BILL ANALYSIS Ó
AB 2618
Page 1
ASSEMBLY THIRD READING
AB 2618 (John A. Pérez)
As Amended May 5, 2014
Majority vote
LOCAL GOVERNMENT 9-0
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|Ayes:|Achadjian, Levine, Alejo, | | |
| |Bradford, Gordon, | | |
| |Melendez, Mullin, Rendon, | | |
| |Waldron | | |
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SUMMARY : Adds definitions and requirements from Article XIII
Section D of the California Constitution to the Property and
Business Improvement District Law. Specifically, this bill :
1)Adds definitions and requirements from Article XIII Section 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
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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
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
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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
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
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Article XIII Section D of the California Constitution to place
certain requirements and restrictions on the formation of
activities, expenditures, and assessments 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 Section D, and
the 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 PBID 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
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Constitution Article XIII Section 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
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 PBID Law 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
Section 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,
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extended, or increased 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.
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 a 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, then 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
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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
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 XIII Section C of the California
Constitution. These definitions were put in place in response
to the legal uncertainty surrounding the application of
Proposition 26 (2010) 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.
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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.
Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916)
319-3958
FN: 0003306