Amended in Senate April 12, 2016

Amended in Senate July 16, 2015

Amended in Senate July 8, 2015

Amended in Senate June 9, 2015

Senate Constitutional Amendment No. 5

Introduced by Senators Hancock and Mitchell

March 26, 2015

Senate Constitutional Amendment No. 5—A resolution to propose to the people of the State of California an amendment to the Constitution of the State, by adding Section 3.1 to Article XIII thereof, by adding Sections 2.5 and 8.8 to Article XIII A thereof, by adding Section 14 to Article XIII B thereof, and by adding Sections 8.6 and 8.7 to Article XVI thereof, relating to local government finance.

LEGISLATIVE COUNSEL’S DIGEST

SCA 5, as amended, Hancock. Local government finance.

The California Constitution provides that all property is taxable, unless exempted by the California Constitution or by federal law. The California Constitution authorizes the Legislature to classify personal property for differential taxation or for exemption by means of a statute approved by a 2⁄3 vote of the membership of each house.

This measure would exempt from taxation for each taxpayer an amount up to $500,000 of tangible personal property used for business purposes. This measure would prohibit the Legislature from lowering this exemption amount or from changing its application, but would authorize it to be increased consistent with the authority described above. This measure would provide that this provision shall become operative on January 1, 2019.

This measure, for owners of commercial and industrial property subject to begin delete reassessment, end delete begin insert reassessment under this measure end insert who begin delete also end delete operate a business or businesses on that property, where the begin insert resulting end insert increase in assessed value begin delete as a result of this measure end delete exceeds 25% begin delete compared to the assessed value of the property prior to the operation of this measure end delete , would exempt that portion of the begin insert increase in end insert assessed value that exceeds 25% begin delete as so described end delete from taxation for a period of 5 years if specified conditions are met.

The California Constitution generally limits ad valorem taxes on real property to 1% of the full cash value of that property. For purposes of this limitation, “full cash value” is defined as the assessor’s valuation of real property as shown on the 1975-76 tax bill under “full cash value” or, thereafter, the appraised value of that real property when purchased, newly constructed, or a change in ownership has occurred.

This measure, commencing on the lien date for the 2018-19 fiscal year, would require the full cash value of commercial and industrial property, as defined, to be the fair market value of that property as of the lien date. begin delete This measure, for the 2018-19 fiscal year, would require only 50% of those properties that have not been reassessed at fair market value, as specified, to be assessed at fair market value, and by the 2019-20 fiscal year would require all other properties that have not been brought to fair market value to be assessed at fair market value. This measure would require owners of property subject to reassessment as so described to pay only a portion, as provided, of any increase in property tax due in the first year and second years after initial reassessment to fair market value. end delete begin insert This measure would require the Legislature to provide by statute for the phase in of the reassessment of commercial and industrial property for fair market value in order to ensure a reasonable workload and implementation period for county assessors and taxpayers. end insert

This measure would establish the Local School and Community College Property Tax Fund in the State Treasury, which would be continuously appropriated for the support of school districts, charter schools, schools operated by county offices of education, and community college districts. The measure would require the Controller to allocate 11% of the moneys in the fund to community college districts based on an equal amount per unit of full-time equivalent student receiving educational services, and 89% of the moneys in the fund to school districts, charter schools, and county offices of education. For school districts, charter schools, and county offices of education, the measure would require the Superintendent of Public Instruction to allocate the moneys based on a formula that would include a base grant, a supplemental grant, and a concentration grant, as specified. The measure would require moneys from the fund to support the K-14 educational program for instructional improvement and accountability, and would prohibit them from being used to pay administrative costs. The measure would require school districts, charter schools, and county offices of education to demonstrate through their local control and accountability plans that they are increasing or improving services for unduplicated pupils in proportion to the increase in funds they receive pursuant to those supplemental and concentration grant allocations. The measure would prohibit moneys in the fund from being subject to appropriation, reversion, or a transfer by the Legislature, Governor, Director of Finance, or Controller for any purpose other than those specified in the measure, or from being loaned to the General Fund or any other fund of the state or any local government fund. The measure would, among other things, provide that moneys appropriated by the fund shall not be applied toward the minimum funding requirements for school districts and community college districts imposed by Section 8 of Article XVI of the California Constitution, and that they shall not be considered for purposes of calculations relating to the Budget Stabilization Account or the Public School System Stabilization Account.

