BILL ANALYSIS �
AB 920
Page 1
Date of Hearing: April 29, 2013
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 920 (Ting) - As Amended: April 22, 2013
Majority vote. Fiscal committee.
SUBJECT : Property Taxation: tax bill information: interest on
refunds
SUMMARY : Establishes the Property Tax Transparency and
Accountability Program (Program) that would require
participating counties to include new information on each county
tax bill a comprehensive account of all services funded by local
governments and eliminates the requirement for counties to pay
interest on property tax refunds at a minimum of 3% per year.
Specifically, this bill :
1)Establishes the Program as a pilot program for participating
counties.
2)Requires each participating county to include in each county
tax bill, in addition to the information specified in Revenue
and Taxation Code (R&TC) Section 2611.6, the following
information:
a) Beginning with the 2014-15 fiscal year (FY), information
that indicates the percentage of the general ad valorem
property tax that is allocated to each local government
jurisdiction, including the county, city, special district,
and school district in the tax rate area (TRA) in which the
property is located; and,
b) Beginning with the 2015-16 FY, a comprehensive account
of all the services funded by local governments including,
but not limited to, services provided by the county, city,
special district, and any school district in the TRA in
which the property is located.
3)Provides that the Program will remain operative through the
2017-18 FY.
4)Requires, upon the cessation of the pilot program, each of the
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participating counties to provide a report to the Legislature
regarding the implementation of the pilot program, including
any required technology upgrades, workload adjustments, tax
bill designs, costs, and any recommendations regarding how a
county can best increase transparency about the use of general
ad valorem property tax revenues by local governments.
5)Eliminates the requirement that counties pay interest on
property tax refunds at the greater of 3% per year or the
"county pool apportioned rate," and instead, requires payment
only at the "county pool apportioned rate."
EXISTING LAW requires the:
1)Following information to be included on each county tax bill,
whether mailed or electronically transmitted or included in a
separate statement accompanying the bill (R&TC Section
2611.6):
a) Value of the locally assessed property;
b) Tax rate of a maximum 1% amount of ad valorem tax
imposed on real property;
c) Rate or dollar amount of taxes levied in excess of the
1% limitation to pay for voter approved indebtedness
incurred before July 1, 1978, or bonded indebtedness for
the acquisition of improvement of real property;
d) Amount of any special taxes and special assessments
levied;
e) Amount of any tax rate reduction;
f) Amount of any exemptions;
g) Total taxes due and payable on the property covered by
the bill;
h) Instructions on tendering payment, including the name
and mailing address of the tax collector;
i) Any special parcel tax;
j) Information on the taxpayer's right to an informal
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assessment review if the taxpayer disagrees with the
assessed value on the tax bill and contacts the assessor's
office;
aa) Information on the taxpayer's right to file an
application for reduction in assessment for the following
year if the taxpayer and assessor are unable to agree on a
proper assessed value pursuant to the informal assessment
review;
bb) Address of the clerk of the county board of equalization
or the assessment appeals board; and,
cc) Notification that if property taxes are unpaid, it may
be necessary to pay delinquency penalties, costs,
redemption penalties, and a redemption fee. (R&TC 2611).
2)Payment of interest on property tax refunds at the greater of
3% per year or the county pool apportioned rate. (R&TC
Section 5151).
FISCAL EFFECT : Unknown
COMMENTS :
1)The author has provided the following statement in support of
this bill:
California property tax bills are complex and often
confusing to the taxpayer. Many taxpayers are unaware that
all revenue from property taxes is kept exclusively at the
local level for vital services such as education, police
and fire protection, parks and recreation, and so much
more. The tax bill includes payments for the general 1% ad
valorem property tax levied on all properties across the
state pursuant to Proposition 13, voter-approved debt rates
such as payments for school bonds, Mello-Roos taxes, parcel
taxes, and other assessments. Currently, property tax
bills identify the purpose of each payment, except for the
general 1% ad valorem tax, the largest tax on the property
tax bill. It is critical that they are provided a receipt
for their payment informing them of the local government
services funded by their payment, similar to any other
receipt they receive when conducting a financial
transaction. AB 920 would give taxpayers a receipt
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indicating what services they receive for their property
tax payment. This disclosure will increase transparency
and provide more information to taxpayers about the
important services, such as schools and public safety,
funded by property tax revenue.
