BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 2450 |Hearing |6/29/16 |
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|Author: |Achadjian |Tax Levy: |No |
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|Version: |6/15/16 |Fiscal: |Yes |
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|Consultant|Grinnell |
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Property taxation
Makes two changes to help assessors accurately value property in
a timely fashion.
Background
Article XIII of the California Constitution provides that all
property is taxable unless explicitly exempted by the
Constitution or federal law. One such exemption is for property
owned by the state or a local government, unless the property is
located outside the boundaries of the local government that owns
it, and the property was taxable before its acquisition. 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). State law implementing
Proposition 13 generally sets a property's value as its price
when purchased or when ownership changed, plus an annual
inflation factor, calculated by the Department of Industrial
Relations using the California Consumer Price Index for all
items.
Public acquisition of property. When a public agency acquires
property, state law sets forth a specific process for informing
the appropriate county officials to ensure that taxes are
cancelled after acquisition. The public agency acquiring the
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property must notify the county assessor and auditor by filing
the instrument evidencing the acquisition, which must show the
date of apportionment, as defined, a map of the property, and a
request to cancel the taxes. Additionally, when the public
agency proposes to acquire the property, that agency must notify
the tax collector as well as any other public entity which will
lose revenue from the property becoming exempt. State law
requires this notification to contain specified contents, and to
take place within a reasonable time following the initial
budgeting of funds. The California Assessors Association wants
assessors to also receive this notification to properly assess
property by tracking any proposed government acquisition of
taxable property that may lead to its eventual exemption.
Assessors' considerations. As mentioned above, 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. State law
establishes a rebuttable presumption that such a restriction is
permanent, and that the value of the land is substantially
equivalent to the value attributable to its legally permissible
use. The assessor can overcome this presumption by showing by a
preponderance of the evidence that the restriction will be
lifted in the predictable future. The law does not require
assessment of any land at less than its full value or as
prohibiting the use of representative comparable sales
information on land under similar restrictions when such
information is available. As a general rule, private parties
cannot reduce the taxable value of their property by imposing
private encumbrances upon it; only enforceable government
restrictions are recognized as limiting the full fee simple
interest.
Assessors argue that governmental agencies enacting enforceable
restrictions as part of low-income housing programs do not
always disclose their existence at the time of transfer, despite
the requirement that this information be included on the
Preliminary Change of Ownership Report. Without this
information, assessors may overvalue property, which requires
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subsequent correction. Assessors want government agencies
entering into contracts that restrict the use of housing to
record them.
Proposed Law
Assembly Bill 2450 makes two changes:
First, the bill provides that when a public entity
proposes to acquire property for public use that the
required notice, which must currently be sent to the tax
collector, also be sent to the assessor.
Second, the measure amends the section of law setting
forth enforceable restrictions that the assessor must
consider to require that contracts with governmental
agencies that restrict the use of the property to
owner-occupied housing available at affordable housing
cost, including under any locally adopted inclusionary
housing program, must be recorded.
State Revenue Impact
Pending.
Comments
1. Purpose of the bill . According to the author, "Assessors are
required to consider the effect of any enforceable restrictions
on a property's value. For low-income housing, also known as
below market rate (BMR) properties, governmental agencies
execute contracts to restrict the use of the land for owner
occupied housing, which are sold at affordable or below market
prices. These contracts come with governmentally imposed
restrictions to ensure compliance with the terms of the
affordable housing program. During the past several years, it
has been increasingly difficult for assessors to properly assess
BMR properties because property owners, and governmental
agencies do not always disclose the existence of BMR contracts
at the time of transfer. The result is low income homeowners
are incorrectly over taxed. Correcting an overpayment is
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expensive, time consuming and may not result in a complete
refund. AB 2450 requires that contracts with governmental
agencies that restrict the use of the property to owner-occupied
housing available at an affordable housing cost, including those
under any locally adopted inclusionary program, must be
recorded."
2. Evolution . As introduced, AB 2450 amended the enforceable
restriction section of law to require government agencies to
provide recorded contracts to the assessor as soon as possible
after the date of recordation regardless of the purpose of the
contract. The measure was then amended to delete that language,
instead requiring that a Change in Ownership Statement include
any enforceable restrictions placed upon the property that the
assessor is required to consider, as well as the bill's current
requirement that a public entity proposing to acquire property
for public use must also send the required notice to the
assessor. However, that provision was also removed. Today, the
measure imposes this same requirement near the end of the
enforceable restriction section of law, where government
agencies providing affordable housing are unlikely to find it.
Additionally, the measure may allow assessors to choose to
ignore these restrictions unless they're recorded because of its
location in statute. The Committee may wish to consider
amending AB 2450 to remove the recording requirement from the
enforceable restriction section and place it in its own section,
while clarifying that assessors can consider any contracts.
3. Impetus . Assessors point to a recent case in the City of
Gilroy where 216 families living in below market rate housing
had been over-assessed for up to 20 years because the assessor
was not aware of the contract restricting the use of the
property. Upon discovery, the assessor personally delivered a
refund check to one family, and the county issued $3 million in
total refunds. In this case, the contracts weren't recorded,
which AB 2450 seeks to require.
4. Carefu l. Assessors generally treat affordable housing
projects fairly and equitably; however, this isn't always the
case. In June, 2012, Ventura County Assessor Dan Goodwin
revoked the welfare exemption, and issued escape assessments for
penalty, interest, and taxes for four previous years, for
affordable housing projects who had agreed to "payment in lieu
of tax" agreements, or PILOTs. These agreements compensate
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local agencies for the services it provides the property, but
isn't paid for in taxes due to the exemption, and were often
required by cities as a condition of approving a development.
Goodwin argued that because the property owner pays PILOT fees,
he or she cannot demonstrate that the property tax savings
maintains the affordability of the project or reduces rents, a
necessary condition for the exemption. In response, the
Legislature prohibited local agencies from requiring affordable
housing project owners to enter into PILOTs, and cancelled and
refunded any taxes resulting from Goodwin's determination (SB
1203, Jackson, and AB 1760, Chau, 2014).
Assembly Actions
Assembly Local Government 9-0
Assembly Appropriations 20-0
Assembly Floor 76-0
Support and
Opposition (6/23/16)
Support : California Assessors Association, Cities Association
of Santa Clara County.
Opposition : Unknown.
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