This measure, for each fiscal year beginning with the 2018-19 fiscal year to the 2020-21 fiscal year, inclusive, would require the county assessor to make specified calculations to determine the total “baseline assessed value” and the “incremental assessed percentage” of commercial and industrial property, and to identify the “total revised assessed value” of all commercial and industrial property in the county as determined following the reassessment of commercial and industrial property. This measure would require the county assessor to make additional calculations using the total revised assessed value and the incremental assessed value to determine the incremental revenues available for distribution. This measure, beginning with the 2018-19 fiscal year and for each fiscal year thereafter, would require an amount equal to the reduction in revenues derived from the taxes imposed pursuant to the Personal Income Tax Law and the Corporation Tax Law for each county resulting from the higher property taxes due to the reassessment of commercial and industrial properties and the lower property taxes due to the exemptions described above as estimated by the Franchise Tax Board, to be transferred by each county auditor to the state General Fund and the Mental Health Services Fund, as provided. This measure, beginning with the 2018-19 fiscal year to the 2020-21 fiscal year, inclusive, would require the county auditor, after transferring the amounts as so described to the state General Fund and the Mental Health Services Fund, to make specified determinations and calculations with respect to the remaining incremental revenues, and to transfer specified amounts to the Controller for deposit in the Local School and Community College Property Tax Fund, for allocation and distribution, as described above. This measure would require the balance of the incremental revenues remaining after transferring the amounts as so described to the Controller to be allocated among local agencies. This measure would require the county auditor to report the incremental revenues available for distribution and calculation made, along with supporting documentation, to the Controller, and would require the Controller to certify that the calculation was properly made and to post the percentage figure for each county on the Controller’s Internet Web site. This measure, for the 2021-22 fiscal year, would require the county assessor to perform the calculations described above, and would require the county auditor to report the resulting percentage to the Controller. This measure, for the 2021-22 fiscal year and each fiscal year thereafter, would require the county auditor to make the determinations and calculation described above, and to transfer the resulting property tax revenues to the Controller for deposit in the Local School and Community College Property Tax Fund, and would require the balance of the incremental revenues to be allocated among local agencies.

This measure would require all local education agencies, community colleges, counties, cities and counties, cities, and special districts that receive funds from the new revenues generated by the reassessment of commercial and industrial properties to publicly disclose the amount of property tax revenues received, as specified, and how those revenues were spent, and to publish online all public disclosures, with a copy of each disclosure to the Controller. This measure would require all annual public audits required of local education agencies, community colleges, counties, cities and counties, cities, and special districts that receive funds from the new revenues generated by the reassessment of commercial and industrial properties to disclose the amount of property tax revenues received, as specified, and to confirm whether the use of those revenues is consistent with the requirements of this measure.

This measure would authorize expenses incurred by local education agencies to comply with these audit and disclosure requirements to be paid with funding from the Local School and Community College Property Tax Fund.

The California Constitution prohibits the annual appropriations subject to limitation of any entity of state or local government from exceeding its adjusted annual appropriations limit. The California Constitution defines “appropriations subject to limitation” as any authorization to expend during a fiscal year the proceeds of taxes levied by or for that entity, and defines “proceeds of taxes” to include all tax revenues and the proceeds to an entity of government from specified sources.

This measure would prohibit proceeds of taxes, and appropriations subject to limitation of each entity of government, from including tax revenues generated by the reassessment of commercial and industrial property under this measure.

The California Constitution requires the state, whenever the Legislature or a state agency mandates a new program or higher level of service on any local government, to provide a subvention of funds to reimburse the local government, with specified exceptions.

This measure would exclude the duty to collect the tax revenues generated by the reassessment of commercial and industrial property under this measure from being considered a new program or higher level of service mandated by the state. This measure would, however, authorize the board of supervisors of a county or city and county to direct the county auditor to allocate to the county or city and county an amount equal to the actual direct administrative costs associated with the implementation of the reassessment of commercial and industrial property.

Vote: ²⁄₃. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

WHEREAS, The majority of commercial and industrial
properties are assessed at or close to their actual market value, and
their owners are paying their share of property taxes to help support
schools and other local services. But many other commercial and
industrial properties currently are assessed far below their actual
value; and

WHEREAS, According to a recent study by USC Dornsife
researchers, owners of these underassessed commercial and
industrial properties are avoiding over $9 billion in local property
taxes that should be going to support schools, community colleges,
and other community services such as public safety, fire protection,
libraries, and parks; and

WHEREAS, Proposition 13 was approved by voters in 1978 to
protect homeowners from skyrocketing property taxes. But since
then, underassessment of commercial and industrial properties has
contributed to a tax shift that has substantially increased the share
of property taxes being paid by owners of residential properties,
including both homeowners and residential rental property; and

WHEREAS, Since 1978 the residential share of assessed value
statewide has increased from begin delete 55% to 72% end delete begin insert 55 percent to 72 percent end insert
of the total while the commercial, industrial, and agricultural share
of assessed value has decreased from begin delete 45% to just 28%; end delete begin insert 45 percent
to 28 percent end insert and

WHEREAS, The combination of Proposition 13 and the
Williamson Act have been effective tools in the preservation of
agricultural land and should be protected; and

WHEREAS, When homeowners sell their homes, the property
is reassessed to the full market value of the property based on the
sales price. But many large corporations and wealthy individuals
are able to take advantage of loopholes and complex stock
manipulations to avoid reassessment when a commercial or
industrial property changes hands. For example, in one widely
publicized transaction, a wealthy CEO was able to structure the
purchase of a $200 million hotel property in a way that prevented
reassessment, avoiding more than $1.1 million a year in local
property taxes; and

