The California Constitution generally conditions the imposition of a special tax by a city, county, or special district, including a school district, upon the approval of ²/₃ of the voters of the city, county, or special district voting on that tax.

This measure would alternatively condition the imposition, extension, or increase of a parcel tax, as defined, by a school district upon the approval of 55% of its voters voting on the proposition, if the proposition meets specified requirements. This measure would also make conforming or technical changes to related provisions.

Resolved by the Senate, the Assembly concurring, That the Legislature of the State of California at its 201718 Regular Session commencing on the fifth day of December 2016, two-thirds of the membership of each house concurring, hereby proposes to the people of the State of California, that the Constitution of the State be amended as follows:

Cities, Counties and special districts, Except as provided by Section 4.5, a city, county, or special district, by a two-thirds vote of the qualified electors of such district, its voters voting on the proposition, may impose special taxes on such district a special tax within that city, county, or special district, except an ad valorem taxes tax on real property or a transaction transactions tax or sales tax on the sale of real property within such City, County that city, county, or special district.

(a)The imposition, extension, or increase of a parcel tax on real property by a school district, as may otherwise be authorized by law, is subject to approval by 55 percent of the voters of that district voting on the proposition, if all of the following conditions are met:

(1)The proposition is approved by a majority vote of the membership of the governing board of the school district.

(2)The proposition contains all of the following accountability requirements:

(A)A list of the specific purposes and programs that are to be funded.

(B)A requirement that the proceeds be used only for the purposes and programs specified in the proposition, and not for any other purpose.

(C)To ensure compliance with subparagraph (B), a requirement that the governing board of the school district conduct an annual independent financial audit of the amount of parcel tax proceeds collected and expended, and the specified purposes and programs funded.

(D)To ensure compliance with subparagraph (B), a requirement that the governing board of the school district establish a citizens oversight committee to review all expenditures of proceeds and financial audits and report its findings to the governing board and to the public.

(3)The proposition allows for an exemption from tax, to be claimed under procedures established by the county, for any parcel that, as of January 1 of each year, is owned by and upon which is located the principal residence of, either a person or persons 65 years of age or older, or, without regard to age, a person or persons receiving Supplemental Security Income for a disability.

(b)For purposes of this section, parcel tax means a special tax imposed upon a parcel of real property at a rate that is determined without regard to that propertys value.

Local Government Tax Limitation. Notwithstanding any other provision of this Constitution:

(b)No A local government may not impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote. A general tax shall is not be deemed to have been increased if it is imposed at a rate not higher than the maximum rate so approved. The election required by this subdivision shall be consolidated with a regularly scheduled general election for members of the governing body of the local government, except in cases of emergency declared by a unanimous vote of the governing body.

(c)Any general tax imposed, extended, or increased, without voter approval, by any local government on or after January 1, 1995, and prior to the effective date of this article, shall November 6, 1996, may continue to be imposed only if that general tax is approved by a majority vote of the voters voting in an election on the issue of the imposition, which election shall be held within two years of the effective date of this article no later than November 6, 1998, and in compliance with subdivision (b).

(d)No Except as provided by Section 4.5 of Article XIIIA, a local government may not impose, extend, or increase any special tax unless and until that tax is submitted to the electorate and approved by a two-thirds vote. A special tax shall is not be deemed to have been increased if it is imposed at a rate not higher than the maximum rate so approved.

Property Taxes, Assessments, Fees and Charges Limited. (a)No (a)An agency shall not assess a tax, assessment, fee, or charge shall be assessed by any agency upon any parcel of property or upon any person as an incident of property ownership except:

(1)The ad valorem property tax imposed pursuant to Article XIII and Article XIIIA.

(2)Any special tax receiving a two-thirds vote pursuant to Section 4 of Article XIIIA. XIIIA, or, as applicable, a 55-percent vote pursuant to Section 4.5 of Article XIIIA.

(3)Assessments as provided by this article.

(4)Fees or charges for property related property-related services as provided by this article.

(b)For purposes of this article, fees for the provision of electrical or gas service shall are not be deemed charges or fees imposed as an incident of property ownership.

SENATE COMMITTEE ON

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SCA 22 (Allen) - Taxation: School districts: parcel tax

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

SCA 22, if approved by the voters, would amend the California Constitution to allow school district voters to impose, extend, or increase a parcel tax with 55 percent voter approval under specified circumstances.

