BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 2618 HEARING: 6/18/14
AUTHOR: John A. Peréz FISCAL: No
VERSION: 6/11/14 TAX LEVY: No
CONSULTANT: Weinberger
PROPERTY AND BUSINESS IMPROVEMENT DISTRICTS
Amends the Property and Business Improvement District Law
of 1994 to conform several of its provisions to
constitutional requirements established by Proposition 218
(1996).
Background and Existing Law
Proposition 218 (1996) requires owners of real property to
approve benefit assessments in a weighted ballot election.
Property owners vote in proportion to their proposed
assessments, which reflect how much their property benefits
from the proposed public works or public services. The
courts have said that assessments on businesses, as opposed
to real property, are not subject to Proposition 218's
provisions.
The Property and Business Improvement District (PBID) Law
of 1994 allows property owners to petition a city or county
to set up an improvement district and levy assessments on
property owners to pay for promotional activities as well
as for physical improvements, subject to Proposition 218's
approval requirements (AB 3754, Caldera, 1994). Local
officials also may use the 1994 Law to assess business
owners, provided that they follow statutory notice,
hearing, and protest procedures (AB 1208, Silva, 2007).
Local officials and other PBID stakeholders want some of
the 1994 Law's provisions relating to assessments on real
property to more clearly conform to Proposition 218's
requirements.
Proposed Law
Assembly Bill 2618 defines a "property-based assessment" as
AB 2618 -- 6/11/14 -- Page 2
any assessment made pursuant to the Property and Business
Improvement District Law of 1994 upon real property.
Assembly Bill 2618 defines a "property-based district" as
any district in which a city levies a property-based
assessment.
Proposition 218 amended the California Constitution to
define an assessment as any levy or charge upon real
property by a local agency for a special benefit conferred
upon the real property. The Constitution defines a special
benefit as a particular and distinct benefit over and above
general benefits conferred on real property located in the
district or to the public at large and specifies that
general enhancement of property value does not constitute
special benefit. Assembly Bill 2618 defines "special
benefit," for purposes of a property-based improvement
district, as 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 incidental, secondary or collateral effects that
arise from the improvements, maintenance, or activities of
property-based districts even if they benefit property or
persons not assessed. The bill specifies that special
benefit excludes general enhancement of property value.
Assembly Bill 2618 defines "general benefit," for purposes
of a property-based improvement district, as any benefit
that is not a "special benefit," as defined in statute.
Assembly Bill 2618 specifies that property-based
assessments must be levied in proportion to the special
benefit conferred on the real property, and must not exceed
the reasonable cost of the proportional special benefit
conferred on the real property. The bill specifies that
costs associated with general benefits provided to real
property may not be included in the amounts assessed.
As part of the process to form an improvement district, the
1994 Law requires a city to develop a management district
plan. That plan must contain specified elements, including
a statement of the methodology for imposing the district's
expenses upon benefited real property or businesses in
proportion to the benefit received by the property or
business. Assembly Bill 2618 requires that, in a
property-based district, the proportionate special benefit
derived by each identified parcel must be determined
AB 2618 -- 6/11/14 -- Page 3
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. Assembly Bill 2618 prohibits an assessment on
any parcel from exceeding the reasonable cost of the
proportional special benefit conferred on that parcel.
Only special benefits are assessable, and a property-based
district must separate any general benefits from the
special benefits conferred on a parcel. The bill directs
that specified publicly-owned parcels within a
property-based district are not 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.
Assembly Bill 2618 prohibits the value of any incidental,
secondary or collateral effects that arise from a
district's improvements, maintenance, or activities that
benefit property or persons not assessed from being
deducted from the entirety of the cost of any special
benefit or affect the proportionate special benefit derived
by each identified parcel.
Assembly Bill 2618 requires that a management district plan
for a property-based district must include:
The total amount of all special benefits to be
conferred on the properties within the property-based
district.
The total amount of general benefit, if any.
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.
Assembly Bill 2618 requires that a resolution of formation
adopted to form a property-based district must include:
A finding that the property within the district
will receive a special benefit from improvements,
maintenance, and activities funded by the proposed
assessments.
The total amount of all special benefits to be
conferred on the properties within the property-based
district.
The 1994 Law declares that property zoned solely for
residential use is conclusively presumed not to benefit
AB 2618 -- 6/11/14 -- Page 4
from improvements or services funded by improvement
districts' assessments and exempts those properties from
those assessments. Assembly Bill 2618 specifies that only
properties zoned solely for no more than four residential
units that are used solely for residential purposes are
presumed not to receive special benefit from improvement
districts' improvements, maintenance, and activities and
are exempt from districts' assessments.
Assembly Bill 2618 replaces several references to
improvements and activities provided in a district with
references to improvements, maintenance, and activities
provided in a district.
Assembly Bill 2618 makes additional technical,
non-substantive changes to current law.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . Because the PBID Law does not
specifically address the distinction between special and
general benefits, Proposition 218's addition of Article
XIIID to the California Constitution created 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 PBIDs and impose
assessments. Litigation arising from this lack of clarity
threatens the viability of all of California's PBIDs and
the employment, public health and safety, and economic
development benefits they create. AB 2618 will help ensure
that PBIDs comply with Article XIIID by providing PBIDs,
cities, and the courts with a consistent methodology for
determining the amount of "special" benefits associated
with PBIDs. Without AB 2618's clarifications, 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.
2. Conflict avoidance . AB 2618 amends some of the same
AB 2618 -- 6/11/14 -- Page 5
code sections that would be amended by SB 1462, the Senate
Governance & Finance Committee's local government omnibus
bill. If both bills are signed into law, the changes made
by the bill that's chaptered first would be wiped out by
the changes made by the bill that's chaptered second. To
avoid the possibility that AB 2618 could "chapter-out"
provisions of SB 1462, the Committee may wish to consider
amending AB 2618 to include the amendments that SB 1462
makes to code sections that are being amended by both
bills.
Assembly Actions
Assembly Local Government Committee: 9-0
Assembly Floor: 74-0
Support and Opposition (6/12/14)
Support : Avison Young; 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 Property
Owners Association; Mack Road Partnership; Midtown Business
Association; Old Pasadena Management District; Paramount
Contractors & Developers; Power Inn Alliance; S. Carol
Massie, Inc. dba McDonalds Hollywood; San Diego Regional
Chamber of Commerce; San Pedro Property Owners' Alliance;
South Park Business Improvement District; Studio City
Improvement Association; Sunset and Vine BID; The Chamber
Long Beach Area Chamber of Commerce; The River District;
The Stockton Blvd Partnership; Union Square Business
Improvement District; Uptown Property and Community
Association; Wilshire Center Business Improvement
Corporation.
Opposition : Unknown.
AB 2618 -- 6/11/14 -- Page 6