BILL ANALYSIS Ó
AB 668
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ASSEMBLY THIRD READING
AB
668 (Gomez)
As Amended May 5, 2015
Majority vote
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|Committee |Votes |Ayes |Noes |
| | | | |
| | | | |
|----------------+------+---------------------+---------------------|
|Housing |6-0 |Chau, Steinorth, | |
| | |Burke, Chiu, Lopez, | |
| | |Mullin | |
| | | | |
|----------------+------+---------------------+---------------------|
|Revenue & |9-0 |Ting, Brough, | |
|Taxation | |Dababneh, Gipson, | |
| | |Roger Hernández, | |
| | |Mullin, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+------+---------------------+---------------------|
|Appropriations |15-0 |Gomez, Bigelow, | |
| | |Bloom, Bonta, | |
| | |Calderon, Chang, | |
| | |Eggman, Gallagher, | |
| | | | |
| | | | |
| | |Eduardo Garcia, | |
| | |Holden, Quirk, | |
| | |Rendon, Wagner, | |
AB 668
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| | |Weber, Wood | |
| | | | |
| | | | |
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SUMMARY: This bill requires county assessors to consider a
recorded contract with a tax-exempt non-profit corporation when
valuing property for property tax assessment purposes.
Specifically, this bill:
1)Requires county assessors to consider contracts that meet the
following requirements:
a) The contract is with a non-profit corporation organized as
a 501(c)(3) that has received a welfare exemption under
Revenue and Taxation Code Section 214.15 for properties
intended to be sold to low-income families who participate in
a special no-interest loan program;
b) The contract restricts the use of the land for 30 years to
owner-occupied housing available at an affordable cost;
c) The contract includes a deed of trust on the property in
favor of the nonprofit corporation to ensure compliance with
the terms of the program, which has no value unless the owner
fails to comply with the covenants and restrictions of the
terms of the home sale;
d) The local housing authority or an equivalent agency, or,
if none exists, the city attorney or county counsel, has made
a finding that the long-term deed restrictions in the
contract serve a public purpose; and
e) The contract is recorded.
1)Requires the state to reimburse local agencies and school
districts if the Commission on State Mandates determines that
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this bill contains costs mandated by the state.
FISCAL EFFECT: According to the Assembly Appropriations
Committee, unknown reduction in property tax receipts, resulting
in General Fund costs to reimburse counties under the Proposition
98 (1988) funding guarantee.
For example, assuming the average Habitat for Humanity homebuyer
earns $33,600 (55% of the 2014 median household income in
California, the mid-point of Habitat's eligibility scale), and
pays one-third of that income towards a mortgage, that buyer could
probably afford a mortgage of approximately $190,000. Further
assuming the median home price in California for a three bedroom
home is approximately $420,000, the difference in assessed value
would be $230,000 if the county assessor assessed the value at
what the Habitat for Humanity homeowner effectively paid.
Habitat for Humanity estimates there are approximately 25 homes
built per year that would be affected by this bill. Assuming the
difference in assessed value in the above example, this bill would
result in a reduction in property tax receipts statewide of
approximately $60,000 in the first year, approximately half of
which would be reimbursed from the General Fund. Over time, the
number of homes that enjoy the reduced tax assessment value under
this bill, and the amount therefore reimbursed from the General
Fund, will increase.
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 1% 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
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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 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,
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Homeowners Association 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.
This bill would create uniformity in what county assessor can
consider when determining the assessed value of a property, upon
which a nonprofit organization has a recorded contract that limits
the use of the land for 30 years to owner-occupied housing at an
affordable cost.
Analysis Prepared by:
Lisa Engel / H. & C.D. / (916) 319-2085 FN:
0000526
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