Fiscal Impact:

This bill would result in one-time General Fund costs to the Secretary of State (SOS) in the range of $438,000 to $584,000, likely in 2018-19, for printing and mailing costs to place the measure on the ballot in a statewide election. Actual costs may be higher or lower, depending on the length of required elements and the overall size of the ballot.

Background:

Under the California Constitution, taxes levied by local governments are either (1) general taxes, subject to majority approval of its voters, or (2) special taxes, subject to 2/3 vote. Proposition 13 (1978) required a 2/3 vote of each house of the Legislature for state tax increases, and 2/3 vote of local voters for local special taxes. Proposition 62 (1986) prohibited local agencies from imposing general taxes without majority approval of local voters, and a 2/3 vote for special taxes. Proposition 218 (1996) extended those vote thresholds to charter cities, and limited local agencies’ powers to levy new assessments, fees, and taxes. The Constitution further bars school districts from imposing general taxes, but (pursuant to Proposition 39, 2000) allows school districts, community college districts, and county offices of education to issue bonded indebtedness for school facilities with 55 percent approval.

Parcel taxes are a flat rate assessed per parcel of land, regardless of its size or its improvements. They are a common form local tax, and can be imposed by cities, counties, or special districts. Agencies can use revenues in almost any way that serves local needs, such as ongoing expenses, programs, or buildings. Counties collect parcel taxes with property taxes, and then remit funds to the agency imposing the tax. Property tax law generally guides parcel tax collection.

Proposed Law:

This SCA would, among other things, do the following:

• Allow a school district to impose, extend, or increase a parcel tax, as defined, on real property with the approval of 55 percent of the voters of the district if the following conditions are met:
  • The proposition is approved by a majority vote of the membership of the governing board of the school district.
  • The proposition contains a list of the specific purposes and programs to be funded and a requirement that the proceeds generated are only used for what is specified in the proposition. In order to ensure compliance, a governing board of a school district must also:
    • Conduct an annual independent financial audit and examine of the specified purpose and programs funded resulting from amount of parcel tax proceeds collected and expended.
    • Establish a citizens’ oversight committee to review all expenditures of proceeds and financial audits. This oversight committee would also report its findings to the governing board and the public.

Related Legislation:

• SCA 6 (Wiener, 2017) would have lowered the vote threshold for local government agencies to levy a special tax for transportation infrastructure projects from 2/3 to 55 percent. The bill was held under submission on the Suspense File of this Committee.
• SCA 3 (Leno) of 2013, SCA 5 (Simitian) of 2011, SCA 6 (Simitian) of 2009, SCA 17 (Simitian) of 2008, SCA 8 (Simitian) of 2005, and ACA 4 (Simitian) were all substantially similar to SCA 22. None of these measures were enacted.

Staff Comments:

SOS indicates that printing and mailing costs associated with placing a measure on the statewide ballot are approximately $73,000 per page, depending on the length of the ballot. The fiscal estimates noted above reflect the addition of 6-8 pages in the Voter Information Guide. Actual costs would depend upon the length of the title and summary, analysis by the Legislative Analyst’s Office, proponent and opponent arguments, and text of the proposal.

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SENATE COMMITTEE ON

ELECTIONS AND CONSTITUTIONAL AMENDMENTS

Senator Henry Stern, Chair

2017 - 2018 Regular

Bill No: SCA Hearing Date: 5/15/18

Subject: Taxation: School districts: parcel tax

DIGEST

This measure allows a school district to impose, extend, or increase a parcel tax on real property with the approval of 55 percent, instead of 2/3, of voters of the district if certain conditions are met.

ANALYSIS

Existing law:

1. Provides that cities, counties, and special districts may impose special taxes, except ad valorem taxes on real property or a transaction tax or sales tax on the sale of real property within the local jurisdiction, with a 2/3 vote of the jurisdiction.

