BILL ANALYSIS Ó
AB 654
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Date of Hearing: May 4, 2011
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
AB 654 (Hueso) - As Amended: April 25, 2011
SUBJECT : Local government: historical property.
SUMMARY : Requires historic property qualifying for a lower
property tax to be subject to certain contractual provisions
between a city, county, or city and county and the property
owner. Specifically, this bill :
1)Requires historic property qualifying for a lower property tax
to be subject to a contract between a city, county, or city
and county and the property owner and requires the contract to
include, among other things, the following provisions:
a) A party appointed by the legislative body of city,
county, or city and county (legislative body) is required
to conduct an inspection of the interior and exterior of
the premises prior to a new agreement and every five years
thereafter to determine the owner's compliance with the
contract, and the Department of Parks and Recreation (DPR),
and the State Board of Equalization (BOE) is authorized to
conduct periodic examinations, as may be necessary.
b) The owner or agent of the property is required to
provide written notice of the contract to the Office of
Historic Preservation (OHP) within six months of entering
into the contract.
2)Requires the legislative body to have the property owner, as a
condition of the contract, to pay a fee sufficient to cover
but not to exceed the reasonable cost of administering this
program, including, but not limited to, the processing of
designation requests, contracts, monitoring, inspections, and
enforcement, as needed.
3)Requires the legislative body, if it determines the property
owner has breached any of the conditions of the contract or
has allowed the property to deteriorate to the point it no
longer meets the standard for a qualified historical property,
to do one of the following:
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a) Cancel the contract; or,
b) Bring any action in court necessary to enforce a
contract, including, but not limited to, an action to
enforce the contract by specific performance or injunction.
EXISTING LAW :
1)Authorizes the Legislature, under Section 8 of Article XIII of
the state Constitution, to provide for a lower property tax
for historic property consistent with restrictions placed on
the use of the property.
2)Prohibits a valuation of a Mills Act property from being based
on sales data and instead requires that property be valued by
a prescribed income capitalization method.
3)Defines, under the Mills Act, a qualified historical property
as privately owned property that is either listed in the
National Register of Historic Places or listed in any state,
city, county, or city and county official register of
historical or architecturally significant sites, places, or
landmarks.
4)Requires a historic property qualifying for a lower property
tax to be subject to a contract between the local jurisdiction
and the property owner and requires the contract to include,
among other things, the following provisions:
a) Requires the term of the contract to be a minimum of 10
years;
b) Requires the assessor, DPR, and BOE to conduct periodic
examinations, as may be necessary, of the interior and
exterior of the premises to determine the owner's
compliance with the contract.
c) Requires the owner or agent of the property to provide
written notice of the contract to OHP within six months of
entering into the contract.
5)Requires the legislative body entering into a contract to
require the property owner as a condition of entering into the
contract to pay a fee not to exceed the reasonable cost of
administering the program.
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6)Authorizes the legislative body to cancel the contract if the
legislative body determines either of the following:
a) The property owner has breached any of the conditions of
the contract or has allowed the property to deteriorate to
the point it no longer meets the standards for a qualified
history property; or,
b) The property owner has failed to restore or rehabilitate
the property in the manner specified in the contract.
7)Authorizes the county, city, or any landowner to bring any
action in court necessary to enforce a contract, including,
but not limited to, an action to enforce the contract by
specific performance or injunction.
FISCAL EFFECT : Unknown
COMMENTS :
1)Lower property taxes for historic properties is provided
pursuant to Constitutional Amendment 111 of 1974, approved by
the voters as Proposition 7 at the June 8, 1976, election.
This constitutional amendment authorized the Legislature to
define property of historic significance, specify the types of
restrictions that must be imposed for property to
qualify for preferential assessment, and to require assessors to
value property in light of these restrictions. The
constitutional provisions were implemented by the Mills Act
(Statutes 1977, Chapter 1040).
The Mills Act was designed to provide financial incentives to
historic property owners to restore, rehabilitate, and
maintain eligible properties. Local governments can use the
Mills Act, to not only retain and maintain historic
properties, but also to help revitalize downtown commercial
districts. As of 2008, 86 local governments participated in
the Mills Act with more than 2,400 contracts in existence.
