BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 668 (Gomez) - Property taxation: assessment: affordable
housing.
-----------------------------------------------------------------
| |
| |
| |
-----------------------------------------------------------------
|--------------------------------+--------------------------------|
| | |
|Version: June 25, 2015 |Policy Vote: T. & H. 10 - 0, |
| | GOV. & F. 7 - 0 |
| | |
|--------------------------------+--------------------------------|
| | |
|Urgency: No |Mandate: Yes |
| | |
|--------------------------------+--------------------------------|
| | |
|Hearing Date: August 17, 2015 |Consultant: Robert Ingenito |
| | |
-----------------------------------------------------------------
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 668 would direct county assessors to consider
the value of contracts with nonprofit entities when determining
taxable value.
Fiscal Impact: Unknown, potentially significant loss of property
tax revenues related to reductions in assessed value for homes
purchased with certain restrictions imposed through a contract
with a nonprofit organization. Approximately 50 percent of
property tax revenues statewide accrue to schools, which
generally offsets state General Fund obligations pursuant to
Proposition 98. Consequently, any reduction in the school share
of property tax revenues that are attributable to the bill's
impact on assessed values would result in a commensurate
increase in General Fund costs. The General Fund impact would
increase annually as more homes are sold with contracted
restrictions that affect assessed values.
The specific revenue loss would depend upon a number of factors,
including the number of applicable homes sold, the impact of the
AB 668 (Gomez) Page 1 of
?
contract restrictions on assessed value (the difference between
market value and restricted value), and the behavior of
individual assessors.
Background: The California Constitution (Proposition 13) limits
the maximum amount of any ad valorem tax on real property at 1
percent of full cash value. Current law requires property to be
reassessed to current fair market value upon a change of
ownership, with specified exceptions, and provides a rebuttable
presumption that the fair market value is the purchase price.
The purchase price is further defined as the total consideration
provided by the purchaser or on the purchaser's behalf, valued
in money, whether paid in money or otherwise. When determining
assessed valuation, county assessors are required to consider
the effect on property value of any enforceable restrictions
against the use of the land, such as zoning, easements,
environmental restrictions, and recorded contracts with
government agencies.
Some nonprofit organizations specialize in providing affordable
housing. When the nonprofit sells a property to a low-income
purchaser, the purchase price is less than the fair market
value, and in exchange for the reduced price the purchaser
enters into a contract with the nonprofit that limits the
ability to sell, lease, refinance, encumber, or mortgage the
home. The recorded contract is sometimes referred to as a
"silent second mortgage" that defers payments and interest, and
is primarily used as an enforcement mechanism; repayment may
never be required until the property is subsequently sold.
Property tax administrators have struggled with questions
related to the assessment of such properties, and the lack of
statutory direction has resulted in inconsistent tax treatment.
The Board of Equalization (BOE) has opined that the purchase
price of a property, for assessment purposes, should include all
of the following: (1) the down payment; (2) the face value of
the first mortgage; and (3) the present economic value of the
silent second mortgage, reflecting all terms and conditions of
the agreements. BOE also indicated that the effect of
enforceable government restrictions on the value of affordable
units should also be considered by the assessor. This same
consideration is not provided by assessors when enforceable
restrictions are imposed by a nonprofit entity.
AB 668 (Gomez) Page 2 of
?
Proposed Law: This bill would add onto the list of items that
county assessors must consider when valuing property a contract
that meets specified conditions, including the following:
Is with a nonprofit, 501(c)(3), organization that has
obtained a welfare exemption from property tax for
properties intended to be sold to low-income families, who
participate in a special, no-interest loan program.
Restricts the use of the land for at least 30 years to
owner-occupied housing at affordable housing cost.
Includes a deed of trust on the property in favor of the
nonprofit corporation, to ensure compliance with the terms
of the program, which has no value unless the owner fails
to comply with the covenants and restrictions of the terms
of the home sale.
The local housing authority or an equivalent agency, or,
if none exists, the city attorney or county counsel, has
made a finding that the long-term deed restrictions in the
contract serve a public purpose.
Related Legislation: In 2013, AB 499 (Wyland) proposed
legislation very similar to this bill. The bill was held under
submission on the suspense file of this Committee.
Staff Comments: This bill is intended to provide the same
treatment in assessment considerations for affordability
restrictions on housing provided by a nonprofit organization
that is currently provided when enforceable restrictions are
imposed by a government entity. Currently, an assessor is not
authorized to reduce a property's assessed value to account for
restrictions imposed by a nonprofit, but he or she is required
to consider restrictions imposed by a government when
determining property value.
Habitat for Humanity reportedly surveyed 22 counties in 2007
regarding how affordable homes built, financed, and sold by
Habitat for Humanity affiliates were assessed after the sale.
The assessment treatment varied. In some areas, the assessed
value is based on whether or not the construction involved city
or county funds, and in others, the value is based on verbal
AB 668 (Gomez) Page 3 of
?
agreements with the local assessor.
This bill would allow assessors to reduce the property tax value
by considering the impact that enforceable restrictions imposed
by affordable housing nonprofit organizations have on a home
sold to low-income purchasers. The statewide impact that this
measure would have on property tax revenues is indeterminable,
and would depend upon numerous factors, including an assessor's
judgment. As an example, if this bill resulted in reductions in
assessed value of $10 million statewide in a given year (the
equivalent of $20,000 in reduced value for 500 properties),
property tax revenues would be reduced by $100,000 at the basic
1 percent rate. As noted above, approximately 50 percent of
this reduced amount would ultimately be reflected in increased
General Fund spending. This amount of revenue losses would
increase annually as more homes are sold by nonprofit
organizations with contract restrictions that negatively affect
assessed values.
Staff notes that by imposing new duties on county assessors to
revise assessment practices, this bill would create a
reimbursable state-mandated local program. Costs to assessors,
however, would likely be relatively minor. These costs would be
partially mitigated to the extent that some county officials
already consider contract restrictions on affordability when
determining assessed value.
-- END --