WHEREAS, California’s current system of taxing commercial
and industrial properties is an impediment to fair competition. It
favors underassessed businesses over other businesses competing
for the same customers that are assessed at their actual value. It
allows owners of underassessed properties to avoid paying their
share of taxes to support the local public services they benefit from
just as much as the fully assessed businesses that are paying their
fair share; and

WHEREAS, The current system of taxing commercial and
industrial properties also creates perverse incentives that discourage
owners from investing in improvements in order to avoid
reassessment, while these same underassessed owners are being
unfairly advantaged over other commercial and industrial property
owners, starting up or expanding an existing business, who are
assessed at the full market value of their property; and

WHEREAS, The current system of assessing commercial and
industrial properties has had the unintended consequence of
encouraging sprawl and discouraging “smart growth,” which is an
inefficient use of scarce resources such as energy, water, and land;
and

WHEREAS, While the property tax on business equipment and
fixtures is an irritating burden for small businesses, particularly
for those attempting to start up or expand, it also provides revenues
that support local services. Because this measure eliminates the
underassessment of commercial and industrial properties and
thereby provides other revenue to support local services, it also
can provide businesses with an exemption of up to $500,000 for
equipment and fixtures. A $500,000 exemption helps all businesses,
and will eliminate the tax on equipment and fixtures entirely for
begin delete 90% end delete begin insert 90 percent end insert of businesses whether they own and operate their
own small business or rent their place of business; and

WHEREAS, If commercial and industrial properties pay their
fair share of taxes, more money will be available for our public
schools, which remain funded well below the national average.
Because of the unique interactions between property tax revenues
and the Proposition 98 minimum funding guarantee, however, the
best way to ensure that all school districts benefit equally from
these new property tax revenues is to place them in a special fund
outside Proposition 98 and distribute them based on enrollment,
with more revenues going to those districts that have higher
proportions of low-income or English learner students and foster
youth; and

WHEREAS, If California were a country, it would have the
eighth largest economy in the world. California corporations are
enjoying record profits and many businesses are starting up,
expanding, and relocating here, even though some businesses do
leave California. The complaints of some businesses and their
spokespersons about high taxes are not an excuse for corporations
and wealthy investors to avoid paying their fair share of local
property taxes as do other businesses. Local communities are
strengthened when everyone is contributing to the common good
by paying their share to support schools, job training, public safety,
fire protection, and other local services; and

WHEREAS, Reforming commercial and industrial property
assessments to bring underassessed properties up to their full value
will remove tax-induced disincentives to investment in commercial
and industrial property, provide a level playing field for businesses
to compete, and require owners of underassessed properties to join
with the majority of businesses already paying their fair share to
support local schools and other community services; and

WHEREAS, Proposition 13 limits property tax rates to begin delete 1% end delete begin insert 1
percent end insert of assessed value. Requiring assessors to bring assessments
of underassessed commercial and industrial properties up to their
actual market value will not affect the begin delete 1% end delete begin insert 1 percent end insert limitation on
rates in any way. Property tax rates on California businesses will
continue to be among the lowest in the country; now, therefore,
be it

Resolved by the Senate, the Assembly concurring, That the
Legislature of the State of California at its 2015-16 Regular
Session commencing on the first day of December 2014, two-thirds
of the membership of each house concurring, hereby proposes to
the people of the State of California that the Constitution of the
State be amended as follows:

First--  

That it is the intent of the people of the State of
California to do all of the following in this measure:

(a) Eliminate the inequities and impediments to economic
growth caused by current laws governing the assessment of
commercial and industrial properties, by requiring all commercial
and industrial properties to be assessed at their full market value
and reducing the property tax on business equipment and fixtures.

(b) Preserve in every way Proposition 13’s protections for
homeowners and for rental residential properties. This measure
only affects the assessment of taxable commercial and industrial
property.

(c) Make no change to existing laws affecting the taxation or
preservation of agricultural land.

(d) Make sure schools, community colleges, counties, cities and
counties, cities, and special districts are appropriately spending
any new revenues they receive from this measure by requiring that
new revenues and their expenditure be publicly disclosed and
annually audited and that all required disclosures and audits are
easily accessible online.

(e) Authorize the distribution among local governments of any
new revenues resulting from the implementation of this law in the
same manner as other property tax revenues.

(f) Ensure that the portion of any new revenues going to local
schools and community colleges is treated as new revenues that
are in addition to all other funding for schools and community
colleges, and is allocated in a manner that benefits all schools and
community colleges consistent with constitutional requirements.
Accordingly, these additional funds for schools and community
colleges shall not be considered funds of the State, shall not be
subject to Proposition 98 or the Proposition 2 rainy day fund, and
shall not be subject to appropriation by the Legislature. The funds
will be allocated to school districts and community college districts
based on enrollment. School districts with higher proportions of
low-income and English learner students and foster youth will
receive additional funds to provide more or better services to those
students.

