BILL ANALYSIS Ó AB 681 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 681 (Ting) As Amended July 15, 2015 Majority vote -------------------------------------------------------------------- |ASSEMBLY: |79-0 |(June 2, 2015) |SENATE: |40-0 |(September 1, | | | | | | |2015) | | | | | | | | | | | | | | | -------------------------------------------------------------------- Original Committee Reference: REV. & TAX. SUMMARY: Makes specified changes to survey requirements applicable to the Board of Equalization (BOE) in determining the adequacy of the procedures and practices employed by the county assessors in their valuation of property. The Senate amendments: 1)Provide that if the board finds that a county or city and county has 'significant assessment problems,' as provided in Revenue and Taxation Code Section 75.60, a sample of AB 681 Page 2 assessments will be conducted in that county or city and county. 2)Specify that a survey report is due within two years if the survey commenced before July 1, 2016. 3)Strike out "2016 and each of the next four calendar years" and insert "2015 and every fifth calendar year thereafter." 4)Make technical amendments. AS PASSED BY THE ASSEMBLY, this bill: 1)Provided that the BOE shall proceed with the surveys of the assessment procedures and practices in the 10 largest counties as rapidly as feasible, and shall repeat or supplement each survey at least once in five years. 2)Required, commencing on or after January 1, 2016, and each of the next four calendar years, to survey the assessment procedures of one qualified county and conduct a sample of assessments on the local assessment roll of another qualified county. For purposes of conducting one survey and one assessment on two separate counties, a "qualified county or city and county" means the eleventh to twentieth largest counties. AB 681 Page 3 3)Required, commencing on or after January 1, 2016, and each of the next four calendar years, to survey the assessment procedures of three qualified counties and conduct a sample of assessments on the local assessment roll of two other qualified counties. For purposes of conducting the three surveys and two samples, a qualified county or city and county" means the 21st to the 58th largest counties. 4)Required that the size of the counties be determined based upon the total value of locally assessed property located in the counties on the lien date that falls within the 2016 calendar year and each of the next four calendar years. 5)Provided that qualified counties shall be stratified and selected at random by the board, in consultation with the California Assessors' Association (CAA). 6)Provided that changes to the survey requirements shall remain in effect until January 1, 2021, and as of that date is repealed. 7)Required the BOE, before preparing its written survey report, to notify the former assessor if the survey reviews the former assessor's procedures and practices, and meet with the former assessor to discuss and confer on those matters that may be included in the survey report. 8)Provided that an addendum to the final survey report shall be published to include a former assessor's written response to the findings and recommendations in the survey report that reviewed the former assessor's procedures and practices along with the BOE's comments, if any. 9)Required the BOE to issue the final survey report within one year after the date the BOE began the survey, except as follows: AB 681 Page 4 a) For a survey commenced on or after July 1, 2016, to June 30, 2017, within 15 months after the date the board began the survey; and, b) For any survey commenced on or after July 1, 2017, within 12 months after the date the board began the survey. FISCAL EFFECT: According to the Senate Appropriations Committee, the BOE indicates that it would require additional staff to complete the proposed surveys and samples within one year, as this bill requires. These costs are estimated to be $629,000 in 2016-17 and $571,000 annually thereafter (General Fund). This bill would not impact property tax revenues. COMMENTS: 1)Author's Statement: The author has provided the following statement in support of this bill: AB 681 improves the efficiency of performance audits conducted on every county assessor's office throughout the State by allowing BOE to focus its energy on a larger portion of the assessment roll in a shorter period of time. Under a new three-tiered system, the BOE will be able to reduce the time needed to complete a survey report by 50% to a full year. Performance audits are further improved by providing former assessors with an opportunity to address issues relating to the former assessor's procedures and practices. By reducing the time needed to finalize a survey report and allowing former assessors to address issues that may have occurred during their term, AB 681 will ensure performance audits reveal meaningful and timely information that can immediately be incorporated into existing assessment AB 681 Page 5 practices. 2)Background. The assessment practices survey program is one of California's ways of promoting uniformity, fairness, and integrity in the property tax assessment process. The BOE periodically reviews the practices and procedures of every county assessor's office. Although local governments are primarily responsible for assessing local property taxes, assessment practices surveys fulfill the state's public policy interest of addressing the inherent subjective nature of assessing property, and the financial interest that comes from state law requiring minimum funding for schools. The BOE must proceed with the surveys as rapidly as feasible, and must repeat the survey at least once every five years. Assessors are required to respond to the survey and provide an explanation as to how they have implemented, intend to implement, or the reasons for not implementing recommendations made by the BOE. A copy the response is then made available to the Assembly, Senate, BOE, and the local county board of supervisors. Annual responses are required until all of the issues expressed by the BOE have been resolved. 3)Scope of Assessment. Under Government Code Sections 1564 and 15642, the scope of assessment shall include the adequacy of the procedures and practices employed by the assessor in the valuation of property for tax purposes. The survey shall assess the practices as they relate to the uniform treatment of property so that all property is treated equitably and no class of property systematically undervalued or overvalued. Additionally, the survey must show the volume of assessment work, the responsibilities of the assessor, and the extent to which the practices of the assessor is consistent with or different from law and regulation. 4)Current Length of Survey. The survey process, from the initial field work to the publication process, takes on average 24 months. Quality control and the write-up take up the most amount of time, 4.8 months and 3.9 months, respectively. On-site field work is generally completed in a AB 681 Page 6 little over two months. Over the last year, the BOE has been working on improving the way in which surveys are conducted so as to complete them in a shorter period of time. Last year, in an effort to reduce time for the assessment surveys from two years to 18 months, the BOE implemented the following changes: a) reducing the size of the survey report, b) providing questionnaires to assessors prior to commencement of field work on non-core assessment topics to determine if further inquiry is required, c) rearranging and having simultaneous internal reviews of the report by different BOE divisions and county-assessed properties divisions, and d) shortening review times where appropriate. In general, it is unclear to committee staff whether the current two-year timeframe is an appropriate length of time for completing audits of county assessment procedures and practices. The benefits of a speedy audit must be weighed against any possible degradation in quality. 5)What Does this Bill Do? This bill creates a three-tiered survey program that focuses BOE's energy on the largest portion of the assessment role. The first tier, in general, maintains existing law by requiring a survey of the assessment procedures and practices and a sampling of assessments for two of the ten largest counties. The 10 largest counties will receive a survey and a sampling within five years. The second tier consists of the next 10 largest counties (i.e. counties 11 through 20). For tier two, a survey will be conducted for one county and a sampling of the assessments will be conducted on another county. All of the tier two counties will be either surveyed or assessed within five years. For the remaining 38 counties, three surveys and two samples will be conducted on five separate counties every year. In general, the BOE should be able to either survey or sample all 38 counties in a little over seven years. The counties shall be stratified and selected at random by the BOE, in consultation with the CAA. Finally, the BOE is required to issue the final survey report within one year for surveys commenced on or after July 1, 2017. This three-tiered system allows BOE to survey and sample AB 681 Page 7 nearly all of the state's assessment roll within five years, focusing BOE's resources on the largest portion of the assessment roll. The biggest benefit is that the BOE is now able to complete survey reports within one year instead of two. Unfortunately, because this bill expedites the completion rate of survey and sample reports, it will take the BOE a little over seven years to cycle through the bottom 38 counties. Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098 FN: 0001723