BILL ANALYSIS Ó SENATE GOVERNANCE & FINANCE COMMITTEE Senator Lois Wolk, Chair BILL NO: SB 391 HEARING: 4/24/13 AUTHOR: DeSaulnier FISCAL: Yes VERSION: 4/2/13 TAX LEVY: No CONSULTANT: Grinnell CALIFORNIA HOMES AND JOBS ACT OF 2013 Enacts the California Homes and Jobs Act; applies a $75 fee on recorded real estate documents. Background and Existing Law The California Constitution prohibits transaction taxes or sales taxes on transfers of real property (Article XIIIA, Section 4); however, in 1967, the Legislature authorized counties to approve an ordinance to impose a documentary transfer tax (DTT), which applies to deeds of transfer of realty within that jurisdiction, and is based on the value of the transfer. In counties, the rate is fifty-five cents ($0.55) for each five hundred dollars ($500) of value. All of California's 58 counties apply the tax, which is modeled after the repealed Federal Documentary Stamp Tax. Cities may also enact ordinances to impose a DTT: non-charter cities within a County that impose a DTT may apply its tax at half of the rate of the county and applies it as a credit against the county rate. Charter cities may impose a DTT at a higher rate under the municipal affairs doctrine in the California Constitution (Article XI, Section 5). If they do so at a higher rate than the non-charter rate, then the city DTT does not serve as a credit against the county tax. Exemptions exist for public agencies acquiring land, land acquired as a result of a plan of reorganization or adjustment such as bankruptcy, and certain transfers in lieu of foreclosure, among others. The Government Code prescribes additional fees that county recorders charge when recording a change in ownership of a property. The law exempts public agencies from paying these fees. In 2006, voters enacted the Housing and Emergency Shelter SB 391 (DeSaulnier) - 4/2/13 -- Page 2 Trust Fund Act, which authorized the sale of $2.85 billion in general obligation bonds for various housing projects (Proposition 1C), on top of $2.1 billion in general obligation bonds approved in 2002 (Proposition 46). According to the State Treasurer, the state has sold almost all Proposition 46 bonds, but $1.26 billion of Proposition 1C authorized bonds have not yet been sold. Citing a significant State General Fund deficit, Governor Brown's 2011-12 budget proposed eliminating RDAs and returning billions of dollars of property tax revenues to schools, cities, and counties to fund core services. Among the statutory changes that the Legislature adopted to implement the 2011-12 budget, AB X1 26 (Blumenfield, 2011) dissolved all RDAs. The California Supreme Court's 2011 ruling in California Redevelopment Association v. Matosantos upheld AB X1 26, but invalidated AB X1 27 (Blumenfield, 2011), which would have allowed most RDAs to avoid dissolution. RDAs' dissolution deprived many local governments of the primary tool they used to increase the supply of affordable housing. Proposed Law Senate Bill 391 enacts the California Homes and Jobs Act of 2013, which creates the California Homes and Jobs Trust Fund in the State Treasury. The Legislature may appropriate moneys in the fund to support development, acquisition, rehabilitation, and preservation of low and moderate income households. SB 391 imposes a fee of $75 whenever a person records a real estate instrument, paper, or notice required or permitted by law to be recorded, including: Deeds, grant deeds, trustee deeds, or deeds of trust, Reconveyance, and quit claim deeds, Fictitious deeds of trust, Assignment of deed of trust, Request for notice, and notice of default, Abstract of judgment, Subordination agreement, Declaration or abandonment of homestead, Release or discharge of lien or easement, Notice of trustee sale, Notice of completion, SB 391 (DeSaulnier) - 4/2/13 -- Page 3 UCC financing statement Mechanics' lien, Maps Covenants, conditions, and restrictions. The measure specifically excludes from the fee any document recorded in connection with a transfer subject to a documentary transfer tax, essentially exempting property transfers. The bill provides that the fees shall be sent quarterly with the Department of Housing and Community Development for deposit in the Fund. Counties must pay interest at the legal rate for any funds not paid within 30 days of the end of the quarter. The measure requires the Bureau of State Audits to conduct periodic audits to ensure that the annual allocation to individual programs is awarded in a timely fashion beginning two years from the bill's effective date. The Department of Housing and Community Development must include in its currently required annual report how funds raised by the fee spent, and post the report on its web-site. The measure also makes legislative findings and declarations. State Revenue Impact No estimate. Comments 1. Purpose of the bill . According to the author, "Everyone in California needs a safe and affordable place to call home. For U.S. military veterans, former foster youth, families with children, people with disabilities, seniors on fixed incomes, and other vulnerable Californians, however, the housing crisis isn't over. Millions of Californians are caught in the "perfect storm" - mortgages remain out of reach, credit standards have tightened, and the foreclosure crisis has pushed more people into a rental market already suffering from decades SB 391 (DeSaulnier) - 4/2/13 -- Page 4 of short supply - leading to record-setting rent increases. The