(g) Assist small businesses, whether they own or rent their place
of business, by reducing the business tangible personal property
tax on equipment and fixtures for each business by exempting
$500,000 of that property from taxation. This would eliminate the
tax on equipment and fixtures for about 90 percent of all California
businesses. The Legislature would be prohibited from lowering
this exemption but would be authorized to increase it.

(h)  begin delete Provide end delete begin insert To require the Legislature to provide end insert for the phase
in of the assessment of underassessed commercial and industrial
properties to give county assessors time to effectively implement
the new law.

(i) Provide owners of underassessed commercial and industrial
properties time to meet their obligations under the law by phasing
in assessment increases resulting from the initial implementation
of this law. Small business owners will be eligible for additional
assistance in complying with the law through an additional
five-year phase-in for small business owner-operators.

Second--  

That Section 3.1 is added to Article XIII thereof, to
read:

SEC. 3.1.  

(a) For each taxpayer paying the tax on tangible
personal property used for business purposes, an amount of up to
five hundred thousand dollars ($500,000) per taxpayer is exempt
from taxation. Fixtures shall be included as tangible personal
property subject to this exemption, but aircraft and vessels shall
not be included. The Legislature shall not lower this exemption
amount or change its application but otherwise may increase it
consistent with the authority enumerated in Section 2.

(b) (1) For owners of property subject to reassessment under
Section 2.5 of Article XIII A who operate a business or businesses
on that property, where the increase in assessed value as a result
of this measure exceeds 25 percent compared to the assessed value
of the property prior to the operation of this measure, that portion
of the assessed value that exceeds 25 percent compared to the
assessed value of the property prior to the operation of this measure
shall be exempt from taxation for a period of five years following
the reassessment of the property as a result of this measure,
provided that all of the following conditions are met:

(A) The owner uses a majority of the property for their own
business purpose.

(B) The total fair market value is less than three million dollars
($3,000,000) for the entire property, including land and buildings.
Property owners owning properties in a single county shall certify
under penalty of perjury that the aggregate fair market value of all
their properties in that county does not exceed three million dollars
($3,000,000) in order to qualify for this exemption. Property
owners owning properties in more than one county must certify
under penalty of perjury that the aggregate fair market value of all
of their properties statewide does not exceed three million dollars
($3,000,000) in order to qualify for this exemption.

(2) This exemption shall expire five years from its initial
application to a commercial or industrial property, at which time
the property owner shall be liable for the full amount of property
taxes levied on the property pursuant to the operation of this
measure. However, property owners who have realized a reduction
in property taxes as a result of the operation of this subdivision
are not liable for the property taxes exempted for the duration of
the operation of this exemption.

Third--  

That Section 2.5 is added to Article XIII A thereof,
to read:

SEC. 2.5.  

(a) (1) This section shall not apply to residential
property as defined in this section, whether it is occupied by a
homeowner or a renter. Residential property as defined in this
section shall be assessed consistent with Section 2 of Article XIII A.
This section shall also not apply to real property used for
commercial agricultural production as defined in this section.
Property used for commercial agricultural production as defined
in this section shall be assessed consistent with Section 2 of Article
XIII A.

(2) Notwithstanding Section 2 of Article XIII A, for the lien
date for the 2018-19 fiscal year and each lien date thereafter, the
“full cash value” of commercial and industrial real property that
is not used for commercial agricultural production or begin delete is end delete otherwise
exempt under the Constitution or a statute enacted pursuant to the
authority in Section 2 of Article begin delete XIII end delete begin insert XIII end insert begin insert   end insert begin insert A end insert is the fair market value
of that property as of that date, except as provided begin delete in subdivisions
(b) and (c). end delete begin insert by the Legislature pursuant to subdivision (b) end insert begin insert . end insert

begin delete

(b) (1) For the 2018-19 fiscal year only, the requirement that
those commercial and industrial properties subject to reassessment
under this section be assessed at fair market value shall apply only
to the 50 percent of such properties that have not been brought to
fair market value for any part of their property for the greatest
number of years prior to the 2018-19 lien date.

(2) For the 2019-20 and 2020-21 fiscal years only, the assessed
value of properties assessed at full market value pursuant to
paragraph (1) shall be increased by the rate of inflation, but not
more than 2 percent. In no event, however, shall the assessed value
of a property exceed the fair market value as of the lien date during
this period.

(3) Owners of property subject to this subdivision shall be
required to pay one-third of the amount of any increase in property
tax due and payable resulting from initial assessment to fair market
value in the first year upon receiving the new valuation required
by paragraph (1), two-thirds of the amount of any increase in
property tax due and payable in the second year, and the full
amount of any property tax due and payable in the third year after
initial reassessment to fair market value and in subsequent years
thereafter. The balance of the amounts due for the first and second
years following initial assessment to full market value are hereby
forgiven.

