BILL ANALYSIS
AB 978
Page 1
Date of Hearing: April 20, 2009
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
AB 978 (V. Manuel Perez) - As Introduced: February 26, 2009
Majority vote. Fiscal committee.
SUBJECT : Transactions and use taxes: counties: economic
development.
SUMMARY : Authorizes a county board of supervisors to impose a
transactions and use tax (TUT) at a rate of 0.125% for the
purpose of funding economic development projects. Specifically,
this bill :
1)Authorizes counties to impose, by ordinance, a TUT at a rate
of 0.125% for a period not to exceed 16 years.
2)Provides that the ordinance imposing the TUT must be submitted
to the voters of the county and be approved by a two-thirds
vote.
3)Requires the ordinance to include an expenditure plan
describing the specific purposes for which the revenues from
the tax may be expanded.
4)Specifies that the revenues derived from that tax may be used
only for funding economic development projects including, but
not limited to, the constructions and acquisition of
facilities within the county.
5)Provides that the combined rate of all district taxes in the
county imposing the 0.125% TUT may not exceed the combined
maximum rate of 2%.
6)Allows the board of supervisors to extend the 0.125% TUT
beyond the initial 16-year period if all of the same
conditions applicable to the initial imposition of that tax
are met.
EXISTING LAW:
1)Authorizes local governments to impose, increase, or extend
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TUT, or district taxes, under specified conditions. [Revenue
and Taxation Code (R&TC) Part 1.6 (commencing with Section
7251) (TUT Law), and R&TC Part 1.7 (commencing with Section
7285) (Additional Local Tax Law)].
2)Authorizes a county to impose a district tax for general
purposes at a rate of 0.25%, or multiple thereof, if the
ordinance proposing the tax is approved by a two-thirds vote
of the board of supervisors and a majority vote of the
qualified voters of the county. (R&TC Section 7285).
Authorizes a county to impose a district tax for special
purposes at a rate of 0.25%, or multiple thereof, if the
ordinance proposing the tax is approved by a two-thirds vote of
the board of supervisors and a two-thirds vote of the qualified
voters in the county. (R&TC Section 7285.5).
Authorizes a county to impose a district tax at a rate of either
0.125% or 0.25%, for a period not to exceed 16 years, to fund
public library construction, acquisition, programs, and
operations within the county. (R&TC Section 7286.59).
Provides that the combined rate of all district taxed imposed in
any county may not exceed 2%.
FISCAL EFFECT : The Board of Equalization (BOE) staff projects
that, if all of the counties in the state impose a TUT by 0.125%
for funding of economic development projects, the annual gain in
revenue would be $622 million.
COMMENTS :
1)According to the author, blighted and economically depressed
areas need assistance in attracting business to help stimulate
their local economy, and communities need to take proactive
steps to encourage business growth. The purpose of this bill
is to provide local communities with flexibility to increase
local taxes for the specific purpose of supporting economic
development. This bill represents one more tool that could be
utilized by local communities to attract outside investors.
2)The proponents of this measure argue that local governments
need authority to raise, if they so choose, additional
matching funds for projects in their jurisdiction for
construction of infrastructure projects and other business or
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manufacturing projects. Proponents state that this bill would
provide an additional tool for local governments to raise
needed capital for improvements and job growth opportunities
in their communities.
3)The Committee staff notes all of the following:
a) Background . Under existing law, cities and counties may
impose a district tax, in increments of 0.25%, for general
or special purposes, subject to voter approval, provided
that the combined rate of tax does not exceed 2%. Counties
can also establish a transportation authority to impose
district taxes under the Public Utilities Code. Beginning
April 1, 2009, 111 local jurisdictions, including cities,
counties, and special purpose entities, impose a district
tax for general or specific purposes. Generally, a
district tax is imposed at a rate of 0.25% or 0.25%
increments up to the 2% limit. Some cities and counties
have more than one district tax, while others have none.
Because the combined rate of all district taxes imposed
within a county cannot exceed 2%, the current maximum
combined state, local, and district rate is 10.25%.
b) New authority for counties to impose a TUT at a lower
rate. As discussed, counties are already authorized to
impose a general or special tax subject to voter approval,
up to a total combined rate of 2%. This bill does not
increase the 2% maximum combined rate of tax nor does it
confer onto counties any new authority to impose a special
tax. In other words, if a county wants to impose a special
tax for economic development projects, it may do so under
current law. However, the rate of that special tax will
have to be either 0.25% or a multiple thereof. What this
bill proposes to do is reduce that tax rate in half if the
tax is levied for purposes of funding economic development
projects. Thus, this bill simply allows counties to impose
a TUT at a different rate, i.e. 0.125% rather than 0.25%,
as long as the funds are used for economic development.
