Existing law creates the Riverside County Transportation Commission with specified powers and duties relative to transportation planning and programming in the County of Riverside. Existing law authorizes the commission to impose a transactions and use tax for transportation purposes subject to approval of the voters, which, pursuant to the California Constitution, requires approval of ²/₃ of the voters. Existing law limits the commission to a 1% maximum tax rate, and requires the commissions tax or taxes to be levied at a rate divisible by ¹/₄%, unless a different rate is specifically authorized by statute.

This bill would raise the maximum tax rate the commission may impose from 1% to 1.5%.

This bill would make legislative findings and declarations as to the necessity of a special statute for the County of Riverside.

Existing law creates the Riverside County Transportation Commission with specified powers and duties relative to transportation planning and programming in the County of Riverside. Existing law authorizes the commission to impose a transactions and use tax for transportation purposes subject to approval of the voters, which, pursuant to the California Constitution, requires approval of ²/₃ of the voters. Existing law limits the commission to a 1% maximum tax rate, and requires the commissions tax or taxes to be levied at a rate divisible by ¹/₄%, unless a different rate is specifically authorized by statute.

This bill would raise the maximum tax rate the commission may impose from 1% to 1.5%.

This bill would make legislative findings and declarations as to the necessity of a special statute for the County of Riverside.

Existing law provides various sources of funding to public transit operators. Under the Mills-Alquist-Deddeh Act, also known as the Transportation Development Act, revenues from a ¹/₄% sales tax in each county are available, among other things, for allocation by the transportation planning agency to transit operators, subject to certain financial requirements for an operator to meet in order to be eligible to receive funds. Existing law sets forth alternative ways an operator may qualify for funding, including a standard under which the allocated funds do not exceed 50% of the operators total operating costs, as specified, or the maintenance by the operator of a specified farebox ratio of fare revenues to operating costs. Existing law establishes the required farebox ratio as 20% in urbanized areas and 10% in nonurbanized areas.

This bill would make a nonsubstantive change to the provision relating to operator eligibility in urbanized areas based on the farebox ratio.

 THIRD READING  

Bill No: AB 1385

Author: Garcia (D)

Amended: 3/23/23 in Assembly

Vote: 21

SENATE TRANSPORTATION COMMITTEE: 14-1, 6/27/23

AYES: Gonzalez, Niello, Allen, Archuleta, Becker, Blakespear, Cortese, Dahle, Dodd, Limón, McGuire, Newman, Umberg, Wahab

NOES: Nguyen

NO VOTE RECORDED: Seyarto

SENATE GOVERNANCE & FIN. COMMITTEE: 6-2, 7/5/23

AYES: Caballero, Blakespear, Durazo, Glazer, Skinner, Wiener

NOES: Seyarto, Dahle

ASSEMBLY FLOOR: 54-10, 5/18/23 - See last page for vote

SUBJECT: Riverside County Transportation Commission: transaction and use tax

SOURCE: Author

DIGEST:

This bill authorizes the Riverside County Transportation Commission (RCTC) to impose a maximum transportation and use tax (TUT) of 1.5%, subject to a vote.

ANALYSIS:

Existing law:

1. Authorizes RCTC to levy a retail TUT, as specified. Provides that the ordinance shall become effective if adopted by a 2/3 vote of RCTC and subsequently approved by 2/3 of the electors voting on the measure at a special election called for this purpose by the board of supervisors or at any regular election. RCTC shall specify in the ordinance that no more than 1% of the annual net amount of revenues raised by the tax may be used to fund the salaries and benefits of the staff of RCTC in administering the programs funded from that tax. (Public Utilities Code (PUC) § 240301)
2. Requires RCTC, in the ordinance, to state the nature of the tax to be imposed, the tax rate or the maximum tax rate, and the purposes for which the revenue derived from the tax will be used, and to set a term during which the tax will be imposed. The purposes for which the tax revenues may be used include, but are not limited to, the construction, capital acquisition, maintenance, and operation of streets, roads, highways (including state highways), and public transit systems. The ordinance shall contain an expenditure plan, as specified. (PUC § 240302)
3. Authorizes RCTC, subject to the approval of the voters, to impose a maximum TUT rate of 1%, as specified. RCTC shall not levy a tax or multiple taxes at a rate other than 1%, or 3/4, 1/2, or 1/4 of 1%, unless specifically authorized by statute. Provides that the tax rate shall not be considered for the purposes of the combined 2% rate limit established in existing law. (PUC § 240306)

This bill allows RCTC, subject to a 2/3 vote of Riverside County’s voters, to impose a maximum TUT tax rate of 1.5%, instead of 1%.

