BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
                              Senator Jim Beall, Chair
                                2015 - 2016  Regular 

          Bill No:          AB 668            Hearing Date:     6/23/2015
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          |Author:   |Gomez                                                 |
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          |Version:  |5/5/2015                                              |
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          |Urgency:  |No                     |Fiscal:      |Yes             |
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          |Consultant|Eric Thronson                                         |
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          SUBJECT:  Property taxation:  assessment:  affordable housing


            DIGEST:  This bill adds to the list of enforceable use  
          restrictions affecting assessed land value by adding a contract  
          between a nonprofit corporation and a low-income home owner as  
          long as certain conditions are met.

          ANALYSIS:
          
          Existing law:
          
          1)Limits the amount of property tax on real property to 1% of  
            full cash value.

          2)Requires property to be reassessed to current fair market  
            value whenever it is purchased, newly constructed, or when  
            ownership changes, and provides a rebuttable presumption that  
            the fair market value is the purchase price.

          3)Requires assessors, when assessing the value of land, to  
            consider the effect upon land value of any enforceable use  
            restrictions, including, but not limited to the following:

             a)   Zoning restrictions.
             b)   Development controls in accordance with local coastal or  
               protection programs.
             c)   Statutory environmental constraints.
             d)   Hazardous waste land-use restrictions.
             e)   Recorded conservation, trail, or scenic easements.







          AB 668 (Gomez)                                      Page 2 of ?
          
          
             f)   Solar-use easements.

          This bill:

          1)Adds to the list of enforceable use restrictions affecting  
            assessed land value a contract where the following apply:
             a)   The contract is with a nonprofit corporation that has  
               received a welfare exemption for properties to be sold to  
               low-income families participating in a special no-interest  
               loan program.
             b)   The contract restricts the use of the land for at least  
               30 years to owner-occupied housing available at affordable  
               housing cost in accordance with existing law.
             c)   The contract includes a deed of trust on the property in  
               favor of the nonprofit corporation to ensure compliance  
               with the terms of the program.
             d)   The local housing authority or equivalent agency has  
               made a finding that the long-term deed restrictions serve a  
               public purpose.
             e)   The contract is recorded.

          COMMENTS:

          1)Purpose.  According to the author, this bill is needed in  
            order to encourage consistency throughout the state and equity  
            for low-income homeowners to afford not only their mortgage  
            payments, but also their property tax bill. Ultimately, this  
            bill will assist hardworking, low-income families to afford  
            their mortgage payments and increase people's access to  
            affordable housing and opportunities for homeownership in  
            California.

          2)Background.  The California Constitution provides that all  
            property is taxable unless explicitly exempted by the  
            Constitution or federal law.  Further, the Constitution limits  
            the maximum amount of any ad valorem tax on real property at  
            1% of full cash value and growth in the value of the property  
            to 2% per year.  Assessors reappraise property whenever it is  
            newly constructed, or when ownership changes.  To determine  
            value, the law effectively presumes that a property's purchase  
            price in the transaction is its full cash or fair-market  
            value.  The law further defines the purchase price to include  
            the total consideration provided by the purchaser, or on the  
            purchaser's behalf, valued in money, paid in money, or  
            otherwise.  








          AB 668 (Gomez)                                      Page 3 of ?
          
          

            Assessors must consider enforceable restrictions, such as  
            zoning and environmental restrictions, when valuing property,  
            and subsequently estimate the value of the property based on  
            its legal uses allowed by the enforceable restriction.   
            Further, an assessor must consider the value of an enforceable  
            restriction recorded by a governmental agency when valuing a  
            property as well as other types of restrictions.  While  
            nonprofit organizations record enforceable affordability  
            contracts and deeds restrictions, the law does not explicitly  
            require assessors to consider these recorded contracts when  
            determining the property's assessed value.  Some county  
            assessors deduct the value of the restriction from the fair  
            market value of the home, and the Board of Equalization (BOE)  
            recommends that assessors estimate the present economic value  
            of the covenant, and then sum it with the down payment and  
            value of the mortgage.  The value determines the property tax  
            the new owners must pay, so the tax effect of the difference  
            between "fair market value" rather than the "purchase price"  
            can be significant.

