BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
SB 499 (Wyland) - Property taxation assessments: affordable
housing.
Amended: April 15, 2013 Policy Vote: G&F 7-0
Urgency: No Mandate: Yes
Hearing Date: May 13, 2013 Consultant: Mark McKenzie
This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 499 would require county assessors to consider
housing restrictions imposed as part of a contract with a
tax-exempt affordable housing nonprofit corporation when valuing
property for property tax assessment purposes.
Fiscal Impact: Unknown, potentially significant loss of property
tax revenues related to reductions in assessed value for homes
purchased with certain restrictions imposed through a contract
with a nonprofit organization. Approximately 50%-60% of
property tax revenues statewide accrue to schools, which
generally offsets state General Fund obligations pursuant to
Proposition 98. As such, any reductions in the school share of
property tax revenues that are attributable to the bill's impact
on assessed values would result in a commensurate increase in
General Fund costs. The General Fund impact would increase
annually as more homes are sold with contracted restrictions
that affect assessed values.
Actual losses would depend upon a number of factors, including
the number of applicable homes sold, the impact of the contract
restrictions on assessed value (the difference between market
value and restricted value), and the behavior of individual
assessors.
Background: The California Constitution limits the maximum
amount of any ad valorem tax on real property at 1% of full cash
value (Proposition 13). Existing law requires property to be
reassessed to current fair market value upon a change of
ownership, with specified exceptions, and provides a rebuttable
presumption that the fair market value is the purchase price.
The purchase price is further defined as the total consideration
provided by the purchaser or on the purchaser's behalf, valued
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in money, whether paid in money or otherwise. When determining
assessed valuation, county assessors are required to consider
the effect on property value of any enforceable restrictions
against the use of the land, such as zoning, easements,
environmental restrictions, and recorded contracts with
government agencies.
Some nonprofit organizations specialize in providing affordable
housing. When the nonprofit sells a property to a low-income
purchaser, the purchase price is less than the fair market
value, and in exchange for the reduced price the purchaser
enters into a contract with the nonprofit that limits the
ability to sell, lease, refinance, encumber, or mortgage the
home. The recorded contract is sometimes referred to as a
"silent second mortgage" that defers payments and interest, and
is primarily used as an enforcement mechanism; repayment may
never be required until the property is subsequently sold.
Property tax administrators have struggled with questions
related to the assessment of such properties, and the lack of
express statutory direction has resulted in inconsistent tax
treatment. The Board of Equalization (BOE) has opined that the
purchase price of a property, for assessment purposes, should
include all of the following: (1) the down payment; (2) the face
value of the first mortgage; and (3) the present economic value
of the silent second mortgage, reflecting all terms and
conditions of the agreements. BOE also indicated that the
effect of enforceable government restrictions on the value of
affordable units should also be considered by the assessor.
This same consideration is not provided by assessors when
enforceable restrictions are imposed by a nonprofit entity.
Proposed Law: SB 499 would add to the list of enforceable
restrictions that an assessor must consider when valuing
property for assessment purposes a recorded contract with a
tax-exempt nonprofit organization that has as its primary
purpose the advancement of affordable housing. The contract
must restrict the use of the land so that it maintains
affordability for at least 30 years, as specified.
Staff Comments: This bill is intended to provide the same
treatment in assessment considerations for affordability
restrictions on housing provided by a nonprofit organization
that is currently provided when enforceable restrictions are
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imposed by a government entity. Currently, an assessor is not
authorized to reduce a property's assessed value to account for
restrictions imposed by a nonprofit, but he or she is required
to consider restrictions imposed by a government when
determining property value.
SB 499 would allow assessors to reduce the property tax value by
considering the impact that enforceable restrictions imposed by
affordable housing nonprofit organizations have on a home sold
to low-income purchasers. The statewide impact that this
measure would have on property tax revenues is indeterminable,
and would depend upon numerous factors, including an assessor's
judgment. As an example, if this bill resulted in reductions in
assessed value of $10 million statewide in a given year (the
equivalent of $20,000 in reduced value for 500 properties),
property tax revenues would be reduced by $100,000 at the basic
1% rate. As noted above, approximately 50% to 60% of this
amount would represent a loss of revenue to the General Fund.
This amount of revenue losses would increase annually as more
homes are sold by nonprofit organizations with contract
restrictions that negatively affect assessed values.
Staff notes that by imposing new duties on county assessors to
revise assessment practices, this bill would create a
reimbursable state-mandated local program. Costs to assessors,
however, would likely be relatively minor. These costs would be
partially mitigated to the extent that some county officials
already consider contract restrictions on affordability when
determining assessed value.