Comments

1. Author’s Statement. According to the author, Riverside County is California’s fastest growing and most diverse county. As the population and economy grow, so does the need for other transportation measures. This bill gives the RCTC options should Riverside County's voters choose to implement a new sales tax measure to fund future transportation needs.
2. For What? RCTC indicates that projects they would consider funding with an increased TUT include:
   1. Coachella Valley Rail Project
   2. Mid County Parkway
   3. CV Sync Phase II (safety/transit)
   4. Extending Metrolink service from Perris to Hemet and San Jacinto
   5. Santa Ana River Trail
   6. I-10 Bypass
   7. Smart Freeways
   8. Grade Separations
   9. Rapid/Commuter Bus Service Expansion
   10. Zero-Emission Bus Fleet Replacement
3. Funding Needed. California is chronically short of transportation funding. All parts of our transportation system, from local road repair, transit operations and capital, Active Transportation Programs, freeway widening and High Speed Rail, need substantial additional funding. It will take a combination of multiple sources to meet the need. This bill authorizes RCTC to try to earn approval of 2/3 of its voters to increase its Transportation and Use Tax up to 1.5%. The current limit is 1%.
4. Cap Does Not Apply. Unlike many other counties, the combined TUT rate in Riverside County is not subject to the 2% TUT tax limit. This bill authorizes a 0.50% tax cap increase for RCTC which gives it the capacity to increase its TUT from its current level of 0.50% up to 1.50%. Various TUT cap waivers have been granted by the Legislature in recent years.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 7/6/23)

American Council of Engineering Companies

Associated General Contractors of California

California Alliance for Jobs

California Asphalt Pavement Association

California Construction & Industrial Materials Association

California State Council of Laborers

Coachella Valley Association of Governments

County of Riverside Supervisor V. Manuel Perez
District Council of Iron Workers of the State of California and Vicinity
Engineering & Utility Contractors Association Dba United Contractors
International Union of Operating Engineers
Rebuild SoCal Partnership
Riverside County Transportation Commission
Self-Help Counties Coalition
Southern California Contractors Association
Transportation California
United Contractors
Western Regional Association for Pavement Preservation

OPPOSITION: (Verified 7/6/23)

California Taxpayers Association

ASSEMBLY FLOOR: 54-10, 5/18/23

AYES: Addis, Aguiar-Curry, Alvarez, Arambula, Bains, Bennett, Berman, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Connolly, Mike Fong, Gabriel, Garcia, Gipson, Grayson, Haney, Hart, Holden, Irwin, Jackson, Jones-Sawyer, Kalra, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Pellerin, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Santiago, Soria, Ting, Valencia, Villapudua, Ward, Weber, Wicks, Wood, Zbur, Rendon

NOES: Alanis, Megan Dahle, Davies, Dixon, Gallagher, Hoover, Lackey, Joe Patterson, Sanchez, Ta

NO VOTE RECORDED: Bauer-Kahan, Boerner, Cervantes, Chen, Essayli, Flora, Vince Fong, Friedman, Mathis, Jim Patterson, Petrie-Norris, Quirk-Silva, Schiavo, Waldron, Wallis, Wilson

Prepared by: Randy Chinn / TRANS. / (916) 651-4121

7/12/23 16:03:30

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Anna M. Caballero, Chair

2023 - 2024 Regular

Riverside County Transportation Commission: transaction and use tax

Increases from 1% to 1.5% the maximum district tax that can be imposed by the Riverside County Transportation Commission.

Background

Sales and Use Taxes. State law imposes the sales tax on every retailer “engaged in business in this state” that sells tangible personal property, and requires them to register with the California Department of Tax and Fee Administration (CDTFA), and remit tax to CDFTA. Sales tax applies whenever a retail sale occurs, which is generally any sale other than one for resale in the regular course of business. The current rate is 7.25% as shown in the table below.

Unless the purchaser pays the sales tax to the retailer, he or she is liable for the use tax, which the law imposes on any person consuming tangible personal property in the state. The use tax is the same rate as the sales tax, and like the sales tax, must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase.

District Taxes. 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 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.

State law allows cities, counties, and specified special districts to increase the sales and use tax applicable in their jurisdiction, also known as district or transactions and use taxes. Generally, local agencies impose these taxes throughout the entire area of a single county, the entire unincorporated area within a single county, or a single incorporated city, except for those imposed by the Bay Area Rapid Transit (BART) District (which covers Alameda, Contra Costa, and the City and County of San Francisco) and the Sonoma-Marin Rail Transit District (which includes Sonoma and Marin counties). As of April 1, 2023, local agencies impose 411 district taxes for general or special purposes – 67 are imposed countywide, 4 are imposed in unincorporated county areas, and 340 are imposed citywide.

