BILL ANALYSIS Ó AB 338 Page 1 Date of Hearing: April 22, 2015 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT Brian Maienschein, Chair AB 338 Roger Hernández - As Amended April 13, 2015 SUBJECT: Los Angeles County Metropolitan Transportation Authority: transactions and use tax. SUMMARY: Authorizes the Los Angeles County Metropolitan Transportation Authority (MTA), subject to voter approval, to impose an additional transactions and use tax at a rate of 0.5% for a period not to exceed 30 years. Specifically, this bill: 1)Authorizes MTA to impose a transactions and use tax at a rate of 0.5% that is applicable to the incorporated and unincorporated areas of Los Angeles County (County) for a period not to exceed 30 years. 2)Requires MTA to adopt the ordinance and submit the proposed transactions and use tax to the voters. Specifies that the ordinance only becomes operative, if approved by two-thirds of the voters voting on the measure, pursuant to Article XIII C of the California Constitution. 3)Requires the ordinance imposing the tax to contain all of the following: AB 338 Page 2 a) An expenditure plan that lists the transportation projects and programs to be funded by the tax; b) An expenditure plan that includes measures that ensure net revenues are shared equitably between regions of the County; c) A provision conforming the ordinance to the existing Transaction and Use Tax Law, except to the 2% combined transactions and use tax cap; d) A provision that limits MTA's administrative costs to 1.5% of total net revenues; and, e) A requirement that MTA allocate 20% of net revenues from the tax to bus operations and 5% of net revenues from the tax to rail operations, during the period that the ordinance is operative. 4)Requires MTA to notify the Legislature prior to the adoption of amendments to the adopted expenditure plan. 5)Allows MTA to incur bonded indebtedness payable from the net revenues of the tax. 6)Requires the 20% of tax revenues to bus operations to be allocated to all eligible and included municipal transit operators in the County and to MTA in accordance with current law. Requires the allocation to MTA and eligible and included municipal operators to be made solely from the revenues derived from the tax and not from local discretionary sources. AB 338 Page 3 7)Makes findings and declarations relating to Los Angeles County voter approved sales tax measures to fund transportation. FISCAL EFFECT: This bill is keyed fiscal. COMMENTS: 1)Transaction and Use Taxes. Transactions and use taxes are taxes imposed on the total retail price of any tangible personal property and the use or storage of such property when sales tax is not paid. These types of taxes may be levied as general taxes, which are unrestricted, or special taxes, which are restricted for a specified use. The Transactions and Use Tax law authorizes the adoption of local add-on rates to the combined state and local sales tax rate. The law has been amended multiple times to authorize specific cities, counties, special districts and county transportation authorities to impose a transactions and use tax, if voters approve the tax. Existing state law authorizes cities and counties to impose transactions and use taxes in 0.125% increments in addition to the state's 7.5% sales tax provided that the combined rate in the county does not exceed 2%. The Legislature has granted several exemptions to the 2% cap, including to several counties to allow an additional countywide transaction and use tax for transportation purposes. 2)Prior Legislation. SB 314 (Murray), Chapter 785, Statutes of 2003, originally enacted provisions that authorized MTA to impose a 0.5% transactions and use tax, not subject to the 2% AB 338 Page 4 cap for no more than six and one-half years, for specific transportation projects and programs. The authority to put a tax measure on the ballot was never used. AB 2321 (Feuer), Chapter 302, Statutes of 2008, modified those provisions to allow MTA to impose a transactions and use tax for 30 years. AB 2321 additionally required MTA to adopt an expenditure plan prior to submitting a transactions and use tax to the voters and to include specified projects and programs in its Long -Range Transportation Plan. In November 2008, more than 67% of Los Angeles County voters approved this tax in a ballot measure known as Measure R. Measure R, in addition to Measure C (1990) and Proposition A (1980), are the three 0.5% countywide transactions and use taxes that provide the majority of MTA's funding. AB 1446 (Feuer), Chapter 806, Statutes of 2012, authorized MTA, subject to voter approval, to extend the existing transactions and use tax (Measure R) for an unlimited amount of time, allowing MTA to determine a sunset date, if any. AB 1446 also required MTA to update its expenditure plan prior to submitting the tax measure to the voters. However, the