BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1265 HEARING: 6/22/11
AUTHOR: Nielsen FISCAL: Yes
VERSION: 6/8/11 TAX LEVY: No
CONSULTANT: Detwiler
WILLIAMSON ACT CONTRACTS (URGENCY)
Allows counties to increase the assessed values of
Williamson Act land and divert the resulting property tax
revenues.
Background and Existing Law
Landowners and local officials can cooperate to conserve
agricultural and open space land under a three-part scheme:
Voluntary contracts that restrict land uses under
the Williamson Act. These contracts run for 10 years
(or 20 years in the case of the Farmland Security
Zone) and automatically renew each year for an
additional year.
Reduced property tax assessments for those
contracted lands.
State subventions to replace the forgone property
tax revenues.
About 16.6 million acres are under Williamson Act
contracts. In 2007, when 15.6 million acres were eligible
for state subventions, local officials claimed $37.7
million in direct General Fund payments. When the
Governor's 2003-04 Budget proposed ending the state
subventions, the Legislative Analyst's Office recommended a
ten-year phase-out. The first cuts came in 2008-09 when a
Budget trailer bill reduced the state subventions by 10%
(AB 1389, Assembly Budget Committee, 2008). The
Legislature's 2009-10 Budget reduced the subventions to
$27.8 million. However, Governor Schwarzenegger
essentially eliminated the subventions by cutting the
appropriation to $1,000.
When farmers, ranchers, conservation groups, and local
officials asked the Legislature to come up with a temporary
program to replace the lost state subventions, legislators
AB 1265 -- 6/8/11 -- Page 2
passed AB 2530 (Nielsen, 2010). After practitioners found
problems with that statute, the Legislature reenacted it,
added an urgency clause, and appropriated $10 million to
partially replace the counties' subventions (SB 863, Senate
Budget & Fiscal Review Committee, 2010). Governor
Schwarzenegger signed both bills. In March 2011, the
Legislature repealed last year's statute and eliminated the
$10 million appropriation (SB 80, Senate Budget & Fiscal
Review Committee, 2011). Governor Brown signed that bill.
After the October 2010 enactment, but before the March 2011
repeal, eight counties began to implement the statute that
allowed county officials to increase the assessed values of
Williamson Act contracted land and they prepared to divert
the resulting property tax revenues. To allow officials in
Kings, Madera, Mendocino, Merced, Shasta, Stanislaus,
Tulare, and Yolo counties to continue to implement last
year's temporary program and to allow other counties to
participate, Williamson Act supporters want the Legislature
to reenact the statute.
Proposed Law
Assembly Bill 1265 creates a temporary program that
counties can use when the state's open space subventions
are less than a specified level. AB 1265 allows counties
to increase the assessed values of Williamson Act
contracted land and divert the resulting property tax
revenues.
I. Shorter contracts and revaluations . If the state's
open space subventions are less than half of a county's
actual foregone general fund property tax revenue, AB 1265
allows the county to implement shorter Williamson Act
contracts and increase the assessed values. The terms of
the participating county's 10-year Williamson Act contracts
must be nine years, and terms of its 20-year Farmland
Security Zone contracts must be 18 years. While the
program is in effect, new contracts must be for nine or 18
years, respectively. After the initial year, one year must
be added to these contracts on their renewal dates, unless
the contracts are nonrenewed under existing law. If
additional revenues do not occur, two or three additional
years must be added to the contracts on their next
anniversary date to restore them to their full 10-year and
AB 1265 -- 6/8/11 -- Page 3
20-year terms.
In a county where the temporary program applies, an added
assessed value must be conveyed to the county auditor. The
added assessed value is equal to 10% of the difference
between the property's restricted value and its fair market
value. If a property's fair market value is lower than its
restricted value, then the added amount is zero. The
increased property tax revenue that results from this
calculation must appear on the taxpayer's annual bill.
Landowners can nonrenew their Williamson Act contracts
instead of accepting a shorter contract. In that
situation, the county assessor will not revalue the
property. A county that implements the bill's provisions
must annually record notices that state the affected parcel
numbers and their owners' names.
Counties must give timely written notice to Williamson Act
landowners of:
Hearings to adopt or rescind the contract and
revaluation provisions.
Decisions regarding the contract and revaluation
provisions.
The right to prevent contract amendments through
nonrenewal.
A county cannot modify or revalue a contract unless the
landowner gets 90 days notice of the opportunity for
nonrenewal and the landowner fails to nonrenew. If a
county adopts procedures that allow landowners to give
nonrenewal notices, the county can reduce this notice
requirement to 60 days. A landowner's failure to nonrenew
is implied consent to the contract and revaluation
provisions for that year.
The temporary program created by AB 1265 does not apply to:
Contracts that have been nonrenewed.
Contracts with cities.
Open space or agricultural easements.
Scenic restrictions.
Wildlife habitat contracts.
Contracts with atypical terms.
II. Increased revenues . AB 1265 requires that the
revenues generated by properties that are subject to the
AB 1265 -- 6/8/11 -- Page 4
bill's contract and revaluation provisions must be paid
exclusively to the participating counties.