(c) (1) All other commercial and industrial properties subject
to reassessment under this section shall be assessed at fair market
value by the 2019-20 lien date.

(2) For the 2020-21 fiscal year only, the assessed value of
properties assessed at full market value pursuant to paragraph (1)
shall be increased by the rate of inflation, but not more than 2
percent. In no event, however, shall the assessed value of a property
exceed the fair market value as of the lien date during this period.

(3) Owners of property subject to this subdivision shall be
required to pay one-half of the amount of any increase in property
tax due and payable resulting from initial assessment to fair market
value in the first year upon receiving the new valuation required
by paragraph (1) and the full amount of any property tax due and
payable in the year following initial reassessment and in subsequent
years thereafter. The balance of the amount due for the first year
following initial assessment to full market value are hereby
forgiven.

end delete begin insert

(b) The Legislature shall provide by statute for the phase in of
the reassessment of commercial and industrial property as required
by this section over two or more lien dates commencing with the
lien date in 2018, in order to ensure a reasonable workload and
implementation period for county assessors and taxpayers.

end insert begin delete

(d)

end delete

begin insert (c) end insert  For purposes of this section:

(1) “Commercial and industrial real property” means any real
property that is not residential property or not used for commercial
agricultural production.

(2) “Residential property” shall include both single-family and
multiunit structures, and the land on which such structures are
constructed or placed, that are intended to be used and are used
for long-term residential occupancy, but shall exclude hotels,
motels, and similar structures that are used primarily for transient
and nonpermanent residence.

(3) “Real property used for commercial agricultural production”
is real property that is used and zoned for producing commercial
agricultural commodities and the parcel does not contain a
single-family residence or a multifamily residence that was
subdivided in accordance with the Subdivision Map Act (Division
2 (commencing with Section 66410) of Title 7 of the Government
Code), or any successor to that law, or that was described and
conveyed in one or more deeds separating the parcel from all
adjoining property.

begin delete

(e) Notwithstanding subdivision (a), it is the intent of the voters
in this section to provide a transition to fair market value as
provided in subdivisions (b) and (c), for the purposes of ensuring
a reasonable workload and implementation period for county
assessors and taxpayers.

end delete

Fourth--  

That Section 8.8 is added to Article XIII A thereof,
to read:

SEC. 8.8.  

(a) All local education agencies, community
colleges, counties, cities and counties, cities, and special districts
that receive funds from the new revenues generated by Section
2.5 of Article XIII A shall publicly disclose each year, including
in their annual budgets, the amount of property tax revenues they
received for that fiscal year as the result of Section 2.5 of Article
XIII A and how those revenues were spent.

(b) All annual public audits required of local education agencies,
community colleges, counties, cities and counties, cities, and
special districts that receive funds from the new revenues generated
by Section 2.5 of Article XIII A shall disclose the amount of
property tax revenues received for that fiscal year as the result of
Section 2.5 of Article XIII A and confirm whether the use of those
revenues is consistent with the requirements of this measure.

(c) All local education agencies, community colleges, counties,
cities and counties, cities, and special districts receiving new
revenues generated by Section 2.5 of Article XIII A shall publish
online all public disclosures required by this section, with a copy
of each disclosure to the Controller.

(d) Expenses incurred by local education agencies receiving
new revenues generated by Section 2.5 of Article XIII A to comply
with the audit and disclosure requirement of this section may be
paid with funding from the Local School and Community College
Property Tax Fund, and shall not be considered administrative
costs for purposes of subdivision (b) of Section 8.7 of Article XVI.

Fifth--  

That Section 14 is added to Article XIII B thereof, to
read:

SEC. 14.  

(a) For purposes of this article, “proceeds of taxes”
shall not include the revenues generated by Section 2.5 of Article
XIII A.

(b) For purposes of this article, “appropriations subject to
limitation” of each entity of government shall not include
appropriations of revenues generated by Section 2.5 of Article
XIII A.

(c) The duty to collect the revenues generated by Section 2.5
of Article XIII A shall not be considered a new program or higher
level of service mandated by the State for purposes of this article.
The board of supervisors of a county or city and county, upon the
adoption of a method identifying the actual direct administrative
costs identified in Section 75.60 of the Revenue and Taxation
Code, as that section read on July 1, 2015, that are associated with
the implementation of Section 2.5 of Article XIII A, may direct
the county auditor to allocate to the county or city and county,
prior to any allocation of property tax revenues, an amount equal
to the actual direct administrative costs, but not to exceed 3 percent
of the revenues that have been collected as a result of the
implementation of Section 2.5 of Article XIII A. The amount
determined to provide reimbursement for the actual direct
administrative costs of implementing Section 2.5 of Article XIII A
shall be deducted proportionately from the allocations to be
provided to cities, the county, and special districts, but not deducted
from the school share of any increased allocation. The board of
supervisors shall identify the ongoing costs of implementing
Section 2.5 of Article XIII A annually.

