Government Finance and Operations 07/09/2010
Hotel Taxes and Online Travel Companies
The United States Senate Finance Committee is considering a proposal that would give a massive tax break to online travel companies (OTC) by allowing them to under-collect and under-pay local agencies for transient occupancy taxes. Instead of calculating the tax based on the room price the consumer pays, as is customary, they would figure it based on the price the OTC pays the hotel for the room. It is estimated that this would cost state and local agencies across the country $8.5 billion, the vast majority of which would benefit four large companies.
OTCs have been trying to avoid these taxes for years, and several
government entities throughout the US, including some in
California, have taken them to court over the issue, alleging
fraud and unfair business practices. It has even been alleged
that OTCs charge the consumer the full rate, but keep the
This proposal, if adopted into law, would preempt state and local rules across the country and have a significant impact on local budgets. Counties are strongly encouraged to contact California’s senators and voice their opposition to this preemption of local control and reduction of local revenues at a time local budgets are already under tremendous strain. The NACo action alert is available here.
Brown Act Mandate
On Thursday, July 8, the Budget Conference Committee
approved a proposal by the Legislative Analyst’s
Office that will effectively end state reimbursement for certain
mandated components of the Brown Act.
These sections — the most significant of which requires local agencies to prepare agendas that include short summaries for all items and post them 72 hours prior to meetings of their various legislative and governing bodies — will remain in statute. However, instead of being required activities, they will remain as a suggested way of complying with Proposition 59.
The Legislature placed Proposition 59 on the ballot in 2004. It reads, in pertinent part: “The people have the right of access to information concerning the conduct of the people’s business, and, therefore, the meetings of public bodies and the writings of public officials and agencies shall be open to public scrutiny.”
Under the plan the Conference Committee approved this week, local agencies will have to announce annually how they intend to comply with Proposition 59.
The California Newspaper Publishers Association voiced their strong opposition to this proposal during budget subcommittee hearings.
AB 2531 (Fuentes) – Oppose
As Amended on June 23, 2010
Assembly Bill 2531, by Assembly Member Felipe Fuentes, would dramatically expand the powers of redevelopment agencies to include not only structural redevelopment projects, but also short-term economic development activities.
Redevelopment agencies’ fundamental purpose is to redevelop property, which is why tax increment financing makes sense. The justification for these agencies getting an area’s tax increment for as long as fifty years is that they use the funds to increase the long-term property values through redevelopment. When the taxes return to counties, schools, and others, the money again supports education, public health, law enforcement, fire protection, hospitals, libraries, and all the other core government services.
For city-sponsored redevelopment agencies, the cities’ loss of revenue is by choice, since the city council members create and govern the redevelopment agencies, and the school districts’ revenue is reimbursed by the state pursuant to Proposition 98. So the local agencies that actually lose out are counties and special districts.
With AB 2531, redevelopment agencies could spend those tax dollars on programs unrelated to redevelopment. Instead of focusing on long-term benefits to the physical environment, they could instead spend on programs that might give a short-term benefit to the area’s economy, but have no direct effect on the community’s property values. Not only that, but in using their new authority, they would also be borrowing money for the long-term to spend on benefits unlikely to last the length of the loan.
AB 2531 loosens the link between redevelopment and blight, which the Legislature has appropriately been tightening for years. The existence of blight is the necessary condition for creating a project area. Likewise, the sole purpose of a project area is to eradicate blight. Notably, unemployment is not included in statute on the list of economic conditions that typify blight, so the main purpose of this bill would sever this link.
Redevelopment agencies may only capture the amount of tax increment sufficient to eradicate the blight that normal public and private investment cannot. AB 2531 would authorize redevelopment agencies to spend money on, for example, job training and placement, applying for federal grants for use outside of project areas, increasing the efficiency of construction methods, and reducing building operation costs through increased operating and maintenance efficiency. Since these activities and others in the bill, laudable as they may be, are unrelated to eradicating blight, redevelopment agencies spending money on them would seem to be exceeding the allowable level of property tax capture. We disagree that community redevelopment agencies are the appropriate entities to perform these activities.
Cities already have every power this bill grants redevelopment agencies. The only difference is that, by using their redevelopment agencies to exercise them, cities can use revenue that would otherwise flow to counties, the state, and special districts.
Lastly, CSAC has strong concerns about the language that declares this bill’s provisions as clarifying of existing law, which we believe is not the case. We worry that this language would render the sunset dates meaningless.
