BILL ANALYSIS                                                                                                                                                                                                    



           SENATE COMMITTEE ON GOVERNANCE AND FINANCE
                         Senator Robert M. Hertzberg, Chair
                                2015 - 2016  Regular 

                              
          
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          |Bill No:  |AB 1952                          |Hearing    |6/22/16  |
          |          |                                 |Date:      |         |
          |----------+---------------------------------+-----------+---------|
          |Author:   |Gordon                           |Tax Levy:  |No       |
          |----------+---------------------------------+-----------+---------|
          |Version:  |6/15/16    Amended               |Fiscal:    |Yes      |
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          |Consultant|Grinnell                                              |
          |:         |                                                      |
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                               Property tax postponement



          Makes changes to implement the revived Property Tax Postponement  
          program, including allowing the Controller to exclude  
          administrative costs before shifting funds above specified  
          limits to the General Fund.


           Background 

           The Senior Citizens and Disabled Citizens Property Tax  
          Postponement Law (PTP), allows the State 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 in income per year.  The Controller secures  
          repayment by recording a lien against the claimant's property,  
          which is satisfied when the home is sold or refinanced.  As  
          liens are repaid out of sales proceeds, revenue flows back to  
          the Controller, who in turn uses these funds to pay property  
          taxes for new applicants.   

          Loans do not become due and payable if the claimant or the  
          claimant's spouse continues to occupy the home.  However, the  
          Controller's lien is only paid off when proceeds remain after  
          previously filed liens have been satisfied; liens filed by  
          county tax collectors have "super priority" status, and  
          therefore must be satisfied before all others regardless of when  
          they're filed. 







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          In 2009, due to budgetary constraints, and fewer funds flowing  
          back to the Controller as a result of diminishing sales prices,  
          the Legislature prohibited persons from filing new claims for  
          property tax postponement, and the Controller from accepting  
          applications (SBx3 8, Ducheny, 2009).  However, the Legislature  
          resuscitated the program last year by removing SBx3 8's  
          prohibition, albeit with tightened eligibility criteria, and a  
          requirement for the Controller to transfer to the General Fund  
          repayments received above specified amounts (AB 2231, Gordon,  
          2014).  The Controller wants to clean up some parts of existing  
          law that need to be changed after AB 2231's enactment.


           Proposed Law

           Assembly Bill 1952 makes the following changes to the PTP  
          program:

                 Current law requires the Controller to shift revenues  
               derived from PTP loan repayments when they exceed specified  
               levels: $20 million as of June 30, 2017, and $15 million  
               for each June 30 thereafter.  For purposes of calculating  
               the $15 million limit, the bill allows the Controller to  
               exclude from that calculation any funds used to pay  
               additional approved claims to postpone property taxes, as  
               well as the Controller's administrative costs.    

                 The measure also provides that if the Controller  
               determines that there are insufficient moneys in the fund  
               to cover the costs of administering the program, and to pay  
               all approved claims for the postponement of property taxes,  
               the Director of Finance, may authorize expenditures from  
               the General Fund in an amount necessary to cover the costs  
               of administering this chapter and to pay those claims not  
               sooner than 30 days after providing written notification.   
               The Director of Finance must notify the chairpersons of the  
               fiscal committees of each house of the Legislature, and the  
               Chairperson of the Joint Legislative Budget Committee, of  
               any expenditures.  

                 Once the Controller grants a PTP loan, she records a  
               lien with the county recorder in the county in which the  
               approved claimant lives.  Current law assigns the county  








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               recorder the duty to send a copy of the lien to the tax  
               collector.  The bill instead requires the Controller to  
               send the copy of the lien, and additionally requires her to  
               also send the lien to the assessor.

                 The Controller secures the PTP loan amount in a lien  
               recorded against the claimant's property, and increases it  
               to reflect interest accumulation.  When the Controller  
               receives repayments, she lowers the amount of the  
               obligation secured by the lien.  To clarify the accounting  
               treatment of repayments, the bill applies any payment first  
               to interest due, next to principal, and lastly to  
               administrative fees, to the extent a balance remains. 

