BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 499 HEARING: 5/1/13
AUTHOR: Wyland FISCAL: Yes
VERSION: 4/15/13 TAX LEVY: No
CONSULTANT: Grinnell
PROPERTY TAXATION: AFFORDABLE HOUSING ASSESSMENTS
Requires Assessors to consider recorded contracts with
nonprofit organizations when valuing property.
Background and Existing Law
Section One of Article XIII of the California Constitution
provides that all property is taxable unless explicitly
exempted by the Constitution or federal law. The
Constitution limits the maximum amount of any ad valorem
tax on real property at one percent of full cash value, and
growth in the value of the property to two percent per
year. Assessors reappraise property whenever it is newly
constructed, or when ownership changes.
To determine value, the law effectively presumes that a
property's purchase price in the transaction is its full
cash or fair market value. The law further defines the
purchase price to include the total consideration provided
by the purchaser, or on the purchaser's behalf, valued in
money, paid in money or otherwise
Assessors must consider enforceable restrictions, such as
zoning and environmental restrictions, when valuing
property. Assessors subsequently estimate the value of the
property based on its legal uses allowed by the enforceable
restriction.
A nonprofit corporation, Habitat for Humanity builds houses
for low-income persons to occupy, either by renting or
owning. Habitat sells houses to individuals and families
who qualify as low-income in a different manner than a
typical real-estate transaction. With Habitat, they build
the home, and then pick a family to live in it through its
family selection process. Upon sale, Habitat attaches
covenants and restrictions, sometimes known as "silent
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second mortgages," secured by a deed restriction that
limits any family purchasing the home from reselling it.
These covenants ensure that the family doesn't profit from
Habitat's work, and "run with the land," so that the site
remains affordable should the initially selected family
choose to move somewhere else. The family must agree to
the covenant to buy the home, which Habitat also
subsidizes.
The value of the property to the owner is less than its
value on the open market because of the covenant
restrictions. Some county assessors deduct the value of
the restriction from the fair market value of the home, and
the Board of Equalization recommends that assessors
estimate the present economic value of the covenant, and
then sum it with the down payment and value of the
mortgage. The value determines the property tax the new
owners must pay, so the tax effect of the difference
between "fair market value" rather than the "purchase
price" can be significant. Habitat wants to create
consistency for throughout the state for affordable housing
non-profits that work to provide the option of property
ownership to low-income families.
Proposed Law
Senate Bill 499 adds onto the list of items that Assessors
must consider when valuing property a recorded contract
with a tax-exempt, nonprofit corporation that has as its
primary purpose the advancement of affordable housing. The
nonprofit must be organized as a charity and fund
affordable housing with recorded contracts restricting the
use of the land for at least 30 years.
State Revenue Impact
BOE states that it's not possible to determine the revenue
impact with any degree of certainty due to the number of
variables, including the Assessor's discretion.
Comments
1. Purpose of the bill . According to the author, "Habitat
for Humanity is an example of a non-profit that serves
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low-income families who are impacted when the affordable
homes they purchase through Habitat are assessed based on
the fair market value and not the purchase price. Under
California's tax system, the assessed value of most
property is based on its purchase price or "acquisition
value". Existing law includes a "welfare exemption" for
property owned, irrevocably dedicated to, and used for
religious, hospital, scientific, and/or charitable
purposes. Each year, counties assess whether a property is
being used for exempt purposes. In 2007, Habitat for
Humanity's Property Tax Solutions Task Force conducted a
survey of 22 counties in California. Results showed there
was a wide variance between jurisdictions with regard to
the process for assessing affordable homes built, financed,
and sold by Habitat affiliates. In some areas, the
assessed value is based on whether or not city or county
funds were involved in the construction and in others it is
based on verbal agreements with the local assessor. Some
jurisdictions do not take into account the terms of the
sale or long-term deed restrictions on affordability and
elect to use the "fair market value" rather than the
"purchase price" when assessing property tax rates. This
makes it more difficult for affordable home builders, like
Habitat, to find eligible low-income buyers who are able to
make the higher property tax payments in addition to their
monthly mortgage. The Habitat for Humanity program
requires low-income homebuyers to contribute 500 hours of
sweat equity to the construction of their home, along with
house payments to Habitat, property taxes, and homeowners
insurance. Valuing property taxes based on the purchase
price will help Habitat for Humanity continue to provide
home ownership to low income families. Eligible families
will be able to afford both the property tax bill and their
no-interest mortgage payment. SB 499 creates consistency
for throughout the state for affordable housing non-profits
that work to provide the option of property ownership to
low-income families."
2. Getting it right . SB 499 responds to a tricky issue
within the property tax, which is already a band apart from
other state taxes due to its status as the only
locally-administered state tax. Locally-elected Assessors
determine property value according to the California
Constitution, state law, and BOE advice; however, the state
has no formal regulatory power over Assessors when they
calculate a property's value. Taxpayers can appeal an
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assessor's valuation to assessment appeals boards or county
boards of equalization.
SB 499 directs assessors to consider the value of
restrictions in affordable housing contracts to ensure that
the qualifying family is paying property tax based on its
value when the owner's economic rights are limited as a
condition of buying the home. As each county assessor
values property in his or her county individually, the
measure ensures that all county assessor consider these
restrictions. SB 499's direction is more simple and
effective than AB 793 (Stickland, 2007), which was not
enacted because that measure required the assessor to
exclude from value the amount of the mortgage.
Support and Opposition (4/25/13)
Support : Habitat for Humanity
Opposition : None Received.