State law caps the total rate for any county at 2%. The cap applies countywide, so if one agency imposes a district tax, it limits the ability of another agency that shares the jurisdiction to do so to the remaining room under 2%. For example, if a city imposes a 1% tax, the county in which the city is located or a special district serving that city could not impose one above 1%.

Riverside County. The Riverside County Transportation Sales Tax Act allows the Riverside County Transportation Commission to impose a district tax in the unincorporated area of Riverside County for transportation purposes at a maximum rate of 0.5% (AB 1637, Eaves, 1987). The Commission can spend tax proceeds on the construction, capital acquisition, maintenance, and operation of streets, roads, highways, including state highways, and public transit systems. The Commission must first enact an ordinance to do so by 2/3 vote of its board, which the voters must subsequently approve. In 1988, Riverside County voters approved Measure A, a 0.5% sales tax measure, which was subsequently reauthorized by the voters in 2002 until June 2039.

In 2017, the Legislature amended the Act to increase the maximum rate of district tax that can be imposed by the Riverside County Transportation Commission from .5% to 1%. (AB 1189, E. Garcia). AB 1189 provided that any district tax imposed by the Commission wasn’t subject to the 2% cap. While the Commission considered placing the measure on the ballot in 2020, it ultimately did not.

The California Department of Finance projects that Riverside County’s population will increase 20% by 2048 to 3 million. As a result, RCTC wants additional authority to impose district taxes to fund needed transportation infrastructure improvements.

Proposed Law

Assembly Bill 1385 increases from 1% to 1.5% the maximum district tax rate that can be imposed by the Riverside County Transportation Commission. The measure also makes a technical change, and includes a legislative finding justifying the need for special legislation.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. “Riverside County is California’s fastest-growing and most diverse county. As the population and economy grow so does the need for other transportation measures. This bill would give the Riverside County Transportation Commission (RCTC) options should Riverside County's voters choose to implement a new sales tax measure to fund future transportation needs.”

2. Necessary? As noted above, the Legislature has already granted RCTC the authority to impose a district tax of up to 0.5%. While RCTC argues population growth and an infrastructure backlog justify authority to impose up to a 1% tax, the Committee may wish to consider whether RCTC should first use its existing authority before asking for more.

3. Too high? California’s sales and use tax rate is high compared to other states, especially when incorporating locally imposed district taxes. Tax experts generally agree that sales and use taxes are regressive, meaning the tax incidence falls more on low-income individuals than high-income individuals because those of lesser means generally spend a greater percentage of their income on taxable sales, even if California’s exempts many necessities such as food and prescription medication. When combining RCTC’s current 0.5% tax, a 1% tax imposed by several cities in Riverside County, AB 1385 could lead to a rate of 9.75% if RCTC imposes the maximum tax rate allowed under the bill. While local voters must approve any tax, the Committee may wish to consider whether AB 1385 allows for rates that are too high.

4. Upland. On August 28, 2017, the California Supreme Court entered a decision in California Cannabis Coalition v. City of Upland, 3 Cal. 5^th 924, which held that Article XIIIC, Section Two, subdivision (b)’s requirement that general taxes be submitted to the electorate at a regularly scheduled general election where members of the local governing board are subject to election did not apply to taxes proposed by voter initiative. As discussed in the Committee’s March 7, 2018, joint oversight hearing, “Uproar over Upland? Assessing the California Supreme Court’s Decision,” groups seeking to impose special taxes by majority vote by initiative soon argued if the Court held the general election requirement in subdivision (b) did not apply to initiatives, then neither did the 2/3 vote requirement for special taxes in subdivision (d). At least seven such taxes imposed by voters in various local agencies across the state have been approved, and no court thus far has invalidated them. With that said, AB 1385 grants authority solely to the RCTC board, so would not apply to an initiative seeking to impose a special tax by majority vote.

5. Related legislation. There are currently four proposals under consideration in the Legislature regarding district tax authority.

• AB 1256 (Wood) authorizes the Humboldt County Board of Supervisors to impose a district tax for general or transportation purposes that exceeds the 2% countywide cap. The Committee approved the measure on June 7^th, and is currently pending on the Senate Floor.
• AB 1679 (Santiago) allows Los Angeles County impose a district tax up to 0.5% that exceeds the 2% cap, including by citizen’s initiative, if it replaces Measure H’s current 0.25% tax that funds homelessness programs in Los Angeles County. The Committee will hear the measure at its July 12^th hearing.
• SB 335 (Cortese) allows Santa Clara County to impose a district tax for general or specific purposes to support countywide programs at a rate of no more than .625% that exceeds the 2% cap. This version of SB 335 was not heard in the Senate, and is currently pending in the Assembly Revenue and Taxation Committee.
• SB 862 (Laird) specifies that a district tax of up to 1% imposed by the Santa Cruz Metropolitan Transit District does not count towards the 2% combined rate limit. This version of SB 862 was not heard in the Senate, and is currently pending on the Assembly Floor.

