BILL ANALYSIS                                                                                                                                                                                                    






SENATE REVENUE & TAXATION COMMITTEE       AB 1807 -  
Takasugi
Senator Dede Alpert, Chair                Amended: 6-11-98


Hearing: June 17, 1998      URGENCY       Fiscal:  NO


SUBJECT: Property Tax:  Codifies a county/industry  
         settlement agreement relating to aircraft  
         valuation and airport possessory interests



DIGEST -- WHAT THE BILL DOES



     EXISTING LAW  provides for the valuation of aircraft.   
However, the actual methodology for valuation has been left  
to local assessors.  A committee of the Assessors'  
Association meets annually to recommend methods for valuing  
aircraft.  However, these valuation standards are advisory,  
and actual valuation is in the hands of individual county  
assessors.


     Existing statute and Board of Equalization regulation  
precludes assessing airline use of public airport runways  
and taxiways.  But court cases confirm assessors'  
responsibility to assess these possessory interests.


     As these issues have been particularly contentious,  
they are associated with years of expensive litigation of  
uncertain outcome.


     THIS BILL  is one of three bills that would codify an  
agreement between county assessors and airlines with  
respect to valuation of aircraft and valuation of  
possessory interests in airport landing facilities for  
property tax purposes.














     This bill provides that if aircraft are valued  
according to the method agreed to in the settlement, those  
values shall be presumed to be correct (i.e., anyone  
challenging the value will be obliged to prove it  
erroneous).  The value standard would be based on the  
taxpayer's original cost for the aircraft, with various  
adjustments.


     The bill also contains a county-by-county table of  
credits against future tax.  The credits would range from  
$18.3 million for Los Angeles, $13.5 million for San Mateo,  
and $4.5 million for Alameda, down to $500 for Humboldt  
County.  These credit amounts are the amounts that each of  
the counties has agreed to accept as its settlement amount,  
in order "to dispose of certain lawsuits and assessment  
appeals that have been filed, and to preclude the filing of  
other claims relating to (1) the assessment, equalization,  
and assessability of certain possessory interests in  
publicly owned airports and (2) aircraft valuation and  
equalization" by 13 named airlines.  The credits would be  
spread equally over the 1998-99 through 2002-03 fiscal  
years.


FISCAL EFFECT: 



     This bill is part of a legislative package that would  
codify a settlement agreement between counties and airlines  
regarding litigation and appeals of various assessments of  
aircraft and real property rights at airports.


     Many court cases and assessment appeals regarding the  
airline industry are currently outstanding.  In aggregate,  
they involve millions of dollars in property tax for past,  
current, and future tax years.  The large amount of tax  
revenue involved is evidenced by the $50 million in credits  
against future taxes which is specified in this bill.














     The actual revenue effect of the settlement package is  
indeterminate, since the eventual outcome of the pending  
litigation and appeals, if carried to conclusion, cannot be  
known.  That is, the $50 million specified in the bill is  
probably substantially less than the amount of county  
losses should all current litigation be pursued.


COMMENTS:



A.   Purpose of the bill


     The bill, and its companions, SB 30 (Kopp) and AB 2318  
(Knox), reflect a settlement package agreed to by 18  
counties and 13 airlines, relating to valuation of  
commercial aircraft, and to the taxability of possessory  
interests in various airport facilities.  These are issues  
over which the counties and airlines have feuded for many  
years, with neither side having confidence that its view  
will prevail should litigation go to conclusion.

     In the face of such uncertainty, and with little  
desire to spend the rest of their careers in court, the  
opposing parties have negotiated a broad agreement,  
including valuation standards which are agreed upon, and a  
schedule of credits against future tax.  This is probably  
the most efficient way of resolving an essentially  
intractable problem.


B.   Should bill be sunset if settlement is not concluded?


     The approach taken in this package is odd in that the  
settlement is all but agreed to by all parties, but not yet  
signed.  The settling parties await this legislation to  
effectively "bless" their efforts.  However, the  
Legislature is in a slightly awkward position of  












legislating ahead of the agreement, with no actual  
documents in hand.  It is understood that the settlement  
and the bills will be signed at roughly the same time, and  
all parties will come away "equally uncomfortable but  
greatly relieved."

     However, if for any reason the settlement is never  
concluded, the law should probably not be changed as  
proposed in this package of bills.  Perhaps they should be  
amended to provide that they only become operative if the  
settlement is finally approved by the parties.


Support and Opposition


     Support:  Airlines and counties party to the agreement


-------------------------- 
Consultant:  Martin Helmke
June 19, 1998  10:33 AM