Sixth--  

That Section 8.6 is added to Article XVI thereof, to
read:

SEC. 8.6.  

(a) For each fiscal year beginning with the 2018-19
fiscal year to the 2020-21 fiscal year, inclusive, county assessors
shall calculate the following:

(1) The total “baseline assessed value” of all commercial and
industrial property in the county subject to Section 2.5 of Article
XIII A. The total “baseline assessed value” shall be calculated as
follows:

(A) The county assessor shall identify the total assessed value
of commercial and industrial property as determined pursuant to
Chapter 1 (commencing with Section 50) of Part 0.5 of Division
1 of the Revenue and Taxation Code, as that chapter read on July
1, 2015, for the 2017-18 fiscal year.

(B) The amount in subparagraph (A) shall be increased by the
amount for that fiscal year determined pursuant to Section 51 of
the Revenue and Taxation Code, as that section read on July 1,
2015.

(C) The county assessor shall add to the amount determined
pursuant to subparagraph (B) the incremental increase in assessed
value of commercial and industrial property resulting from the
sale or transfer of properties for purposes of the respective January
1 lien dates beginning with the 2018-19 fiscal year to the 2020-21
fiscal year, inclusive, provided the sale or transfer would have
triggered reassessment pursuant to Chapter 2 (commencing with
Section 60) of Part 0.5 of Division 1 of the Revenue and Taxation
Code, as that chapter read on July 1, 2015.

(D) The county assessor shall add to the amount determined
pursuant to subparagraph (C) the incremental increase in assessed
value of commercial and industrial property resulting in new
construction for purposes of the respective January 1 lien dates
beginning with the 2018-19 fiscal year to the 2020-21 fiscal year,
inclusive, as determined pursuant to Chapter 3 (commencing with
Section 70) of Part 0.5 of Division 1 of the Revenue and Taxation
Code, as that chapter read on July 1, 2015.

(2) The county assessor shall identify the total “revised assessed
value” of all commercial and industrial property in the county as
determined following the reassessment required by Section 2.5 of
Article XIII A for each fiscal year beginning with the 2018-19
fiscal year to the 2020-21 fiscal year, inclusive, except that for
the 2018-19 and 2019-20 fiscal years, the amount of assessed
value shall be reduced to reflect the amounts actually due and
payable pursuant to subdivisions (b) and (c) of Section 2.5 of
Article XIII A.

(3) For each fiscal year beginning with the 2018-19 fiscal year
to the 2020-21 fiscal year, inclusive, the county assessor shall
subtract the amount determined pursuant to subparagraph (D) of
paragraph (1) from the amount determined pursuant to paragraph
(2).

(4) For each fiscal year beginning with the 2018-19 fiscal year
to the 2020-21 fiscal year, inclusive, the county assessor shall
divide the amount determined pursuant to paragraph (3) by the
amount determined pursuant to paragraph (2). The resulting
percentage shall be known as the “incremental assessed percentage”
of commercial and industrial property in the county subject to
Section 2.5 of Article XIII A.

(b) For each fiscal year beginning with the 2018-19 fiscal year
to the 2020-21 fiscal year, inclusive, county assessors shall
multiply the total revised assessed value by the incremental
assessed percentage and a tax rate of one percent to determine the
incremental revenues available for distribution as the result of
Section 2.5 of Article XIII A.

(c) For each fiscal year beginning with the 2018-19 fiscal year,
all of the following shall apply:

(1) An amount equal to the reduction in revenues derived from
the taxes imposed pursuant to the Personal Income Tax Law (Part
10 (commencing with Section 17001) of Division 2 of the Revenue
and Taxation Code) and the Corporation Tax Law (Part 11
(commencing with Section 23001) of Division 2 of the Revenue
and Taxation Code), as those laws read on July 1, 2015, for each
county resulting from the higher property taxes due to the
implementation of Section 2.5 of Article XIII A and the lower
property taxes due to the implementation of Section 3.1 of Article
XIII, as estimated by the Franchise Tax Board each year for that
fiscal year, shall be transferred by May 15 of each year beginning
with the 2018-19 fiscal year and each fiscal year thereafter by
each county auditor to the Controller for deposit in the General
Fund and the Mental Health Services Fund, respectively.

(2) An amount equal to the reduction in property taxes resulting
from the exemption provided pursuant to subdivision (a) of Section
3.1 of Article XIII shall be calculated by the county auditor
beginning with the 2019-20 fiscal year and each fiscal year
thereafter. For purposes of calculating the aggregate amount of
personal property taxes exempted under that subdivision for each
fiscal year, the auditor shall apply the average annual rate of growth
of tangible personal property used for business purposes for the
period from the 2012-13 fiscal year to the 2017-18 fiscal year,
inclusive, to the total tangible personal property used for business
purposes for the prior fiscal year and subtract the amount of
tangible personal property used for business purposes not exempted
for that fiscal year.

