TCSA Capitol Update: March 13 - March 17, 2023
The pace is continuing to build at the General Assembly. Most committees and subcommittees have announced their final calendars, meaning legislators had to have their bills on notice by this week in those committees or they will not be heard this year. This resulted in a huge surge of bills being added to calendars. Next week will be very busy as committees try to work through this backlog. Some of the more contested bills were scheduled to be heard this week, but most of them were deferred as both proponents and opponents worked to garner votes.
After a successful week in two committees, the Governor’s Transportation Modernization Act of 2023 (HB321/SB273) now moves to the Senate Floor Monday, March 20, for its biggest test yet. The Senate Finance Committee recommended the bill for passage this week on a 10-1 vote, while the House Finance Subcommittee approved it on a unanimous voice vote. The full House Finance Committee will hear the bill on Tuesday. Both committees this week adopted identical amendments that added a prohibition on supplanting local funding with the $300 million in State Aid Road grants and altered the schedule for adopting registration fees on electric and hybrid vehicles, including plug-in hybrids.
Sales Tax Administration Fee
A bill to reduce the administrative fee charged on local option sales tax by the Department of Revenue took its first step this week. Currently, the department charges an administrative fee of 1.125% on collections of local option sales tax. For FY21-22, this fee produced more than $45 million in revenue for the department. Last December, in response to legislation, the department produced a report estimating that the actual additional cost for collecting local option sales tax was $14 million. While the department performs outstanding service for state and local governments, county associations are arguing that it is unfair for local governments to subsidize its operations by more than $30 million. (SB385/HB419), as amended, proposes to correct this inequity over time by reducing the fee to 1% for FY23-24, 0.75% in FY24-25 and 0.5% in FY25-26. Even at that level, the fee would still produce more than $16 million in revenue for the department, exceeding the estimated cost of administering the tax. A fiscal memo on the amendment that makes the bill estimates that the legislation, when fully implemented, would shift $28,297,940 from the state’s coffers back to the local governments where the tax was paid. The memo also notes that the Department of Revenue reverted more than $30 million in excess funds to the state’s general fund in FY21-22, an indication that adjusting this fee would do no harm to the department’s operations. The bill is scheduled to be heard in the Senate State and Local Committee and the full House Local Committee on Tuesday of next week. Call your legislators and tell them you support the bill.
Property Tax Study
A caption bill we have been watching all session finally received an amendment to rewrite the legislation. (HB1209/SB1192) was amended and recommended by the Property and Planning Subcommittee this week. The bill would create a study committee to examine property tax rates, methods of appraisal, and possible limits on property taxes that the state could impose on local governments. The committee is made up of five members of the House and 5 members of the Senate. The legislation directs the committee to study what other states have done to enact limits on property tax increases, including levying a statewide rate, capping increases at a certain percent or locking in a property’s value at its last purchase price. The language specifically directs the committee to consider California’s Proposition 13 which imposed strict restrictions on property taxes in that state in 1978. The bill has not yet been heard in the Senate, but was put on notice for the final calendar in Senate State and Local.
There was again no public action this week on the legislation to authorize counties and cities to levy development taxes and impact fees. We are trying to find a limited version of the legislation that legislators can support to get the bill out of subcommittee. Realtors are pushing back hard against this proposal. They packed the committee room on Wednesday in anticipation of the bill being heard in the Property and Planning subcommittee. That strong opposition has kept (HB1206/SB820) bottled up for most of the session.
We are expecting more action next week on the bill to codify Governor Lee’s stated goal of raising the minimum step of the salary schedule for teachers to $50,000. (SB281/HB329) would raise the schedule to $42,000 for the upcoming year, then to $44,500 in the following year, then $47,000, then $50,000 by the FY26-27 school year. A fiscal analysis on the amendment indicates that this would require $125 million in additional funds put into the base amount of TISA each year by the General Assembly and reserved for teacher salaries (that amount is included in the governor’s proposed budget this year). The analysis estimates that the additional funds would cover the cost of the mandated raises for all school districts in the first two years. Five school districts would have to provide a combined total of $106,142 in additional local funds in FY 25-26 and eight districts would have to provide $1.6 million in FY26-27. The bill is scheduled to be heard in Senate Finance on Tuesday and in the House Education Admin Committee the next day.
Another bill that would require school districts to make any excess space in a school building available to non-resident students moved out of the House K-12 Subcommittee last week. (HB959/SB973) was scheduled to be heard in the Senate Education Committee and in the House Education Admin Committee this week, but it was deferred in both committees. The bill raises concerns, especially for counties experiencing significant enrollment growth.
Business Personal Property Taxes
A bill that would enact several recommendations from a TACIR study on business personal property tax passed out of the House Local Government Committee this week. It is headed to the House Finance Subcommittee. It’s scheduled for the Senate State and Local Committee on Tuesday. Currently, some small businesses have the option of checking a box that they have less than $1,000 of property and paying a nominal personal property tax. Companies with more property than that have to file detailed inventories with the assessor of property. (HB804/SB384) proposes to increase that level to $2000 and add a new step at $10,000. This would allow significantly more small businesses to take advantage of the simplified process, hopefully improve compliance, and free up the assessor to focus on larger businesses.
The bill (SB1034/HB1134) to improve the process of filing officials’ bonds at the start of their term passed the Senate this week and moved forward out of the Cities and Counties Subcommittee in the House. Every four years, county officials are caught in a bit of a conundrum as the law technically makes it a crime for them to take official action before their bonds have been approved by the county commission. The term begins on September 1st, but in many cases the commission may not meet until two or three weeks later in the month. For many county officials, this has become a moot issue as the county uses insurance in lieu of bonds. For those still covered by a bond, this legislation directs that the bonds are approved by the county mayor, with the mayor’s bond approved by the general sessions judge. This hopefully creates a process to have the bonds in place prior to the start of the term so that the county is covered on day one. The county commission would still be able to require a higher bond amount if it chose to do so, but the bonds would begin covering the official without having to be first approved by a vote of the county commission. The bill next moves to the full Local Government Committee in the House.
We are following many more issues during these hectic weeks at the legislature. Check back each week for more updates.