The Senate Local Government Committee passed AB 2531 on a party-line vote at their meeting on Wednesday, June 30. It will now likely move to the Senate Appropriations Committee.
Property Tax Postponement
AB 1718 (Blumenfield) – Support
As Amended on May 28, 2010
Assembly Bill 1718, by Assembly Member Bob Blumenfield, would restore the Senior Citizens’ Property Tax Postponement Program (Program), which was eliminated in the February 2009 budget agreement, and is the result of ongoing discussions between the state and local entities.
The Program offered income-eligible seniors and the disabled the opportunity to postpone their property tax payments in exchange for full repayment with interest when their home is sold. The Program had a minimal start-up cost and, in most years, generated revenue for the state General Fund. Unfortunately, in large part due to the recent recession and housing crisis, the program failed to pay for itself in 2007-08 and 2008-09, making it a target for elimination given the state’s budget crisis.
CSAC, along with county assessors, auditor-controllers, and treasurer-tax collectors, has been working with Assembly Member Blumenfield, the State Controller’s Office, and the State Treasurer’s Office to identify program improvements and a new financing mechanism that will allow the program to be fully self-funded, while continuing to allow eligible Californians to utilize this important service.
The Senate Banking, Finance, and Insurance Committee passed AB 1718 unanimously at their meeting on June 30.
AB 1955 (De La Torre) – Oppose
As Amended on April 12, 2010
Assembly Bill 1955, by Assembly Member Hector De La Torre, would amend the law that bans the holding of two incompatible offices to include offices or bodies in which both entities have the power of eminent domain, the power to set fees or levy taxes, or the authority to sue or be sued. Counties are concerned about the unintended consequences of amending the common law ban on incompatible offices that has guided decision-making bodies in this state for more than a hundred years.
AB 1955 failed passage at the Senate Local Government Committee meeting on June 30.
AB 1671 (Jeffries) – Support
As Amended on May 17, 2010
Assembly Bill 1671, by Assembly Member Kevin Jeffries, would impose upon the Governor a 90-day deadline to appoint someone to a vacancy on a county board or supervisors; after that, the responsibility would transfer to the board itself.
Current law gives the Governor the power to appoint people to vacant supervisorial positions, and no time limit for doing so. Recent experience has shown that filling these vacant seats is not necessarily a priority for the Governor. In the rare but actual event that a board has a vacant seat and a temporarily incapacitated member, conducting the county’s business becomes quite difficult since every decision must be unanimous. Counties have many responsibilities, and having a situation such as this for any length of time is untenable. To deal with these concerns, AB 1671 would place a reasonable time limit on the Governor for filling such a vacancy. If the Governor exceeds this period, the board itself would have 90 days to either appoint, call an election, or give the Governor another 30 days. It is worth noting that most other local legislative bodies in the state already have the power to appoint people to their vacancies.
The Senate Local Government Committee passed AB 1671 unanimously at their meeting on June 30.
SB 1040 (Padilla) – Support
As Amended on June 10, 2010
Senate Bill 1040, by Senator Alex Padilla, would expand the California Advanced Services Fund (CASF), which encourages deployment of broadband in un- and underserved areas, from $100 million to $225 million. It would also delete the sunset date on the program; the sunset is unnecessary since the program caps the dollar amount.
The California Public Utilities Commission and the Legislature created CASF in 2007 and 2008 to help fund the expansion of broadband infrastructure into difficult-to-serve areas. The CASF is an important part of closing the digital divide and creating economic opportunities for residents of rural areas.
The Assembly Appropriations Committee placed SB 1040 on their suspense file at their June 30 meeting.
Use Tax Collection
AB 2078 (Calderon) – Support
As Amended on June 24, 2010
Assembly Bill 2078, by Assembly Member Charles Calderon, would attempt to improve use tax compliance in two ways. First it would require online and catalogue retailers that do not collect a sales or use tax to remind consumers that they owe that tax to the state. It would also rebuttably presume that if a retailer in a controlled group of corporations is “engaged in business in this state” for tax purposes, then all other retailers in that group are as well.
AB 2078 will at least partly eliminate the unfair business advantage California gives out-of-state companies, and should also help improve the collection of taxes owed to counties, cities, and the state.
The Senate Revenue and Taxation Committee passed AB 2078 on a party-line vote at its meeting on Thursday, July 1.