                 Deletes from eligibility any residential dwelling  
               subject to a Property Assessed Clean Energy Bond, which are  
               financing programs that allow local governments to offer  
               loans to private property owners to cover the initial costs  
               of renewable energy, energy efficiency, water efficiency,  
               and other improvements to private property that offer  
               public benefits.  Property owners repay the loans through  
               voluntary assessments or parcel taxes, which are secured by  
               priority liens and appear annually on property tax bills  
               until the loans are repaid

          The bill also makes technical changes, such as granting  
          flexibility to the Controller regarding the form of PTP loan  
          payment, changing terminology, updating or deleting obsolete  
          references or dates, and conforms other parts of PTP statutes to  
          reflect the bill's changes.   


           State Revenue Impact

           No estimate.


           Comments

           1.  Purpose of the bill .  According to the author, "AB 1952 will  
          make the reestablished Property Tax Postponement Program more  
          sustainable and accessible for eligible applicants.  Under the  
          existing program, the money in the PTP Revolving Fund comes from  
          collections on existing PTP loans; because the Fund relies on  








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          loan repayments, it will take time in the beginning to develop a  
          strong base. If PTP Fund does not have enough money to make  
          payments on behalf of eligible and approved claimants, the  
          Controller will be forced to reject loans to applicants that  
          would otherwise be eligible once the fund is depleted.  By  
          permitting the Department of Finance to authorize additional  
          funding for the PTP program, this bill will ensure that the  
          Program is able to fulfill the purpose for which it was  
          developed, and assist as many qualified low income, disabled,  
          and senior Californians as possible."

          2.   Bringing it back .  After several years of suspension, the  
          Controller will soon begin accepting applications for PTP after  
          the Legislature reenacted the program in 2014.  Low-income  
          property owners will be able to apply for loans which will pay  
          for their property taxes, which if granted, eliminate the chance  
          the taxpayer will fall into default, delinquency, or be subject  
          to a tax sale.  The program should be self-financing, as the  
          state's interest is safeguarded by a lien recorded against the  
          property, which is repaid, with interest, upon sale.  The  
          Controller can then recycle these payments into future loans.   
          Prior to suspension, the Controller granted about $12 million  
          annually in claims, but repayments only ranged between $6 and  
          $10 million, potentially leading to General Fund costs.  Because  
          of these risks, AB 2231 applied higher equity percentage  
          requirement of 40%, among other measures.  

          3.   Balance  .  AB 2231 required the Controller to shift repayment  
          amounts above a specified level back to the General Fund,  
          leaving fewer funds to grant future PTP claims, but providing  
          more general resources for other state priorities.  AB 1952  
          makes two changes to reduce the number of claimants that may be  
          turned away in the future: first, authorizing the Director of  
          Finance to supplement funds to cover administrative costs and  
          pay previously approved claims, and second, allowing the  
          Controller to deduct administrative costs before shifting fund  
          back to the General Fund.  The Committee may wish to consider  
          the balance between funding PTP, and providing resources for  
          other priorities.  

          4.   Priorities  .  The Controller plans to begin accepting  
          applications for PTP loans this fall, and grant loans to  
          eligible applicants who are either disabled or over the age of  
          62 on a first-come, first-served basis.  Loans are funded from  








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          repayments under the past program, which has a fund balance of  
          $17.7 million as of April 1, 2016, according to the Controller.   
          However, she may have to turn away qualified applicants if she  
          receives more requests for loaned funds than are available in  
          the account.  While first-come, first-served allocation is fair,  
          efficient, and frequently used in state government, the  
          Legislature could always revise eligibility criteria to reflect  
          its goals for the program.  

          5.   Related legislation  .  Earlier this year, the Committee  
          approved SB 909 (Beall), which allowed Special Needs Trusts to  
          apply for PTP on behalf of beneficiaries.  The bill is currently  
          pending hearing in the Assembly Revenue and Taxation Committee.


           Assembly Actions

           Assembly Local Government               9-0

          Assembly Revenue and Taxation           9-0
          Assembly Appropriations                 10-0
          Assembly Floor                          78-0

           Support and  
          Opposition   (6/16/16)


           Support  :  State Controller Betty Yee, California Association of  
          County Treasurer-Tax Collectors, California Special Districts  
          Association, California State Association of Counties, League of  
          California Cities, Retired Public Employees Association, Rural  
          County Representatives of California, Santa Clara County Board  
          of Supervisors.


           Opposition :  None received.



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