6. Incoming! On June 13^th, the Senate Transportation Committee approved AB 1385 by a vote of 14 to 1. The Senate Governance and Finance Committee is hearing the measure as the Committee of second reference.

Assembly Actions

Assembly Local Government Committee: 5-2
Assembly Floor: 54-10

Support and Opposition

(6/30/23)

Support: American Council of Engineering Companies
Associated General Contractors of California
California Alliance for Jobs
California Asphalt Pavement Association
California Construction & Industrial Materials Association
California State Council of Laborers
Coachella Valley Association of Governments
County of Riverside Supervisor V. Manuel Perez
District Council of Iron Workers of The State of California and Vicinity
Engineering & Utility Contractors Association Dba United Contractors
International Union of Operating Engineers
Rebuild Socal Partnership
Riverside County Transportation Commission (RCTC)
Self-help Counties Coalition
Southern California Contractors Association
Transportation California
United Contractors (UCON)
Western Regional Association for Pavement Preservation

Opposition: None received.

-- END --

SENATE COMMITTEE ON TRANSPORTATION

Senator Lena Gonzalez, Chair

2023 - 2024 Regular

Bill No: AB 1385 Hearing Date: 6/27/2023

SUBJECT: Riverside County Transportation Commission: transaction and use tax

DIGEST: This bill authorizes the Riverside County Transportation Commission (RCTC) to impose a maximum transportation and use tax (TUT) of 1.5%, subject to a vote.

ANALYSIS:

Existing law:

1. Authorizes RCTC to levy a retail TUT, as specified. Provides that the ordinance shall become effective if adopted by a two-thirds vote of RCTC and subsequently approved by two-thirds of the electors voting on the measure at a special election called for the purpose by the board of supervisors or at any regular election. RCTC shall specify in the ordinance that no more than 1% of the annual net amount of revenues raised by the tax may be used to fund the salaries and benefits of the staff of RCTC in administering the programs funded from that tax. [Public Utilities Code (PUC) § 240301]
2. Requires RCTC, in the ordinance, to state the nature of the tax to be imposed, the tax rate or the maximum tax rate, the purposes for which the revenue derived from the tax will be used, and to set a term during which the tax will be imposed. The purposes for which the tax revenues may be used include, but are not limited to, the construction, capital acquisition, maintenance, and operation of streets, roads, highways, including state highways, and public transit systems. The ordinance shall contain an expenditure plan, as specified. (PUC § 240302)
3. Authorizes RCTC, subject to the approval of the voters, to impose a maximum TUT rate of 1%, as specified. RCTC shall not levy a tax or multiple taxes at a rate other than 1%, or three-quarters, one-half, or one-quarter of 1%, unless specifically authorized by statute. Provides that the tax rate shall not be considered for the purposes of the combined 2% rate limit established in existing law. (PUC § 240306)

This bill

1. Allows RCTC, subject to a 2/3 vote of the voters, to impose a maximum TUT tax rate of 1.5%, instead of 1%.

COMMENTS:

1. Author’s Statement. Riverside County is California’s fastest-growing and most diverse county. As the population and economy grow so does the need for other transportation measures. This bill would give the Riverside County Transportation Commission (RCTC) options should Riverside County's voters choose to implement a new sales tax measure to fund future transportation needs.
2. For What? RCTC indicates that projects they would consider funding with an increased TUT include:

Coachella Valley Rail Project

Mid County Parkway

CV Sync Phase II (safety/transit)

Extending Metrolink service from Perris to Hemet and San Jacinto

Santa Ana River Trail

I-10 Bypass

Smart Freeways

Grade Separations

Rapid/Commuter Bus Service Expansion

Zero-Emission Bus Fleet Replacement

1. Funding Needed. California is chronically short of transportation funding. All parts of our transportation system, from local road repair, transit operations and capital, Active Transportation Programs to freeway widening and High Speed Rail, need substantial additional funding. It will take a combination of multiple sources to meet the need. This bill authorizes RCTC to see if they can earn approval of 2/3 of its voters to increase its Transportation and Use Tax up to 1.5%. The current limit is 1%.
2. Cap Does Not Apply. Unlike many other counties, the combined TUT rate in Riverside County is not subject to the 2.00% TUT tax limit. This bill authorizes a 0.50% tax cap increase for RCTC which gives it the capacity to increase its TUT from its current level of 0.50% up to 1.50%. Various TUT cap waivers have been granted by the Legislature in recent years. (See prior legislation section.)
3. Double Referral. This bill has been double-referred to the Governance and Finance Committee.

