BILL ANALYSIS Ó ACA 4 Page A Date of Hearing: July 13, 2015 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Philip Ting, Chair ACA 4 (Frazier) - As Introduced February 27, 2015 2/3 vote. SUBJECT: Local government transportation projects: special taxes: voter approval SUMMARY: Lowers, from two-thirds to 55%, the voter approval threshold for a local government to impose, extend, or increase a special tax to fund "local transportation projects" under its jurisdiction. Specifically, this constitutional amendment: 1)Authorizes a local government to impose, extend, or increase a special tax to fund "local transportation projects" under its jurisdiction, as may otherwise be authorized by law, with the approval of 55% of the voters voting on the proposition. ACA 4 Page B 2)Provides that a special tax to fund "local transportation projects" is not deemed to have been increased if it is imposed at a rate not higher than the maximum rate previously approved in the manner required by law. 3)Defines a "local transportation project" as the planning, design, development, financing, construction, reconstruction, rehabilitation, improvement, acquisition, lease, operation, or maintenance of local streets, roads, and highways, state highways and freeways, and public transit systems. 4)Provides that this constitutional amendment shall become effective immediately upon approval by the voters and shall apply to any local measure imposing, extending, or increasing a special tax for the funding of local transportation projects that is submitted at the same election. EXISTING LAW: 1)Classifies any tax a local government imposes as either a "general tax" or a "special tax". (Cal. Const., art. XIII C, § 2(a).) 2)Defines a "general tax" as any tax imposed for general governmental purposes. (Cal. Const., art. XIII C, § 1(a).) 3)Defines a "special tax" as any tax imposed for specific purposes, including a tax imposed for specific purposes, which is placed into a general fund. (Cal. Const., art. XIII C, § 1(d).) ACA 4 Page C 4)Prohibits a local government from imposing, extending, or increasing a general tax unless that tax is submitted to the electorate and approved by a majority vote. (Cal. Const., art. XIII C, § 2(b).) 5)Prohibits special purpose districts or agencies, including school districts, from levying a general tax. (Cal. Const., art. XIII C, § 2(a).) 6)Prohibits a local government from imposing, extending, or increasing a special tax unless that tax is submitted to the electorate and approved by a two-thirds vote. (Cal. Const., art. XIII C, § 2(d).) 7)Authorizes a city, county, or special district, by a two-thirds vote of its electorate, to impose a special tax within that city, county, or special district, except an ad valorem tax on real property or a transactions or sales tax on the sale of real property. (Cal. Const., art. XIII A, § 4) 8)Caps the maximum amount of any ad valorem tax on real property at one percent of the property's full cash value. (Cal. Const., art. XIII A, § 1(a).) This limitation, however, does not apply to ad valorem taxes or special assessments to pay the interest and redemption charges on bonded indebtedness incurred by a school district, community college district, or county office of education for the construction, reconstruction, rehabilitation, or replacement of school facilities, approved by 55 percent of the voters of the district or county. (Cal. Const., art. XIII A, § 1 (b)(3).) Any such proposition must include specified accountability requirements, including an annual, independent performance audit. ACA 4 Page D FISCAL EFFECT: Unknown COMMENTS: 1)The author has provided the following statement in support of this measure: Voters in nineteen counties throughout California have voted to impose special taxes for local transportation projects and programs in their county. Collectively, these counties generate between $3 billion and $4 billion annually - money that is used for transportation projects as identified and prioritized by each county and ratified by the voters. These counties, referred to as "self-help counties," have consistently provided reliable and stable funding for transportation-funding that far outstrips state and federal funding on an annual basis. They also have in place: Extensive accountability measures. Local elected oversight on taxpayer's dollars. Expenditure plans that explicitly detail how funds will be spent, allowing the public to fully understand where their local transportation [dollars] go. ACA 4 Page E Despite the success of these self-help counties, a two-thirds voter approval threshold is a near-impossible hurdle for other counties that are aspiring to be self-help counties. As a result, these counties are deprived of much-needed funding for transportation infrastructure, maintenance, and operations. ACA 4 gives hope to aspiring counties and to existing self-help counties whose existing special transportation tax is due to expire. If ACA 4 secures the necessary votes for passage, any county with a special transportation tax on the ballot at the same time [needs] to achieve the 55% threshold to be successful. Local control. Local opportunity. That's what ACA 4 provides. 1)This constitutional amendment is supported by the California Transportation Commission, which notes the following: The useful life of the existing system, which represents decades of major investments, is placed at risk due to the lack of necessary funding to meet basic maintenance, operation and rehabilitation needs. Congestion in urban areas, safety and unexpected delays in rural areas, and growing challenges of freight movement are only a few examples of the compelling issues facing California's transportation agencies. Our existing transportation system continues to deteriorate while demand increases, adversely affecting mobility, commerce, quality of life, the environment and the operational efficiency of key transportation assets. Sales tax investments, directed towards local transportation needs, have proven to provide tremendous benefit to the overall state transportation system. Funds ACA 4 Page F generated from sales tax measures serve to reduce congestion, improve public transportation, and enable local governments to better address the critical transportation needs of the state. 