(3) An amount equal to the value of foregone property tax
revenues pursuant to subdivision (b) of Section 3.1 of Article XIII
shall be calculated by the county auditor.

(d) For each fiscal year beginning with the 2018-19 fiscal year
to the 2020-21 fiscal year, inclusive, the county auditor shall do
the following with the incremental revenues remaining after
deducting from those revenues the amounts determined pursuant
to subdivision (c):

(1) Determine the combined weighted average tax rate in each
county for K-12 school districts, county offices of education, and
community college districts. The weighted average tax rate in each
county for K-12 school districts, county offices of education, and
community college districts shall be calculated by the county
auditor by averaging the effective combined tax rate for all of the
K-12 school districts, the county office of education, and all
community college districts in each tax rate area using weights for
each tax rate area determined by calculating the share of the total
assessed value of commercial and industrial property for each tax
rate area of the total assessed value of commercial and industrial
property as determined pursuant to Chapter 1 (commencing with
Section 50) of Part 0.5 of Division 1 of the Revenue and Taxation
Code, as that chapter read on July 1, 2015, for the 2017-18 fiscal
year for all tax rate areas in the county.

(2) Multiply the incremental revenues remaining after deducting
the amounts determined pursuant to subdivision (c) by the
combined weighted average tax rate determined pursuant to
paragraph (1). One-half of the resulting amount of property tax
revenue shall be transferred by the county auditor to the Controller
on February 1 of each fiscal year and one-half of the resulting
amount of property tax revenue shall be transferred to the
Controller on June 1 of each fiscal year, and shall be deposited
into the Local School and Community College Property Tax Fund
for allocation and distribution as set forth in Section 8.7 of Article
XVI.

(3) The balance of the incremental revenues remaining after
deducting the amounts determined pursuant to subdivision (c) and
the amount transferred pursuant to paragraph (2) shall be allocated
to local agencies pursuant to Chapter 6 (commencing with Section
95) of Part 0.5 of Division 1 of the Revenue and Taxation Code,
as that chapter read on July 1, 2015.

(4) Report the incremental revenues available for distribution
determined pursuant to subdivision (b), the deductions attributable
to subdivision (c), and the combined weighted average tax rate in
each county for K-12 school districts, county offices of education,
and community college districts determined pursuant to paragraph
(1), along with supporting documentation, to the Controller who
shall certify that the calculation was properly calculated and post
the percentage figure for each county on the Controller’s Internet
Web site.

(e) (1) For the 2021-22 fiscal year, the county assessor shall
perform the calculations specified in paragraphs (1) to (4),
inclusive, of subdivision (a) for that fiscal year. The county auditor
shall report the resulting percentage figure to the Controller who
shall certify that the calculation was properly calculated and post
the percentage figure for each county on the Controller’s Internet
Web site.

(2) (A) For the 2021-22 fiscal year and each fiscal year
thereafter, the county auditor shall perform the calculation specified
in paragraph (2) of subdivision (d) using the result of the
calculation in paragraph (1) and the percentage determined in
paragraph (1) of subdivision (d) and shall transfer one-half of the
resulting amount of property tax revenue to the Controller on
February 1 of each fiscal year and transfer one-half of the resulting
amount of property tax revenue to the Controller on June 1 of each
fiscal year, for deposit in the Local School and Community College
Property Tax Fund for allocation and distribution as set forth in
Section 8.7 of Article XVI.

(B) The balance of the incremental revenues remaining after
deducting the amounts determined pursuant to subdivision (c) and
the amount transferred pursuant to subparagraph (A) shall be
allocated to local agencies pursuant to Chapter 6 (commencing
with Section 95) of Part 0.5 of Division 1 of the Revenue and
Taxation Code as that chapter read on July 1, 2015.

(C) In making the calculation in subparagraph (A), the county
auditor shall calculate the amount of total revised assessed value
as if no exemption of property taxes were being provided pursuant
to subdivision (b) of Section 3.1 of Article XIII.

Seventh--  

That Section 8.7 is added to Article XVI thereof,
to read:

SEC. 8.7.  

(a) The Local School and Community College
Property Tax Fund is hereby created in the State Treasury to be
held in trust for the purposes set forth below and is continuously
appropriated for the support of school districts, charter schools,
schools operated by county offices of education, and community
college districts, as follows:

(1) Eleven percent to community colleges. Each year the
Controller shall allocate the funds to each community college
district based on an equal amount per unit of full-time equivalent
student receiving educational services.

(2) Eighty-nine percent to school districts, charter schools, and
county offices of education for schools operated by the county
superintendent of schools.

