A Local Funding Source In Troubled Fiscal Times: The Potential Of Parcel Taxes

May 2012
Number 25

With the ongoing uncertainty of state funding, school districts are forced to continue exploring local funding options to address funding shortfalls. A parcel tax is an attractive option because a school district can use parcel taxes for any purpose identified in the ballot measure, including operating expenses. As a result, a parcel tax can be a significant source of unrestricted general fund dollars to support any district programs and needs.

In 2011, 18 of 27 (67%) of school district parcel tax measures were successful. While successful passage of a parcel tax measure takes due diligence and planning, there is still time to pursue a parcel tax election this year. The deadline to place a parcel tax measure on the November 6, 2012 election is August 10, 2012.

In considering whether to pursue a parcel tax, here are some things to keep in mind:

1. The governing board of a school district must hold a noticed public hearing before calling the election. The resolution calling the election on the parcel tax measure need only be approved by a simple majority of the governing board. The resolution must be adopted and delivered to the County Registrar of Voters at least 88 days before the election date.

2. The parcel tax measure must receive a 2/3-voter approval at the election.

3. Any parcel taxes levied for the benefit of a school district would be levied on each taxable parcel of real property within the boundaries of the school district, regardless of whether the owner of the parcel owns 1 parcel or 100 parcels.

4. There is no present limit to the duration of a parcel tax. Although special taxes for school districts previously were thought to be limited to 4-year terms (due to the limit on voter-approved changes in a school district’s appropriation limit), more recently it has been determined that school districts do not need voter approval for changes in their appropriation limit and so the 4-year limit does not apply.

5. A school district is permitted, but not required, to exempt senior citizens, or persons receiving Supplemental Security Income (SSI) for a disability, regardless of age, or both, from any parcel tax (senior citizens being defined as taxpayers 65 years of age or older).

6. In practice, the rates at which parcel taxes may be levied fall into one of two categories. The first category is a flat rate that is applied to all taxable parcels within a school district. Under this methodology, each taxable parcel within the school district would pay, for example, $100 per year per parcel. As an alternative, some school districts have adopted rates that vary for different land uses, i.e., separate rates for residential, commercial, and industrial properties, and even rates that vary within these classes by size of parcel or size or number of buildings on the parcel. In any case, rates cannot be based directly on the value of the parcel, and like-parcels must be charged like-amounts to meet the law’s “uniformity” requirement.

7. The measure may include an automatic inflationary adjustment, usually tied to one of the Consumer Price Indices, to provide some growth in the parcel tax revenue over the life of the tax. In the absence of a CPI adjustment, the revenue growth will be limited to the creation of new assessor’s parcels within the school district.

8. The parcel taxes must be levied and collected by the county’s auditor and tax collector along with the regular property taxes, and the county may charge the school district a fee for this service.

9. A new parcel tax becomes effective after a successful election and generally at the beginning of the next fiscal year, e.g., July 1, 2013 for a November 2012 election, and the proceeds will be distributed to a school district at the same time it receives its share of regular property tax revenues from the county.

10. Although not required for a parcel tax, a school district may include the appointment of an independent citizens’ oversight committee (similar to that required for Proposition 39 bond measures) as an additional accountability feature of the tax measure, which can increase voter support for the measure.

11. Currently, the law is unsettled as to whether taxpayers may deduct parcel tax payments for federal and state income tax purposes. As a result, school districts should be extremely cautious in making any affirmative statements about the deductibility of parcel tax payments.

If you have questions regarding parcel taxes, general obligation bonds, certificates of participation, Mello Roos, or other financing issues, please feel free to contact one of our eight offices located statewide. You can also visit our website or follow Lozano Smith on Facebook.

Written By

Jerome Behrens
Shareholder
Fresno Office
jbehrens@lozanosmith.com

Harold M. Freiman
Shareholder
Walnut Creek Office
hfreiman@lozanosmith.com

Jeffrey L. Kuhn
Shareholder
Fresno Office
jkuhn@lozanosmith.com

Trevin Sims
Shareholder
Los Angeles Office
tsims@lozanosmith.com

Daniel Maruccia
Shareholder
Sacramento Office
dmaruccia@lozanosmith.com

 

©2012 Lozano Smith

As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.

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