BILL ANALYSIS Ó AB 668 Page 1 Date of Hearing: May 20, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair AB 668 (Gomez) - As Amended May 5, 2015 ----------------------------------------------------------------- |Policy |Housing and Community |Vote:|6 - 0 | |Committee: |Development | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | |Revenue and Taxation | |9 - 0 | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: YesReimbursable: Yes SUMMARY: This bill requires a county assessor to consider, when valuing real property for tax purposes, a recorded contract (i) executed with a nonprofit corporation that has received a welfare exemption for properties intended to be sold to low-income families who participate in an interest free loan program, and (ii) that restricts the use of the property to affordable housing for at least 30 years. AB 668 Page 2 FISCAL EFFECT: Unknown reduction in property tax receipts, resulting in GF costs to reimburse counties under the Proposition 98 funding guarantee. For example, assuming the average Habitat for Humanity homebuyer earns $33,600 (55% of the 2014 median household income in California, the mid-point of Habitat's eligibility scale), and pays 1/3 of that income towards a mortgage, that buyer could probably afford a mortgage of approximately $190,000. Further assuming the median home price in California for a 3 bedroom home is approximately $420,000, the difference in assessed value would be $230,000 if the county assessor assessed the value at what the Habitat homeowner effectively paid. Habitat for Humanity estimates there are approximately 25 homes built per year that would be affected by this bill. Assuming the difference in assessed value in the above example, this bill would result in a reduction in property tax receipts statewide of approximately $60,000 in the first year, approximately half of which would be reimbursed from the General Fund. Over time, the number of homes that enjoy the reduced tax assessment value under this bill, and the amount therefore reimbursed from the General Fund, will increase. COMMENTS: 1)Purpose. According to the author, this bill promotes affordable housing and creates additional opportunities for affordable home ownership by allowing county assessors to consider certain affordable housing deed restrictions when AB 668 Page 3 valuing a property for tax purposes. The author claims there is currently a wide variance between jurisdictions with regard to assessing the value of affordable homes, and some assessors continue to assess affordable homes with private deed restrictions at fair market value. Market rate assessments can have a significant impact on the property tax, and therefore the overall affordability, of those homes. Supporters, including the California Housing Consortium, assert affordable housing rental and ownership units typically have restrictions on the rents and sales, but current law does not give county assessors authority to consider those deed restrictions when valuing the properties for tax purposes. AB 668 allows county assessors to consider private contractual restrictions that maintain affordable cost or rent for at least 30 years when assessing value. 2)Private Restrictions, Public Cost. In opposition, the California Assessors' Association argues current law requires assessors to consider "enforceable governmental" restrictions on property when assessing tax value, but not private restrictions, because governments are in a better position to determine whether the overall benefit to the community justifies the restriction and resulting reduction in tax base. Allowing an organization like Habitat for Humanity to have its privately-contracted covenants affect the tax value of properties allows the organization and homeowners to achieve tax savings without a public process. 3)Sweat Equity. Habitat for Humanity works with families who contribute to the construction of their homes, selling the homes to the families at a price based on their ability to pay, and attaching covenants or restrictions limiting resale to ensure the homes remain affordable. Families that purchase Habitat homes are restricted from spending more than 30% of their total monthly income on mortgages, including property AB 668 Page 4 taxes, insurance, HOA dues, and any deferred maintenance. Habitat for Humanity claims county assessors do not always take affordable housing covenants into consideration when valuing the properties, potentially increasing property taxes and disadvantaging potential buyers. 4)Assessor Authority to Consider Private Agreements. Existing law requires assessors to consider the effect of any enforceable restrictions on the use of land when issuing valuations, including zoning restrictions, easements, environmental restrictions, and recorded contracts with government agencies. As a general rule, private parties cannot reduce the taxable value of real property by imposing private encumbrances. According to Habitat for Humanity, whether a government contract is recorded with respect to a property varies from project to project, and may often depend upon circumstances unique to each project. It seems clear, however, that absent this bill, assessors lack clear statutory or other legal authority to consider private contracts when assessing value. Analysis Prepared by:Joel Tashjian / APPR. / (916) 319-2081 AB 668 Page 5