Friday, June 13, 2008

MORE THAN YOU EVER WANTED TO KNOW ABOUT CALIFORNIA SCHOOL FINANCE: California School District Parcel Taxes (Qualified Special Taxes) + Parcel Tax Election Trends

Faced by the Budget Crisis the LAUSD Board of Ed is contemplating a new School Bond and/or a Parcel Tax.  

ORRICK, a group that runs school finance elections says:

  • Parcel Taxes are typically levied as a flat rate per parcel—hence, the name. 
  • But the popular name is not a limitation.  Some districts levy a rate at a fixed amount per square foot of taxable land, and many include an annual inflation adjustment.
  • Parcel taxes cannot be levied based on assessed property value - but a precedent-setting Parcel Tax in Berkeley "split the rolls" and charged a different rate for residential and commercial property.
  • Senior citizens (taxpayers aged 65 or older), and  recipients of social security or disability benefits can be exempted regardless of age.

EDSOURCE, a school finance non-profit warns:

  • wealthier communities are either better able or more willing to tax themselves to improve their schools.
  • Just five districts that have passed parcel taxes since 2000—all in the Bay Area—serve a higher-than-average proportion of low income students.
  • School Bonds can only fund capital improvement such as construction and modernization,
  • Parcel Taxes can fund or supplement day-to-day operataion and/or maintenance.

    The concern is that while a bond measure, with  55% vote required may pass, a parcel tax requiring a 2/3 vote may fail — polling data suggests voters are move favorable towards bonds over parcel taxes. If both are on a single ballot it's easy for a "NO Campaign" to target and the voter to vote against both.  Also, parcel taxes may appear on any regular ballot, a bond can only go on an even-year general election ballot (ie: the November presidential election)  -smf

    Client Alert By John Hartenstein Chair of  the  school finance practice group of  Orrick, Herrington & Sutcliffe LLP.

    06-29-2007 - More and more school districts find themselves pinched between reduced and increasingly unstable State funding and growing demands by parents to improve educational programs.

    Local Parcel Taxes provide one way—and perhaps the only way—to provide secure, enhanced funding for “soft” costs, including for teacher salaries, books, materials and supplies, computers and other equipment, and for vulnerable arts, music and sports programs.  Parcel taxes can also improve a district’s bond rating.  This Bulletin addresses some of the most important questions we hear from school district clients regarding Parcel Taxes.

    • What is a Parcel Tax?

    Parcel Tax” is the common term for a school district “qualified special tax”.  Cities, counties and other districts can also adopt special taxes.  Special taxes are permitted by the Constitution, but all special taxes require approval at an election by at least 2/3 of those voting on the measure.

    • What can Parcel Taxes be used for?

    Virtually anything.  The law does not specifically limit how the tax proceeds may be spent, but the school board can impose any limits it wants to in the ballot measure.  For example, one district we work with has a special tax for educational program enhancement, and a second tax just for maintaining bond-financed buildings.  Ballot measures typically focus on “programs,” but if worded appropriately, the funds can be spent on teacher salaries, materials, equipment, and so on.

    • When can we conduct an election to approve a Parcel Tax for the District?

    On any “established election date”.  The established election dates each year are:  June and November of each year, in April of even-numbered years, in March of odd-numbered years, and in February of each presidential election year.  School Parcel Tax elections also qualify for all-mailed ballot elections, which can occur on special established mailed ballot election dates.  These occur in early May and late August each year, and in early March of even-numbered years.

    • How long does it take to call an election?

    At least 90 days, for the entire legal process.  However more time should be allowed for proper planning, surveying, if desired, and to allow concerned citizens to organize into an effective campaign committee.  For example, an election held on November 4, 2008 would have to be called no later than August 6, 2008.  Sample Parcel Tax Election timetables are posted at our website at  Click Publications and then Public Finance.

    • What is the legal rate of tax?  Are there alternative ways of specifying the rate?

    There is no maximum rate of tax.  Parcel Taxes are typically levied as a flat rate per parcel—hence, the name.  But the popular name is not a limitation.  Some districts levy a rate at a fixed amount per square foot of taxable land, and many include an annual inflation adjustment.

    The tax must be uniform as applied to all real property or to all taxpayers.  The tax cannot be related to a taxpayer’s use of the schools.  And the tax rate cannot be expressed in terms of the value of the property (an “ad valorem tax”).

    • Who must pay the tax?  Can certain properties or certain taxpayers be included or exempted?

    All real property or all taxpayers must be taxed.  For school districts, only two exceptions are permitted under the law:  for senior citizens (taxpayers aged 65 or older), and for recipients of SSI disability benefits, regardless of age.  Exemptions or reduced rates granted to any other group of taxpayers or any classification of property may violate the law’s uniformity requirement.  Some school districts adopt administrative procedures to grant special relief in cases where the tax is deemed unfair.  But even these exceptions are not clearly permitted by statute.