This measure:

1. Allows a school district to impose, extend, or increase a parcel tax on real property with the approval of 55 percent of the voters of the district if the following conditions are met:
   1. The proposition is approved by a majority vote of the membership of the governing board of the school district.
   2. The proposition contains a list of the specific purposes and programs to be funded and a requirement that the proceeds generated are only used for what is specified in the proposition. In order to ensure compliance, a governing board of a school district must also:
      1. Conduct an annual independent financial audit and examine of the specified purpose and programs funded resulting from amount of parcel tax proceeds collected and expended.
      2. Establish a citizens’ oversight committee to review all expenditures of proceeds and financial audits. This oversight committee would also report its findings to the governing board and the public.
   3. Allows for an exemption from tax for either a person or persons at least 65 years of age or any individual(s) receiving Supplemental Security Income for a disability.
2. Defines “parcel tax” as a special tax imposed upon a parcel of real property at a rate that is determined without regards to that property’s value.
3. Makes technical changes.

BACKGROUND

Proposition 13 and Proposition 62. Proposition 13 was added to the California Constitution in June 1978 and was designed to provide real property tax relief by imposing a set of limitations upon the assessment and taxing powers of state and local governments. This included a required two-thirds vote of each house of the Legislature for state tax increases as well as a two-thirds vote of local voters for local special taxes.

In 1986, Proposition 62 prohibited local agencies from imposing general taxes without majority approval of local voters and a two-thirds vote for special taxes. Proposition 218 of 1996 extended those vote thresholds to charter cities, and limited the powers of local agencies to levy new assessments, fees, and taxes. Local agencies generally propose to increase taxes by adopting an ordinance or a resolution at a public hearing. Proposition 39 of 2000 further barred school districts from imposing general taxes, but allows school districts, community college districts, and county offices of education to issue bonded indebtedness for school facilities with 55% percent approval.

Parcel Taxes. One common form of local tax is a parcel tax, which can be imposed by cities, counties, or special districts. Parcel taxes are not ad valorem or assessed based on the value of a property like property taxes. Instead, parcel taxes are generally a flat rate assessed per parcel regardless of size, per square foot of a parcel, or its improvements. Agencies can use revenues in almost any way that serves local needs, such as ongoing expenses, programs, or buildings. Counties collect parcel taxes with property taxes, and then remit funds to the agency imposing the tax. Existing property tax law generally guides parcel tax collection.

In April 2015, the Public Policy Institute of California (PPIC) issued “Parcel Taxes as a Local Revenue Source in California,” which contained data regarding the way in which local agencies use parcel taxes. Between 2003 and 2012, school districts placed 329 parcel tax measures before voters during the same period, with 60% passing. PPIC notes that only 114 of California’s 963 school districts had one or more successful parcel tax elections during this period, mostly concentrated in the Bay Area. The report argues that the higher frequency of parcel taxes in the Bay Area is partly explained by higher income levels. The PPIC also notes that a properly designed parcel tax assigns taxes in line with benefits and has minimal economic impact when comparing parcel taxes with the economic impact of sales and income taxes. However, PPIC cautions that a parcel tax has a major shortcoming in that many large parcels have limited value, and is limited in their capacity to support a parcel tax.

In addition, the California Tax Foundation released a report in September, 2014 titled, “Piecing Together California’s Parcel Taxes” and argues that the parcel tax needs consistency, and local governments need oversight and greater accountability to taxpayers. The Foundation suggests statewide reforms to parcel taxes in California should be standardized to provide consistency, certainty, simplicity and transparency to promote complementary tax bases among all local governments. The Foundation’s specific recommendations include:

• Consolidate all parcel tax elections to occur with statewide elections.
• Direct local agencies to calculate inflation adjustments using an index specific to that geographic region.
• Allow the Board of Equalization an oversight role over parcel taxes.
• Standardize tax bases to reduce exemptions to ensure that parcel taxes can be deducted from federal income taxes.
• Require all parcel taxes to have sunset dates.
• Cap the combined parcel and property tax rate to no more than 1.2% of value.
• Mandate agencies imposing parcel taxes to provide consistent information regarding the tax in an annual report.
• Prohibit the use of assessors’ use codes when levying a parcel tax.
• Allow longer than a 60 day period to file a legal challenge over the validity of the tax.

Borikas v. Alameda Unified School District. In 2013, George Borikas successfully challenged Alameda Unified School District’s Measure H, which imposed a variable rate parcel tax. The Fourth District Appellate Court determined that Alameda’s tax did not meet the statute’s uniformity requirement, because the school district statute did not also contain the language allowing for a lower rate on unimproved property (Borikas v. Alameda Unified School District, 214 Cal. App. 4th 135). Since the case, legislation has been introduced to partially address the issue. Recently, AB 2954 (Bonta) of 2018 would allow a school district to apply a lower parcel tax rate to unimproved property than improved property, which conforms school district parcel tax law with 15 other local agencies.