Related Legislation:

AB 2453 (Bennett), Chapter 286, Statutes of 2022, authorized the Ventura County Transportation Commission to impose a TUT of no more than 0.5% that does not count against the cap in Ventura County.

SB 1349 (Glazer), Chapter 369, Statutes of 2020, permitted Contra Costa County, and cities within Contra Costa County, additional legal flexibility to impose local TUTs.

AB 618 (Stone) of 2019 would have permitted the Cities of Emeryville (Alameda County) and Scotts Valley (Santa Cruz County) to impose a tax of up to 0.25% that exceeds the 2% cap. This bill was vetoed.

AB 723 (Quirk), Chapter 747, Statutes of 2019, provided that neither the tax imposed by Bay Area Rapid Transit District nor the tax imposed by the Alameda County Transportation Commission counts against the 2% cap, and made a similar change in Santa Cruz County.

AB 1189 (Garcia), Chapter 642, Statutes of 2017, increased the maximum TUT rate, from 0.5% to 1%, which RCTC may impose, subject to voter approval. This bill also specified that the TUT shall not be considered for purposes of the combined 2% cap established by existing law.

AB 1637 (Eaves), Chapter 270, Statutes of 1987, enacted the Riverside County Transportation Sales Tax Act and authorized RCTC to impose a district tax for transportation purposes at a maximum rate of 0.5%.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

Non-fiscal

POSITIONS: (Communicated to the committee before noon on Wednesday,

June 21, 2023.)

SUPPORT:

American Council of Engineering Companies
Associated General Contractors of California
California Alliance for Jobs
California Asphalt Pavement Association
California Construction & Industrial Materials Association
California State Council of Laborers
Coachella Valley Association of Governments
District Council of Iron Workers of The State of California and Vicinity
International Union of Operating Engineers
Rebuild Socal Partnership
Riverside County Transportation Commission (RCTC)
Self-help Counties Coalition
Southern California Contractors Association
Transportation California
United Contractors (UCON)
Western Regional Association for Pavement Preservation

OPPOSITION:

California Taxpayers Association

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1385

Author:(Garcia)

As Amended Ver:March 23, 2023

Majority vote

SUMMARY

Authorizes the Riverside County Transportation Commission (RCTC) to impose a maximum transportation and use tax (TUT) of 1.5%.

Major Provisions

1. Allows RCTC, subject to the approval of the voters, to impose a maximum tax rate of 1.5%, instead of 1%.
2. Makes other technical changes.
3. Finds and declares that a special statute is necessary and that a general statute cannot be made applicable because of the need to provide a local funding option to meet the transportation needs of the County of Riverside.

COMMENTS

1. Sales and Use Taxes. State law imposes the sales tax on every retailer "engaged in business in this state" that sells tangible personal property, and requires them to register with the California Department of Tax and Fee Administration (CDTFA), as well as collect the appropriate tax at purchase and remit the amount to CDFTA. Sales tax applies whenever a retail sale occurs, which is generally any sale other than one for resale in the regular course of business. The current rate is 7.25% as shown in the table below.

Unless the purchaser pays the sales tax to the retailer, he or she is liable for the use tax, which the law imposes on any person consuming tangible personal property in the state. The use tax is the same rate as the sales tax, and also like the sales tax, must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase.

1. Transactions and Use Taxes. 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 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.

State law allows cities, counties, and specified special districts to increase the sales and use tax applicable in their jurisdiction, also known as district taxes or TUTs. Prior to 2003, cities lacked the ability to place TUTs before their voters without first obtaining approval by the Legislature to bring an ordinance before the city council, and, if approved at the council level, to the voters. This was remedied by SB 566 (Scott), Chapter 709, Statutes of 2003. SB 566 also contained provisions to increase a county's TUT cap because of the possibility that certain counties were going to run out of room under their caps, if cities within those counties approved TUTs.

Generally, the combined TUT tax rate imposed within a local jurisdiction cannot exceed 2%. To determine whether a county has reached this rate limitation, all countywide taxes and the highest combined rate imposed by a city within the county are counted towards the county's rate limit. For example, if a county imposes three 0.5% countywide taxes and two cities within the county each impose a 0.5% tax, the combined rate in those two cities would be 2%. In such a circumstance, the two cities could not impose another TUT, and the county could not impose another countywide TUT, absent special authority to exceed the rate limitation.

