BILL ANALYSIS Ó
AB 2818
Page 1
Date of Hearing: May 25, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2818 (Chiu) - As Amended May 2, 2016
-----------------------------------------------------------------
|Policy |Revenue and Taxation |Vote:|9 - 0 |
|Committee: | | | |
| | | | |
| | | | |
-----------------------------------------------------------------
Urgency: No State Mandated Local Program: YesReimbursable:
No
SUMMARY:
This bill modifies how certain homes located on land set aside
for low to moderate income (LMI) households are assessed for the
purposes of property taxes and extends a welfare exemption for
the purposes of property taxation to certain community land
trusts (CLTs). Specifically, this bill:
1)Presumes that the assessed value for a home, and the land on
which the home is situated for occupation and use by an LMI
household, is the purchase price of the home.
AB 2818
Page 2
2)Presumes that the assessed value of a home owned by a limited
equity housing cooperative (LEHC) and the underlying land on
which the home is situated for occupation and use by an LMI
household, is the purchase price of the share conveying an
exclusive right to occupancy and possession of the home.
3)States that a property is within the welfare exemption
provided by Sections 4 and 5 of Article XIII of the California
Constitution if the property is owned and operated by a
nonprofit corporation otherwise qualifying for the exemption
under Revenue and Taxation Code (R&TC) Section 214. The
nonprofit must have as one of its primary purposes the
creation and maintenance of permanently affordable homes under
the following conditions:
a) All residences on the land are intended for ownership by
a qualified owner to be occupied by LMI households as their
primary residence, and the land on which the residence is
situated is leased by the nonprofit corporation to the
qualified owner for the convenient occupation and use of
that residence for a renewable term of 99 years; and,
b) The residence is subject to affordability restrictions.
1)Provides, in the case of property not previously designated as
open space, that the exemption may not be denied to a property
on the basis that the property does not currently include a
permanently affordable single-family or multifamily residence
in existence or in the course of construction.
2)Provides that the exemption is only applicable to a property
for no more than five years from the date any affordability
restriction is recorded against the property.
AB 2818
Page 3
FISCAL EFFECT:
1)Moderate to significant property tax revenue loss as a result
of 1) expanding the welfare exemption to certain CLTs; and 2)
the reduced assessed value of CLT-provided homes. The number
of CLTs is expanding, and over 1,600 CLT-provided homes are
currently under construction or in the planning stages.
For example, CLTs are more common in expensive areas in
California, like the San Francisco Bay Area and Los Angeles.
If in a single year 30 CLT homes were sold to households who
had income levels at 80% of the area median income in both Los
Angeles and the San Francisco Bay Area, and an additional 30
homes were sold across the rest of the state, estimated
property tax losses would be in the range of $336,000,
resulting in General Fund costs of approximately $168,000.
These costs would grow as CLTs continue to become more common.
2)Unknown but potentially moderate to significant property tax
revenue loss due to the extension of the welfare exemption to
CLTs during the development process.
COMMENTS:
1)Background on Community Land Trusts: CLTs provide an
affordable housing model to help low-to-moderate income
households that may not otherwise be able to purchase a home.
The CLT acquires and develops properties for sale, but retains
ownership of the underlying land and leases the land to the
homeowner for a nominal fee through a long-term ground lease.
The home is therefore more affordable because the homeowner is
AB 2818
Page 4
only buying the building and not the land underneath. While a
subsidy is often needed to start a CLT, outside funding is no
longer necessary once homes are occupied, which provides
steady fee revenues, and are resold, which recycles the
original subsidy thereby allowing homes to remain permanently
affordable.
According to the National Community Land Trust Network,
virtually all CLT leases pass along the cost of property taxes
to the homeowner. The homeowner is either directly assigned to
pay property taxes associated with both the home and
underlying land, or is directly assigned to pay property taxes
associated with the home and then pays any property taxes
associated with the underlying land via its lease fee to the
CLT.
2)Background on Limited-Equity Housing Cooperatives: Housing
co-ops are democratically controlled corporations in which
each household owns a share, entitling the member to occupy a
unit of housing. The co-op is usually financed through one
mortgage that covers the entire property, with members paying
monthly carrying charges to cover mortgage payments and
operating expenses, including property taxes.
Given the similar participatory community-based models of CLTs
and LEHCs to provide access to affordable housing for LMI
households, it is not uncommon to have LEHC-owned homes
situated on CLT-leased land. Although California law specifies
that increases in LEHC share prices cannot exceed 10%
annually, and any profits from the sale of the co-op as a
whole must be dedicated to public or charitable entities,
existing law does not specify that ownership is limited to LMI
individuals.
3)Assessment of Restricted Homes: Existing law requires every
AB 2818
Page 5
assessor to assess property subject to tax at its full value.
Generally, private parties cannot reduce the taxable value of
their property by imposing private encumbrances on it. This
means that for CLTs, the assessed value of the property may
include both the land the home, even though the home was sold
to a family at a below-market price. As an example: A CLT
located in Marin County may sell a home to a family for
$300,000 even though the market value of that home, and the
underlying property, in the private market would be $1
million.
Last year, AB 668 (Gomez) Chapter 698, Statutes of 2015,
provided that specified self-imposed private encumbrances
could result in assessments of reduced property taxes if the
applicable contract is recorded and provided to the assessor.
Authorized contracts are limited to those by a non-profit
corporation granted a welfare exemption to sell low-income
families participating in a special no-interest loan program
affordable housing, similar to the model utilized by Habitat
for Humanity. As a result, assessors must now consider the
non-profit's organization-imposed restrictions when
determining a property's assessed valuation.
This bill aims to extend the same consideration granted to
Habitat for Humanity, via AB 668, to CLTs. In the example of
the homeowner in Marin, the homeowner would pay taxes on an
assessed value of $300,000 instead of the full value of the
property, which is $1 million.
4)Welfare exemption. This bill provides that non-profits with
affordable housing models similar to CLTs qualify for the
welfare exemption and prohibits the exemption from being
denied on the basis that the property does not yet have a
housing development in use onsite. The exemption would be
effective for five years after affordability restrictions are
recorded against the property.
AB 2818
Page 6
5)Purpose. According to the author's office, AB 2818 helps
address inconsistencies in how homes on CLTs are assessed for
the purposes of property taxes. The ongoing affordability of
CLT homes relies on the accurate and fair assessment of the
home, and the author argues that this bill would achieve this
as well as create a uniform standard so that CLTs can receive
a property tax exemption when developing additional affordable
properties.
Analysis Prepared by:Luke Reidenbach / APPR. / (916)
319-2081