BILL ANALYSIS Ó
SENATE COMMITTEE ON TRANSPORTATION AND HOUSING
Senator Jim Beall, Chair
2015 - 2016 Regular
Bill No: AB 668 Hearing Date: 6/23/2015
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|Author: |Gomez |
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|Version: |5/5/2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant|Eric Thronson |
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SUBJECT: Property taxation: assessment: affordable housing
DIGEST: This bill adds to the list of enforceable use
restrictions affecting assessed land value by adding a contract
between a nonprofit corporation and a low-income home owner as
long as certain conditions are met.
ANALYSIS:
Existing law:
1)Limits the amount of property tax on real property to 1% of
full cash value.
2)Requires property to be reassessed to current fair market
value whenever it is purchased, newly constructed, or when
ownership changes, and provides a rebuttable presumption that
the fair market value is the purchase price.
3)Requires assessors, when assessing the value of land, to
consider the effect upon land value of any enforceable use
restrictions, including, but not limited to the following:
a) Zoning restrictions.
b) Development controls in accordance with local coastal or
protection programs.
c) Statutory environmental constraints.
d) Hazardous waste land-use restrictions.
e) Recorded conservation, trail, or scenic easements.
AB 668 (Gomez) Page 2 of ?
f) Solar-use easements.
This bill:
1)Adds to the list of enforceable use restrictions affecting
assessed land value a contract where the following apply:
a) The contract is with a nonprofit corporation that has
received a welfare exemption for properties to be sold to
low-income families participating in a special no-interest
loan program.
b) The contract restricts the use of the land for at least
30 years to owner-occupied housing available at affordable
housing cost in accordance with existing law.
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.
d) The local housing authority or equivalent agency has
made a finding that the long-term deed restrictions serve a
public purpose.
e) The contract is recorded.
COMMENTS:
1)Purpose. According to the author, this bill is needed in
order to encourage consistency throughout the state and equity
for low-income homeowners to afford not only their mortgage
payments, but also their property tax bill. Ultimately, this
bill will assist hardworking, low-income families to afford
their mortgage payments and increase people's access to
affordable housing and opportunities for homeownership in
California.
2)Background. The California Constitution provides that all
property is taxable unless explicitly exempted by the
Constitution or federal law. Further, 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 2% 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.
AB 668 (Gomez) Page 3 of ?
Assessors must consider enforceable restrictions, such as
zoning and environmental restrictions, when valuing property,
and subsequently estimate the value of the property based on
its legal uses allowed by the enforceable restriction.
Further, 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. While
nonprofit organizations record enforceable affordability
contracts and deeds restrictions, the law does not explicitly
require assessors to consider these recorded contracts when
determining the property's assessed value. 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.
The sponsor of this bill, Habitat for Humanity California,
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, 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.
3)Inconsistent application of current law. According to the
bill's sponsor, assessors throughout the state vary the
methods of determining the assessed value of homes with
recorded contracts limiting the resale value. Some consider
AB 668 (Gomez) Page 4 of ?
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 seeks to resolve this inconsistency.
4)Argument in opposition. The California Assessors' Association
is opposed to AB 668 and has raised several issues of concern
with the bill. According to opponents, currently the meaning
of "enforceable restrictions" is limited to government
entities for good reason. The opponents argue that 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. The Assessors'
Association argues this is bad precedent and therefore opposes
the bill.
5)Technical amendment.
Page 4, line 5, add "and provided to the assessor."
1)Double-referral. The Rules Committee has referred this bill to
both this committee and the Governance and Finance Committee.
Therefore, if the bill passes this committee, it will be
referred to the Committee on Governance and Finance.
Related Legislation:
SB 499 (Wyland, Statutes of 2013) - was identical to this bill.
This bill was held in the Senate Appropriations Committee.
AB 793 (Strickland, Statutes of 2007) - among other things,
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
AB 668 (Gomez) Page 5 of ?
Senate Appropriations Committee.
Assembly Votes:
Floor: 79-0
Appr: 15-0
Rev&Tax: 9-0
H&CD: 6-0
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes
Local: Yes
POSITIONS: (Communicated to the committee before noon on
Wednesday,
June 17, 2015.)
SUPPORT:
Habitat for Humanity California (Sponsor)
California Housing Consortium
California Housing Partnership Corporation
Non-Profit Housing Association of Northern California
Sacramento Housing Alliance
OPPOSITION:
California Assessors' Association
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