2)This constitutional amendment is opposed by the California Chamber of Commerce, which notes the following: Our primary concern with ACA 4 is that it provides blanket authority to the local government to impose nearly any type of "special tax" with a reduced voter threshold of only fifty-five percent. There are few parameters or restrictions under which a "special tax" may be imposed under ACA 4, other than the revenue must be used for transportation projects and the "special tax" cannot be an ad valorem or a transaction tax on real property. With such broad discretion in the type or scope of "special tax" to impose, we are concerned that it could lead to targeted taxes at the local level against unpopular taxpayers, industries, products, or property. Specifically, under ACA 4, a parcel tax could be disproportionately directed at commercial property within the local jurisdiction, thereby potentially undermining the protections in place under Proposition 13 and discriminating against commercial property versus residential. 3)Committee Staff Comments a) A brief overview of voter-approval requirements for local taxes : For most of California's history, local governments could raise taxes by a vote of the governing board. Beginning in 1978, voters approved a series of constitutional amendments that established voter-approval requirements for new local taxes. Specifically, Proposition 13 (1978) greatly constrained the ability of ACA 4 Page G local governments to raise property tax rates and required all new local government "special taxes" to be approved by two-thirds of voters. Proposition 62 (1986) and Proposition 218 (1996), in turn, required new "general taxes" to be approved by a majority of voters, and extended voter-approval requirements to other property-related levies not covered by Proposition 13. Finally, Proposition 26 (2010) broadened the definition of a "tax" to include some levies previously considered fees or charges, resulting in a wider application of voter-approval requirements. b) Proposition 39 as precedent : This constitutional amendment appears at least loosely modeled after Proposition 39 of 2000, which amended the California Constitution to allow school facility bond measures to be approved by 55% (rather than two-thirds) of the voters in local elections. Proposition 39 also allowed property taxes to exceed the 1% limit in order to repay the bonds. Proposition 39 provided that this lowered vote threshold would apply only if the local bond measure submitted to voters included the following: i) A requirement that the bond funds can be used only for construction, rehabilitation, equipping of school facilities, or the acquisition or lease of real property for school facilities; ii) A specific list of school projects to be funded and certification that the school board has evaluated safety, class size reduction, and information technology needs in developing the list; and, iii) A requirement that the school board conduct annual, independent financial audits until all bond funds have ACA 4 Page H been spent. Despite being opposed by groups such as the Howard Jarvis Taxpayers Association, which argued the lower vote threshold was unnecessary and would lead to higher property taxes, Proposition 39 passed with roughly 53.4% of the vote on November 7, 2000. c) Direct democracy in action : In June 2014, California voters decided over 140 local measures; among these were 85 measures seeking approval for taxes or bonds. A July 2014 report issued by local finance expert Michael Coleman noted that, "[c]onsistent with results in prior elections, majority vote tax measures fared much better than supermajority measures." At the time of the report's release, only one majority vote measure was trailing at the polls. While roughly two out of three supermajority measures passed in the June 2014 election, the report noted that, typically, only about one-half of two-thirds supermajority measures succeed. Solano County notes that it is one of many counties throughout California that has not been able to obtain voter approval for a countywide local sales tax for transportation purposes due to the two-thirds vote requirement. On two separate occasions, Solano County received the support of over 60% of voters for a local countywide sales tax for transportation, but not the two-thirds required for passage. The Solano Transportation Authority has been forced to manage scarce local revenues by phasing transportation projects over several years, which results in a longer project construction period with increased impacts on surrounding communities, including disruption to local businesses. d) Is there a rhyme or reason ? Ideally, a state's ACA 4 Page I requirements for approving local tax measures should be easy for residents to understand and reflect overarching objectives regarding citizen involvement in local taxation decisions. As the Legislative Analyst's Office (LAO) has noted, however, California's voter-approval process for local tax measures is both complex and "does not appear to follow any particular set of unifying principles." In evaluating potential changes to California's voter-approval requirements, the LAO has suggested the state begin by considering what objectives voter-approval requirements are designed to fulfil and evaluate potential changes based on whether or not they serve these purposes. Specifically, the LAO has suggested that the Legislature may wish to consider the following questions: i) Should voter-approval requirements vary based on the use of the revenue? ii) Should voter-approval requirements vary across local governments? iii) How should voter-approval requirements for revenue measures to repay infrastructure bonds or other long-term debt differ from requirements for revenues raised for local government operations, if at all? iv) What objectives does the existing distinction between general taxes and special taxes achieve? The current supermajority vote requirement makes it more difficult for local governments to impose taxes for specific purposes like