BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SCA 9| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 445-6614 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 SCA 9 Page 2 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 SCA 9 Page 3 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 SCA 9 Page 4 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 **** END ****