AB 920 would also stabilize property tax refund payments,
providing local governments another tool for greater fiscal
oversight. Currently, any taxpayer owed a refund for
property tax overpayment will receive that payment with a
ceiling of three-percent interest or interest at the county
pool apportioned rate. The county pool apportioned rate is
the annualized rate of interest earned on the total amount
of pooled idle funds held and invested by the county
treasurer. The economic downturn has contributed to a fall
in many counties' pool rates, resulting in property tax
refunds paid with more interest than the county is earning.
This loss of local government revenue redirects money away
from schools and other important services. AB 920 would
require property tax refunds to be paid at the county pool
rate, providing more oversight and stability to local
government revenues during the economic downturn.
2)Proponents of this measure argue:
AB 920 increases disclosure and transparency on property
tax statements. Currently, it is impossible for taxpayers
to discern from their property tax bill what revenue is
kept at the local level for important services such as
schools, police, and fire. To fix this problem, this bill
would require county governments to disclose on each
property tax bill the different types of local public
services funded by the property tax.
This disclosure will help taxpayers understand their often
complex and confusing property tax bills. Property taxes
are the most important revenue stream for local
governments, and this bill will promote transparency and
mutual understanding of the money that funds schools and
other important local services.
3)Opponents of this measure argue:
CalTax opposes AB 920, which, among other things, reduces
the interest rate paid by county tax collectors and
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treasurers on property tax refunds owed to taxpayers.
While we understand counties' desire to reduce their
interest costs, this proposal sets up a disparity between
the interest rate that counties charge taxpayers for
underpayments and the rate at which they pay taxpayers for
overpayments.
It is our understanding that Sacramento County, for
example, charges taxpayers an annualized interest rate of
approximately 9 percent on underpayments, but under this
bill, would only pay taxpayers a rate of less than 3
percent on overpayments. Such a policy unfairly
disadvantages taxpayers. Interest is supposed to be
compensation for the use of money, not a revenue-raising
function or an additional penalty on taxpayers.
4)Committee staff comments.
a) Property Tax Bills . According to the Legislative
Analyst's report, Understanding California's Property
Taxes, a property tax bill consists of many taxes and
charges including the 1% rate, voter-approved debt rates,
parcel taxes, Mello-Roos taxes, and assessments. The
process of determining the property's taxable value is set
out in California's Constitution. Id. All of the revenue
from property tax remains within the county in which it is
collected and is used exclusively by local governments.
Id. However, state law controls the allocation of property
tax revenue to more than 4,000 local governments. Because
the allocation of local property taxes has evolved over
time through legislation and voter approved initiatives,
the property tax allocation system is complex, not well
understood, unresponsive to modern local needs, and not
transparent. Id.
b) How is the 1% ad valorem tax distributed ? The 1% rate
generates a large portion of the property tax at the local
level, about $43 billion in FY 2010-11. Despite being the
largest tax on property, the 1% is listed as a "general tax
levy" with no indication as to which local governments
receive the revenue or the purpose for which the funds are
used. Id. The allocation of the 1% tax revenue is
distributed pursuant to state law, commonly referred to as
"AB 8," which was a long term response to the fiscal
austerity introduced by Proposition 13. In general, AB 8
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provides a share of total property taxes collected within a
community to each local government that provides services
within that community. Id. The distribution is based on
the local government's proportionate county-wide share of
property taxes during the mid-1970s. Limited information
is available on the distribution of revenue from parcel
taxes, Mello-Roos taxes, and assessments. Id.
c) Implementing the Property Tax Transparency and
Accountability Program . In general, this bill provides for
two specific pieces of information to be included in a
property tax bill: 1) Beginning in the 2014-15 FY, the
county must provide information that indicates the
percentage of general ad valorem property tax that is
allocated to each local government jurisdiction; and, 2)
Beginning in the 2015-16 FY, the county must provide a
comprehensive account of all the services funded by local
governments. As noted above, the property tax allocation
system is complex, not well understood, unresponsive to
modern local needs, and not transparent . Therefore,
requiring the counties to provide the information as
specified in this bill appears to be beneficial to the
general public.