transportation. The two-thirds threshold essentially empowers a minority of voters to block revenue measures that have been approved both by ACA 4 Page J their elected representatives and, in many cases, a majority of their fellow citizens. e) California's transportation infrastructure : On October 28, 2014, the biennial California Statewide Local Streets and Roads Needs Assessment<1> was released, with alarming results. The report noted that the condition of the system that makes up more than 80% of California's roadways is on the path to failure. In addition, the survey found that pavement conditions are declining and that existing funding levels are insufficient to repair or maintain streets, roads, bridges, sidewalks, storm drains, and traffic signs. The report noted that deferring this crucial work will likely double the cost of repairs in the future and impede efforts to reduce greenhouse gas emissions and other air pollutants. Finally, the report estimated that, in the next 10 years, the local system will have a $78.3 billion funding shortfall. f) Prior legislative effort : This constitutional amendment is substantially identical to ACA 23 (Perea), introduced in the 2011-12 Regular Session. ACA 23 (Perea) passed the Assembly Committee on Local Government by a vote of 6 to 3, passed the Assembly Committee on Appropriations by a vote of 12 to 5, and died on the Inactive File. g) Double-referral : This constitutional amendment was double-referred to the Assembly Committee on Transportation, which passed this constitutional amendment by a vote of 10 to 5 on April 27, 2015. The Assembly Committee on Transportation analysis notes the following: -------------------------- <1> This report is a collaboration between the California State Association of Counties, the League of California Cities, and the state's regional transportation planning agencies. ACA 4 Page K i) Since 1923, California has relied heavily on gas taxes to support both local streets and the state highway system. Gas taxes have the benefit of being fairly inexpensive to administer and, until recently, have served as a reasonably equitable means of distributing the tax burden amongst drivers in rough proportion to their use of the roadway system. ii) The gas tax is no longer a viable or sustainable revenue source. iii) According to the Institute on Taxation and Economic Policy, two important developments have combined to reduce greatly the functionality of the gas tax: (a) the purchasing power of gas tax revenues has declined significantly due to inflation; and, (b) Improvements in vehicle fuel efficiency have cut directly into gas tax revenues by allowing drivers to travel greater distances with less gasoline. REGISTERED SUPPORT / OPPOSITION: Support ACT, Southern California AIA Los Angeles Alameda-Contra Costa Transit District ACA 4 Page L Alameda County Transportation Commission American Society of Civil Engineers Region 9 Apostolic Faith Center Atkinson Contractors California Asphalt Pavement Association California Association of Councils of Governments California Greenworks, Inc. California Kids IAQ California State Association of Counties California Transit Association California Transportation Commission Capitol Corridor Joint Powers Authority Circulate San Diego ACA 4 Page M City of Camarillo City of Concord City of Fairfield Councilmember Rick Vaccaro City of Fairfield Mayor Harry T. Price City of Fairfield Vice-Mayor Chuck Timm City of Indian Wells City of Lomita City of San Jose City of Santa Monica City of Suisun City City of West Hollywood Civic Resource Group Clean Air Now ACA 4 Page N Climate Resolve Coalition For A Safe Environment Coalition for Clean Air Community Dreams Community Health Councils Council of Infill Builders Cubic Culver City Mayor Meghan Sahli-Wells Diverse Strategies for Organizing El Grove Chamber of Commerce FAST Gary Shelton Consulting Glendale City Employees Association ACA 4 Page O Global Green Green Commuter HDR IBEW Local 11 Ironworkers Local 433 JMB Realty Kal Krishnan Consultant Services Laborers Local 300 L.A. Business Council L.A. County Federation of Labor L.A./Orange County Building & Construction Trades Council LA River Revitalization Corp. League of California Cities ACA 4 Page P Los Angeles Area Chamber of Commerce Los Angeles - San Diego - San Luis Obispo Rail Corridor Agency Board of Directors Los Angeles Walks Los Angeles World's Fair MNS Engineers Move LA Natural Resources Defense Council Occidental College Urban & Environmental Policy Institute Organization of SMUD Employees Parsons Brinkerhoff Sacramento Metropolitan Chamber of Commerce San Bernardino Public Employees Association San Francisco Municipal Transportation Agency ACA 4 Page Q San Luis Obispo County Employees Association Santa Clara Valley Transportation Authority Santa Cruz County Regional Transportation Commission Santa Cruz Metropolitan Transit District Santa Monica Spoke SENER Engineering & Systems Inc. Sieroty Company, Inc. Solano County Board of Supervisors Solano Transportation Authority South Bay Cities Council of Governments Southern California Transit Advocates The Transit Coalition Town of Danville ACA 4 Page R Transform Transportation Agency for Monterey County Transportation Authority of Marin Tristan Management and Consulting Valley Industry and Commerce Association Ventura County Transportation Commission Westside Center for Independent Living Opposition Air Logistics Corporation Apartment Association of Greater Los Angeles Associated Builders and Contractors of California California Association of Realtors ACA 4 Page S California Chamber of Commerce California Manufacturers & Technology Association California Retailers Association California Tank Lines Inc. California Taxpayers Association Chemical Transfer Co. Howard Jarvis Taxpayers Association National Federation of Independent Business Orange County Business Council Orange County Taxpayers Association Santa Barbara Rental Property Association Solano County Taxpayers Association Southwest California Legislative Council ACA 4 Page T Superior Tank Wash Inc. West Coast Leasing, LLC Analysis Prepared by:M. David Ruff / REV. & TAX. / (916) 319-2098