BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
------------------------------------------------------------------
|Bill No: |AB 668 |Hearing |7/8/15 |
| | |Date: | |
|----------+---------------------------------+-----------+---------|
|Author: |Gomez |Tax Levy: |No |
|----------+---------------------------------+-----------+---------|
|Version: |6/25/15 |Fiscal: |Yes |
------------------------------------------------------------------
-----------------------------------------------------------------
|Consultant|Grinnell |
|: | |
-----------------------------------------------------------------
Property taxation: assessment: affordable housing
Directs assessors to consider the value of contracts with
nonprofit entities when determining taxable value.
Background and Existing Law
Article XIII of 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 directs assessors to only reappraise
property when newly constructed, or ownership changes
(Proposition 13, 1978).
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. However, assessors must consider enforceable
restrictions, such as zoning and environmental restrictions, as
well as recorded contracts with government entities when valuing
property; however, assessors cannot consider contracts with
non-governmental entities except for except for land
preservation easements held by non-profit entities. Assessors
subsequently estimate the value of the property based on its
AB 668 (Gomez) 6/25/15 Page 2
of ?
legal uses.
A nonprofit corporation, Habitat for Humanity builds houses for
low-income persons to occupy, either by renting or owning.
Habitat sells houses to individuals and families who qualify as
low-income; however, they do so very differently than a typical
real-estate transaction. With Habitat, they build the home, and
then pick a family to live in it through its family selection
process. The family buys the home at a price equal to its total
development cost through a down payment and a mortgage. Habitat
won't require a family to pay more than 30% of gross family
income on mortgage payments. The difference between the total
development cost and the fair market value is secured by the
"silent second mortgage," a deed restriction that limits any
family purchasing the home from reselling it. Families don't
pay these silent-second mortgages, and they're generally
forgiven if the family satisfies the first. Instead, the silent
second mortgages are covenants that ensure that the family
doesn't profit from Habitat's work, and "run with the land," so
that the site remains affordable should the initially selected
family choose to move somewhere else.
Generally, assessors use a property's purchase price in total
consideration to calculate value; however, with Habitat,
establishing value can be difficult. The value of the property
to the owner is less than its value on the open market because
of the covenant restrictions. Some county assessors deduct the
value of the restriction from the fair market value of the home,
and the Board of Equalization recommends that assessors estimate
the present economic value of the covenant, and then sum it with
the down payment and value of the mortgage. Habitat wants to
create consistency throughout the state for affordable housing
non-profits that work to provide the option of property
ownership to low-income families.
Proposed Law
Assembly Bill 668 adds onto the list of items that Assessors
must consider when valuing property a contract that:
Is with a nonprofit, 501(c)(3), organization that has
obtained a welfare exemption from property tax for
properties intended to be sold to low-income families, who
AB 668 (Gomez) 6/25/15 Page 3
of ?
participate in a special, no-interest loan program,
Restricts the use of the land for at least 30 years to
owner-occupied housing at affordable housing cost,
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.
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
Is recorded and provided to the Assessor.
State Revenue Impact
BOE states that it's not possible to determine AB 668's revenue
impact.
Comments
1. Purpose of the bill . According to the author, "AB 668
strives to ensure equity for low-income homeowners to afford not
only their mortgage payments, but also their property tax bill.
This bill would allow a county assessor to consider certain
long-term affordability deed restrictions when valuing a
property for property taxes if specific conditions are met.
Currently, there is a wide variance between cities and counties
when assessing the value of affordable homes. While some
assessors consider the recorded contracts and deed restrictions
between low-income homeowners and non-profit organizations,
other assessors choose not to and instead, assess these homes at
the "fair market value." This is especially burdensome for a
low-income household that is restricted from spending more than
30 percent of its income on its monthly mortgage, which includes
property taxes. AB 668 provides a simple remedy to this
discrepancy by encouraging consistency among local property tax
assessors throughout the state. Ultimately, this bill will
AB 668 (Gomez) 6/25/15 Page 4
of ?
assist hardworking, low-income families afford their mortgage
payments, increase access to affordable housing, and create
opportunities for homeownership in California."
2. Getting it right. AB 668 responds to a tricky issue
property tax assessment issue. Locally-elected Assessors
determine property value according to the California
Constitution, state law, and BOE advice, so assessor
determinations of how to treat silent second mortgages can
understandably differ across California. Additionally, silent
second mortgages and recorded restrictions aren't uniform
either, with terms and conditions that vary from project to
project. AB 668 attempts to resolve this issue by directing
assessors to consider the value of restrictions in affordable
housing contracts to ensure that the qualifying family is paying
property tax based on its value when the owner's economic rights
are limited as a condition of buying the home. As each county
assessor values property in his or her county individually, the
measure ensures that all assessors consider these restrictions
when determining value. AB 668's direction is simple and
effective, and counts on the assessor's expertise to calculate
value accurately, in contrast to past efforts such as AB 793
(Stickland, 2007), which explicitly required the assessor to
exclude from value the amount of the mortgage.
3. Related legislation . In 2013, the Committee approved SB 499
(Wyland), which is very similar to this bill. However, the
Senate Committee on Appropriations held the bill on its suspense
file.
4. Incoming ! The Senate Committee on Transportation and
Housing approved AB 668 on a 10-0 vote. The Committee on
Governance and Finance is hearing the measure as the committee
of second referral.
Assembly Actions
Senate Transportation and Housing 10-0
Assembly Floor 79-0
Assembly Appropriations 15-0
Assembly Revenue and Taxation 9-0
Assembly Housing and Community Development 6-0
AB 668 (Gomez) 6/25/15 Page 5
of ?
Support and
Opposition 7/2/15
Support : Habitat for Humanity, California Housing Consortium,
California Housing Partnership Corporation, Non-Profit Housing
Association of Northern California, Sacramento Housing Alliance.
Opposition : Unknown
-- END --