BILL ANALYSIS                                                                                                                                                                                                    



                                                                       


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                                 THIRD READING


          Bill No:  SCA 9
          Author:   Speier (D)
          Amended:  5/24/02
          Vote:     27

           
           SENATE REVENUE & TAXATION COMMITTEE  :  4-1, 4/24/02
          AYES:  Scott, Alpert, Bowen, Burton
          NOES:  Knight

           SENATE CONST. AMENDMENTS COMMITTEE  :  4-0, 5/8/02
          AYES:  Haynes, Bowen, O'Connell, Sher

           SENATE APPROPRIATIONS COMMITTEE  :  11-0, 5/23/02
          AYES:  Alpert, Battin, Bowen, Escutia, Johannessen,  
            Karnette, McPherson, Murray, Perata, Poochigian, Speier


           SUBJECT  :    Property tax:  changes in ownership:   
          exclusion:  cohabitants

           SOURCE  :     Author


           DIGEST  :  This bill expands the inter-spousal transfer  
          exception to the Prop. 13 change-in-ownership reappraisal  
          requirement to the transfer of a principal residence to a  
          cohabitant if (1) the residence was co-owned and  
          continuously resided in by the transferor and the  
          transferee for the five years immediately preceding the  
          transfer, (2) the transfer is made because of the death or  
          terminal illness of the transferor, and (3) the transfer  
          occurs on or after January 1, 2005.

                                                           CONTINUED





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           ANALYSIS  :  Existing law (Proposition 13) limits increases  
          in assessed value of property to no more than 2% annually,  
          unless there is new construction or a change in ownership  
          occurs. Since passage of Proposition 13 the voters have  
          approved various exceptions to the change-in-ownership  
          reassessment rule: inter-spousal transfers; transfers  
          between parents and children; certain transfers between  
          grandparents and grandchildren; transfers forced by  
          governmental action or disaster; and transfers by elder  
          homeowners from one residence to another.

          Currently, the California Constitution provides an  
          exception from the requirement that property be reassessed  
          when there is a change of ownership for transfers of  
          property between spouses - e.g., as a result of death or  
          divorce.

          This proposed constitutional amendment exempts from  
          reassessment transfers between cohabitants of property if  
          all of the following conditions are met:

          1. The property is the cohabitants' personal residence

          2. The transferor and the transferee have continuously  
             lived in the residence for five years preceding the  
             transfer

          3. The transfer is made because of the death of the  
             transferor or the transferor is certified to have a  
             terminal illness or disease

          4. The transfer is made on or after January 1, 2005.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

                              Fiscal Impact (in thousands)

           Major Provisions           2002-03            2003-04             2004-05    
                   Fund
           
          Property tax loss          revenue loss of $20-40 million annually    
             Local








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          K-12 apportionments   costs of up to $10-20 million annually        
          General

          BOE estimates that the total amount of property tax that  
          could be affected by this bill is $2.83 billion.  It also  
          indicates that the actual amount of revenue loss would be  
          significantly less.  To give an idea of the potential loss,  
          the estimate above assumed that 1/7th of those properties  
          change ownership every year, and that 5-10% of those  
          properties are owned by cohabitants affected by this  
          measure.

           SUPPORT  :   (Verified  5/23/02)

          Board of Equalization
          California Alliance for Pride and Equality
          City of West Hollywood
          Congress of California Seniors

          Author's office indicates that AFL-CIO and Older Women's  
          Congress supported the bill in committee.

           OPPOSITION  :    (Verified  5/23/02)

          California State Association of Counties

           ARGUMENTS IN SUPPORT  :    The author and the supporters of  
          SCA 9 note that Proposition 13 was designed to prevent  
          homeowners from being "taxed" out of their homes due to  
          rising property values.  Noting the various exceptions to  
          the change of ownership reassessment requirements that have  
          previously been added to the Constitution, proponents argue  
          that SCA 9 is consistent with the spirit of Proposition 13  
          and should apply to homeowner cohabitants, not just those  
          who are married or who have a familial relationship.   
          Furthermore, the provisions of SCA 9 would extend only to  
          the conveyance of a real property interest where the  
          transfer was due to death or terminal illness of a  
          co-owner.  It is argued that the provisions of SCA 9 are  
          consistent with existing exemptions involving involuntary  
          property transfers as well as transfers among spouses and  
          family members.

           ARGUMENTS IN OPPOSITION  :    CSAC is concerned about the  







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          revenue loss to local governments that would occur, should  
          the voters approve this measure.  Section 2229 of the  
          Revenue and Taxation Code provides that the state will  
          reimburse local agencies for revenues lost by them pursuant  
          to property tax exemptions by the state.  Unfortunately,  
          this measure contains a waiver of this section, thus  
          imposing a revenue loss to local governments.  In this  
          difficult economic climate, local governments cannot afford  
          to face the potential loss of property tax revenues.  An  
          amendment to the measure that holds local governments  
          harmless for any revenue loss could resolve this concern.   
          (The homeowner's property tax exemption functions in this  
          manner.)  A potential alternative to mitigate this revenue  
          loss would be to allow the exemption as a local option,  
          approved by the county board of supervisors.  They are also  
          concerned about the potentially broad application of this  
          measure.  The State Board of Equalization analysis  
          indicates that the measure could apply to a number of  
          living situations, including siblings, roommates, and  
          in-home care providers, to name a few.  They recommend that  
          the definition of cohabitants be more clearly defined to  
          address the specific relationships that would allow a  
          co-owner to qualify for this exemption.  
           

          DLW:jk  5/24/02   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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