Defining “Parcel Tax.” SCA 22 adds the term “parcel tax” to the California Constitution to mean “a special tax imposed upon a parcel of real property at a rate that is determined without regard to that property’s value.” This definition differs from the current term in law, “qualified special taxes,” that authorize parcel taxes, but are defined differently, and include the uniformity requirement at issue in Borikas. School districts could use SCA 22’s definition to enact parcel taxes that differ from current qualified special taxes, and apply in ways precluded under Borikas, because districts only need to satisfy the requirement that its parcel tax is not determined using its value.

COMMENTS

1. According to the author: Despite significant state funding increases to schools in the past five years, many school districts are struggling to maintain quality educational services in the face of rising costs attributable to a number of factors. Among them are a required increase in contributions to the California State Teachers Retirement System, increased healthcare costs, declining enrollment in many districts, and salary increases. These pressures have left an estimated one-third of districts with deficits in 2018-19, and two-thirds of districts are expected to have deficits in 2019-20. As a result, many districts have enacted layoffs and furloughs of teachers and classified employees, and cut school programs and services.

Parcel taxes are one of the few ways local school districts are able to raise revenue to supplement the funds they receive from the state and other sources. In communities that have successfully enacted school district parcel taxes, the funds have been essential to keeping class sizes small, providing music, art, sports, and other programs, as well as sustaining school librarians, nurses and counselors, among other important priorities. However, the current Constitutional requirement of a 2/3 vote of the electorate to pass local parcel taxes has allowed a minority of voters to prevent communities from accessing these revenues.

1. Argument in Support: In a letter supporting SCA 22 dated May 2, 2018, the California School Boards Association stated the following:

Despite the annual increases in per-ADA funding received by local education agencies (LEAs) in recent years, we have only just returned to 2007 funding levels. At these levels, it is difficult for LEAs to provide students with the education and experiences they require to ensure their success in college, career, and life. Parcel taxes are the only avenue for LEAs to secure additional resources to fund these operational expenditures, but they remain inaccessible to most LEAs given the high, two-thirds threshold for voter approval that is required.

Existing law ensures that only those communities that are already the most affluent, will be able to use parcel taxes to provide additional resources for students. This raises serious equity issues that run counter to the goals of our funding and accountability systems: that the students with the highest barriers to education success should receive the greatest access to resources.

1. Argument on Opposition: In a letter opposing SCA 22 dated May 2, 2018, the California Taxpayers Association among other organizations in opposition stated the following:

While we appreciate the bill’s intent to increase education funding, we must oppose SCA 22 for the following reasons:

• Voters Support a Two-Thirds Vote Requirements. Public opinion polling has consistently shown that voters support a two-thirds vote requirements for parcel taxes. A March 2018 survey by the Public Policy Institute of California showed that across all demographics, voters support a two-thirds vote for parcel taxes – and few voters believe the supermajority vote requirement has had a negative impact on government. When asked “Do you favor or oppose allowing local special taxes to pass with a 55 percent majority vote instead of a two-thirds vote?”, not one single demographic was in favor of changing the vote threshold. According to the survey, adults in the Central Velley, Inland Empire, Los Angeles, Orange/San Diego, and San Francisco Bay Area regions of California opposed changing the vote threshold. Additionally, the idea of changing the vote threshold is widely unpopular among Democrats, Republicans, and Decline-to-State voters.
• Erodes Property Tax Cap. Nearly 40 years ago, Proposition 13 was approved by voters to limit the local property tax rate to 1 percent of a property’s assessed value. SCA 22 makes it easier for parcel taxes to be passed, and local property taxes to be increased, further eroding the important property tax relief provided by Proposition 13.
• Increases Housing Costs. SCA 22 proposes to make it easier for school districts to increase property taxes, making housing less affordable for many California families. An Orange County Register analysis of a March 2017 study by WalletHub found that California has the 10^th highest property tax burden in the United States, thanks in large part to our high home prices. One of the goals of this and previous legislative sessions has been to address California’s housing crisis, yet SCA 22 would increase the cost of owning a home.
• Promotes a Flawed and regressive Tax Structure. California is one of the only states in the United States that allows a local add-on parcel tax. No oversight has been provided to establish a comprehensive structure, and these taxes are both regressive and distortionary, often disregarding a taxpayer’s ability to pay. Parcel taxes, which can range upwards of hundreds of dollars to thousands of dollars annually, can be extremely costly for seniors on fixed incomes, and households struggling to make ends meet.