As of April 1, 2023, local jurisdictions impose a combined 411 TUTs for general or special purposes. Generally, TUTs are levied throughout the entire area of a single county, the entire unincorporated area within a single county, or a single incorporated city, except for those imposed by the Bay Area Rapid Transit (BART) District (Alameda, Contra Costa, and San Francisco counties) and the Sonoma-Marin Rail Transit District (Sonoma and Marin counties). Of the 411 TUTs, 67 are imposed countywide, four are imposed in unincorporated county areas, and 340 are imposed citywide. In 1988, Riverside County voters approved Measure A, a 0.5% district tax for transportation purposes, which became operative on July 1, 1989, and was scheduled to sunset 20 years later. In 2002, Riverside County voters approved an extension of Measure A until 2039.

1. Riverside County. Riverside County has 17 TUTs levied within its borders: one countywide tax levied by the RCTC at 0.50%, and 16 citywide taxes. Since Palm Springs imposes the highest city rate in the county at 1.50%, the combined rate of taxes imposed by Riverside County is 2.00%. However, since the 0.50% tax levied by RCTC is not subject to the 2.00% combined rate limitation, an additional 0.50% is available for either the county, or any city within the county, to impose a general or specific purpose district tax without exceeding the 2.00% combined rate limitation.

According to the Author

According to the author, "Riverside County is California's fastest-growing and most diverse county. As the population and economy grow so does the need for other transportation measures. This bill would give the Riverside County Transportation Commission options should Riverside County's voters choose to implement a new sales tax measure to fund future transportation needs."

Arguments in Support

According to RCTC, "As the administrator of Measure A, the Commission kept its promises to Riverside County voters for nearly 35 years by using the residents' tax dollars efficiently and effectively to build the projects voters said they wanted. Measure A generated thousands of jobs and provided more than $4.1 billion in local sales tax funding for transportation projects across Riverside County that support its nearly 2.5 million residents, with public transit; commuter and motorist assistance; state highways; local streets and roads; and habitat conservation for 146 protected or endangered species.

"While California's overall population decreased during the last few years, Riverside County is the fastest-growing county in the state and the fifth fastest-growing county in the nation. The California Department of Finance projects that by 2048, Riverside County will have 3 million people, up 20 percent from 2022. People are moving here because of housing affordability, economic opportunity, and open space.

"The increase in the county's population necessitates evaluating how to fund much-needed improvements to our transportation infrastructure. Unfortunately, there is a significant backlog of critically needed transportation projects in Riverside County that existing fund sources cannot meet. AB 1385 provides options should Riverside County's voters choose to implement a new sales tax measure to fund future transportation needs. AB 1385 does not raise taxes. The bill increases RCTC's sales tax authority from one cent to one and a half cents per dollar and does not alter Measure A's half-cent sales tax rate. Any changes to Measure A requires approval from Riverside County's voters."

Arguments in Opposition

According to the California Taxpayers Association, "California has the country's highest state-level sales and use tax rate, and some cities have combined rates among the highest overall in the nation. The sales and use tax is a regressive tax that has the largest impact on lower-income residents because it takes a larger percentage of their household income. Increasing the tax makes it more expensive to purchase everyday necessities. Inflation has increased the cost of everyday goods, which in turn increases the sales tax that is imposed as a percentage of the retail price. Adding to the cost of living with a sales tax rate increase would harm Californians and disproportionately impact the state's most vulnerable residents."

"Additionally, raising the transactions and use tax rate that the Riverside County Transportation Commission is authorized to levy would restrict the ability of other local government entities in the area to raise revenue. California law restricts the combined transactions and use tax in any part of a county from exceeding 2 percent. If the Riverside Transportation Commission were to impose a 1.5 percent tax, it would limit the tax rate that cities would be authorized to impose and would jeopardize the legality of transactions and use tax collections in several cities within the county – including Riverside, Palm Springs, Temecula, Coachella, Corona, and others."

FISCAL COMMENTS

None.

VOTES

ASM LOCAL GOVERNMENT: 5-2-1

YES: Aguiar-Curry, Pacheco, Ramos, Robert Rivas, Wilson

NO: Dixon, Waldron

ABS, ABST OR NV: Boerner

UPDATED

VERSION: March 23, 2023

CONSULTANT: Jimmy MacDonald / L. GOV. / (916) 319-3958 FN: 0000309

Date of Hearing: May 3, 2023

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Cecilia Aguiar-Curry, Chair

ABPCA Bill Id:AB 1385 (

Author:Garcia) – As Amended Ver:March 23, 2023

SUBJECT: Riverside County Transportation Commission: transaction and use tax.

SUMMARY: Authorizes the Riverside County Transportation Commission (RCTC) to impose a maximum transportation and use tax (TUT) of 1.5%. Specifically, this bill:

1. Allows RCTC, subject to the approval of the voters, to impose a maximum tax rate of 1.5%, instead of 1%.
2. Makes other technical changes.
3. Finds and declares that a special statute is necessary and that a general statute cannot be made applicable because of the need to provide a local funding option to meet the transportation needs of the County of Riverside.

