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RB 415JSRB

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object(Timber\Post)#3711 (44) { ["ImageClass"]=> string(12) "Timber\Image" ["PostClass"]=> string(11) "Timber\Post" ["TermClass"]=> string(11) "Timber\Term" ["object_type"]=> string(4) "post" ["custom"]=> array(5) { ["_wp_attached_file"]=> string(14) "RB_415JSRB.pdf" ["wpmf_size"]=> string(6) "534242" ["wpmf_filetype"]=> string(3) "pdf" ["wpmf_order"]=> string(1) "0" ["searchwp_content"]=> string(3875) "www.ppic.org Parcel Taxes as a Local Revenue Source in California April 2015 Jon Sonstelie with research support from Alyssa Baughman Supported with funding from the Donald Bren Foundation SUMMARY A movement is under way in California to transfer authority from the state government to local governments. Public Safety Realignment and the Local Control Funding For- mula have shifted some of the responsibility for corrections and school funding to local authorities. These initiatives are consistent with public opinion, which favors transfer - ring many obligations from the state to localities. However, a stronger local public sector requires not only more responsibility but also adequate revenue, a concern since the passage of Proposition 13 in 1978. That initiative limited property tax increases and replaced locally determined rates with a statewide rate, thereby constraining local government fnances. In many cases, local governments have responded by turning to another source of revenue—the parcel tax. The parcel tax is a tax on parcels of real property collected as part of a property tax bill. Unlike the property tax, the parcel tax cannot be based on property value. Typically, it is a fat tax that does not vary with the size or characteristics of a parcel. To impose a parcel tax, governments must win support from two-thirds of voters. From 2002 to 2012, California cities, school districts, and special districts placed almost 700 parcel tax proposals on the ballot, of which more than half passed. This report evaluates the parcel tax based on standard principles of taxation, including neutrality, equity, stability, simplicity, transparency, integrity, and growth. It fnds that a well- designed parcel tax can be a worthwhile fscal institution for California. Statewide, aggregate property tax revenue may be adequate. But the state’s formula for allocating that revenue is ISTOCK Parcel Taxes as a Local Revenue Source in California 2 www.ppic.org not aligned with the specifc public services that community residents demand and are will - ing to pay for. The parcel tax can strengthen the link between local governments and com - munity residents, promoting government efciency and realistic expectations about what the local public sector can achieve. Because the parcel tax is essentially a tax on land, it has several advantages. Other taxes, such as the sales and income taxes, can distort economic activity by discouraging work or consumption. But land is immobile and limited in supply. A properly designed tax on land tends to be more neutral in its efect on the economy. To promote equity, a parcel tax should ideally be based on land value. However, Proposition 13 prohibits taxes based on land value. For that reason, it is preferable that parcel taxes not be fat but instead be based on parcel size. A well-designed parcel tax is a levy per square foot applied uniformly to all land uses. Such a tax has one major shortcoming though: a parcel tax based on parcel size can make ownership of large tracts of vacant land uneconomical. A lower tax rate for these parcels may be the solution, but that would violate uniformity. Thus, large tracts of vacant land with little value represent a challenge for the parcel tax. Other states do not levy parcel taxes. California turned to it only because of Proposition 13’s limits on the property tax. Yet in this large and complex state, the parcel tax plays a use - ful role, helping California’s diverse localities tailor public services to the needs and desires of their communities. It is vital then that California make the best possible use of this tax to promote government efciency and help ensure that residents get the services they are will - ing to pay for. For the full report and related resources, please visit our publication page: www.ppic.org/main/publication.asp?i=1145" } ["___content":protected]=> string(106) "

RB 415JSRB

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Public Safety Realignment and the Local Control Funding For- mula have shifted some of the responsibility for corrections and school funding to local authorities. These initiatives are consistent with public opinion, which favors transfer - ring many obligations from the state to localities. However, a stronger local public sector requires not only more responsibility but also adequate revenue, a concern since the passage of Proposition 13 in 1978. That initiative limited property tax increases and replaced locally determined rates with a statewide rate, thereby constraining local government fnances. In many cases, local governments have responded by turning to another source of revenue—the parcel tax. The parcel tax is a tax on parcels of real property collected as part of a property tax bill. Unlike the property tax, the parcel tax cannot be based on property value. Typically, it is a fat tax that does not vary with the size or characteristics of a parcel. To impose a parcel tax, governments must win support from two-thirds of voters. From 2002 to 2012, California cities, school districts, and special districts placed almost 700 parcel tax proposals on the ballot, of which more than half passed. This report evaluates the parcel tax based on standard principles of taxation, including neutrality, equity, stability, simplicity, transparency, integrity, and growth. It fnds that a well- designed parcel tax can be a worthwhile fscal institution for California. Statewide, aggregate property tax revenue may be adequate. But the state’s formula for allocating that revenue is ISTOCK Parcel Taxes as a Local Revenue Source in California 2 www.ppic.org not aligned with the specifc public services that community residents demand and are will - ing to pay for. The parcel tax can strengthen the link between local governments and com - munity residents, promoting government efciency and realistic expectations about what the local public sector can achieve. Because the parcel tax is essentially a tax on land, it has several advantages. Other taxes, such as the sales and income taxes, can distort economic activity by discouraging work or consumption. But land is immobile and limited in supply. A properly designed tax on land tends to be more neutral in its efect on the economy. To promote equity, a parcel tax should ideally be based on land value. However, Proposition 13 prohibits taxes based on land value. For that reason, it is preferable that parcel taxes not be fat but instead be based on parcel size. A well-designed parcel tax is a levy per square foot applied uniformly to all land uses. Such a tax has one major shortcoming though: a parcel tax based on parcel size can make ownership of large tracts of vacant land uneconomical. A lower tax rate for these parcels may be the solution, but that would violate uniformity. Thus, large tracts of vacant land with little value represent a challenge for the parcel tax. Other states do not levy parcel taxes. California turned to it only because of Proposition 13’s limits on the property tax. Yet in this large and complex state, the parcel tax plays a use - ful role, helping California’s diverse localities tailor public services to the needs and desires of their communities. It is vital then that California make the best possible use of this tax to promote government efciency and help ensure that residents get the services they are will - ing to pay for. 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