Amended in Senate June 11, 2014

Amended in Assembly May 5, 2014

Amended in Assembly April 21, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 2618

Introduced by Assembly Member John A. Pérez

(Coauthors: Assembly Members Dickinson and Ting)

February 21, 2014

An act to amend Sections 36601, 36602, 36603.5, 36621, 36622, 36624, 36625, 36628.5, 36632, 36650, and 36651 of, to amend and renumber Sections 36606, 36611, 36612, 36613, 36614, and 36614.5 of, and to add Sections 36609.5, 36614.6, 36614.7, and 36615.5 to, the Streets and Highways Code, relating to benefit assessments.

LEGISLATIVE COUNSEL’S DIGEST

AB 2618, as amended, John A. Pérez. Property and business improvement areas: benefit assessments.

The California Constitution generally requires that assessments, fees, and charges be submitted to property owners for approval or rejection after the provision of written notice and the holding of a public hearing.

The Property and Business Improvement District Law of 1994 authorizes cities to form property and business improvement districts that may levy assessments within a district for the purpose of making improvements and promoting activities of benefit to the properties and businesses within the district, and defines various terms for purposes of the law.

The law requires a management district plan to include, among other things, the name of the proposed district, a description of the boundaries of the district, and the total annual amount proposed to be expended for improvements, maintenance and operations, and debt service in each year of operation of the district.

This bill would require a management district plan to additionally include, for districts that are property-based, the proportionate special benefit derived by each identified parcel, begin insert to be determined as prescribed, end insert the total amount of all special benefits to be conferred on the properties located within the property-based district, the total amount of any general benefit, and a detailed engineer’s report, as specified.

This bill would define the term “special benefit” for purposes of that law to mean a particular and distinct benefit over and above general benefits, as defined, conferred on real property located in a begin delete property-based district, as defined, end delete begin insert district or to end insert the public at begin delete large, or other real property, as specified end delete begin insert large, and would specify that special benefit includes incidental, secondary, or collateral effects that arise even if those effects benefit property or persons not assessed end insert .

The law additionally requires the city council to adopt a resolution of formation containing, among other things, a statement that the improvements and activities to be provided in the district will be funded by the levy of the assessments and a finding that the property or businesses within the area of the district will be benefited by the improvements and activities funded by the assessments proposed to be levied.

This bill would begin delete require, for a property-based district, a statement of the source of funding to pay for any general benefits, end delete begin insert require end insert a finding that the property within the district will receive a special begin delete benefit, end delete begin insert benefit and end insert the total amount of all special benefits to be conferred on the properties within the property-based begin delete district, and the total amount of any general benefit. end delete begin insert district. end insert

The law authorizes a city council to levy assessments on businesses or on property owners, or a combination of the 2, and requires the city council to structure the assessments on whatever manner it determines corresponds with the distribution of benefits from the proposed improvements and activities.

This bill would require any property-based assessment to be proportional to the special benefit conferred on the assessed property, begin insert and conform with specified requirements end insert and would prohibit the assessment from exceeding the reasonable cost of the proportional special benefit conferred, as specified.

The bill would make various conforming changes to specify that the provisions described above apply to maintenance as well as improvements and activities.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 36601 of the Streets and Highways Code
is amended to read:

36601.  

The Legislature finds and declares all of the following:

(a) Businesses located and operating within business districts
in some of this state’s communities are economically
disadvantaged, are underutilized, and are unable to attract
customers due to inadequate facilities, services, and activities in
the business districts.

(b) It is in the public interest to promote the economic
revitalization and physical maintenance of begin delete the end delete business districts
begin delete of its cities end delete in order to create jobs, attract new businesses, and
prevent the erosion of the business districts.

(c) It is of particular local benefit to allow business districts to
fund business related improvements, maintenance, and activities
through the levy of assessments upon the businesses or real
property that receive begin delete certain end delete benefits from those improvements.

(d) Assessments levied for the begin insert purpose of conferring end insert special
benefit begin delete conferred end delete upon begin insert the end insert real property or businesses in a business
district are not taxes for the general benefit of a city, even if begin delete there
is some incidental benefit to end delete property or persons not begin delete assessed, from
the improvements, maintenance, or activities that confer the special
benefit end delete begin insert assessed receive incidental, secondary, or collateral effects
that benefit them end insert .

