BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 668|
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THIRD READING
Bill No: AB 668
Author: Gomez (D)
Amended: 6/25/15 in Senate
Vote: 21
SENATE TRANS. & HOUSING COMMITTEE: 10-0, 6/23/15
AYES: Beall, Cannella, Allen, Bates, Gaines, Galgiani, Leyva,
Mendoza, Roth, Wieckowski
NO VOTE RECORDED: McGuire
SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 7/8/15
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach,
Pavley
SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/27/15
AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen
ASSEMBLY FLOOR: 79-0, 6/1/15 - See last page for vote
SUBJECT: Property taxation: assessment: affordable housing
SOURCE: Habitat for Humanity California
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 homeowner as
long as certain conditions are met.
ANALYSIS:
Existing law:
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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.
f) Solar-use easements.
This bill adds to the list of enforceable use restrictions
affecting assessed land value a contract where the following
apply:
1)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.
2)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.
3)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.
4)The local housing authority or equivalent agency has made a
finding that the long-term deed restrictions serve a public
purpose.
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5)The contract is recorded and provided to the assessor.
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.
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 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.
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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,
homeowners association 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.
Inconsistent application of current law. According to this
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 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.
Comments
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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
According to the Senate Appropriations Committee, this bill may
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incur 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% 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 this 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
contract restrictions on assessed value (the difference between
market value and restricted value), and the behavior of
individual assessors.
SUPPORT: (Verified8/28/15)
Habitat for Humanity California (source)
California Housing Consortium
California Housing Partnership Corporation
Non-Profit Housing Association of Northern California
Sacramento Housing Alliance
OPPOSITION: (Verified8/28/15)
None received
ASSEMBLY FLOOR: 79-0, 6/1/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,
Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,
Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,
Daly, Dodd, Eggman, Frazier, Gallagher, Cristina Garcia,
Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray,
Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones,
Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,
Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,
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Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,
Wilk, Williams, Wood, Atkins
NO VOTE RECORDED: Beth Gaines
Prepared by:Eric Thronson / T. & H. / (916) 651-4121
8/31/15 16:29:29
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