            The sponsor of this bill, Habitat for Humanity California,  
            works with families who contribute sweat equity to the  
            construction of the home.  Habitat for Humanity attaches a  
            covenant or restrictions sometimes known as a "silent second  
            mortgage," secured by a deed of trust that limits any family  
            purchasing the home from reselling it so that the home remains  
            affordable should the initially selected family choose to move  
            out.  Households that assume a mortgage from Habitat for  
            Humanity are restricted from spending more than 30% of their  
            income on their monthly mortgage, which includes property  
            taxes, insurance, HOA dues, and deferred maintenance.  The  
            family must agree to the covenant in order to buy the  
            subsidized home.  Because of the restriction on resale, the  
            value of the property to the owner is less than its value on  
            the open market. Assessment of the property at fair market  
            value, without consideration of the affordability covenant  
            which limits the resale price, increases the amount of the  
            property taxes the homeowner must pay, making the home less  
            affordable for lower-income families. 

          3)Inconsistent application of current law.  According to the  
            bill's sponsor, assessors throughout the state vary the  
            methods of determining the assessed value of homes with  
            recorded contracts limiting the resale value.  Some consider  








          AB 668 (Gomez)                                      Page 4 of ?
          
          
            the "fair market price" of the home, while others take into  
            consideration the restrictions on resale and reduce the  
            assessed value.  In February of this year, the sponsor  
            conducted a survey of 22 counties in California to determine  
            how they assessed homes built and financed by Habitat for  
            Humanity.  The results indicated an inconsistency in how  
            different jurisdictions assess the home value.  For example,  
            in some areas, the assessed value was based on whether or not  
            city or county funds were involved in the construction and in  
            others was based on a verbal agreement with the local  
            assessor.  This bill seeks to resolve this inconsistency.

          4)Argument in opposition.  The California Assessors' Association  
            is opposed to AB 668 and has raised several issues of concern  
            with the bill.  According to opponents, currently the meaning  
            of "enforceable restrictions" is limited to government  
            entities for good reason.  The opponents argue that government  
            entities are in the best position to evaluate the overall  
            benefit to the entire community relative to the loss in  
            property tax revenue.  Moreover, governmental restrictions are  
            generally recorded, discoverable, and provided to the  
            assessor.  Private restrictions, for which there are many  
            variations, are not readily discoverable.  The Assessors'  
            Association argues this is bad precedent and therefore opposes  
            the bill.

          5)Technical amendment.
          
                 Page 4, line 5, add "and provided to the assessor."
          
          1)Double-referral. The Rules Committee has referred this bill to  
            both this committee and the Governance and Finance Committee.  
            Therefore, if the bill passes this committee, it will be  
            referred to the Committee on Governance and Finance.

          Related Legislation:
          
          SB 499 (Wyland, Statutes of 2013) - was identical to this bill.  
          This bill was held in the Senate Appropriations Committee.

          AB 793 (Strickland, Statutes of 2007) - among other things,  
          would have allowed resale price restrictions on homes purchased  
          through a program operated by a nonprofit organization to be  
          treated as an enforceable restriction that must be considered  
          when determining the property value.  This bill was held in  








          AB 668 (Gomez)                                      Page 5 of ?
          
          
          Senate Appropriations Committee.

          Assembly Votes:
               
            Floor:     79-0
            Appr:      15-0
            Rev&Tax:         9-0
            H&CD:        6-0
          
          FISCAL EFFECT:  Appropriation:  No    Fiscal Com.:  Yes     
          Local:  Yes


            POSITIONS:  (Communicated to the committee before noon on  
          Wednesday,
                          June 17, 2015.)
          
            SUPPORT:  

          Habitat for Humanity California (Sponsor)
          California Housing Consortium
          California Housing Partnership Corporation
          Non-Profit Housing Association of Northern California
          Sacramento Housing Alliance

          OPPOSITION:

          California Assessors' Association


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