BOE notes that counties, generally, impose TUTs at a rate
of 0.25%, with the exception of the district tax imposed
for library purposes [SB 154 (Thompson), Chapter 88,
Statutes of 1997]. However, the counties' authority to
levy a special tax for libraries is in lieu of the
authority to levy a special tax under R&TC Section 7285.5.
In other words, the county may impose only one special tax
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for library purposes. Committee staff queries whether this
bill should also be amended to expressly provide that a
county may impose a special tax for economic development
purposes only once - either under R&TC Section 7285.5 or
this bill.
Further, it appears that the Legislature set the rate of
special tax at 0.25% as a matter of convenience, and not
for any particular policy reason. The Committee may wish
to consider amending existing law to allow counties to
impose a special tax for any purpose, not just for the
purpose of funding economic development projects, at either
the existing prescribed rate of 0.25% or a lower rate of
0.125%, or multiple thereof.
c) Will this bill help counties to raise more money? The
stated purpose of this bill is to change counties' ability
to raise funds to encourage business growth in local
communities. By providing for a lower rate of tax for a
specific purpose, this bill allows counties to levy a
lesser tax that could support smaller projects and be more
acceptable to the local voters. However, this bill does
not increase the 2% cap, and thus, may be of very little
use to counties that either have already reached (Los
Angeles County), or are close to reaching, the 2% maximum
combined rate limit (for example, Alameda, Contra Costa,
and San Diego). Also, this bill limits to 16 years the
life of any special tax imposed by counties for purposes of
funding economic development projects, whereas, currently,
no such restrictions apply.
d) The 2% Cap . Local governments often find it difficult
to make up for decreases in state revenues with increases
in local revenues because counties have limited authority
to raise revenues, and local special taxes require a
two-thirds vote of the electorate. Furthermore, the
interaction between city-imposed and county-imposed TUTs
may cause some counties to run out of room under the 2%
maximum combined rate of tax. When a city imposes a TUT,
that tax counts toward the county's cap. Because this bill
does not increase the existing 2% threshold, a county may
not be as willing to put an economic development tax on the
ballot knowing that it may impede its ability to ask for
tax increases on other important local programs in the
future.
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e) What is the definition of an "economic development
project "? This bill restricts the use of revenues derived
from the imposition of an additional 0.125% tax to funding
economic development projects. However, this bill does not
define the term "economic development project" other than
to say that it includes, but is not limited to, the
construction and acquisition of facilities within the
county. As highlighted by the California Association for
Local Economic Development, the proponent of this bill, on
its website, "Economic development means different things
to different people. On a broad scale, anything a
community does to foster and create a healthy economy can
fall under the auspices of economic development?There are
probably as many definitions for economic development as
there are people who practice it? From a public
perspective, local economic development involves the
allocation of limited resources - land, labor, capital and
entrepreneurship in a way that has a positive effect on the
level of business activity, employment, income distribution
patterns, and fiscal solvency." Thus, a professional
organization, whose mission is to achieve excellence in
delivering economic development services to the
communities, acknowledges that "anything that fosters and
creates a healthy economy" qualifies as economic
development. Since this bill does not offer a definition
of "economic development," a regular voter in the community
may be challenged in deciding whether or not the purpose
for levying the proposed tax qualifies as "economic
development". The Committee staff suggests that this bill
be amended to provide a clear definition of "economic
development project".
f) BOE's administrative costs. Cities and counties are
required to contract with BOE to administer district taxes.
If a county were to adopt a district tax pursuant to this
measure, it would be required to contract with and
reimburse BOE for actual administrative costs associated
with the new tax. BOE staff notes that BOE's estimated
2007-08 administrative costs assessed to the existing
county special taxing jurisdiction range from $18,000 for
Inyo County to $2.6 million for Orange County.
g) Similar Legislation .
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SB 138 (Liu), introduced in the 2009-10 Legislative Session,
would increase the amount of graffiti prevention tax that a
city or county may impose, subject to voter approval, from
10 cents to 50 cents per aerosol container or container of
other marking substance, and from 5 cents to 25 cents per
felt tip marker or other marking instrument. SB 138 is
currently set for a hearing in the Senate Revenue and
Taxation Committee on April 22, 2009.
AB 1646 (DeSaulnier), introduced in the 2007-08 Legislative
Session, would authorize counties to impose a TUT at a rate
of 0.25%, or multiple thereof, not to exceed a maximum of
1%, for county health purposes. AB 1646 was held in the
Senate Revenue and Taxation Committee.
SB 264 (Alquist), Chapter 430, Statutes of 2007, authorized
the Santa Clara Valley Transportation Authority to impose a
TUT at a rate of 0.125% for transit facilities and
services.
AB 2321 (Feuer), Chapter 302, Statutes of 2008, extended from
6 years to 30 years the period within which a
voter-approved 0.5% local transportation sales tax in Los
Angeles County may be imposed.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association for Local Economic Development
Opposition
None on file
Analysis Prepared by : Oksana G. Jaffe / REV. & TAX. / (916)
319-2098