BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1350 HEARING: 6/22/11
AUTHOR: Lara FISCAL: Yes
VERSION: 6/15/11 TAX LEVY: No
CONSULTANT: Weinberger
EXTRAORDINARY PROPERTY TAX RATES
Requires county auditors to verify local governments'
extraordinary property tax rates.
Background and Existing Law
Proposition 13 (1978) limited property tax rates to 1%,
cutting statewide property tax revenues by 57%. The power
to allocate the remaining property tax revenues became the
Legislature's duty.
The Legislature responded by allocating property tax
revenues to counties, cities, special districts, and school
districts based on each agency's pro rata share of the
property taxes collected within a county in the three
fiscal years prior to 1978-79 (SB 154, Rodda, 1978). In
1979, the Legislature permanently restructured the
allocation of property taxes, using SB 154's property tax
allocations as a base (AB 8, L. Greene, 1979).
The 1% limit on property tax rates did not apply to ad
valorem property taxes or special assessments needed to pay
the interest and redemption charges on any indebtedness
approved by voters before July 1, 1978. In its 1982
decision in Car-man v. Alvord, the California Supreme Court
ruled that extraordinary property tax rates (outside the
usual 1% ad valorem rate) imposed to fund employee pension
systems approved by the voters before July 1, 1978 are
valid under Proposition 13.
In response to confusion over how local officials used
their extraordinary property tax rates when calculating
property tax allocations under AB 8, the Legislature
imposed a temporary moratorium on property tax rates for
indebtedness other than bonds (AB 377, Roos, 1983) and
directed the Legislative Analyst's Office to study local
AB 1350 -- 6/15/11 -- Page 2
agencies' extraordinary property tax rates. In 1985, the
Legislature made the moratorium on extraordinary property
tax rates permanent (AB 13, Roos, 1985). The Roos bill
froze extraordinary tax rates for pensions approved by
voters before Proposition 13 at their 1982-83 levels.
To enforce this limit, the Legislature required a county
auditor to reduce a local agency's basic property tax
allocation by one dollar for every dollar of property tax
revenue that the agency received from a property tax rate
that exceeded statutory limits. The property tax revenues
subtracted from an agency's allocation are then reallocated
to school districts within the agency's jurisdiction in
proportion to average daily attendance.
Last year, an audit conducted by the State Controller
determined that officials in the City of Bell (Los Angeles
County), during the three fiscal years between 2007 and
2010, levied an extraordinary property tax rate to pay the
City's pension obligations that exceeded the rate allowed
under state law. As a result, property owners in Bell paid
approximately $2.9 million in excessive property taxes
during those three years. Rather than allowing the county
auditor to reallocate the excess revenues to schools, the
Legislature required the City of Bell to pay for refunds to
taxpayers who overpaid (AB 900, de Le�n, 2010).
To prevent local governments from imposing excessive rates
for their pensions and retirement systems, some legislators
want to require county auditors to verify that local
governments' extraordinary ad valorem property rates don't
exceed statutory limits.
Proposed Law
If a local government extends or increases, after January
1, 2012, an ad valorem property tax to support specified
pension programs or retirement systems, Assembly Bill 1350
requires a county auditor to verify, before the increase or
extension, that the property tax rate does not exceed the
maximum rate authorized by law.
AB 1350 requires a local government to provide the county
auditor, in the form, manner, and time prescribed by the
county auditor, any documentation that is necessary to
AB 1350 -- 6/15/11 -- Page 3
verify the imposed property tax rate.
AB 1350 requires the county auditor to reject the increase
or extension of any property tax rate that exceeds the
maximum rate specified in state law.
The bill requires a local government to reimburse the
county auditor's actual and reasonable costs for
administering the bill's verification requirement.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . AB 1350 protects taxpayers from
having to pay illegal property tax rates, like those
imposed on taxpayers in the City of Bell, to support local
governments' pension and retirement programs. Although a
county auditor must currently verify the results of
elections approving extraordinary property tax rates, the
auditor is not required to verify that the rates fall
within statutory limits and can't reject a rate that
exceeds the limits. AB 1350 simply provides this necessary
"check" on local governments' property taxes.
2. Not all rates . AB 1350 requires a county auditor to
verify only the extraordinary ad valorem property tax rates
for local governments' pensions and retirement programs,
but not the rates that pay for other kinds of voter
approved debt. Because property tax rates to repay bonded
indebtedness can vary significantly depending on how a bond
is structured and on changes in assessed valuation, county
auditors worry that verifying rate extensions or increases
for general obligation bonds would be a complex and
labor-intensive process. By contrast, the statutory limits
for pension and retirement systems' extraordinary property
tax rates are frozen at the rate imposed in a specified
base year, making it relatively easy to verify whether an
increase or extension exceeds the limit. While county
auditors may be reluctant to verify all extraordinary
property tax rate extensions or increases, the Committee
wish to consider amending AB 1350 to give county auditors
AB 1350 -- 6/15/11 -- Page 4
the option of verifying any extraordinary property tax rate
and rejecting a rate that is excessive.
3. Let's be clear . The bill's language requiring the
county auditor to reject the increase or extension of "any
property rate" that exceeds statutory limits, could be
misread as granting a county auditor the power to reject
any local government property tax rate. The Committee may
wish to consider amending AB 1350 to clarify that a county
auditor's authority to reject a rate extension or increase
that exceeds statutory limits applies only to rates to
support specified pension programs or retirement systems.
Assembly Actions
Assembly Local Government Committee: 7-0
Assembly Appropriations Committee:16-0
Assembly Floor: 78-0
Support and Opposition (6/16/11)
Support: Unknown.
Opposition : Unknown.