EXISTING LAW:

1. Authorizes RCTC to levy a retail TUT, as specified. Provides that the ordinance shall become effective if adopted by a two-thirds vote of RCTC and subsequently approved by two-thirds of the electors voting on the measure at a special election called for the purpose by the board of supervisors or at any regular election. RCTC shall specify in the ordinance that no more than 1% of the annual net amount of revenues raised by the tax may be used to fund the salaries and benefits of the staff of RCTC in administering the programs funded from that tax. [Public Utilities Code (PUC) § 240301]
2. Requires RCTC, in the ordinance, to state the nature of the tax to be imposed, the tax rate or the maximum tax rate, the purposes for which the revenue derived from the tax will be used, and to set a term during which the tax will be imposed. The purposes for which the tax revenues may be used include, but are not limited to, the construction, capital acquisition, maintenance, and operation of streets, roads, highways, including state highways, and public transit systems. The ordinance shall contain an expenditure plan, as specified. (PUC § 240302)
3. Authorizes RCTC, subject to the approval of the voters, to impose a maximum TUT rate of 1%, as specified. RCTC shall not levy a tax or multiple taxes at a rate other than 1%, or three-quarters, one-half, or one-quarter of 1%, unless specifically authorized by statute. Provides that the tax rate shall not be considered for the purposes of the combined rate limit established in existing law. (PUC § 240306)

FISCAL EFFECT: None.

COMMENTS:

1. Sales and Use Taxes. State law imposes the sales tax on every retailer “engaged in business in this state” that sells tangible personal property, and requires them to register with the California Department of Tax and Fee Administration (CDTFA), as well as collect the appropriate tax at purchase and remit the amount to CDFTA. Sales tax applies whenever a retail sale occurs, which is generally any sale other than one for resale in the regular course of business. The current rate is 7.25% as shown in the table below.

Unless the purchaser pays the sales tax to the retailer, he or she is liable for the use tax, which the law imposes on any person consuming tangible personal property in the state. The use tax is the same rate as the sales tax, and also like the sales tax, must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase.

1. Transactions and Use Taxes. 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 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.

State law allows cities, counties, and specified special districts to increase the sales and use tax applicable in their jurisdiction, also known as district taxes or TUTs. Prior to 2003, cities lacked the ability to place TUTs before their voters without first obtaining approval by the Legislature to bring an ordinance before the city council, and, if approved at the council level, to the voters. This was remedied by SB 566 (Scott), Chapter 709, Statutes of 2003. SB 566 also contained provisions to increase a county's TUT cap because of the possibility that certain counties were going to run out of room under their caps, if cities within those counties approved TUTs.

Generally, the combined TUT tax rate imposed within a local jurisdiction cannot exceed 2%. To determine whether a county has reached this rate limitation, all countywide taxes and the highest combined rate imposed by a city within the county are counted towards the county's rate limit. For example, if a county imposes three 0.5% countywide taxes and two cities within the county each impose a 0.5% tax, the combined rate in those two cities would be 2%. In such a circumstance, the two cities could not impose another TUT, and the county could not impose another countywide TUT, absent special authority to exceed the rate limitation.

As of April 1, 2023, local jurisdictions impose a combined 411 TUTs for general or special purposes. Generally, TUTs are levied throughout the entire area of a single county, the entire unincorporated area within a single county, or a single incorporated city, except for those imposed by the Bay Area Rapid Transit (BART) District (Alameda, Contra Costa, and San Francisco counties) and the Sonoma-Marin Rail Transit District (Sonoma and Marin counties). Of the 411 TUTs, 67 are imposed countywide, four are imposed in unincorporated county areas, and 340 are imposed citywide. In 1988, Riverside County voters approved Measure A, a 0.5% district tax for transportation purposes, which became operative on July 1, 1989, and was scheduled to sunset 20 years later. In 2002, Riverside County voters approved an extension of Measure A until 2039.

1. Bill Summary and Author’s Statement. This bill raises the maximum TUT that RCTC may impose, from 1% to 1.5%. RCTC is the sponsor of this bill.

According to the author, “Riverside County is California’s fastest-growing and most diverse county. As the population and economy grow so does the need for other transportation measures. This bill would give the Riverside County Transportation Commission options should Riverside County's voters choose to implement a new sales tax measure to fund future transportation needs.”