(e) Property and business improvement districts formed
throughout this state have conferred special benefits begin delete on end delete begin insert upon end insert
properties and businesses within their districts and have made
begin delete assessed end delete begin insert those end insert properties and businesses more useful by providing
the following benefits:

(1) Crime reduction. A study by the Rand Corporation has
confirmed a 12-percent reduction in the incidence of robbery and
an 8-percent reduction in the total incidence of violent crimes
within the 30 districts studied.

(2) Job creation.

(3) Business attraction.

(4) Business retention.

(5) Economic growth.

(6) New investments.

(f) With the dissolution of redevelopment agencies throughout
the state, property and business improvement districts have become
even more important tools with which begin delete to end delete begin insert communities can end insert combat
blight, promote economic opportunities, and create a clean and
safe environment.

(g) Since the enactment of this act, the people of California have
adopted Proposition 218, which begin delete amended end delete begin insert added end insert Article XIII D begin delete of end delete
begin insert to end insert the Constitution begin insert in order end insert to place certain requirements and
restrictions on the formation of, and activities, expenditures, and
assessments by property-based districts. Article XIII D of the
Constitution provides that property-based districts may only levy
assessments for special benefits.

(h) The act amending this section is intended to provide the
Legislature’s guidance with regard to this act, its interaction with
the provisions of Article XIII D of the Constitution, and the
determination of special benefits in property-based districts.

(1) The lack of legislative guidance has resulted in uncertainty
and inconsistent application of this act, which discourages the use
of assessments to fund needed improvements, maintenance, and
activities in property-based districts, contributing to blight and
other underutilization of property.

begin delete

(2) Improvements, maintenance, or activities conferring special
benefits upon property to be assessed also inevitably provide
incidental, secondary, or collateral effects that benefit others not
assessed. This incidental benefit is part of a special benefit and is
not intended to generally benefit the public and, therefore, does
not constitute a general benefit under Article XIII D of the
Constitution.

end delete

begin insert (2) end insert begin insert   end insert begin insert Activities undertaken for the purpose of conferring special
benefits upon property to be assessed inherently produce
incidental, secondary, or collateral effects that benefit property
or persons not assessed. Therefore, for special benefits to exist as
a separate and distinct category from general benefits, the
incidental, secondary, or collateral effects of those special benefits
are inherently part of those special benefits. The mere fact that
special benefits produce incidental, secondary, or collateral effects
that benefit property or persons not assessed does not convert any
portion of those special benefits or their incidental, secondary, or
collateral effects into general benefits. end insert

(3) It is of begin insert the end insert utmost importance that property-based districts
created under this act have clarity regarding restrictions on
assessments they may levy and the proper determination of special
benefits. Legislative clarity with regard to this act will provide
districts with clear instructions and courts with legislative intent
regarding restrictions on property-based assessments, and the
manner in which special benefits should be determined.

SEC. 2.  

Section 36602 of the Streets and Highways Code is
amended to read:

36602.  

The purpose of this part is to supplement previously
enacted provisions of law that authorize cities to levy assessments
within begin delete a end delete property and business improvement begin delete district, end delete begin insert districts, end insert to
ensure that those assessments conform to all constitutional
requirements and are determined and assessed in accordance with
the guidance set forth in this act. This part does not affect or limit
any other provisions of law authorizing or providing for the
furnishing of improvements or activities or the raising of revenue
for these purposes.

SEC. 3.  

Section 36603.5 of the Streets and Highways Code is
amended to read:

36603.5.  

Any provision of this part that conflicts with any other
provision of law shall prevail over the other provision of law, as
to districts created under this part.

SEC. 4.  

Section 36606 of the Streets and Highways Code is
amended and renumbered to read:

36606.5.  

“Assessment” means a levy for the purpose of
acquiring, constructing, installing, or maintaining improvements
and promoting activities that will provide certain benefits to
properties or businesses located within a property and business
improvement district.

SEC. 5.  

Section 36609.5 is added to the Streets and Highways
Code, to read:

36609.5.  

“General benefit” means, for purposes of a
property-based district, any benefit begin delete provided to the public at large
or any person or property other than the properties located within
the property-based district. “General benefit” excludes all types
and components of a end delete begin insert that is not a end insert “special benefit” as defined in
Section 36615.5.

