BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1250 (Ducheny)
Hearing Date: 05/03/2010 Amended: As Introduced
Consultant: Mark McKenzie Policy Vote: Rev&Tax 5-0
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BILL SUMMARY: SB 1250 would expand the property tax exemption
currently provided to private operators of family housing on
military bases to include non-family housing. The expansion of
this exemption would apply retroactively to projects for which a
contract was entered into on or after January 1, 2005.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Property tax backfill $798 $798 $798 General
Staff notes that total property tax revenue losses would be
approximately $2.1 million annually, plus a growth factor, of
which approximately $798,000 would otherwise accrue to schools.
Under Proposition 98, the General Fund generally backfills
schools for losses of property tax revenues. Recent data
indicates that approximately 38% of property tax revenues go to
schools.
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Current law generally prohibits the taxation of property owned
by the federal government and other public land, but imposes a
"possessory interest" tax on federally-owned property used by a
private interest, such as a private lease of public land, if the
private use meets three tests of independence, durability, and
exclusivity. Under the federal Military Housing Privatization
Initiative, which was enacted in 1996, the federal government
began privatizing military housing. The authorization was
initially limited to agreements between the military and private
developers for ownership, maintenance, and operation of family
housing via a fifty-year lease. In response, the Legislature
enacted SB 451 (Ducheny), Chapter 853 of 2004, which specified
that a private developer's interest in military family housing
is not "independent" for purposes of imposing a possessory
interest tax, and therefore exempt from the property tax. This
exemption does not apply to unaccompanied housing for single
enlisted service members.
In 2003, Congress authorized the Department of the Navy to
undertake up to three pilot projects for the privatization of
unaccompanied housing, such as bachelor enlisted quarters,
barracks, and dormitories. The Navy selected a private
developer for a public-private venture to provide housing for
single military personnel at Naval Station San Diego. This
project, Pacific Beacon LLC, privatized 258 units of Navy-owned
unaccompanied housing units and provides for the construction of
941 apartments at Naval Station San Diego, which the LLC will
own, operate, and mange for fifty years. Construction broke
ground in January 2007 and was substantially completed in March
2009.
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SB 1250 (Ducheny)
SB 1250 would specify that there is no independent possession of
land or improvements that are due to a contract that includes a
lease for the development of housing for active duty military
personnel, or their dependents, or both, thereby exempting both
family and unaccompanied housing projects from property tax.
This bill would also apply the expansion of this exemption to
projects where the contract for the development of the land or
improvements was entered into on or after January 1, 2005.
The Board of Equalization (BOE) estimates that this bill would
result in a property tax loss of approximately $2.1 million
annually. Staff notes that the bill would be retroactive to
when the developer began construction in 2007. San Diego County
levied assessments of approximately $1 million last year and
approximately $2 million this year on the Pacific Beacon
project, but none of these taxes have been paid to date. This
bill would resulting in a loss of approximately $3 million in
foregone revenues by forgiving a past tax debt (approximately
$1.14 million of which would constitute a General Fund revenue
loss), and would exempt the property from future assessments of
approximately $2.1 million annually (approximately $798,000 of
which would accrue to schools), plus an annual growth factor.
Staff notes that San Diego County has asked BOE to opine whether
the Pacific Beacon project constitutes a possessory interest
under existing law. BOE is expected to make a determination on
this project sometime this year. If BOE opines that the project
does not constitute a possessory interest, then existing tax
debt would be cancelled and the project would be exempt from
future property taxation.