measure put before Los Angeles County voters in November 2012 failed to achieve the two-thirds threshold necessary for passage. SB 1037 (Hernández), Chapter 196, Statutes of 2014, requires MTA to update its expenditure plan and Long-Range Transportation Plan before placing another transactions and use tax measure before the voters. According to the Board of Equalization, Los Angeles County has 14 transaction and use taxes, three county-wide taxes for transportation purposes and 11 city-wide taxes. Despite the statutory exemption for MTA's transactions and use tax, Los Angeles County has reached the 2% cap. 3)Bill Summary. This bill authorizes MTA to impose by ordinance an additional 0.5% transactions and use tax, for a period not AB 338 Page 5 to exceed 30 years, subject to two-thirds voter approval pursuant to the California Constitution. The transaction and use tax authorized by this bill is not subject to the 2% cap in existing law. Similar to prior legislation, this bill requires the ordinance imposing the tax to contain specified information, including an expenditure plan to list the transportation projects and programs to be funded from the tax. However, this bill also requires the expenditure plan to include measures that ensure revenues are shared equitably between regions of the County. Similar to AB 2321, this bill specifies that 20% of all revenue derived from that tax is for bus transit operations and 5% is for rail transit operations. This bill is author-sponsored. 4)Author's Statement. According to the author, "The purpose of this bill is to provide MTA with an opportunity to seek a county-wide voter approval for a half cent increase to the countywide sales tax for transportation purposes. As MTA continues to work with the subregional Council of Governments to develop priorities for a potential expenditure plan, this bill furthers that commitment by providing constructive parameters to ensure a fair and equitable distribution of resources and investments in the county. Moreover, this bill recognizes best practices by investing in transit and rail as an important part of addressing the traffic issues in Los Angeles. In fact, all three existing voter approved sales tax measures in LA County include funding for transit and rail. "While Los Angeles continues to experience some of the most challenging traffic congestion in the state and nation, Los Angeles voters have also recognized the importance of investing in a transportation network that is responsible to AB 338 Page 6 the needs to commuters, transit users, and that facilitates the movement of goods in the region. Most importantly, Los Angeles voters have responded to an expenditure plan that can demonstrate fairness in the distribution of investments throughout the region. "This bill provides an approach and potential pathway to bring additional resources to Los Angeles County by creating a platform which will lead to investments predicated on fairness and transparency." 5)Pending Legislation. This bill is substantially similar to SB 767 (De León), which passed out of the Senate Transportation and Housing Committee and is currently pending in the Senate Governance and Finance Committee. SB 767 would also authorize MTA to impose an additional countywide 0.5% transactions and use tax, but contains several differences to this bill. SB 767 allows MTA to determine the length of the transactions and use tax and this bill establishes a 30-year limit. Additionally, SB 767 does not contain several of the provisions in this bill, including the requirement that the expenditure plan must contain a measure to ensure equity between regions, the dedicated percentage of revenue to bus and rail operations, or the requirement that MTA must notify the Legislature prior to adopting amendments to the adopted expenditure plan. AB 464 (Mullin), currently pending in this Committee, would not impact the authority granted by this bill to MTA, but seeks to raise the overall statewide transactions and use tax rate cap from 2% to 3%. 6)Arguments in Support. Supporters argue given current transportation needs, this bill is a reasonable approach to getting additional funding that will help reduce gridlock, put AB 338 Page 7 people to work, and promote economic growth in the region. 7)Arguments in Opposition. Opposition argues that any increase in the transactions and use tax only adds to what is already one of the most regressive taxes in the state which disproportionately impacts California's most vulnerable residents. 8)Double-Referral. This bill is double-referred to the Transportation Committee. REGISTERED SUPPORT / OPPOSITION: Support Amalgamated Transit Union California Teamsters Public Affairs Council Opposition California Taxpayers Association Howard Jarvis Taxpayers Association AB 338 Page 8 Analysis Prepared by:Misa Lennox / L. GOV. / (916) 319-3958