III. Automatic termination . The provisions of AB 1265
automatically terminate on January 1, 2015, unless the
Legislature extends them. However, the counties may
collect previously authorized subventions and property tax
payments after that date.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Stopping the state's Williamson
Act subventions may provoke county officials to leave the
program. If counties can't afford the property tax breaks
that landowners enjoy, they'll nonrenew the contracts and
let them wind down over the next nine (or 18) years.
That'll end the nearly 50-year effort which affects about
half of California's farmland. To avoid that dismal
legacy, AB 1265 creates a temporary fix that replaces
enough of the lost subventions to keep counties from
abandoning the program. Just as the current statute has
three aspects - voluntary contracts, mandatory
reassessments, replacement revenues - AB 1265's temporary
program offers a parallel, three-part response. Counties
shorten the contracts by 10%, property valuations edge up
by 10%, and the counties get to keep the resulting
revenues. Landowners continue to benefit from preferential
tax valuations. The public interest is served by keeping
farms and ranches undeveloped and in open space. AB 1265
builds a bridge over which public officials, conservation
groups, and landowners can travel until California's
economic and fiscal conditions improve.
2. Really reallocating revenues . When Proposition 13
(1978) lowered the assessed valuation of real property and
capped the property tax rate, it also told the state to
allocate the resulting property tax revenues to local
governments. After the Legislature and successive
governors shifted property tax revenues from counties,
cities, special districts, and redevelopment agencies to
AB 1265 -- 6/8/11 -- Page 5
school districts to help the State General Fund, voters
banned those practices by passing Proposition 1A (2004) and
Proposition 22 (2010). Proposition 1A further prohibited
the Legislature from reallocating local governments' pro
rata shares of property tax revenues without a 2/3-vote in
each house. Because AB 1265 reallocates the new property
tax revenues from Williamson Act contracted land, the bill
requires a 2/3-vote.
3. Better ways ? Innovative when enacted in 1965, the
Williamson Act may not be the best way to protect farms and
ranches in the 21st Century. The Legislative Analyst's
Office remains skeptical of the Act's benefits. Others say
that the Act needs significant improvements and legislators
must do even more to effectively preserve agricultural
land. With decades of improvements in state land use laws
and local practices, California could move away from the
property tax features of the Williamson Act and learn from
the other states which deliver circuit breaker income tax
relief to property owners who are committed to protecting
farms, ranches, and habitats as open space. Propping up
the Williamson Act's program with AB 1265 may divert
legislators from the serious work of improving the state's
open space conservation laws.
4. What they said . In March 2010, the former Senate Local
Government Committee held an oversight hearing and explored
the Williamson Act's past, present, and future. After
reviewing the presentations and written materials, the
Committee's staff reached eight findings:
County officials, conservation groups, and
landowners generally support the Williamson Act's
voluntary contracts, the use-value property tax
assessments, and the state subventions to county
governments.
Governor Schwarzenegger's near-elimination of the
state subventions in 2009-10 makes it tough for
counties to remain in Williamson Act contracts.
Unless the Legislature restores the subventions in
2010-11 --- wholly or partially --- more counties will
follow Imperial County's example and nonrenew their
Williamson Act contracts.
If contract nonrenewals spread, it may be
impossible to replace Williamson Act contracts on
millions of acres of agricultural and open space land.
Legislators want to explore other revenue sources
AB 1265 -- 6/8/11 -- Page 6
to replace the State General Funds to pay for the
state subventions to counties.
Some legislators want to consider statutory changes
to the Williamson Act that will focus attention on
farm and ranch land of statewide importance.
Some legislators worry about landowners who
transfer or sell their water rights from Williamson
Act contracted land, making the property less
productive.
Some legislators want to explore other long-term
ways to preserve agricultural and open space lands,
possibly income tax relief for the landowners as an
alternative to use-value property tax relief.
5. Make it better . If legislators want the eight counties
that started to implement last year's bills to successfully
carry out the program in the 2011 tax year, the bill should
change the program's effective date from January 1, 2012 to
January 1, 2011 (page 3, line 1; page 4, line 28).
Further, because AB 1265 is based on last year's bills, the
program should sunset a year later in 2016 instead of 2015.
Assembly Actions
Assembly Local Government Committee: 9-0
Assembly Agriculture Committee: 9-0
Assembly Floor: 78-0
Support and Opposition (6/16/11)
Support : California Farm Bureau Federation; Resource
Landowners Coalition; Alliance of Western Milk Producers;
Association of California Egg Farmers; Audubon California;
California Association of Local Agency Formation
Commissions; California Association of Wheat Growers;
California Bean Shippers Association; California
Cattlemen's Association; California Cotton Alliance;
California Grain and Feed Association; California Grape &
Tree Fruit League; California Native Plant Society;
California Outdoor Heritage Alliance; California Pear
Growers; California Rangeland Trust; California Seed
Association; California State Association of Counties;
California State Floral Association; California Warehouse
Association; California Women for Agriculture; Nisei
AB 1265 -- 6/8/11 -- Page 7
Farmers League; Pacific Coast Renderers Association;
Pacific Egg and Poultry Association; Regional Council of
Rural Counties; Sierra Business Council; The Nature
Conservancy; Western Growers; Wine Institute; Counties of
Merced, Shasta, Stanislaus, Sutter, Tulare, and Yolo; Tom
Kidwell, Madera County Assessor; Dolores McIntyre.
Opposition : Unknown.