BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair


          AB 2207 (Gordon) - Property taxation welfare exemption: natural 
          resources and open-space lands.
          
          Amended: July 5, 2012           Policy Vote: G&F 8-0
          Urgency: No                     Mandate: Yes
          Hearing Date: August 6, 2012                           
          Consultant: Mark McKenzie       
          
          This bill meets the criteria for referral to the Suspense File. 

          
          Bill Summary: AB 2207 would prohibit county assessors from 
          considering specified revenues and uses of property for purposes 
          of determining whether a property dedicated to open-space and 
          natural resource preservation qualifies for the welfare property 
          tax exemption.

          Fiscal Impact: 
           Estimated statewide property tax revenue reduction of 
            approximately $225,000 annually (foregone revenues).  Assuming 
            50 percent of the statewide property tax revenues offset 
            General Fund obligations to schools pursuant to Proposition 98 
            minimum funding guarantees, the General Fund impact would be 
            approximately $113,000 due to increased state backfill 
            provided to schools.  Staff notes that actual state impacts 
            may vary as the school share of property tax is typically in 
            the range of 45 percent to 60 percent in most parts of the 
            state.

           Likely minor reimbursable mandate costs related to the 
            imposition of new duties on local tax officials since the bill 
            revises the criteria that assessors would use to determine 
            eligibility for the welfare exemption that applies to property 
            dedicated to open-space and natural resource preservation 
            (General Fund).

          Background: Existing law, Article XIII Section 4(b) of the 
          California Constitution, allows the Legislature to grant 
          exemptions from the property tax for property owned and operated 
          by nonprofit organizations for religious, hospital, or 
          charitable purposes.  When the Legislature enacted the "welfare 
          exemption" in 1945 to implement the Constitutional provision, 








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          property used for scientific purposes was included in the 
          property tax exemption.  In order to qualify for the exemption, 
          the property must be used for the actual operation of the exempt 
          activity and no part of the net earnings of the owner may inure 
          to the benefit of a private shareholder or individual.  In 1971, 
          special session legislation was enacted to expand the welfare 
          exemption to include land owned and operated by specified 
          nonprofit organizations that is open to the general public and 
          used exclusively for the preservation of native plants or 
          animals, biotic communities, geological or geographical 
          formations of scientific or educational interest, and open space 
          lands used solely for recreation and for the enjoyment of scenic 
          beauty.  

          Existing law provides county assessors with sole authority to 
          determine eligibility for the welfare exemption.  In order to 
          qualify for the property tax exemption, a property must be used 
          exclusively for the specified exempt purposes and activities, 
          but the courts have determined that exclusive use includes any 
          use of the property that is incidental to and reasonably 
          necessary for the accomplishment of the exempt purpose.  
          Assessors in five counties have disallowed the welfare exemption 
          for open space lands held by nonprofits organizations because of 
          certain revenue generating activities on the properties, such as 
          lease payments for cattle grazing and collection of hunting 
          fees.  The Board of Equalization (BOE) has provided legal 
          opinions in two counties concluding that the properties in 
          question were not eligible for the welfare exemption on multiple 
          grounds, including the existence of cattle grazing leases that 
          were not deemed to be an incidental use of the property.  The 
          BOE opinions are advisory and not binding on the decisions of 
          county assessors.

          Proposed Law: For purposes of determining whether a property is 
          used for the actual operation of exempt activities required to 
          qualify for the welfare property tax exemption, AB 2207 would 
          prohibit the consideration of the use of the property for either 
          of the following:
                 Activities resulting in direct or in-kind revenues, 
               provided the activities further the conservation objectives 
               of the property as provided in a qualified conservation 
               management plan, including revenue from grazing leases, 
               hunting and camping permits, rents from persons residing on 
               the property who perform caretaking activities, and 








          AB 2207 (Gordon)
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               admission fees collected for purposes of public enjoyment.
                 Any lease that furthers the conservation objectives of 
               the property as provided in a qualified conservation 
               management plan.

          The bill would also specify the contents of a qualified 
          conservation management plan and prohibit the activities and 
          leases noted above from generating unrelated business income.

          Related Legislation: AB 703 (Gordon), Chap 575/2011, extended 
          the welfare exemption for property dedicated to natural resource 
          protection and open-space purposes until January 1, 2022.

          Staff Comments: This bill is intended to provide clarity to 
          assessors who may have differing interpretations related to the 
          allowable uses of properties held by nonprofits for natural 
          resource preservation and open-space purposes.  By prohibiting 
          the consideration of leases and specified revenue-generating 
          activities that are consistent with conservation objectives 
          identified in a nonprofit's conservation management plan for a 
          property when determining eligibility for the welfare exemption, 
          AB 2207 would ensure more uniform application of the exemption 
          by county assessors.

          Based upon the previous known instances in which county 
          assessors have denied the welfare exemption, this bill would 
          result in decreased statewide property tax collections of 
          approximately $225,000 annually, beginning in 2013-14.  Assuming 
          half of this revenue would otherwise be allocated to schools, 
          the General Fund impact related to state backfills of schools' 
          losses would be about $113,000.  This revenue impact could 
          increase to the extent more property owners claim the welfare 
          exemption as a result of the bill's broader interpretation of 
          the allowable uses of property that qualify as exempt 
          activities.