SEC. 6.  

Section 36611 of the Streets and Highways Code is
amended and renumbered to read:

36614.5.  

“Property and business improvement district,” or
“district,” means a property and business improvement district
established pursuant to this part.

SEC. 7.  

Section 36612 of the Streets and Highways Code is
amended and renumbered to read:

36614.  

“Property” means real property situated within a district.

SEC. 8.  

Section 36613 of the Streets and Highways Code is
amended and renumbered to read:

36606.  

“Activities” means, but is not limited to, all of the
following that benefit businesses or real property in the district:

(a) Promotion of public events.

(b) Furnishing of music in any public place.

(c) Promotion of tourism within the district.

(d) Marketing and economic development, including retail
retention and recruitment.

(e) Providing security, sanitation, graffiti removal, street and
sidewalk cleaning, and other municipal services supplemental to
those normally provided by the municipality.

(f) Other services begin delete that end delete begin insert provided for the purpose of conferring
special end insert benefit begin insert upon assessed end insert businesses and real property located
in the district.

SEC. 9.  

Section 36614 of the Streets and Highways Code is
amended and renumbered to read:

36611.  

“Management district plan” or “plan” means a proposal
as defined in Section 36622.

SEC. 10.  

Section 36614.5 of the Streets and Highways Code
is amended and renumbered to read:

36612.  

“Owners’ association” means a private nonprofit entity
that is under contract with a city to administer or implement
improvements, maintenance, and activities specified in the
management district plan. An owners’ association may be an
existing nonprofit entity or a newly formed nonprofit entity. An
owners’ association is a private entity and may not be considered
a public entity for any purpose, nor may its board members or staff
be considered to be public officials for any purpose.
Notwithstanding this section, an owners’ association shall comply
with the Ralph M. Brown Act (Chapter 9 (commencing with
Section 54950) of Part 1 of Division 2 of Title 5 of the Government
Code), at all times when matters within the subject matter of the
district are heard, discussed, or deliberated, and with the California
Public Records Act (Chapter 3.5 (commencing with Section 6250)
of Division 7 of Title 1 of the Government Code), for all records
relating to activities of the district.

SEC. 11.  

Section 36614.6 is added to the Streets and Highways
Code, to read:

36614.6.  

“Property-based assessment” means any assessment
made pursuant to this part upon begin insert real end insert property.

SEC. 12.  

Section 36614.7 is added to the Streets and Highways
Code, to read:

36614.7.  

“Property-based district” means any district in which
a city levies a property-based assessment.

SEC. 13.  

Section 36615.5 is added to the Streets and Highways
Code, to read:

36615.5.  

“Special benefit” means, for purposes of a
property-based district, a particular and distinct benefit over and
above general benefits conferred on real property located in a
begin delete property-based district, end delete begin insert district or end insert to the public at begin delete large, or to other
real property end delete begin insert large. Special benefit includes incidental, secondary,
or collateral effects that arise end insert from the improvements,
maintenance, or activities of begin delete a end delete property-based begin delete district and the
incidental secondary or collateral end delete begin insert districts even if those incidental,
secondary, or collateral effects end insert benefit begin delete from those improvements,
maintenance, or activities. “Special benefit” end delete begin insert property or persons
not assessed. Special benefit end insert excludes general enhancement of
property begin delete value and any “general benefit” as defined in Section
36609.5. end delete begin insert value. end insert

SEC. 14.  

Section 36621 of the Streets and Highways Code is
amended to read:

36621.  

(a) Upon the submission of a written petition, signed
by the property or business owners in the proposed district who
will pay more than 50 percent of the assessments proposed to be
levied, the city council may initiate proceedings to form a district
by the adoption of a resolution expressing its intention to form a
district. The amount of assessment attributable to property or a
business owned by the same property or business owner that is in
excess of 40 percent of the amount of all assessments proposed to
be levied, shall not be included in determining whether the petition
is signed by property or business owners who will pay more than
50 percent of the total amount of assessments proposed to be levied.

(b) The petition of property or business owners required under
subdivision (a) shall include a summary of the management district
plan. That summary shall include all of the following:

(1) A map showing the boundaries of the district.

