Amended in Senate August 4, 2014

Amended in Senate June 24, 2014

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, begin delete 36632, end delete 36650, and 36651 of, to amend and renumber Sections 36606, 36611, 36612, 36613, 36614, and 36614.5 of, and to add Sections begin insert 33609.4, end insert 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, to be determined as prescribed, 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 district or to the public at large, and would specify that special benefit includes begin delete incidental, secondary, end delete begin insert incidental end insert or collateral effects that arise even if those effects benefit property or persons not assessed.

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 require a finding that the property within the district will receive a special benefit and the total amount of all special benefits to be conferred on the properties within the property-based district.

begin delete

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.

end delete begin delete

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

end delete

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 business districts 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 benefits from those improvements.

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

(e) Property and business improvement districts formed
throughout this state have conferred special benefits upon
properties and businesses within their districts and have made
those 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 communities can 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 added Article XIII D to the
Constitution in order 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.

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

(3) It is of the 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 property and business improvement districts, 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 providing activities that will provide certain benefits to
properties or businesses located within a property and business
improvement district.

begin insert

begin insert SEC. 5. end insert   

end insert

begin insert Section 36609.4 is added to the end insert begin insert Streets and Highways
Code end insert begin insert , to read: end insert

begin insert

begin insert 36609.4. end insert   

“Clerk” means the clerk of the legislative body.

end insert

begin delete SEC. 5. end delete
begin insert SEC. 6. end insert   

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 that is not a “special benefit”
as defined in Section 36615.5.

begin delete SEC. 6. end delete
begin insert SEC. 7. end insert   

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.

begin delete SEC. 7. end delete
begin insert SEC. 8. end insert   

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

36614.  

“Property” means real property situated within a district.

begin delete SEC. 8. end delete
begin insert SEC. 9. end insert   

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 provided for the purpose of conferring special
benefit upon assessed businesses and real property located in the
district.

begin delete SEC. 9. end delete
begin insert SEC. 10. end insert   

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.

begin delete SEC. 10. end delete
begin insert SEC. 11. end insert   

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.

begin delete SEC. 11. end delete
begin insert SEC. 12. end insert   

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 real property.

begin delete SEC. 12. end delete
begin insert SEC. 13. end insert   

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.

begin delete SEC. 13. end delete
begin insert SEC. 14. end insert   

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
district or to the public at large. Special benefit includes begin delete incidental,
secondary, end delete begin insert incidental end insert or collateral effects that arise from the
improvements, maintenance, or activities of property-based districts
even if those begin delete incidental, secondary, end delete begin insert incidental end insert or collateral effects
benefit property or persons not assessed. Special benefit excludes
general enhancement of property value.

begin delete SEC. 14. end delete
begin insert SEC. 15. end insert   

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, which may be made by reference to any plan or
map that is on file with the begin delete city end delete clerk. 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.

begin delete SEC. 15. end delete
begin insert SEC. 16. end insert   

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 property
and businesses included, which may be made by reference to any
plan or map that is on file with the begin delete city end delete clerk. 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 thereof.

(2) In a property-based district, the proportionate special benefit
derived by each identified parcel shall be determined exclusively
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 benefits, if any, 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. 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.

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

(m) In a property-based district, the total amount of general
benefits, if any.

(n) 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.

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

begin delete SEC. 16. end delete
begin insert SEC. 17. end insert   

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.

begin delete SEC. 17. end delete
begin insert SEC. 18. end insert   

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, which may be made by reference to any
plan or map that is on file with the begin delete city end delete clerk. 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 businesses and properties in the district
will be funded by the levy of the assessments. 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.

(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.

begin delete SEC. 18. end delete
begin insert SEC. 19. end insert   

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 conforms
with the requirements set forth in paragraph (2) of subdivision (k)
of Section 36622.

begin delete

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

end delete

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 estimated amount of any surplus or deficit revenues to
be carried over from a previous fiscal year.

(6) The estimated 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.