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 ----------------------------------------------------------------- |Author: |Gomez | |----------+------------------------------------------------------| |Version: |5/5/2015 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant|Eric Thronson | |: | | ----------------------------------------------------------------- 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 -- END --