BILL ANALYSIS Ó AB 1952 Page 1 Date of Hearing: April 18, 2016 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Sebastian Ridley-Thomas, Chair AB 1952 (Gordon) - As Introduced February 12, 2016 2/3 vote. Fiscal committee. SUBJECT: Property tax postponement SUMMARY: Increases the amount of funds authorized to be used by the State Controller (Controller) to pay approved claims for the postponement of property taxes under the Senior Citizens and Disabled Citizens Property Tax Postponement Program (PTP Program). Specifically, this bill: 1)Provides that the Controller, on June 30, 2018, and on June 30 each year thereafter, may retain moneys in the PTP fund in excess of $15 million, instead of transferring the moneys to the General Fund (GF), if needed to pay claims approved by the Controller for the postponement of property taxes, as specified. 2)Authorizes the Director of the Department of Finance (DOF), upon receiving the notification from the Controller, to AB 1952 Page 2 authorize expenditures from the GF in an amount necessary to pay all approved claims for the postponement of property taxes, if there are insufficient moneys in the PTP fund. 3)Requires the DOF to notify the chairpersons of the fiscal committees of each house of the Legislature and the chairperson of the Joint Legislative Budget Committee in writing, at least 30 days prior to the authorization of the expenditures. 4)Requires a county recorder to provide the county assessor with a copy of the notice of lien which has been executed; 5)Specifies the order in which a payment received by the Controller shall be applied to reduce the amount of the obligation secured by the lien against the real property, as follows; a) To any interest due on the loan; b) To the principal property tax amount; and, c) The remaining balance, if any, to administrative fees. 6)Deletes the reference to the subordination of a lien for postponed property taxes, as authorized by the PTP Law, from the list of documents that may be recorded without acknowledgment, certificate of acknowledgment, or further proof. 7)Requires the county tax collector, upon receipt of the AB 1952 Page 3 electronic fund transfer by the Controller with respect to a payment of property taxes under the PTP Law, to enter the fact that taxes on the property have been postponed in the appropriate columns on the roll. In the case of the secured roll, the tax collector may enter this information in that portion of the roll which has been designated for tax default information, as specified. 8)Requires the county auditor, treasurer, or disbursing officer, with respect to a claimant whose property taxes are paid by a lender from an impound, trust, or other type of account, to refund a replicated payment, which is based on the electronic fund transfer by the Controller, to the claimant, instead of the Controller, as provided. 9)Revises the date, by which a blind or disabled claimant must qualify as "blind" or "disabled," to the earlier of: (i) the time of application; or, (ii) February 10th, instead of December 10th, of the fiscal year (FY) for which postponement is claimed. 10)Updates statutory references to the PTP Program, deletes obsolete references to certificates of eligibility and postponement of mobile homes, and makes other minor, technical changes. 11)Imposes a state-mandated local program and provides that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for the costs mandated by the state shall be made as specified. EXISTING LAW: AB 1952 Page 4 1)Establishes the Senior Citizens and Disabled Citizens Property Tax Postponement Law (or the PTP program), the Senior Citizens Tenant-Stockholder Postponement Law, and the Senior Citizens Possessory Interest Holder Postponement Law in the R&TC, all of which allow the Controller to pay property taxes to county tax collectors on behalf of individuals over the age of 62 or disabled persons making less than $35,500. (R&TC Sections 20581- 20641.) 2)Establishes the Senior Citizens Homeowners and Renters Property Tax Assistance Law, administered by the Franchise Tax Board (FTB), which is a direct grant program to income eligible senior citizens. (R&TC Sections 20501 - 20564.) 3)Establishes the County Deferred PTP for Senior and Disabled Citizens, with participating counties, to pay property taxes to county tax collectors on behalf of individuals over the age of 62 or disabled persons making less than $35,500. (R&TC Sections 20800 - 20825.) 4)Allows the Controller to start accepting new applications for the PTP Program on July 1, 2016. 5)Establishes the Senior Citizens and Disabled Citizens PTP Fund ("PTP Fund") in the State Treasury and continuously appropriates moneys in the PTP Fund to the Controller for purposes of administering the PTP Program, including, but not limited to, necessary administrative costs and disbursements relating to the postponement of property taxes pursuant to the PTP Law. 6)Requires, on or after January 1, 2015, any loan repayments relating to the PTP Program to be deposited into the PTP Fund. 7)Requires the Controller, pursuant to the PTP Program, to do both of the following: a) On June 30, 2017, transfer any moneys in the fund in excess of $20 million to the GF; and, AB 1952 Page 5 b) On June 30, 2018, and on June 30 each year thereafter, transfer any moneys in the fund in excess of $15 million to the GF. 8)Authorizes the Controller to secure repayment by recording a lien against the claimant's property, which is satisfied when the home is sold or refinanced. FISCAL EFFECT: Unknown COMMENTS: 1)Author's Statement . The author has provided the following statement in support of this bill: "AB 1952 will help make the existing Property Tax Postponement Program more sustainable and accessible for eligible applicants. By permitting the Department of Finance to augment the budget or authorize additional funding for the PTP program, this bill will ensure that the PTP program is able to fulfill the purpose for which it was developed, and assist as many qualified Californians as possible." 