(2) Information specifying where the complete management
district plan can be obtained.

(3) Information specifying that the complete management district
plan shall be furnished upon request.

(c) The resolution of intention described in subdivision (a) shall
contain all of the following:

(1) A brief description of the proposed improvements,
maintenance, and activities, the amount of the proposed assessment,
a statement as to whether the assessment will be levied on property
or businesses within the district, a statement as to whether bonds
will be issued, and a description of the exterior boundaries of the
proposed district. The descriptions and statements do not need to
be detailed and shall be sufficient if they enable an owner to
generally identify the nature and extent of the improvements,
maintenance, and activities, and the location and extent of the
proposed district.

(2) A time and place for a public hearing on the establishment
of the property and business improvement district and the levy of
assessments, which shall be consistent with the requirements of
Section 36623.

SEC. 15.  

Section 36622 of the Streets and Highways Code is
amended to read:

36622.  

The management district plan shall include, but is not
limited to, all of the following:

(a) If the assessment will be levied on property, a map of the
district in sufficient detail to locate each parcel of property and, if
businesses are to be assessed, each business within the district. If
the assessment will be levied on businesses, a map that identifies
the district boundaries in sufficient detail to allow a business owner
to reasonably determine whether a business is located within the
district boundaries. If the assessment will be levied on property
and businesses, a map of the district in sufficient detail to locate
each parcel of property and to allow a business owner to reasonably
determine whether a business is located within the district
boundaries.

(b) The name of the proposed district.

(c) A description of the boundaries of the district, including the
boundaries of benefit zones, proposed for establishment or
extension in a manner sufficient to identify the affected lands and
businesses included. The boundaries of a proposed property
assessment district shall not overlap with the boundaries of another
existing property assessment district created pursuant to this part.
This part does not prohibit the boundaries of a district created
pursuant to this part to overlap with other assessment districts
established pursuant to other provisions of law, including, but not
limited to, the Parking and Business Improvement Area Law of
1989 (Part 6 (commencing with Section 36500)). This part does
not prohibit the boundaries of a business assessment district created
pursuant to this part to overlap with another business assessment
district created pursuant to this part. This part does not prohibit
the boundaries of a business assessment district created pursuant
to this part to overlap with a property assessment district created
pursuant to this part.

(d) The improvements, maintenance, and activities proposed
for each year of operation of the district and the maximum cost
thereof. If the improvements, maintenance, and activities proposed
for each year of operation are the same, a description of the first
year’s proposed improvements, maintenance, and activities and a
statement that the same improvements, maintenance, and activities
are proposed for subsequent years shall satisfy the requirements
of this subdivision.

(e) The total annual amount proposed to be expended for
improvements, maintenance, or activities, and debt service in each
year of operation of the district. If the assessment is levied on
businesses, this amount may be estimated based upon the
assessment rate. If the total annual amount proposed to be expended
in each year of operation of the district is not significantly different,
the amount proposed to be expended in the initial year and a
statement that a similar amount applies to subsequent years shall
satisfy the requirements of this subdivision.

(f) The proposed source or sources of financing, including the
proposed method and basis of levying the assessment in sufficient
detail to allow each property or business owner to calculate the
amount of the assessment to be levied against his or her property
or business. The plan also shall state whether bonds will be issued
to finance improvements.

(g) The time and manner of collecting the assessments.

(h) The specific number of years in which assessments will be
levied. In a new district, the maximum number of years shall be
five. Upon renewal, a district shall have a term not to exceed 10
years. Notwithstanding these limitations, a district created pursuant
to this part to finance capital improvements with bonds may levy
assessments until the maximum maturity of the bonds. The
management district plan may set forth specific increases in
assessments for each year of operation of the district.

(i) The proposed time for implementation and completion of
the management district plan.

(j) Any proposed rules and regulations to be applicable to the
district.