(3) Each year the Controller shall allocate the funds to school
districts, charter schools, and county offices of education based
on the following formula, to be calculated annually by the
Superintendent of Public Instruction:

(A) A base grant based on an equal amount per enrolled student
in each school district or charter school, provided, however, that
the base grant shall be adjusted by grade span, as follows: no grade
span adjustment per enrolled student in grades kindergarten to
grade 3, inclusive; 1.5 percent more per enrolled student in grades
4 to 6, inclusive; 4.5 percent more per enrolled student in grades
7 and 8; and 21 percent more per enrolled student in grades 9 to
12, inclusive. County offices of education shall receive a base
grant per student enrolled in schools operated by the county
superintendent of schools that is 33 percent more per enrolled
student than the base grant for school districts, but shall receive
no grade span adjustments to the base grant.

(B) A supplemental grant add-on for school districts and charter
schools equal to 20 percent of the base grant calculated pursuant
to subparagraph (A), multiplied by the percentage of unduplicated
pupils in that school district or charter school, and a supplemental
grant add-on for county offices of education equal to 35 percent
of the base grant calculated pursuant to subparagraph (A),
multiplied by the percentage of unduplicated pupils enrolled in
schools operated by the county superintendent of schools.

(C) A concentration grant add-on for school districts and charter
schools equal to 50 percent of the base grant calculated pursuant
to subparagraph (A), multiplied by the percentage of unduplicated
pupils in that school district or charter school in excess of 55
percent of the total enrollment in that school district or charter
school, and a concentration grant add-on for county offices of
education equal to 35 percent of the base grant calculated pursuant
to subparagraph (A), multiplied by the percentage of unduplicated
pupils enrolled in schools operated by the county superintendent
of schools in excess of 50 percent of the total enrollment in those
schools.

(D) An amount equal to 10.4 percent of the base grant per
enrolled student in kindergarten and grades 1 to 3, inclusive, for
school districts and charter schools that maintain an average class
enrollment of not more than 24 students for each schoolsite in
kindergarten and grades 1 to 3, inclusive, unless a collectively
bargained alternative annual average class enrollment for each
schoolsite in those grades is agreed to by the school district or
charter school.

(E) The Superintendent of Public Instruction shall subtract from
the total of the amounts computed pursuant to subparagraphs (A)
to (D), inclusive, the amount of property tax revenue received by
a basic aid school district or basic aid charter school that exceeds
the total amount of funding it would have been entitled to that
fiscal year pursuant to the local control funding formula established
pursuant to Article 2 (commencing with Section 42238) of Chapter
7 of Part 24 of Division 3 of Title 2 of the Education Code, as that
article read on July 1, 2015. For purposes of this section, a school
district or charter school that does not receive an apportionment
of state funds pursuant to the local control funding formula shall
be considered a basic aid school district or a basic aid charter
school.

(F) For purposes of this section, enrollment shall be measured
in units of average daily attendance or its equivalent, and
“unduplicated pupil” shall mean a student who is classified as
either an English learner, eligible for a free or reduced-price meal,
or a foster youth, as defined in Section 42238.01 of the Education
Code, provided that a student may only be counted once for
purposes of making supplemental and concentration grant
adjustments, regardless of whether she or he falls within more than
one of these student subgroups. Students shall not be counted as
enrolled in a school operated by a county superintendent of schools
if they are otherwise counted as enrolled in a school district for
purposes of calculating that school district’s local control funding
formula allocation.

(b) Moneys in the Local School and Community College
Property Tax Fund are dedicated to the support of the K-14
educational program for instructional improvement and
accountability, and shall not be used to pay administrative costs.
School districts, charter schools, and county offices of education
shall demonstrate through their local control and accountability
plans that they are increasing or improving services for
unduplicated pupils in proportion to the increase in funds allocated
pursuant to subparagraphs (B) and (C) of paragraph (3) of
subdivision (a).

(c) Notwithstanding any other law, the moneys deposited in the
Local School and Community College Property Tax Fund shall
not be subject to appropriation, reversion, or transfer by the
Legislature, the Governor, the Director of Finance, or the Controller
for any purpose other than those specified in this section, nor shall
such revenues be loaned to the General Fund or any other fund of
the State or any local government fund.

(d) Moneys allocated to community college districts, county
offices of education, school districts, or charter schools from the
Local School and Community College Property Tax Fund shall
supplement, and shall not replace, other funding for education.
Funds deposited into the Local School and Community College
Property Tax Fund and allocated from the Local School and
Community College Property Tax Fund shall not be deemed to be
part of “total allocations to school districts and community college
districts from General Fund proceeds of taxes appropriated pursuant
to Article XIII B and allocated local proceeds of taxes” for purposes
of paragraphs (2) and (3) of subdivision (b) of Section 8 or for
purposes of Section 21. Revenues generated by Section 2.5 of
Article XIII A shall not be deemed to be “General Fund revenues
which may be appropriated pursuant to Article XIII B” for purposes
of paragraph (1) of subdivision (b) of Section 8, Section 20, or
Section 21, nor shall they be considered in the determination of
“per capita General Fund revenues” for purposes of subdivisions
(b) and (e) of Section 8.

Eighth--  

This measure shall become operative on January 1,
2018, except that subdivision (a) of Section 3.1 of Article XIII
shall become operative on January 1, 2019.