BILL ANALYSIS Ó AB 2668 Page 1 Date of Hearing: May 18, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair AB 2668 (Mullin) - As Introduced February 19, 2016 ----------------------------------------------------------------- |Policy |Revenue and Taxation |Vote:|9 - 0 | |Committee: | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: YesReimbursable: No SUMMARY: This bill allows certain disabled persons or those over the age of 55 to transfer their base year value to a home of greater value. Specifically, this bill: 1)Allows eligible households to transfer the base value of their original home to a replacement home of greater value ("buy up") within the same county. The new base value of their replacement home is the base value of the original home and the difference between the cash value of that original home and the cash value of the replacement home. AB 2668 Page 2 2)Limits eligibility for the "buy up" provision to disabled persons or those over the age of 55 who have household incomes below the county median income. 3)Makes the provisions operative upon voter approval of Assembly Constitutional Amendment (ACA) 12. FISCAL EFFECT: Annual property tax revenue losses of approximately $2.9 million, resulting in GF costs of approximately $1.4 million as a result of the Proposition 98 guarantee. COMMENTS: 1)Purpose. According to the author, AB 2668 will help seniors move out of their homes that are currently too large for them and will add to the stock of affordable housing. 2)Background. Adopted in June 1978, Proposition 13 was designed to provide real property tax relief by limiting the assessment and taxing powers of state and local governments. As a general rule, Proposition 13 limits any tax on real property to 1% of the property's assessed value, measured as either the assessed value as of the 1975-76 tax year or the appraisal value when purchased, constructed, or a change in ownership has occurred, subject to adjustment for the lesser of inflation or 2% per year. As a result, real property is only reassessed to fair market value upon a change in ownership. One exception to the change in ownership fair market value reassessment is the "base-year value transfer" provision. AB 2668 Page 3 Under that rule, a disabled homeowner or a homeowner aged 55 or older may elect a once-in-a-lifetime transfer of the base year value of the homeowner's principal residence to a replacement residence of equal or lesser value within the same county, or in certain other counties, within two years of the sale of the original residence. The base year value transfer allows the homeowner to continue paying property taxes at the amount and rate of growth of the previous residence and not the fair market value of the new residence. This bill would also allow certain homeowners to transfer the base year value of their home to a home of greater value. 3)How would the "buy up" option work? AB 2668 allows a qualified homeowner to pay reduced property taxes for a replacement dwelling that is more expensive than their current home. For example, a qualified family lives in a home with an assessed value of $100,000. Then: they sell that home for $200,000, its new full cash value, and purchase another home for $350,000. Without AB 2668, that household would be unable to transfer the base value to their new home. AB 2668 would allow this household to transfer the base value and require them to pay property tax on that base value in addition to the difference in the full cash value of their original home and their new home. This means that their property taxes would be taxes on the original base value ($100,000), plus the difference between the reassessed value of their old home and their new home ($150,000 for a total of $250,000) instead of the new home's assessed value ($350,000). 4)Median income restriction. AB 2668 was amended in the Assembly Revenue and Taxation Committee to restrict eligibility for the proposed "buy up" provision to homeowners with incomes under a county's median household income. While precise data on who currently transfers the base value of their home and their incomes levels is unavailable, income data for the overall senior population indicates that this amendment will significantly cut the number of households who otherwise would make use of the new "buy up" option. On average, an estimated 45% of senior households in California have incomes below the AB 2668 Page 4 county median income. Since higher income households would be more likely to transition into a home that was of higher value, this amendment greatly reduced the fiscal cost of AB 2668. Analysis Prepared by:Luke Reidenbach / APPR. / (916) 319-2081