2)PTP Program: Background . California has several property tax programs benefiting the elderly and disabled individuals, including property tax assistance program and property tax postponement. The property tax assistance program, which is administered by the Franchise Tax Board, was established in 1967 to provide direct property tax relief to seniors living on a fixed income. Unlike the assistance program that provides a direct grant to qualifying seniors and disabled individuals, the PTP program allows eligible homeowners to defer payment of all or a portion of the property taxes on their residences. The program was enacted in 1977, after the passage of a constitutional amendment authorizing the postponement of property taxes (California Constitution AB 1952 Page 6 Article XIII, Section 8), and is administered by the Controller's Office. The constitutional amendment was in response to concerns that senior homeowners on fixed incomes could lose their homes because of the inability to pay rising property tax bills. Originally designed for persons over 62 years of age, the program is now also available to eligible blind and disabled persons, regardless of age. 3)Suspension and Subsequent Reinstatement of the PTP program . On February 20, 2009, the PTP Program was indefinitely suspended as part of the budget reductions to the state's General Fund programs [SBx3 8 (Ducheny), Chapter 4, Statutes of 2009]. The funding for the program was eliminated and the Controller was prohibited from accepting any new applications after February 20, 2009. However, in 2014, the Governor signed AB 2231 (Gordon), Chapter 703, Statutes of 2014, which reinstated a modified PTP program to provide property tax deferment to seniors and disabled persons and to allow income-eligible senior citizens and disabled persons to apply to the Controller to defer payment of property taxes, beginning on July 1, 2016. AB 2231 tightened eligibility criteria and required the Controller to transfer to the General Fund repayments in excess of a total of $20 million. AB 2231 also increased the amount of equity required in the home from 20% to 40%, and eliminated mobilehomes, manufactured homes, houseboats, and floating homes from the definition of "residential dwelling." Increasing the necessary equity in the home was thought to help ensure that California is made whole in case of foreclosure or a forced sale. Additionally, AB 2231 modernized and streamlined payment methods by establishing the Senior Citizens and Disabled Citizens PTP Fund within the State Treasury, utilizing electronic fund transfer in place of certificates and eliminating the impound account. In 2015, SB AB 1952 Page 7 801 (Senate Governance and Finance Committee), Chapter 391, Statutes of 2015, made several technical changes to the PTP program to ensure that it is implemented correctly. 4)The Implementation of the PTP Program . The PTP program operates on a "first-come, first-served basis," which is determined by the postmark date. All applications postmarked after the cutoff date are denied. According to the Controller's office, if an applicant does not provide all the required information or documentation, the Controller will contact the applicant requesting that the additional information be submitted within 30 days. If the applicant timely submits the requested information, he/she will maintain his/her "place in line." In a case where the number of applications received on one day exceeds the overall number of applications that may be funded, the Controller will cut off approvals as of the prior day. As of April 1, 2016, the PTP fund balance was $17,756,940.79, which reflects 18 months of collection but does not factor in the Controller's administrative costs. 5)Unresolved Funding Problems . Under existing law, all PTP loan repayments must be deposited in the PTP Fund. However, the State Controller is required to transfer to the GF any amounts in the PTP Fund in excess of $20 million as of June 30, 2017, and any amounts in excess of $15 million as of each June 30 thereafter. The State Controller's Office projects that by Fiscal Year (FY) 2017-18, the PTP Fund will be exhausted and the Program will be unable to fund program loans because the reinstated program limits the annual amount that may remain in the PTP Fund. At that point, the PTP Program will no longer be able to fund loans to qualified California homeowners in need of assistance. 6)What Does This Bill Do ? The PTP Program was funded by an annual GF appropriation to the Controller's Office to pay the face amount of all certificates of eligibility for the program. Administrative costs for the PTP program were paid AB 1952 Page 8 through the Controller's operating budget as part of the annual Budget Act. As discussed, the PTP was permanently suspended in 2009 and all funding was eliminated to address severe GF shortfalls during the recession. In 2014, AB 2231 reinstated the PTP program but deleted the previous program's funding source - an annual GF appropriation. Instead, AB 2231 created the PTP Fund, an interest bearing fund, which is continuously appropriated to the Controller to fund the PTP program, including administrative costs and property tax postponement disbursements. The money in the PTP Fund comes from collections on existing PTP accounts from the old program; no GF money is currently appropriated to support the reinstated PTP Program. This bill allows the DOF to authorize expenditures from the GF to pay the claims for postponement of property taxes approved by the Controller when the PTP Fund does not have enough money to make payments on behalf of eligible and approved claimants. Although this bill requires the DOF to notify the Legislature in writing at least 30 days prior to authorizing the GF expenditures, it gives DOF full discretion to decide whether or not to transfer moneys to the PTP Fund. The language of this bill states that DOF may authorize expenditures, thus leaving the final decision regarding the transfer as well as the amount of expenditures to DOF. In essence, this bill provides for a continuous appropriation from the GF to the PTP Fund, but at the same time reserves the right of the Executive Branch to refuse to transfer GF moneys to the PTP program. The Committee may wish to consider whether the Legislature should provide for a de facto appropriation of the PTP program by removing the DOF's discretion to decide how and whether to fund the PTP Program. 7)Double-referral . This bill was double-referred to the Assembly Committee on Local Government. This bill passed the Assembly Committee on Local Government on a 9 - 0 vote on April 6, 2016. For additional discussion of this bill's provisions, please refer to that committee's analysis. AB 1952 Page 9 REGISTERED SUPPORT / OPPOSITION: Support State Controller Betty Yee (Sponsor) California Association of Treasurers and Tax Collectors California Special Districts Association California State Association of Counties Rural County Representatives of California Santa Clara County Board of Supervisors Opposition None on file AB 1952 Page 10 Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916) 319-2098