BILL ANALYSIS Ó
AB 2618
Page 1
Date of Hearing: April 30, 2014
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
K.H. "Katcho" Achadjian, Chair
AB 2618 (Pérez) - As Amended: April 21, 2014
SUBJECT : Property and business improvement areas: benefit
assessments.
SUMMARY : Add definitions and requirements from Article XIII D
of the California Constitution to the Property and Business
Improvement District Law. Specifically, this bill :
1)Adds definitions and requirements from Article XIII D of the
California Constitution, put in place by Proposition 218
(1996) to the Property and Business Improvement District
(PBID) Law of 1994.
2)Defines the following terms:
a) "Property based assessment" to mean "any assessment made
pursuant to this part upon property";
b) "Property based district" to mean "any district in which
a city levies a property-based assessment";
c) "General benefit" to mean "for purposes of a
property-based district, any benefit 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
'special benefit'"; and,
d) "Special benefit" to mean "for purposes of a
property-based district a particular and distinct benefit
over and above general benefits conferred on real property
located in the property-based district, to the public at
large, or to other real property from the improvements,
maintenance, or activities of a property-based district and
the incidental secondary or collateral benefit from those
improvements, maintenance, or activities. "Special
benefit" excludes general enhancement of property value and
any 'general benefit'".
3)Requires assessments levied on real property to be levied
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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 assessed
property.
4)Adds to the list that a management district plan, required for
a proposed PBID, shall include, but is not limited to, the
following in a property-based district:
a) The proportionate special benefit derived by each
identified parcel to be determined in relationship to the
entirety of the capital cost of a public improvements, the
maintenance and operation expenses of a public improvement,
or the cost of the activities. Prohibits an assessment
from being imposed on any parcel that exceeds the
reasonable cost of the proportional special benefit
conferred on that parcel. Provides that only special
benefits are assessable and requires a property-based
district to separate the general benefits from the special
benefits conferred on a parcel. Prohibits parcels within a
property-based district that are owned or used by any city,
public agency, the State of California, or the United
States from being 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;
b) The sum of all special benefits to be provided to the
properties located within the property-based district;
c) The total amount of all special benefits to be conferred
on the properties in the property-based district;
d) The total amount of any general benefit; and,
e) 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.
5)Adds to the requirements that must be included in a resolution
adopted by a city council to form a PBID to include, but not
be limited to:
a) A statement that the improvements, maintenance, and
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activities to be conferred on the district will be funded
by the levy of the assessments, and for property-based
districts, to the extent that general benefits are
provided, the funding source for those general benefits;
b) A finding that in a property-based district, the
property within the district will receive a special
benefit;
c) The total amount of all special benefits to be conferred
on the properties within the property-based district; and,
d) The sum of any general benefit in a property-based
district.
6)Replaces references to "improvements and activities" with
"improvements, maintenance, and activities".
7)Makes changes to the definition of "activities" to clarify
that the existing list of activities must benefit businesses
or real property in the district.
8)Provides that properties zoned for agricultural use, are
presumed not to receive special benefit from the improvements,
maintenance, and activities funded through these assessments,
and shall not be subject to any assessment pursuant to this
part.
9)Makes other technical and conforming changes.
10)Finds and declares that due to the dissolution of
redevelopment agencies, PBIDs have become even more important
tools, as specified.
11)Finds and declares since the enactment of PBID Law, the
people of California adopted Proposition 218, which amended
Article XIII D of the Constitution to place certain
requirements and restrictions on the formation of, and
activities, expenditures, and assessment by property-based
districts.
12)Finds and declares this bill is intended to provide the
Legislature's guidance with regard to this act, its
interaction with the provisions of Article XIII D, and the
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determination of special benefits in property-based districts,
as specified.
13)Finds and declares that assessment levied for the special
benefit conferred upon real property of businesses in a
business district are not taxes for the general benefit of a
city, even if there is some incidental benefit to property or
persons not assessed, from the improvements, maintenance, or
activities that confer the special benefit.
