BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 1353 (Nielsen) - Williamson Act contracts. Amended: As Introduced Policy Vote: G&F 7-0 Urgency: No Mandate: No Hearing Date: April 28, 2014 Consultant: Mark McKenzie This bill does not meet the criteria for referral to the Suspense File. Bill Summary: SB 1353 would repeal the sunset date on provisions that authorize counties to increase the assessed value of lands under Williamson Act contract and retain the additional property tax revenues, under specified circumstances. Fiscal Impact: No immediate state revenue impacts because schools would receive the same amount of property taxes whether or not counties exercise the authority to reduce the duration of Williamson Act contracts and retain an increased property tax allocation. Shorter contracts may allow schools to receive property tax revenue increases sooner if a contract is not renewed, which could result in future reductions in General Fund expenditures pursuant to Proposition 98 minimum funding guarantees. Background: Under current law, landowners and local officials may enter into voluntary contracts that restrict land uses under the Williamson Act. These contracts generally run for 10 years, but the duration is 20 years under more restrictive Farmland Security Zones. The contracts automatically renew each year unless an action is taken to non-renew or cancel the contract, as specified. Williamson Act lands benefit landowners with reduced property tax assessments for the duration of the contracts. The state has historically provided subvention payments from the General Fund to counties for the loss of county general fund resources related to lands under Williamson Act contracts, but in recent years these payments have been substantially reduced or effectively eliminated. To mitigate the impact on counties related to the loss of state subvention funds, the Legislature passed AB 2530 (Nielsen), SB 1353 (Nielsen) Page 1 Chapter 391 of 2010, which allowed county officials to increase the assessed values of Williamson Act contracted lands and divert the resulting property tax revenues. After practitioners discovered technical issues with AB 2530, the Legislature re-enacted the provisions in a budget trailer bill (SB 863 (Budget and Fiscal Review Committee), Chapter 722 of 2010, which also appropriated $10 million to the subvention program. In March 2011, however, the Legislature repealed SB 863, eliminating both the $10 million subvention payment and the provisions that allowed counties to shorten Williamson Act contracts. In order to allow the eight counties that had initiated a process to implement the program, however, the Legislature reinstated the provisions without the appropriation for subvention payments in AB 1265 (Nielsen), Chapter 90 of 2011. Under current law, as enacted by AB 1265, counties are authorized to reduce the duration of a Williamson Act contract by ten percent and increase the assessed value by ten percent, if the state's open space subventions are less than half of a county's foregone property tax revenue. The additional property tax revenues are directed to the county. The contract continues to be automatically renewed each year, unless the contract is non-renewed or cancelled. If additional revenues do not occur, the contracts are restored to the original duration. The program established by AB 1265 does not apply to contracts that have been non-renewed, contracts with cities, open space or agricultural easements, scenic restrictions, wildlife habitat contracts, or contracts with atypical terms. These provisions are scheduled to sunset on January 1, 2015. Proposed Law: SB 1353 would delete the January 1, 2015 sunset on statutes enacted by AB 1265 that allow counties to shorten the duration of Williamson Act contracts, increase the assessed value on contracted lands, and divert the additional property tax to counties. Staff Comments: While these provisions allow for an increase in the assessed value of the Williamson Act properties that would be subject to the shorter duration, participating counties would retain any increase in revenues to offset loss of subvention funds. As such, there would be no state General Fund impact because the schools would receive the same amount of tax revenues with or without the bill. The only potential long term SB 1353 (Nielsen) Page 2 impact is that by implementing these provisions, some counties and landowners may stay under contract, rather than non-renewing. Under non-renewal, the schools would receive an increase in property tax revenues when the contract expires. When the school share of the property tax increases upon expiration of a contract, there is a corresponding reduction in state General Fund obligations related to the minimum funding guarantees in Proposition 98. According to the Department of Conservation, 11 counties currently participate in the program enacted by AB 1265.