1. Voter Approval. As a constitutional amendment, SCA 22 requires the approval of the voters to take effect.

RELATED/PRIOR LEGISLATION

SCA 6 (Wiener) of 2017, would lower the vote threshold for local government agencies to levy a special tax for transportation infrastructure projects from 2/3 to 55 percent. SCA 6 was held on the Senate Appropriations Committee Suspense File.

SCA 3 (Leno) of 2013, SCA 5 (Simitian) of 2011, SCA 6 (Simitian) of 2009, SCA 17 (Simitian) of 2008, SCA 8 (Simitian) of 2005, and ACA 4 (Simitian) were all substantially similar to SCA 22. None of these measures were enacted.

SB 958 (Dodd) of 2018, among other provisions, would allow a school district to exempt teachers and school district employees from paying a parcel tax. At the time of the printing of this analysis, this measure is pending on the Senate Floor.

AB 2954 (Bonta) of 2018, would allow school districts to impose a parcel tax with a lower rate on unimproved property. AB 2954 is currently pending in the Senate Governance and Finance Committee.

SB 1021 (Wolk) of 2014, would have allowed a school district to impose a parcel tax at different rates by classifying property as commercial, industrial, single-family residential or multifamily residential, provided that the same rate of tax is levied on all properties within the same classification. SB 1021 failed passage in the Assembly Revenue and Taxation Committee.

PRIOR ACTION

POSITIONS

Sponsor: California School Boards Association

Support: Alameda County Office of Education

Contra Costa County Office of Education

Paramount Unified School District

Pasadena Unified School District

San Diego County Office of Education

San Francisco Unified School District

Santa Barbara County Office of Education

Santa Clara County Office of Education

Small School Districts Association

Torrance Unified School District

Oppose: Business Owners and Managers Association of California

California Taxpayers Association

California Beer and Beverage Distributers

California Business Properties Association

California Farm Bureau Federation

Contra Costa Taxpayers Association

Family Business Association of California

International Council of Shopping Centers

National Association for Industrial and Office Parks

San Diego County Apartment Association

Western Manufactured Housing Communities Association

California Charter Schools Association (concern)

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2017 - 2018 Regular

Taxation: School districts: parcel tax

Amends the California Constitution to allow school district voters to impose, extend, or increase a parcel tax with 55 percent voter approval under specified circumstances.

Background

California Constitution. The California Constitution states that taxes levied by local governments are either general taxes, subject to majority approval of its voters, or special taxes, subject to 2/3 vote (Article XIII C). Proposition 13 (1978) required a 2/3 vote of each house of the Legislature for state tax increases, and 2/3 vote of local voters for local special taxes. Proposition 62 (1986) prohibited local agencies from imposing general taxes without majority approval of local voters, and a 2/3 vote for special taxes. Proposition 218 (1996) extended those vote thresholds to charter cities, and limited local agencies’ powers to levy new assessments, fees, and taxes. Local agencies generally propose to increase taxes by adopting an ordinance or a resolution at a public hearing. The Constitution further bars school districts from imposing general taxes, but allows school districts, community college districts, and county offices of education to issue bonded indebtedness for school facilities with 55% percent approval (Proposition 39, 2000).

Parcel taxes. One common form of local tax is the parcel tax, which can be imposed by cities, counties, or special districts. Parcel taxes are not ad valorem or assessed based on the value of a property like property taxes; instead they are generally a flat rate assessed per parcel regardless of its size, or per square foot of a parcel or its improvements. Agencies can use revenues in almost any way that serves local needs, such as ongoing expenses, programs, or buildings. Counties collect parcel taxes with property taxes, and then remit funds to the agency imposing the tax. Property tax law generally guides parcel tax collection.

Prior to Proposition 62, school districts imposed parcel taxes to fund education; however, the initiative prompted school districts to seek specific legislative authorization to ratify the existing taxes, and clarify the authority to impose new ones. The Legislature allowed school and community college districts to impose qualified special taxes that applied uniformly, to all taxpayers or real property within the district, and allowed districts to exempt persons over the age of 65 from the tax (AB 1440, Hannigan, 1988). In 1991, the Legislature additionally allowed 15 types of local agencies to impose similar taxes; however, the measure allowed local agencies to tax unimproved property at a lower rate than improved property, and contained no other exemptions (SB 158, Committee on Local Government, 1991).