most vulnerable risk joining the more than 130,000 Californians who are homeless on any given night. Moreover, rents and mortgages within the reach of working families are critical to maintaining California's business competitiveness. Numerous business groups say California needs to increase the supply of housing options affordable to workers so companies can compete for the talent that drives California's economy. At the same time, California's investment in affordable homes has dried up. State agencies have awarded nearly all of the voter-approved bond funding for affordable housing. Likewise, the elimination of redevelopment agencies has cut off funding from the low- and moderate-income housing set aside. The California Homes and Jobs Act begins to restore California's historic investments in affordable homes by creating an ongoing, pay-as-you-go source of funding dedicated to affordable housing development. The act will: Create 29,000 jobs annually, primarily in the beleaguered construction sector. Help businesses attract and retain the talent that fuels California's economy. Leverage an additional $2.78 billion in federal and local funding and bank loans to build affordable homes and create jobs. Deploy these dollars in California communities through a successful private/public partnership model. Get California building again to create affordable home options for all Californians." 2. Who pays ? An old piece of tax policy wisdom attributed to Louisiana Governor Russell Long states that, "Don't tax you, don't tax me, tax the man behind the tree." SB 391 assesses a fee of $75 whenever a person records one of a specified list of documents with the county to pay for public housing programs, except for documents that transfer deeds of realty. As such, the responsibility to pay for housing programs, previously paid for out by a combination of redevelopment funds, state bonds, federal funds, and proceeds from local exactions, is shifted onto the individuals recording these documents, which includes property owners, lenders, and borrowers, among others. While resources for public housing programs have rapidly dried up, is it appropriate to saddle a part of one class of taxpayer with the burden to pay for affordable housing? SB 391 (DeSaulnier) - 4/2/13 -- Page 5 For example, a contractor filing a mechanics' lien to secure payment for services has to pay the fee, but the individual purchasing a luxury home does not. The Committee may wish to consider whether the correct group of taxpayers should bear the general, public cost of providing affordable housing. 3. Magic words . While SB 391 states that the charge it imposes is a fee, Legislative Counsel has keyed the measure a tax increase for the purposes of Section III of Article XIIIA of the California Constitution. As such, the measure requires the approval of 2/3 of the membership of the Senate and the Assembly to be enacted. Prior to 2010, specified fees could be enacted by majority vote, but this authority was significantly limited by Proposition 26 (2010). 4. Show me the money ! Joint Rule 37.4 prescribes that any bill requiring action by the Bureau of State Audits, as SB 391 does, contain an appropriation for the cost of any audit. The Committee may wish to consider amending the bill to provide the appropriation. 5. Do it again . SB 391 is almost identical to SB 1220 (DeSaulnier, 2012), which the Committee approved last year. However, the measure received only 25 votes, two short of the 2/3 necessary, on the Senate Floor. Support and Opposition (04/18/13) Support : California Housing Consortium (sponsor); Housing California (sponsor); AARP; Abode Communities; A Community of Friends; Alameda County Board of Supervisors; Alameda County Developmental Disabilities Council; Alpha Construction Company; AMCAL Multi- Housing; American Baptist Homes of the West; Amity Foundation; Amstutz Associates; Angelus Plaza; Ashwood Construction; Asian Pacific Environmental Network; Association of Regional Center Agencies; Asthma Coalition of Los Angeles County; Bay Area Business Roundtable; Bay Area Community Land Trust; Bay Area Council; Bay Area Regional Health Inequities Initiative; BRIDGE Housing; Burbank Housing SB 391 (DeSaulnier) - 4/2/13 -- Page 6 Development Corporation; Cabrillo Economic Development Corporation; Cahill Contractors; California Apartment Association; California Association of Housing Authorities; California Association of Local Housing Finance Agencies; California Building Industry Association; California Coalition for Rural Housing; California Coalition for Youth; California Conference of Carpenters; California Council for Af fordable Housing; California Council of Community Mental Health Agencies; California Disabil ity Services Association; California Housing Partnership Corporation; California Partnership to End Domestic Violence; California Police Chiefs Association; California Reinvestment Coali tion; California Rural Legal Assistance Foundation; Bill Lockyer, California State Treasurer; Casa Major; Century Housing; Century Villages at Cabrillo; Cesar Chavez Foundation; CHISPA; City of Emeryville; City of Jurupa Valley; City of Lynwood; City of Oakland; City of Oxnard; City of Pasadena; City of Riverside; City of San Joaquin; City of San Jose; City of San Mateo; City of Santa Barbara; City of Santa Monica; City of West Hollywood; Coachella Valley Housing Coalition; Community Corporation of Santa Monica; Community Health Improvement