BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair AB 2046 (Allen/Huffman) - Property taxation: change in ownership exclusion for floating homes. Amended: May 21, 2012 Policy Vote: G&F 6-1 Urgency: No Mandate: Yes Hearing Date: August 16, 2012 Consultant: Mark McKenzie SUSPENSE FILE. Bill Summary: AB 2046 would establish a new exclusion from change in ownership provisions that would otherwise require a reassessment for property transfers of floating home marinas to current tenants of berths at the marina, under specified conditions. Fiscal Impact: Based on limited data, the Board of Equalization (BOE) estimates that the bill would result in a statewide reduction in property tax revenues of approximately $212,000 annually. Assuming 50 percent of the statewide property tax revenues offset General Fund obligations to schools pursuant to Proposition 98, the State General Fund impact would be approximately $106,000 due to increased state backfill provided to schools. Actual General Fund impacts would depend upon a number of factors (see staff comments). Likely minor reimbursable mandate costs related to the imposition of new duties on local tax officials related to the new change in ownership exclusion. (General Fund) Background: Existing law generally requires a reassessment of real property to current fair market value when there is a change in ownership. Subject to specified limitations, the State Constitution and statutory provisions allow exceptions to change in ownership requirements for property transfers between spouses, domestic partners, parents and children, grandparents and grandchildren, and persons that own property in joint tenancy, as specified. Existing law also provides a change of ownership exclusion for a transfer of a mobilehome park if purchased by an entity formed by the tenants renting at least AB 2046 (Allen) Page 1 51% of the spaces prior to the transfer and those tenants represent at least a 51% ownership share of the park. However, once excluded, any subsequent change of ownership of shares of stock or other equity ownership in the park purchased by former renters results in a pro rata change in ownership, that particular share in the park would be reassessed at current market value. One unusual factor in the assessment of mobilehomes is that the structure is assessed separately from the underlying real property on which it stands. Unless a person owns both the mobilehome and the lot, the mobilehome owner pays property tax on the structure and rents a space from a mobilehome park owner, who is responsible for paying the property taxes on the park itself. This structure also applies to floating homes that rest in permanent berths on a marina. Floating homes are legally-permitted residences that have no means of self-propulsion, are permanently moored in a marina, and connected to shoreside utilities and services. Generally, floating home marinas are privately owned and homeowners are charged monthly berthage fees. Proposed Law: AB 2046 would exclude a transfer of a floating home marina to an entity representing a majority of current tenants from "change in ownership" provisions that result in a reassessment to current fair market value. This exclusion would apply for transfers to a nonprofit corporation, stock cooperative corporation, limited equity stock cooperative, or other entity formed by the tenants of a floating home marina for purposes of purchasing the marina, provided the entity represents participation of at least 51% of individual renting tenants and those persons would represent at least 51% of the ownership interest in the entity acquiring the marina. Once an exclusion has been provided, any subsequent sales of shares or ownership interest in the entity that acquired the marina would be subject to a proportionate change in ownership subject to reassessment, unless the marina has been converted to a condominium or other cooperative ownership arrangement. The bill would also require a floating home marina that does not utilize recorded deeds to file an annual report with the county assessor's office by February 1 that includes owner contact information, situs information on each unit, the dates of AB 2046 (Allen) Page 2 ownership acquisition, and other specified registration information. Staff Comments: This bill is intended to provide a property tax benefit for purchases of floating home marinas by marina tenants that is currently provided for purchases of mobilehome parks. By ensuring property taxes remain unchanged, this bill would remove a significant barrier for floating homeowners who wish to cooperatively purchase a marina. Mobilehomes and floating homes have important characteristics in common for property tax purposes; tenants own the structure and the park or marina owner owns the underlying property. There are also important distinctions that the Committee may wish to consider as well. For instance, the price of a mobilehome and mobilehome park tend to be lower than the price of a floating home and marina. In addition, mobilehome parks generally provide housing for low and moderate income residents, but there is no corresponding evidence related to the owners of floating homes. When the Legislature enacted the exclusion from change in ownership provisions for purchases of mobilehome parks, many park residents were in danger of being displaced because many parks were being sold and converted to uses that provided a higher value to park owners. It is unclear that floating home marinas face similar challenges. An informal review of for-sale listings of floating homes in Richardson Bay marinas indicates that the homes themselves can range in value from $250,000 to $3 million. The ownership interests in marinas themselves rarely change, so information on current values is difficult to ascertain. Committee staff is aware of a failed attempt by a floating home ownership group to purchase Waldo Point Harbor in the Richardson Bay near Sausalito for $8.5 million in 1991. The BOE estimates that this bill could result in a loss of $212,000 in property taxes statewide, but indicates that the estimate is based on limited data. This figure is derived from the potential value of one Marin County marina property that is currently assessed at $8.5 million, but current market value is unknown. Based upon an inflator BOE uses to determine market value for rail transportation property, and assuming this one property represents 50 percent of the marinas affected by the bill, yields the estimated figure noted above. AB 2046 (Allen) Page 3 It is unclear how many floating home owners in the state would be interested in assuming ownership of marinas, but it would likely be an unusual occurrence. However, the revenue impacts of even a single transfer in ownership could result in annual property tax losses in the hundreds of thousands annually. Actual costs would depend upon the difference between the factored base year value and current market value of a marina subject to the new exclusion at the time of purchase, and the number of property transfers to which the exclusions would apply. An additional consideration of the state General Fund impact would be whether school districts in the area are basic aid since the state does not backfill property losses in these areas.