However, several organizations have raised concerns over
the implementation of the program. Specifically,
organizations have noted that it would require an enormous
amount of staff time to create a document describing all
required information. Concerns have also been raised as to
whether the information can be included as an insert along
with the tax bill or if the information has to be included
on the tax bill itself. If the information has to be
included in the tax bill, software programs may have to be
updated. According to one concerned organization,
Sacramento County reformatted its tax bill software in 2004
at a cost of $27,000. The language of this measure states
that "each participating county shall include in each
county tax bill " information as specified. Therefore, it
seems that participating counties may have to include the
information on the tax bill itself, potentially requiring
modification of the property tax bill software.
This measure also requires that the information provided be
based on the individual TRA. The county auditor allocates
the property tax revenue to local governments by TRA, which
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is a small geographical area within the county that
contains properties that are all served by a unique
combination of local governments. Id. A single county may
have thousands of TRAs. Id. When distributing revenues, a
county auditor will first collect the revenue from the TRA
and then distribute to each local government within the
TRA, the same amount of revenue it received in the prior
year. Id. Because there may be thousands of TRAs in a
single county, it may increase the staff time needed to
ensure that the appropriate information for each individual
taxpayer matches their TRA.
Despite the initial costs and difficulties with
implementing this program, the information is available by
the county auditor and computer systems can be made
automated to match specific TRA information to the
appropriate taxpayer. Additionally, if a tax bill software
requires updating, it may be done in a manner that
streamlines much of the required process, eliminating the
need for increased staff time.
d) Transparency . The author notes that the "disclosure
will increase transparency and provide more information to
taxpayers about the important services, such as schools and
public safety, funded by property tax revenue." Again, as
noted above, our current tax allocation system is
incredibly difficult to understand and is not transparent.
Having additional information for property owners as a
ready database for individual TRAs may be beneficial for
both local taxpayers and statewide officials. Despite the
enhanced transparency provided by this bill, it is
important to note that the information included in the tax
bill will still not be complete. The state provides a
large portion of the revenues received for things such as
schools and court houses. Therefore, the required
information under this bill may not necessarily provide a
complete and accurate picture as to how local government is
funded.
e) Property Tax Interest . Under current law, counties must
pay interest on the property tax refunds at the greater of
3% per year or the "county pool apportioned rate." The
statute defines the county pool apportioned rate as "the
annualized rate of interest earned on the total amount of
pooled idle funds from all accounts held by the county
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treasurer, in excess of the county treasurer's
administrative costs with respect to that amount." (R&TC
Section 5151). In 2012, the pool rate for all 58 counties
was below 3%, ranging from .0045% in Plumas County to 2.58%
in Tulare County. The rates for the state's five largest
counties are: Los Angeles (1.29%), Orange (.56%), San
Bernardino (.994%), and Santa Clara (.7903%). Despite
having very low rates for refunds, penalties and interest
can be very high for individuals that do not pay certain
taxes on time. For example, the taxes on the supplemental
roll become delinquent on December 10 for the first
installment. If the taxes due are not paid before they
become delinquent, a penalty of 10% will be imposed plus
costs and penalties accruing at a rate of 1.5% per month.
(R&TC Section 2616, 2617, 2910.1, and 2922).
The author states that the economic downturn has
contributed to a fall in many counties' pool rates,
resulting in property tax refunds paid with more interest
than the county is earning. Because of this, local
government revenue has been directed away from schools and
other important services. It is true that counties
currently earn less interest than what is paid out for
property tax refunds, and the imposition of interest is
generally provided for the cost of borrowing money.
However, as noted above, the imposition of interest has
also been used as a penalty, encouraging property owners to
pay their property tax bills on time.
Local governments greatly depend on property tax. As such,
prompt receipt of property tax payments is vital to
providing local services. However, lowering the interest
rate to the county pool rate for overpayment seems to
preclude its use as a penalty. Property taxes may be
refunded for a variety of reasons, including taxes that
have been erroneously or illegally collected, and illegally
assessed or levied. By maintaining an interest rate on
refunds that is higher than average county pool rate,
existing law encourages local governments to ensure that
taxes are levied and assessed in a constitutional and legal
manner.
f) Double referred . This bill was referred to the Assembly
Committee on Local Government on April 17, 2013, and passed
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out of that Committee on a vote of 7 to 0.
REGISTERED SUPPORT / OPPOSITION :
Support
CALPIRG
California Professional Firefighters
AFSCME
Opposition
California Taxpayers Association
Analysis Prepared by : Carlos Anguiano / REV. & TAX. / (916)
319-2098