(k) (1) A list of the properties or businesses to be assessed,
including the assessor’s parcel numbers for properties to be
assessed, and a statement of the method or methods by which the
expenses of a district will be imposed upon benefited real property
or businesses, in proportion to the benefit received by the property
or business, to defray the cost begin delete thereof, including operation and
maintenance. end delete begin insert thereof. end insert

(2) In a property-based district, the proportionate special benefit
derived by each identified parcel shall be determined begin insert exclusively end insert
in relationship to the entirety of the capital cost of a public
improvement, the maintenance and operation expenses of a public
improvement, or the cost of the activities. An assessment shall not
be imposed on any parcel that exceeds the reasonable cost of the
proportional special benefit conferred on that parcel. Only special
benefits are assessable, and a property-based district shall separate
the general begin delete benefits end delete begin insert benefits, if any, end insert from the special benefits
conferred on a parcel. Parcels within a property-based district that
are owned or used by any city, public agency, the State of
California, or the United States shall not be exempt from
assessment unless the governmental entity can demonstrate by
clear and convincing evidence that those publicly owned parcels
in fact receive no special benefit. begin insert The value of any incidental,
secondary, or collateral effects that arise from the improvements,
maintenance, or activities of a property-based district and that
benefit property or persons not assessed shall not be deducted
from the entirety of the cost of any special benefit or affect the
proportionate special benefit derived by each identified parcel. end insert

begin delete

(l) In a property-based district, the sum of all special benefits
to be provided to the properties located within the property-based
district.

end delete begin delete

(m)

end delete

begin insert (l) end insert  In a property-based district, the total amount of all special
benefits to be conferred begin delete on end delete begin insert upon end insert the properties begin delete in end delete begin insert located within end insert
the property-based district.

begin delete

(n)

end delete

begin insert (m) end insert  In a property-based district, the total amount of begin delete any general
benefit. end delete begin insert general benefits, if any. end insert

begin delete

(o)

end delete

begin insert (n) end insert  In a property-based district, a detailed engineer’s report
prepared by a registered professional engineer certified by the
State of California supporting all assessments contemplated by the
management district plan.

begin delete

(p)

end delete

begin insert (o) end insert  Any other item or matter required to be incorporated therein
by the city council.

SEC. 16.  

Section 36624 of the Streets and Highways Code is
amended to read:

36624.  

At the conclusion of the public hearing to establish the
district, the city council may adopt, revise, change, reduce, or
modify the proposed assessment or the type or types of
improvements, maintenance, and activities to be funded with the
revenues from the assessments. Proposed assessments may only
be revised by reducing any or all of them. At the public hearing,
the city council may only make changes in, to, or from the
boundaries of the proposed property and business improvement
district that will exclude territory that will not benefit from the
proposed improvements, maintenance, and activities. Any
modifications, revisions, reductions, or changes to the proposed
assessment district shall be reflected in the notice and map recorded
pursuant to Section 36627.

SEC. 17.  

Section 36625 of the Streets and Highways Code is
amended to read:

36625.  

(a) If the city council, following the public hearing,
decides to establish a proposed property and business improvement
district, the city council shall adopt a resolution of formation that
shall include, but is not limited to, all of the following:

(1) A brief description of the proposed improvements,
maintenance, and activities, the amount of the proposed assessment,
a statement as to whether the assessment will be levied on property,
businesses, or both within the district, a statement on whether
bonds will be issued, and a description of the exterior boundaries
of the proposed district. The descriptions and statements need not
be detailed and shall be sufficient if they enable an owner to
generally identify the nature and extent of the improvements,
maintenance, and activities and the location and extent of the
proposed district.

(2) The number, date of adoption, and title of the resolution of
intention.

(3) The time and place where the public hearing was held
concerning the establishment of the district.

(4) A determination regarding any protests received. The city
shall not establish the district or levy assessments if a majority
protest was received.

(5) A statement that the properties, businesses, or properties
and businesses in the district established by the resolution shall be
subject to any amendments to this part.

(6) A statement that the improvements, maintenance, and
activities to be conferred on begin insert businesses and properties in end insert the district
will be funded by the levy of the begin delete assessments, and, for a
property-based district, to the extent that general benefits are
provided, the funding source for those general benefits. end delete
begin insert assessments. end insert The revenue from the levy of assessments within a
district shall not be used to provide improvements, maintenance,
or activities outside the district or for any purpose other than the
purposes specified in the resolution of intention, as modified by
the city council at the hearing concerning establishment of the
district.

(7) A finding that the property or businesses within the area of
the property and business improvement district will be benefited
by the improvements, maintenance, and activities funded by the
proposed assessments, and, for a property-based district, that
property within the district will receive a special benefit.