1. Riverside County. Riverside County has 17 TUTs levied within its borders: one countywide tax levied by the RCTC at 0.50%, and 16 citywide taxes. Since Palm Springs imposes the highest city rate in the county at 1.50%, the combined rate of taxes imposed by Riverside County is 2.00%. However, since the 0.50% tax levied by RCTC is not subject to the 2.00% combined rate limitation, an additional 0.50% is available for either the county, or any city within the county, to impose a general or specific purpose district tax without exceeding the 2.00% combined rate limitation.
   
2. Policy Consideration. California’s sales tax rate is currently at 7.25%, which is high compared to other states, especially when incorporating locally imposed TUTs. Some tax experts argue that sales and use taxes are regressive, meaning that the tax incidence falls more on low-income individuals than high-income individuals because those of lesser means generally spend a greater percentage of their income on taxable sales, instead of intangible products or services which are not taxed. With this bill, the sales tax rate could grow higher than 10.00% within Riverside County. While any increase would have to be approved by the voters, the Committee may wish to consider whether AB 1385 allows for rates that are too high.
3. Previous Legislation. AB 1637 (Eaves), Chapter 270, Statutes of 1987, enacted the Riverside County Transportation Sales Tax Act and authorized RCTC to impose a district tax for transportation purposes at a maximum rate of 0.5%.

AB 1189 (Garcia), Chapter 642, Statutes of 2017, increased the maximum TUT rate, from 0.5% to 1%, which RCTC may impose, subject to voter approval. This bill also specified that the TUT shall not be considered for purposes of the combined 2% cap established by existing law.

AB 618 (Stone) of 2019 would have permitted the Cities of Emeryville (Alameda County) and Scotts Valley (Santa Cruz County) to impose a tax of up to 0.25% that exceeds the 2% cap. AB 618 was vetoed with a message that stated, “The Cities of Emeryville and Scotts Valley have not yet reached the statewide cap of 2 percent, making it unclear why additional tax authority is needed.”

AB 723 (Quirk), Chapter 747, Statutes of 2019, provided that neither the tax imposed by Bay Area Rapid Transit District nor the tax imposed by the Alameda County Transportation Commission counts against the 2% cap, and made a similar change in Santa Cruz County.

SB 1349 (Glazer), Chapter 369, Statutes of 2020, permitted Contra Costa County, and cities within Contra Costa County, additional legal flexibility to impose local TUTs.

AB 2453 (Bennett), Chapter 286, Statutes of 2022, authorized the Ventura County Transportation Commission to impose a TUT of no more than 0.5% that does not count against the cap in Ventura County.

1. Related Legislation. AB 1256 (Wood) authorizes Humboldt County to impose a TUT that exceeds the 2% statutory limitation. This bill passed this Committee on April 19 with a 5-2 vote.
   
2. Arguments in Support. According to RCTC, “As the administrator of Measure A, the Commission kept its promises to Riverside County voters for nearly 35 years by using the residents' tax dollars efficiently and effectively to build the projects voters said they wanted. Measure A generated thousands of jobs and provided more than $4.1 billion in local sales tax funding for transportation projects across Riverside County that support its nearly 2.5 million residents, with public transit; commuter and motorist assistance; state highways; local streets and roads; and habitat conservation for 146 protected or endangered species.
   

“While California’s overall population decreased during the last few years, Riverside County is the fastest-growing county in the state and the fifth fastest-growing county in the nation. The California Department of Finance projects that by 2048, Riverside County will have 3 million people, up 20 percent from 2022. People are moving here because of housing affordability, economic opportunity, and open space.

“The increase in the county's population necessitates evaluating how to fund much-needed improvements to our transportation infrastructure. Unfortunately, there is a significant backlog of critically needed transportation projects in Riverside County that existing fund sources cannot meet. AB 1385 provides options should Riverside County's voters choose to implement a new sales tax measure to fund future transportation needs. AB 1385 does not raise taxes. The bill increases RCTC’s sales tax authority from one cent to one and a half cents per dollar and does not alter Measure A’s half-cent sales tax rate. Any changes to Measure A requires approval from Riverside County’s voters.”

1. Arguments in Opposition. None on file.
   

REGISTERED SUPPORT / OPPOSITION:

Support

RCTC [SPONSOR]

American Council of Engineering Companies

Associated General Contractors of California

Coachella Valley Association of Governments

California Alliance for Jobs

California Asphalt Pavement Association

California Construction and Industrial Materials Association

California State Council of Laborers

District Council of Iron Workers of the State of California and Vicinity

Engineering and Utility Contractors Association DBA United Contractors

International Union of Operating Engineers

Rebuild Social Partnership

Riverside County Supervisor, Fourth District, V. Manuel Perez

Self-Help Counties Coalition

Southern California Contractors Association

Transportation California

Western Regional Association for Pavement Preservation

Opposition

None on file

Analysis Prepared by: Jimmy MacDonald / L. GOV. / (916) 319-3958