In 2006, the Legislature allowed school districts to also exempt persons receiving Supplemental Security Income (SSI) regardless of age (AB 385, Lieber, 2006), and then persons receiving Social Security Disability Insurance (SSDI), whose yearly income was less than 250% of 2012 federal poverty guidelines (SB 874, Hancock, 2012). The Legislature subsequently clarified that school districts can exempt any or all of the groups currently eligible for the exemption from the parcel tax (SB 371, Hancock, 2016). Special taxes, such as parcel taxes, are subject to additional accountability (SB 165, Alarcón, 2000), which requires local agencies to:

• Issue a statement indicating the specific purpose of the tax;
• Require that the proceeds be used only for the purpose in the statement;
• Create an account in which to deposit proceeds; and,
• Publish an annual report that includes the amount of funds collected and expended, along with the status of any project required or authorized by the tax measure.

Seeking additional funding for education, the California School Boards Association wants to amend the California Constitution to lower the vote threshold for a school district to impose a parcel tax from 2/3 to 55%, under specified circumstances.

Proposed Law

Senate Constitutional Amendment 22 amends the California Constitution to allow school district voters to impose, extend, or increase a parcel tax by 55 percent of the voters of that district voting on the proposition, if:

• The proposition is approved by a majority vote of the membership of the governing board of the school district.
• The proposition contains all of the following accountability requirements:
  • A list of the specific purposes and programs that are to be funded.
  • A requirement that the proceeds be used only for the purposes and programs specified in the proposition, and not for any other purpose.
  • A requirement that the governing board of the school district conduct an annual independent financial audit of the amount of parcel tax proceeds collected and expended, and the specified purposes and programs funded.
  • A requirement that the governing board of the school district establish a citizens’ oversight committee to review all expenditures of proceeds and financial audits and report its findings to the governing board and to the public.
• The proposition allows for an exemption for a persons 65 years of age or older, or persons receiving Supplemental Security Income for a disability.

The measure defines “parcel tax” means a special tax imposed upon a parcel of real property at a rate that is determined without regard to that property’s value. SCA 22 also makes technical and conforming changes.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “Despite significant state funding increases to schools in the past five years, many school districts are struggling to maintain quality educational services as their costs are increasing.  An estimated one-third of districts are expected to have budget deficits in 2018-19, and two-thirds of districts are expected to have deficits in 2019-20. Parcel taxes are one of the few ways local school districts are able to raise revenue to supplement the funds they receive from the state and other sources.  In communities that have successfully enacted school district parcel taxes, the funds have been essential to keeping class sizes small, providing music, art, sports, and other programs, as well as sustaining school librarians, nurses and counselors, among other important priorities.  However, the current Constitutional requirement of 2/3 vote of the electorate to pass local parcel taxes has allowed a minority of voters to prevent many communities from accessing these revenues.”

2. More or less. Majority rule is a double-edged sword: democratically elected governments are supposed to enact policies that the voters want, but both federal and state systems restrict the majority due to fears about its ability to use its power to oppress minority interests. For the great majority of public issues, fifty-percent plus one of a legislative body or an electorate rule, but for others the United States and California Constitutions provide that a majority is not enough and a higher threshold is necessary, such as amending the U.S. Constitution, removing a president from office, ratifying a treaty, or overriding a veto. States largely import the 2/3 vote from the United States Constitution into their own for those same purposes, but can also require 2/3 vote on taxes or other measures. In a series of voter initiatives, Californians have elevated local special tax increases and legislatively enacted state tax increases to this level, while almost every other change can be enacted by majority vote; local agencies can enact general taxes, and voters can approve tax initiatives increasing state taxes by majority vote, as they did with Propositions 30 and 39 (2012), and Proposition 55 (2016), among others. As such, local agencies need a majority vote to assess taxes and spend the proceeds on whatever purposes they want to, but 2/3 if they restrict the use of the tax proceeds. Supermajorities of the Legislature are necessary to increase taxes, but only majorities of voters can. SCA 22 reduces this previously elevated standard for school district parcel taxes. If enacted, school districts could enact special taxes with a 55% vote, paralleling Proposition 39’s similar allowance for school bonds. The question before the Committee is what should be the voting threshold for parcel taxes imposed by school districts? The Legislative Analyst’s Office says there’s no right answer, as requirements vary across states, but adds that the process should be easy enough for voters to understand and reflect overarching objectives for voter participation in tax decisions. The Committee may wish to consider the overall system of voter thresholds necessary to increase taxes.

