BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1203|
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THIRD READING
Bill No: SB 1203
Author: Jackson (D)
Amended: 4/21/14
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 5-0, 4/24/14
AYES: Wolk, Beall, DeSaulnier, Hernandez, Liu
NO VOTE RECORDED: Knight, Walters
SUBJECT : Property taxation: welfare exemption: rental
housing and related facilities:
payment-in-lieu-of-taxes
SOURCE : Author
DIGEST : This bill prohibits local agencies from imposing a
charge or fee on a low-income housing project eligible for the
welfare exemption from property tax unless the fee or charge is
imposed pursuant to the Mitigation Fee Act, and is consistent
with fees paid by all other residential developments; and the
fee is for a specific service provided directly to the housing
development project, the service is not provided to those not
charged, and the fee does not exceed the actual cost of
providing the service.
ANALYSIS : The California Constitution provides that all
property is taxable unless explicitly exempted by the
Constitution or federal law, but also allows the Legislature to
exempt property used for charitable purposes owned by nonprofit
entities organized and operated for charitable purposes, such as
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universities, hospitals, and libraries. The Legislature enacted
this exemption, commonly known as the "welfare exemption."
According to the Legislative Analyst's Office, local agencies
statewide forego $3 billion annually in revenues from welfare
exempt properties.
Local agencies can impose dedications or fees under their
general police power; however, two U.S. Supreme Court cases
require local agencies to meet "nexus" (Nollan v. Coastal
Commission, 1987) and "rough proportionality" tests (Dolan v.
City of Tigard, 1994). The "nexus" test requires a government
to establish the link between the exaction and the interest
being advanced by that exaction, while "rough proportionality"
requires a connection between proposed exactions and the
projected impacts that the exactions are intended to allay.
State law allows local agencies to impose fees in accordance
with the two cases under the Mitigation Fee Act, Subdivision Map
Act, and Quimby Act, among others.
Some local agencies impose "payment in lieu of tax" agreements,
or PILOTs, to compensate them for the services it provides the
property, but is not paid for in taxes due to the exemption.
Local agencies generally calculate PILOTs to equal the share of
countywide property tax revenues that agency would have received
from the property. While no general authority for local
agencies to impose PILOTs exists, specific statutes allow:
City or county housing authorities, or tribes or tribally
designated housing authorities, to make payments to local
agencies for services, improvements, or facilities the local
agency provides the housing project owned by the authority,
The state to pay counties amounts equal to county property
taxes for state wildlife management areas, including benefit
assessments. However, the state has not paid these amounts in
more than a decade.
This bill bars local agencies from imposing a charge or fee on a
low-income housing project eligible for the welfare exemption
from property tax unless the fee or charge is:
Imposed pursuant to the Mitigation Fee Act, and is consistent
with fees paid by all other residential developments, and
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For a specific service provided directly to the housing
development project, the service is not provided to those not
charged, and the fee does not exceed the actual cost of
providing the service.
This bill adopts legislative findings applying its provisions to
charter cities.
This bill deletes the requirement that the property owner must
certify that the funds that would have been used to pay property
taxes are used to maintain the affordability of the units or
reduce rents to be eligible for the exemption. This bill also
bars assessors from levying future escape or supplemental
assessments resulting from the requirement, and cancels any
outstanding tax, interest, or penalty levied between January 1,
2012 and January 1, 2015 resulting from the requirement.
However, this bill does not provide for any refunds of taxes.
This bill adds a definition of "related facilities" into the
welfare exemption. This bill makes legislative findings and
declarations supporting its purposes, including "no inference"
language to ensure that any authority adjudicating a challenge
to the legality of current PILOTs does not consider this bill to
ensure these disputes are determined using the law in place at
the time the local agency imposed the PILOT. This bill also
makes conforming changes.
Background
In June, 2012, Ventura County Assessor Dan Goodwin revoked the
welfare exemption, and issued escape assessments for penalty,
interest, and taxes for four previous years, for affordable
housing projects with PILOT agreements with cities. Goodwin
argues that because the property owner pays PILOT fees, he/she
cannot demonstrate that the property tax savings maintains the
affordability of the project or reduces rents, a necessary
condition for the exemption. Given that the project owners and
developers do not have sufficient cash to pay the assessments,
they want the Legislature to erase the taxes, and provide
guidance regarding which fees municipalities can charge
low-income housing developments.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
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SUPPORT : (Verified 4/29/14)
Board of Equalization, 4th District
BRIDGE Housing Corporation
Cabrillo Economic Development Corporation
California Housing Consortium
California Infill Builders Federation
LeadingAge California
The Arc of Ventura County
Ventura County Assessor
Western Center on Law & Poverty
OPPOSITION : (Verified 4/29/14)
City of San Marcos
League of California Cities
ARGUMENTS IN SUPPORT : According to the author, "As a
condition of project approval, some local governments have
required affordable housing developers to agree to annual PILOT
payments, often equal to the share of the jurisdiction's share
of the property tax. Most recently, some county assessors are
threatening certain affordable housing projects that make PILOT
payments with the cancellation of their welfare exemption and
the imposition of back taxes for past years when PILOT payments
were made. Back taxes on PILOT agreements are often in the
hundreds of thousands of dollars. These assessments threaten to
bankrupt the affordable housing developments, which would result
in the loss of precious affordable housing. Affordable housing
developments provide critical opportunities for our low-income
residents. Often, these units can be their last resort before
becoming homeless. As confirmed by Legislative Counsel in 2012,
there is no legal authority to charge these PILOT fees.
Affordable housing developments should be protected by the
welfare exemption, not burdened by local governments requiring
PILOT fees."
ARGUMENTS IN OPPOSITION : The League of California Cities
states, "The League of California Cities must respectfully take
a position of oppose unless amended on SB 1203 relating Payments
in Lieu of Taxes (PILOT) agreements. The League supports your
efforts to ensure that the welfare exemptions of affordable
housing developers are not jeopardized and agrees a PILOT
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agreement should not make a low-income housing project
ineligible for the welfare exemption. However, we do have
concerns with the potential impacts of voiding existing PILOT
agreements and we would like to ensure fees imposed in
accordance with the Mitigation Fee Act are not negatively
impacted by SB 1203."
AB:k 4/29/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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