BILL ANALYSIS                                                                                                                                                                                                    






                                                                      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.  











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          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).)   












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                                                                     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.   












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                                                                     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.












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               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  











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                                                                     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  











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               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  











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                                                                     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  











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                                                                     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  











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               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


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               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












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                                                                     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


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          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












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                                                                     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












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          Superior Tank Wash Inc. 


          West Coast Leasing, LLC




          Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)  
          319-2098