District Kentfield School District Larkspur-Corte Madera School District San Diego Unified School District San Francisco Unified School District Wiseburn School District OPPOSITION : (Verified 4/15/14) Air Logistics Corporation Apartment Association of Greater Los Angeles Apartment Association, California Southern Cities 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 Chemical Transfer Company, Inc. 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 SB 1021 Page 5 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 NorCal 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 Simi Valley Chamber of Commerce Southwest California Legislative Council Superior Tank Wash, Inc. TechAmerica Tenet Health Care Corporation West Coast Leasing, LLC West Coast Lumber and Building Material Association ARGUMENTS IN SUPPORT : 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 SB 1021 Page 6 process is worth it." ARGUMENTS IN OPPOSITION : According to the opposition, this bill overturns the Borikas decision on a prospective basis by allowing more than 1,000 school districts to impose nonuniform parcel taxes. In other words, this bill allows school districts to use property classifications commercial, industrial, single-family residential and multifamily residential to impose different tax rates. For example, a school district may choose to tax commercial property (shopping malls, restaurants, etc.) at $2 per square foot; industrial property (manufacturing facilities, warehouses, etc.) at $1 per square; single-family residential property at $200 per parcel; and multifamily residential property (apartment buildings, duplexes, etc.) at $1,000 per parcel. Further complicating the parcel tax regime, this bill allows school districts to treat multiple parcels as one under certain conditions for purposes of a parcel tax. If a developer owns an office building on one parcel, and a to-be-developed, but currently unimproved adjacent parcel, this bill would give the taxing authority the ability to collapse the two parcels into a single taxable site, and apply a parcel tax on the unimproved site at a much higher rate. This bill also appears to allow school districts to impose layered parcel taxes: A school district could impose a parcel tax based upon square footage as well as a parcel tax based upon the parcel's use, for example. AB:nk 4/15/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****