3. Who pays? An old piece of tax policy wisdom attributed to Louisiana Governor Russell Long states that, “Don’t tax you, don’t tax me, tax the man behind the tree.” Opponents of parcel taxes invoke this quote when criticizing them because residents who do not own land, such as renters, can vote in a parcel tax election and receive the benefit of the proceeds, but do not pay them except as passed through in rents. However, non-resident landowners cannot vote in the election, and don’t derive tangible benefits from the proceeds, but must pay the tax if the voters approve it. Current law allows districts to exempt taxpayers 65 years or older, which provides another class of voters who do not bear the incidence of the tax but who in most cases have the ability to pay it. The Committee may wish to consider whether lowering the voter threshold for school districts to enact parcel taxes is equitable when many voters already do not directly bear the cost of the tax, and many who bear the cost cannot vote.

4. Parcel taxes in California. In April, 2015, the Public Policy Institute of California issued “Parcel Taxes as a Local Revenue Source in California,” which contained revealing data regarding the way in which local agencies use parcel taxes. Between 2003 and 2012, school districts placed 329 parcel tax measures before voters during the same period, with 60% passing. PPIC notes that only 114 of California’s 963 school districts had one or more successful parcel tax elections during this period, mostly concentrated in the Bay Area. The report argues that the higher frequency of parcel taxes in the Bay Area is partly explained by higher income levels. PPIC argues that the use of the parcel tax is growing, and that it has many advantages over other taxes: it has no deadweight loss, and assigns taxes in line with benefits. However, PPIC cautions that the tax has a major shortcoming in that many large parcels have little value, and are limited in their capacity to support a parcel tax. The California Tax Foundation in its September, 2014, report entitled “Piecing Together California’s Parcel Taxes” argues that the parcel tax needs consistency, and local governments need oversight and greater accountability to taxpayers. The Foundation suggests statewide reforms to parcel taxes in California should be standardized to provide consistency, certainty, simplicity and transparency to promote complementary tax bases among all local governments. The Foundation’s specific recommendations include to:

• Consolidate all parcel tax elections to occur with statewide elections,
• Direct local agencies to calculate inflation adjustments using an index specific to that geographic region,
• Allow the Board of Equalization an oversight role over parcel taxes,
• Standardize tax bases to reduce exemptions to ensure that parcel taxes can be deducted from federal income taxes,
• Require all parcel taxes to have sunset dates,
• Cap the combined parcel and property tax rate to no more than 1.2% of value,
• Mandate agencies imposing parcel taxes to provide consistent information regarding the tax in an annual report,
• Prohibit the use of assessors’ use codes when levying a parcel tax, and
• Allowing longer than a 60 day period to file a legal challenge over the validity of the tax.

5. Uniform. In 2013, George Borikas successfully challenged Alameda Unified School District’s Measure H, which imposed a variable rate parcel tax. The Fourth District Appellate Court determined that Alameda’s tax didn’t meet the statute’s uniformity requirement, because the school district statute didn’t also contain the language in SB 158 allowing for a lower rate on unimproved property (Borikas v. Alameda Unified School District, 214 Cal. App. 4th 135). In 2014, the Committee approved a measure that would have partially addressed the case; however, the measure died in the Assembly Revenue and Taxation Committee (SB 1021, Wolk, 2014). This year, AB 2954 (Bonta) would allow a school district to apply a lower parcel tax rate to unimproved property than improved property, which conforms school district parcel tax law with 15 other local agencies.

6. Qualified? SCA 22 adds the term “parcel taxes” to the California Constitution to mean “a special tax imposed upon a parcel of real property at a rate that is determined without regard to that property’s value.” This definition differs from the current term in law, “qualified special taxes,” that authorize parcel taxes, but are defined differently, and include the uniformity requirement at issue in Borikas. School districts could use SCA 22’s definition to enact parcel taxes that differ from current qualified special taxes, and apply in ways precluded under Borikas, because districts need only satisfy the requirement that its parcel tax is not determined using its value.