(8) In a property-based district, the total amount of all special
benefits to be conferred on the properties within the property-based
district.

begin delete

(9) In a property-based district, the sum of any general benefit.

end delete

(b) The adoption of the resolution of formation and, if required,
recordation of the notice and map pursuant to Section 36627 shall
constitute the levy of an assessment in each of the fiscal years
referred to in the management district plan.

SEC. 18.  

Section 36628.5 of the Streets and Highways Code
is amended to read:

36628.5.  

The city council may levy assessments on businesses
or on property owners, or a combination of the two, pursuant to
this part. The city council shall structure the assessments in
whatever manner it determines corresponds with the distribution
of benefits from the proposed improvements, maintenance, and
activities, provided that any property-based assessment begin delete is
proportional to the special benefit conferred on the assessed
property. end delete begin insert conforms with the requirements set forth in paragraph
(2) of subdivision (k) of Section 36622. end insert

SEC. 19.  

Section 36632 of the Streets and Highways Code is
amended to read:

36632.  

(a) The assessments levied on real property pursuant
to this part shall be levied proportionally to the special benefit
conferred on the real property, and shall not exceed the reasonable
cost of the proportional special benefit conferred on the real
property. Any additional costs of providing general benefits shall
not be included in the amounts assessed. The city council may
classify properties for purposes of determining the special benefit
conferred on property by the improvements, maintenance, and
activities conferred pursuant to this part.

(b) Assessments levied on businesses pursuant to this part shall
be levied on the basis of the estimated benefit to the businesses
within the property and business improvement district. The city
council may classify businesses for purposes of determining the
benefit to the businesses of the improvements, maintenance, and
activities conferred pursuant to this part.

(c) Properties zoned begin insert solely for no more than four residential
units that are used solely for residential purposes or zoned end insert for
agricultural begin delete use, end delete begin insert use end insert are presumed begin insert conclusively end insert not to receive
special benefit from the improvements, maintenance, and begin insert service end insert
activities funded through these assessments, and shall not be subject
to any assessment pursuant to this part.

SEC. 20.  

Section 36650 of the Streets and Highways Code is
amended to read:

36650.  

(a) The owners’ association shall cause to be prepared
a report for each fiscal year, except the first year, for which
assessments are to be levied and collected to pay the costs of the
improvements, maintenance, and activities described in the report.
The owners’ association’s first report shall be due after the first
year of operation of the district. The report may propose changes,
including, but not limited to, the boundaries of the property and
business improvement district or any benefit zones within the
district, the basis and method of levying the assessments, and any
changes in the classification of property, including any categories
of business, if a classification is used.

(b) The report shall be filed with the clerk and shall refer to the
property and business improvement district by name, specify the
fiscal year to which the report applies, and, with respect to that
fiscal year, shall contain all of the following information:

(1) Any proposed changes in the boundaries of the property and
business improvement district or in any benefit zones or
classification of property or businesses within the district.

(2) The improvements, maintenance, and activities to be
provided for that fiscal year.

(3) An estimate of the cost of providing the improvements,
maintenance, and activities for that fiscal year.

(4) The method and basis of levying the assessment in sufficient
detail to allow each real property or business owner, as appropriate,
to estimate the amount of the assessment to be levied against his
or her property or business for that fiscal year.

(5) The amount of any surplus or deficit revenues to be carried
over from a previous fiscal year.

(6) The amount of any contributions to be made from sources
other than assessments levied pursuant to this part.

(c) The city council may approve the report as filed by the
owners’ association or may modify any particular contained in the
report and approve it as modified. Any modification shall be made
pursuant to Sections 36635 and 36636.

The city council shall not approve a change in the basis and
method of levying assessments that would impair an authorized
or executed contract to be paid from the revenues derived from
the levy of assessments, including any commitment to pay principal
and interest on any bonds issued on behalf of the district.

SEC. 21.  

Section 36651 of the Streets and Highways Code is
amended to read:

36651.  

The management district plan may, but is not required
to, state that an owners’ association will provide the improvements,
maintenance, and activities described in the management district
plan. If the management district plan designates an owners’
association, the city shall contract with the designated nonprofit
corporation to provide services.