Partners; Community Housing Opportunities Corporation; Community Housing Works; Community Working Group; Contra Costa Health Services; Corporation for Supportive Housing; County of Alameda; County of Contra Costa; Curtom-Dunsmuir; DMB Pacific Ventures; Domus Deveop ment; EAH Housing; East Bay Developmental Disabilities Legislative Coalition; East Bay Housing Organizations; East LA Community Corporation; Ecumenical Council Pasadena Area Congregations; Eden Housing; Enterprise Community Partners; Environmental Health Coalition; Episcopal Community Services of San Francisco; First Place for Youth; Foundation for Affordable Housing; Fullerton Chamber of Commerce; Gonzalez Goodale Architects; Habitat for Humanity California; Habitat for Humanity Greater San Francisco; Habitat for Humanity Inland Valley; Habitat for Humanity Pomona Valley; Habitat for SB 391 (DeSaulnier) - 4/2/13 -- Page 7 Humanity Riverside; Habitat for Humanity San Gabriel Valley; Habitat for Humanity San Luis Obispo County; Habitat for Humanity Santa Cruz County; Hamilton Family Center; Highridge Costa Housing Partners; Hollywood Community Housing Corporation; Home Builders Association of Tulare/Kings Counties; Home Start; Homes for Life Foundation; Housing Authority for the City of San Buenaventura; Housing Choices Coalition for People with Developmental Disabilities; Housing Leadership Council of San Mateo County; ICON Builders; InnerCity Struggle; Interfaith Community Services; International Association for Women of Color Day; Jamboree Housing Corporation; John Stewart Company; Kennedy Commission; The KTGY Group; Larkin Street Youth Services; Laurin Associates; Lauterbach and Associates; LeSar Development Consultants; LifeSTEPS; LINC Housing; Little Tokyo Service Center; Loaves and Fishes; Local Initiatives Support Corporation; Los Angeles Area Chamber of Commerce; Los Angeles Business Council; Los Angeles Business Leaders Task Force on Homelessness; Los Angeles Community Action Network; L.A. Family Housing; LA Voice; Law Foundation of Silicon Valley; Leading Age California; League of Women Voters of California; Lutheran Office of Public Policy; Mammoth Lakes Housing; Marin Workforce Housing Trust; Mental Health America of Los Angeles; Mercy Housing MidPen Housing Corporation; Move LA; Multicultural Communities for Mobility; Mutual Housing California; Nancy Lewis Associates; National Community Renaissance; National Council of La Raza; National Housing Law Project; Natural Resources Defense Council; Neighborhood Housing Services of Los Angeles County; Neighborhood Partnership Housing Services; NeighborWorks Orange County; Nevada/California Indian Housing Associa tion; Non-Profit Housing Association of Northern California; Northern Circle Indian Housing Authority; Northern California Community Loan Fund; Opportune Companies; Orange County Business Council; Orange County Housing Trust; Pacific SB 391 (DeSaulnier) - 4/2/13 -- Page 8 Clinics; Palm Communities; Pasadena Public Health Department; Peninsula Interfaith Action; Penny Lane Centers; People Assisting the Homeless; Peoples' Self-Help Housing Corporation; PolicyLink; Public Advocates; Related California; Resources for Community Development; Ruiz Brothers Construction Co.; Rural Community Assistance Corporation; Rural Communities Housing Development Corporation; Sacramento Homeless Organizing Committee; Sacramento Housing Alliance; St. Joseph Center; St. Paul's Senior Home and Services; San Benito County Housing and Economic Development Department; San Gabriel Valley Consortium on Homelessness; San Luis Obispo County Housing Trust Fund; Self-Help Enterprises; Service Employees International Union (SEIU) California State Council; Sierra Business Council; Sierra Club California; Silicon Valley Leadership Group; Skid Row Housing Trust; Sonoma County Task Force for the Homeless; Southeast Asian Community Alliance; Southern California Association of Non-Profit Housing; SPUR; Stand Up for Neighborly Novato; State Independent Living Council; State Treasurer Bill Lockyer; Step Up on Second; Sun Country Builders; Sunseri Construction; Tenderloin Neighborhood Development Corporation; Thai Community Development Center; Thomas Safran and Associates; T.R.U.S.T. South LA; Turning Point Community Programs; United Homeless Healthcare Partners; United States Veterans Initiative; United Ways of California; United Way of Fresno County; United Way of Greater Los Angeles; Valley Economic Development Center; Venice Community Housing Corporation; Visionary Home Builders; Wakeland Housing and Develop ment Corporation; Walton Construction Services; Western Center on Law and Poverty; Women Organizing Resources, Knowledge, and Services (WORKS); Opposition : Board of Equalization Member Michelle Steel; Board of Equalization Member George Runner; Butte County SB 391 (DeSaulnier) - 4/2/13 -- Page 9 Clerk-Recorder; Calaveras County Clerk-Recorder; California Land Surveyors Association; California Land Title Association; City of Cypress; Colusa County Clerk Recorder; Contra Costa County Clerk-Recorder; County Recorders' Association of California; County of Lassen; County of Orange; El Dorado County Recorder-Clerk; Hamman Real Estate; Inyo County Clerk Recorder; Marin County Assessor-Recorder-Clerk; National Notary Association; Nevada County Clerk-Recorder; Plumas County Clerk; San Bernardino County Recorder-Clerk; San Luis Obispo County Clerk-Recorder; Sonoma County Clerk-Recorder-Assessor; Stanislaus County Clerk-Recorder;