7. Uproar over Upland. Section 11 of the California Constitution provides that initiative and referendum powers may be exercised by the voters of a city or a county, under procedures provided by the Legislature. While not explicitly mentioned in the Constitution, state law also contains procedures for the electorates of special districts to approve ordinances by initiative petition.

In Cal. Cannabis Coalition v. City of Upland, 3 Cal.5th 924 (2017), the California Supreme Court was asked to decide whether Article XIII C of the California Constitution, as amended by Proposition 218, restricted the ability of voters to impose taxes by initiative. Specifically, the California Cannabis Coalition challenged a determination by the City of Upland that its successfully circulated initiative petition imposing a fee and requesting consideration at a special election constituted a general tax, thereby requiring majority voter approval at a regularly scheduled general election under Section 2(b) of Article XIIIC. The Court held that the general election requirement does not apply to local tax initiatives.

This decision created significant discussion and debate. Read narrowly, City of Upland holds that when a local general tax is proposed by initiative, the tax is not governed by Section 2(b) of Article XIIIC’s procedural provisions applicable to general taxes imposed by a local government. However, some legal scholars and the City Attorney for the City and County of San Francisco argue that the Court’s decision indicates that special taxes proposed by local initiative should instead be approved by majority vote, rather than the two-thirds supermajority required by Section 2(d) of Article XIIIC for special taxes imposed by a local government. While the court does not directly address the voting threshold issue, the Court clearly distinguished local governments, which are governed by Section 2(d)’s procedural requirements, from the electorate exercising its initiative powers, which is not.

On March 7, 2018, the Committee held a joint informational hearing with the Assembly Committees on Local Government and Revenue and Taxation entitled “Uproar of Upland: Assessing the California Supreme Court’s Decision,” which convened the state’s top experts on local taxation. While experts disagreed whether the City of Upland expressly allows special taxes proposed by local initiative to be approved by majority vote, they agreed that considerable uncertainty exists regarding the conflict between the Constitution’s initiative power and voter approval requirements for taxes until the Court issues a subsequent decision, or voters change the Constitution. While Upland did not directly mention school districts, the case could present an opportunity for citizens’ groups to advance initiatives imposing special taxes with only majority voter approval. However, current law does not contain provisions that explicitly allow voters in school districts to enact initiatives. SCA 22 would provide clear authority for school districts to place measures on the ballot to enact parcel taxes with 55% voter approval. While the voting threshold is higher than the majority vote that could be possible under Upland, and applies only to school districts, it presents a far more certain route to increase school district revenues.

8. Exemptions. School districts can exempt persons over the age of 65, those receiving Supplemental Security Income (SSI) for a disability regardless of age, or individuals receiving Social Security Disability Insurance (SSDI), whose yearly income was less than 250% of 2012 federal poverty guidelines (SB 874, Hancock, 2012). SCA 22 requires districts to exempt either of the first two sets of taxpayers for the 55% voter threshold to apply, but not the third. As such, a school district could people over the age of 65 but not SSI recipients, or vice versa, to maintain the measure’s 55% vote requirement. Additionally, the district could exempt SSDI recipients, but would not have to in order to keep the 55% threshold.

9. If at first you don’t succeed… SCA 22 is substantially similar to SCA 3 Leno (2013), SCA 5 (Simitian, 2011), SCA 6 (Simitian, 2009), SCA 17 (Simitian, 2008), SCA 8 (Simitian, 2005), and ACA 4 (Simitian, 2003), all of which were not enacted.

10. Related legislation. The Committee will also hear SB 958 (Dodd) at its May 9^th hearings, which allows school districts to exempt its employees and teachers from paying parcel taxes.

11. Double-referred. The Senate Rules Committee ordered a double-referral of SCA 22, first to the Committee on Governance and Finance, and second to the Committee on Elections and Constitutional Amendments.

Support and Opposition

(5/4/18)

Support: California School Boards Association.

Opposition: California Taxpayers Association, Business Owners and Managers Association of California, California Beer and Beverage Distributors, California Business Properties Association, California Farm Bureau Federation, Contra Costa Taxpayers Association, Family Business Association of California, Howard Jarvis Taxpayers Association, International Council of Shopping Centers, National Association of Industrial and Office Parks, San Diego County Apartment Association, Western Manufactured Housing Communities Association.

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