BILL ANALYSIS Ó
AB 668
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB
668 (Gomez)
As Amended September 1, 2015
Majority vote
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|ASSEMBLY: | 79-0 |(June 1, 2015) |SENATE: |40-0 |(September 8, |
| | | | | |2015) |
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Original Committee Reference: H. & C.D.
SUMMARY: 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
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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 and provided to the assessor.
1)Requires the state to reimburse local agencies and school
districts if the Commission on State Mandates determines that
this bill contains costs mandated by the state.
2)Includes chaptering out amendments with AB 1251 (Gomez) of the
current legislative session.
The Senate amendments require the contract to be provided to the
assessor and include chaptering out amendments with AB 1251.
FISCAL EFFECT: According to the Senate Appropriations
Committee, unknown, potentially significant loss of property tax
revenues related to reductions in assessed value for homes
purchased with certain restrictions imposed through a contract
with a nonprofit organization. Approximately 50% of property
tax revenues statewide accrue to schools, which generally
offsets state General Fund obligations pursuant to Proposition
98 [of 1988]. Consequently, any reduction in the school share
of property tax revenues that are attributable to the bill's
impact on assessed values would result in a commensurate
increase in General Fund costs. The General Fund impact would
increase annually as more homes are sold with contracted
restrictions that affect assessed values.
The specific revenue loss would depend upon a number of factors,
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including the number of applicable homes sold, the impact of the
contract restrictions on assessed value (the difference between
market value and restricted value), and the behavior of
individual assessors.
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 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.
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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, 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.
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Related legislation: SB 499 (Wyland) of 2013: SB 499 was
substantially similar to this bill. It was held in the Senate
Appropriations Committee.
Analysis Prepared by: Rebecca Rabovsky
/ H. & C.D. / (916) 319-2085 FN: 0002083