A Mills Act contract lasts 10 years, however it automatically
renews each year unless the local government or property owner
files a notice of non-renewal. If a non-renewal notice is
filed, the contract expires at the end of the remaining nine
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years. The contracts run with the land, meaning the Mills Act
contract is enforceable against subsequent owners of the
property.
2)According to the author, the periodic inspection of the
interior and exterior of properties under a Mills Act contract
does not always occur so requiring an inspection prior to a
new contract and every five years thereafter would ensure
property owners are in compliance with maintaining and
restoring their historic property. Furthermore, the author
states current law requires the contract to be filed only with
OHP, making it difficult to obtain information on how many
contracts exist. Lastly, the author wants to allow local
governments to recover a fee that pays for the full costs of
administering program.
3)Looking at a random cross-section of cities in the state that
have implemented Mills Act programs, fees vary significantly
depending on how the particular legislative body has chosen to
administer their individual historic preservation ordinances.
The City of Los Angeles has 565 Mills Act contracts and
currently charges a flat application fee of $443. That fee
does not cover the entire cost of administering the program,
with between 60% and 70% of the program being subsidized by
the city's general fund.
Then there is the City of Benicia, who has 31 Mills Act
contracts and around 300 historically designated properties.
It charges a flat fee of $550. The fee covers application
processing and annual inspection costs. If the city was
required to raise its fee to reflect the actual cost
associated with Mills Act contracts , that fee would be at
least $750. Because many properties designated as historical
within the city have been in the same family for generations,
those properties are assessed very little in property taxes.
If the city was required to raise its application fee, it
would create a financial disincentive for property owners to
continue their Mills Act contracts with the city because there
would be very little savings for those property owners.
The City of Eureka charges no fee for the initial Mills Act
application. There are minimal fees if the application is
approved for selection, but the City of Eureka does charge a
fee for when a historic district is created and for any permit
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to demolish or alter a historic property. The city council on
more than one occasion decided to keep its fees to a minimum
because that is the expressed desire of residents.
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The City of Glendale receives between six and 10 Mills Act
applications a year, and currently has between 40 and 50
existing contracts. It charges an application fee of around
$460. The city does not fully recapture what it spends on
approving Mills Act contracts and administering the program.
With respect to inspections, the city is considering adjusting
its program so the burden of the inspection is placed on the
homeowner rather than the city. For instance, the homeowner
might be required under the contract to provide photos to the
city of the exterior and interior of the property so that
staff would not have to travel to the property.
The City of San Diego has the largest Mills Act program in the
state with 1,005 contracts. The city charges an application
fee of $590, a five-year monitoring fee of $492, and an
enforcement fee, if violations occur, of $949. The city also
charges $1,185 for historic designation.
Mills Act programs in the state vary from jurisdiction. What
works in San Diego might not reflect the needs of the
residents of Eureka. With so few tools to encourage
historical property preservation, the Committee may wish to
consider whether it is prudent to mandate Mills Act contract
fees cover the actual cost of administering Mills Act
programs. Calculating the full cost of administering a Mills
Act program is difficult because each property is different in
its demands on staff time. Also, including historical
designation requests as part of the cost of the Mills Act
would bump up those fees significantly more, even though
anyone, not just the property owner, can initiate a historical
designation request. It could mean lower-income property
owners would be unable to participate in its local
government's Mills Act program, making the Mills Act available
only to wealthier households. The Committee may wish to
consider whether it is prudent to mandate what local
governments charge for administering their individual
programs.
Section 10 of Article I of the United States Constitution
prohibits the establishment of any law by any state that
impairs an existing contract. Because AB 654 changes the
terms of Mills Act contracts, the United States Constitution
would prohibit these changes from affecting existing Mills Act
contracts. Thus, these changes would apply only to Mills Act
contracts entered into after the effective date of AB 654.
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4)Support arguments: Supporters, League of California Cities,
says improving the process for periodic inspections of Mills
Act properties ensures property tax breaks are not given
without compliance with the contract's provisions.
Opposition arguments: Opposition might say adding more
requirements to Mills Act contracts will discourage property
owners from wanting to encumber their historic properties and
maintain them.
5)This bill was heard by the Water, Parks and Wildlife Committee
on March 22, 2011, where it passed with a 10-1 vote.
REGISTERED SUPPORT / OPPOSITION :
Support
League of CA Cities
Opposition
None on file
Analysis Prepared by : Jennifer Klein Baldwin / L. GOV. /
(916) 319-3958