14)Finds and declares that PBIDs have conferred special benefits
on properties and businesses within their districts and have
made assessed properties and businesses more useful by
providing the following benefits: crime reduction, job
creation, business attraction and retention, economic growth,
and new investments.
EXISTING LAW :
1)Allows, under the Property and Business Improvement District
Law of 1994, property owners to petition a city or county to
set up an improvement district to levy assessments on property
owners or business owners for specified purposes.
2)Establishes requirements for the formation of a district,
including a management district plan which must contain
specified information.
3)Makes findings and declarations about PBIDs and the benefits
they provide.
4)Defines, pursuant to Proposition 218, "special benefit" to
mean "a particular and distinct benefit over and above general
benefits conferred on real property located in the district or
to the public at large. General enhancement of property value
does not constitute 'special benefit'". (California
Constitution Article XIII D)
FISCAL EFFECT : None
COMMENTS :
1)Assessment Districts and Proposition 218 . Special assessment
districts (also called benefit assessments) have a long
history in California. Until the Great Depression of the
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1930s, special assessments were a major municipal financing
tool. However, economic conditions during the depression
caused landowners to default on assessments, which then
resulted in difficulty paying off the bonds backed by the
assessments. From that time until the passage of Proposition
13 (1978), special assessments were rarely used because local
governments relied upon property taxes for income.
Post-Proposition 13, assessments gained momentum as a new
source of funding. Most of the special assessment acts
provide for the issuance of bonds, generally secured by the
property within the district, and then the bonded indebtedness
is repaid with money generated by the assessments.
Business improvement districts are one model for how local
governments use assessment financing to pay for projects to
attract and retain businesses. The Property and Business
Improvement District Law of 1994 allows property owners to
petition a city or county to set up an "improvement district"
and levy either property-based or business-based assessments
on property or business owners to pay for promotional
activities and physical improvements.
Most assessments are levied against real property, and are
generally collected on the property tax roll, secured by a
lien against the assessed property, and subject to Proposition
218. Assessments levied on businesses, not real property, are
not subject to Proposition 218, and are usually collected
along with business license taxes and are not secured by a
lien against real property. Proposition 218 (Article XIII D
of the California Constitution), which distinguishes among
taxes, assessments and fees for property-related revenues, and
requires certain actions before such revenues may be
collected.
Unlike business-based assessments, property-based assessment
districts' notice, protest, and hearing requirements for new,
extended, or increase assessments are governed by Proposition
218, which involves mailed protest ballots to all assessed
property owners, a 45-day protest period, and a public hearing
at which protests are counted and the presence or absence of a
majority protest is determined. After complying with notice,
protest, and hearing requirements, if a majority protest is
not received from property owners, the legislative body may
adopt a resolution to establish the assessment district and
levy the assessment.
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Proposition 218 also includes requirements to determine which
properties are included in a benefit assessment district and
the apportionment of each assessment. Local agencies must
determine the special benefit for each identified parcel and
separate the general benefits because only special benefits
are assessable. The cost of the assessment cannot exceed the
reasonable cost of the proportional special benefit that
parcel receives.
Proposition 218 requires a professional engineers report to
estimate the amount of special benefit to landowners and the
amount of general benefit, the overall benefit to society at
large. Case law in this area is constantly examining the
definition of a special versus general benefit, especially for
assessments that fund services that broadly benefit society.
Therefore, the engineer's report is heavily relied upon to
demonstrate that the improvements or services to be financed
will benefit assessed properties in different manner than the
benefit society in general will receive and cannot rest only
on the general increase in property values that arise from a
better served community.
If there are parcels within an assessment district that are
owned by other local governments, the State of California, or
the United States, than the local agency can exempt those
parcels from the proposed assessment only if clear and
convincing evidence can be demonstrated by the local agency
that those publicly owned parcels receive no special benefit.