    In addition, unlike for certain school bonds, there is no authority to create special zones within the school district to exempt specific geographical areas, neighborhoods or developments.

    • How often must our Parcel Tax be renewed?

    There is no maximum term.  Traditionally, school district Parcel Taxes were approved for four years.  However, there is no limit in the law, and taxes lasting 5, 7, or more years are increasingly common.  A number of school districts have adopted permanent Parcel Taxes.  The longer the term, the more inflation can be expected to erode the spending value of the tax over time, leading many districts to include an inflation escalator in the tax formula.  Another strategy is to build upon a fixed permanent Parcel Tax base with incremental increases, as needed.  A 2/3 vote would be needed for each new addition.

    • Do we need “Gann Limit”?  How do we get it?  What is it?

    We don’t believe you need it.  The “Gann Limit” on government appropriations is too complex to discuss here.  Suffice it to say that school districts are not subject to the Gann Limit in the same way as other local agencies, and can continue spending Parcel Tax proceeds without repeated elections.  Some districts prefer to obtain periodic voter affirmation of their Parcel Tax using this simple-majority vote procedure.

    • Can anything in the future cause us to lose our Parcel Tax revenue?

    Possibly.  Proposition 218, adopted in 1996, subjects nearly all taxes to repeal by initiative.  Unless the Parcel Tax is pledged to repay bonds or other contractual obligations, a voter petition drive could put the tax back on the ballot.  And repeal would only take a simple majority vote.

    In addition, considering ongoing State budget difficulties, there is always a risk that the legislature could cut State funding to districts that have demonstrated an ability and willingness to pass local Parcel Tax measures for educational programs.

    Have more questions?  Want further information?

    We have assisted a number of our clients with Parcel Tax matters, including districts in Alameda, Contra Costa, Los Angeles, San Mateo, Santa Clara, Sonoma, and other counties.

    For assistance with Parcel Taxes and bond measures, please contact John Hartenstein, Chair of Orrick’s school finance practice group.

    These publications are designed to provide Orrick's clients and contacts with information they can use to more effectively manage their businesses and access Orrick's expertise. The contents of these publications are for informational purposes only. Neither these publications nor the lawyers who authored them are rendering legal or other professional advice or opinions on specific facts or matters. Orrick assumes no liability in connection with the use of these publications.

    California School FinanceHosted by EdSource

    Parcel Tax Election Trends

  • The Local Miscellaneous category of funds annually represents about 6% of the total revenues for K-12 schools. This funding is separate from the local property tax revenues the state controls. It comes from sources that are locally controlled, including such things as donations from parents, income from the lease or sale of district property, cafeteria sales, and interest income.

    For less than 20% of school districts in the state, an important source of local miscellaneous revenue is a voter-approved local parcel tax. These are special taxes not related to property value (non-ad valorem). Districts can put these measures on the ballot at their discretion. But they require a two-thirds voter approval which makes them difficult to pass.

    California law allows school districts to assess parcel taxes on local residents if they can secure a two-thirds approval from voters. Parcel taxes are a non ad valorum tax, a flat fee on each parcel rather than on the assessed value of property. The ballot proposal prepared by the school district governing board describes the purpose the money will be used for.
    From 1983 through November 2006, voters approved 211 parcel taxes in 414 elections; 166 received a majority vote but not the necessary two-thirds approval.

  • Regional analysis through June 2006

    In all, 210 school districts out of nearly 1,000 have even attempted to pass a parcel tax, but some districts have passed multiple levies. As Table 1 below shows, a disproportionate number of these elections have been in the San Francisco Bay Area. In addition, about 90% of the elections were held in districts that were below the state average of 49% low-income students. A common explanation for this is that wealthier communities are either better able or more willing to tax themselves to improve their schools. Just five districts that have passed parcel taxes since 2000—all in the Bay Area—serve a higher-than-average proportion of low income students. They are Ravenswood City Elementary in San Mateo County, Alum Rock Elementary in Santa Clara County, West Contra Costa County Unified in Contra Costa County, and Emery Unified and Oakland Unified in Alameda County.

    No. of School Districts
    % of Districts that Held Elections Total Elections Passed Out of
    Those Attempted
    Santa Clara
    32 56% 13 out of 28
    San Mateo 23 57% 13 out of 22
    Sonoma 40 38% 8 out of 19
    Alameda 21 43% 13 out of 15
    Marin 20 55% 12 out of 15
    Contra Costa 18 39% 8 out of 13
    Los Angeles 84 12% 5 out of 12

    Page last updated July 2007

    A PARCEL TAX: Measure BB - Berkeley Schools Facilities Safety and Maintenance Act of 2000

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