BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 668| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 668 Author: Gomez (D) Amended: 9/1/15 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. Senate Floor Amendments of 9/1/15 resolve chaptering conflicts with AB 1251 (Gomez). ANALYSIS: AB 668 Page 2 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. 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 AB 668 Page 3 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 and provided to the assessor. 1)Includes chaptering amendments to resolve a conflict with AB 1251 (Gomez, 2015), should both bills pass and get enacted into law. 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. What this bill does. 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 AB 668 Page 4 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 of 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, 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 AB 668 Page 5 agreement with the local assessor. This bill seeks to resolve this inconsistency. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: Yes According to the Senate Appropriations Committee: 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 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: (Verified9/2/15) Habitat for Humanity California (source) California Housing Consortium California Housing Partnership Corporation Non-Profit Housing Association of Northern California Sacramento Housing Alliance OPPOSITION: (Verified9/2/15) None received ASSEMBLY FLOOR: 79-0, 6/1/15 AB 668 Page 6 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, 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 9/2/15 18:47:04 **** END ****