BILL ANALYSIS Ó
AB 668
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Date of Hearing: April 15, 2015
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
Ed Chau, Chair
AB 668
(Gomez) - As Amended March 26, 2015
SUBJECT: Property taxation: assessment: affordable housing
SUMMARY: This bill requires county assessors to consider a
recorded contract with a tax-exempt affordable housing nonprofit
corporation when valuing property for property tax assessment
purposes. Specifically, this bill:
1)Requires the nonprofit corporation to be organized as a 501
(c) (3) that has as its primary purpose the advancement of
affordable housing.
2)Requires the recorded contract to restrict the use of the land
for at least 30 years at an affordable housing cost or
affordable rent at specified income limits.
3)Requires the state to reimburse local agencies and school
districts if the Commission on State Mandates determines that
this Act contains costs mandated by the state.
EXISTING LAW:
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1)Limits the maximum amount of any ad valorem tax on real
property at 1% of full cash value (California Constitution
Section One of Article XIII).
2)Requires property to be reassessed to current fair market
value whenever it is purchased, newly constructed, or when
ownership changes, with specified exceptions, and provides a
rebuttable presumption that the fair market value is the
purchase price.
3)Defines "purchase price" as the total consideration provided
by the purchaser or on the purchaser's behalf, valued in
money, whether paid in money or otherwise.
4)Requires county assessors, when determining assessed
valuation, to consider the effect on property of the value of
any enforceable restrictions against the use of the land, such
as zoning, easements, environmental restrictions, and recorded
contracts with government agencies (Revenue and Taxation Code
Section 402.1).
FISCAL EFFECT: Unknown.
COMMENTS:
Background :
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
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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.
An assessor must consider the value of an enforceable
restriction recorded by a governmental agency when valuing a
property as well as other types of restrictions. Nonprofit
organizations record enforceable affordability contracts and
deeds restrictions. However, the law does not explicitly require
assessors to consider these recorded contracts when determining
the property's assessed value. The law allows the assessor to
consider enforceable restrictions in addition to those specified
in existing law (Revenue and Taxation Code Section 4021.1).
Some county assessors deduct the value of the restriction from
the fair market value of the home, and the Board of Equalization
(BOE) 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 for Humanity model :
The sponsor of this bill, Habitat for Humanity works with
families who contribute sweat equity to the construction of the
home. Habitat for Humanity attaches a covenant or restrictions
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sometimes known as a "silent second mortgage", secured by a deed
of trust that limits any family purchasing the home from
reselling it so that the home remains affordable should the
initially selected family choose to move out. Households that
assume a mortgage from Habitat for Humanity are restricted from
spending more than 30% of their income on their monthly
mortgage, which includes property taxes, insurance, HOA dues,
and deferred maintenance. The family must agree to the covenant
in order to buy the subsidized home. Because of the restriction
on resale, the value of the property to the owner is less than
its value on the open market. Assessment of the property at fair
market value, without consideration of the affordability
covenant which limits the resale price, increases the amount of
the property taxes the homeowner must pay making the home less
affordable for lower-income families.
Inconsistency in application of law :
Assessors throughout the state vary the methods of determining
the assessed value of homes with recorded contracts limiting the
resale. Some consider the "fair market price" of the home while
others take into consideration the restrictions on resale and
reduce the assessed value. In February of this year, the
sponsor conducted a survey of 22 counties in California to
determine how they assessed homes built and financed by Habitat
for Humanity. The results indicated an inconsistency in how
different jurisdictions assess the home value. For example, in
some areas, the assessed value was based on whether or not city
or county funds were involved in the construction and in others
was based on a verbal agreement with the local assessor.
Purpose of the bill :
According to the author, "this bill creates consistency
throughout the state by authorizing the county assessors, when
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determining the value of a property for tax purposes for
affordable housing sold to low-income families, to consider the
effect of the recorded contracts and deed restrictions on
affordability between the buyer and a nonprofit organization in
assessment of that land."
Arguments in opposition :
The California Assessors' Association is opposed to AB 668 and
has raised several issues of concern with the bill. "Section
402.5 of the Revenue and Taxation Code requires the assessor to
take into consideration the effect of enforceable governmental
restrictions' on a property's full cash value to substantially
reduce the assessed value of the property. This bill would
require a county assessor to consider a recorded contract with a
non-profit entity that restricts the use of the land for at
least 30 years for affordable housing or affordable rent, when
valuing the real property for property tax purposes. Currently
the meaning of 'enforceable restrictions' is limited to
government entities - and for good reason. Government entities
are in the best position to evaluate the overall benefit to the
entire community relative to the loss in property tax revenue.
Moreover, governmental restrictions are generally recorded,
discoverable, and provided to the assessor. Private
restrictions, for which there are many variations, are not
readily discoverable."
Staff Comments:
Under the existing provisions of the bill, any nonprofit could
record a contract against a property and the assessor would need
to consider it when determining the value of a property. The
committee may wish to consider narrowing the bill in the
following ways to limit the application to legitimate nonprofits
providing affordable housing.
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1)Limit the application of the bill to recorded contracts that
apply to owner-occupied, affordable homes;
2)Limit the application of the bill to 501 (c) 3 non-profit
organizations that have been approved by the BOE for a
"welfare exemption" for properties intended to be sold to
low-income families who participate in a special no-interest
loan program; and
3)Require a non-profit organization to have a silent deed of
trust on the property.
Related legislation:
SB 499 (Wyland, 2013) which was identical to this bill was held
in the Senate Appropriations Committee.
AB 793 (Strickland, 2007) would have excluded from the
calculation of purchase price the amount of any "silent second
mortgage" if payment is not required for at least 30 years. It
expressly provided that resale restrictions on homes purchased
through a program operated by a governmental agency must be
considered when determining property value. The bill would have
allowed resale price restrictions on homes purchased through a
program operated by a nonprofit organization to be treated as an
enforceable restriction that must be considered when determining
the property value. This bill was held in Senate Appropriations
Committee.
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REGISTERED SUPPORT / OPPOSITION:
Support
Habitat for Humanity (sponsor)
California Housing Consortium (CHC)
Opposition
California Assessors' Association
Analysis Prepared by:Lisa Engel/ H. & C.D. / (916) 319-2085
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