2)Purpose of this bill . This bill adds definitions, including
the terms special and general benefits, and the
proportionality requirements established by Proposition 218 to
PBID Law. This bill includes Proposition 218 requirements to
identify and separate general and special benefits, the
professional engineers report, and the provision regarding
exemptions for property owned by governmental entities and
incorporates these into PBID Law. This bill is sponsored by
the Central City Association of Los Angeles.
3)Author's statement . According to the author, "Because PBID
Law does not specifically address the distinction between
special and general benefits, when Article XIII D was enacted
it resulted in confusion around issues such as: district
formation, the levying of assessments and the permissible
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functions of PBIDs. Consequently, cities throughout the state
are using divergent methodologies to form and assess PBIDs.
Additionally, lawsuits have been filed challenging PBIDs and
the courts are reaching inconsistent decisions. Ongoing
litigation arising from this lack of clarity threatens the
viability of all of California's PBIDs and the employment,
public health and safety as well as economic benefits they
create.
Without this bill, PBIDs will remain subject to litigation
challenges and the entire state may be subject to future court
decisions that severely impede or even eliminate PBIDs. This
bill is intended to help ensure that PBIDs comply with Article
XIII D, while providing PBIDs, cities, and the courts with a
consistent methodology to determine the amount of 'special'
benefits."
4)Previous legislation . AB 483 (Ting), Chapter 552, Statues of
2013, defined "specific benefit" and "specific government
service" for the purpose of determining whether a levy is a
tax pursuant to Article XIIIC of the California Constitution.
These definitions were put in place in response to the legal
uncertainty surrounding the application of Proposition 26 to
business-based assessments.
5)Arguments in support . Supporters argue the because PBID Law
does not address the distinction between special and general
benefits, Article XIII D resulted in statewide confusion about
district formation, levying of assessments, and the
permissible functions of PBIDs. Consequently, ongoing
litigation arising from this lack of clarity threatens the
viability of all California's PBIDs and the employment,
safety, cleanliness, and economic development they create.
This bill will amend the existing PBID Law and ensure that it
conforms to the requirements of Proposition 218.
6)Arguments in opposition . None on file.
7)Committee amendments . This bill replaces the term
"improvements and activities" with "improvements, maintenance,
and activities" in several provisions of PBID Law. For
consistency purposes the Committee may wish to ask the author
to take amendments to make this same change in Streets and
Highways Code Sections 36621, 36624, 36650, and 36651 of PBID
Law.
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REGISTERED SUPPORT / OPPOSITION :
Support
Central City Association of Los Angeles [SPONSOR]
Avison Young
California State Association of Counties
Central City Association
Central City East Association
Central Hollywood Coalition
Chrysalis
City of San Diego
Downtown Center Business Improvement District
Downtown Industrial District Business Improvement District
Downtown Long Beach Associates
Downtown Sacramento Partnership
Downtown San Diego Partnership
Gateway to L.A. BID
Historic Core Business Improvement District
Hollywood Chamber of Commerce
Hollywood Property Owners Alliance
Hollywood United Methodist Church
LA Fashion District Business Improvement District
Larchmont Village BID
Los Angeles Area Chamber of Commerce
Mack Road Partnership
Midtown Business Association
Oak Park Business Associations
Old Pasadena Management District
Power Inn Alliance
S. Carol Massie, Inc. dba McDonalds Hollywood
San Diego Regional Chamber of Commerce
San Pedro Property Owners Alliance
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South Park Business Improvement District
Studio City Improvement Association
Sunset and Vine BID
Paramount Contractors & Developers, Inc.
The Chamber Long Beach Area Chamber of Commerce
The River District PBID
The Stockton Blvd Partnership
Union Square Business Improvement District
Uptown Property and Community Association
Wilshire Center Business Improvement Corporation
Opposition
None on file
Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916)
319-3958