BILL ANALYSIS Ó
AB 2818
Page 1
(Without Reference to File)
ASSEMBLY THIRD READING
AB
2818 (Chiu)
As Amended , 2016
Majority vote. Tax levy
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Revenue & |9-0 |Ridley-Thomas, | |
|Taxation | |Brough, Dababneh, | |
| | |Gipson, Mullin, | |
| | |O'Donnell, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |14-0 |Gonzalez, Bloom, | |
| | |Bonilla, Bonta, | |
| | |Calderon, Daly, | |
| | |Eggman, Eduardo | |
| | |Garcia, Roger | |
| | |Hernández, Holden, | |
| | |Quirk, Santiago, | |
AB 2818
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| | |Weber, Wood | |
| | | | |
| | | | |
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SUMMARY: Requires the county assessor to consider, when valuing
real property for property taxation purposes, affordability
restrictions imposed on housing units and the land on which the
units are situated, as specified. Specifically, this bill:
1)Requires the county assessor, when valuing real property for
property taxation purposes, to consider affordability
restrictions provided in a recorded instrument to the county
assessor, as specified.
2)Provides that the recorded instrument must subject a
single-family dwelling or unit in a multifamily dwelling, and
the land on which the dwelling or unit is situated that is
required for the convenient occupation and use of that
dwelling or unit by low or moderate income (LMI) households,
to affordability restrictions.
3)Provides that a finding must be made, by one of the following
public agencies or officials, that the affordability
restrictions serve the public interest to create and preserve
the affordability of residential housing for LMI households:
a) The director of the local housing authority or
equivalent agency;
b) The county counsel;
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c) The director of a county housing department;
d) The city attorney; or,
e) The director of a city housing department.
4)Provides that "affordability restrictions" include all of the
following:
a) The dwelling or unit can only be rented, sold, or resold
to LMI households to be occupied as a principal place of
residence;
b) The sale or resale price of the dwelling or unit is
determined by a formula that ensures the dwelling or unit
has a purchase price affordable to LMI households;
c) The rent collected from the dwelling or unit, if
applicable, does not exceed the maximum rent allowable to
be collected from LMI households;
d) There is a purchase option for the dwelling or unit in
favor of a community land trust (CLT) intended to preserve
the dwelling or unit as affordable to LMI households; and,
e) The dwelling or unit is to remain affordable to LMI
households by recorded deed, deed restriction, ground
lease, covenant, memorandum, or other recorded instrument.
5)Defines a "community land trust" as a nonprofit corporation,
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otherwise qualifying for exemption under Revenue and Taxation
Code (R&TC) Section 214, that satisfies both of the following:
a) Has as one of its primary purposes the creation and
maintenance of permanently affordable single-family or
multifamily residences; and,
b) All residences on the land are sold to a qualified owner
to be occupied by LMI households as their primary
residence, and the land on which the dwelling or unit is
situated is leased by the nonprofit corporation to the
qualified owner for the convenient occupation and use of
that dwelling or unit for a renewable term of 99 years.
6)Defines a "qualified owner" as either of the following:
a) A limited equity housing cooperative (LEHC); or,
b) Persons and families of LMI.
7)Defines a "limited equity housing cooperative" as having the
same meaning as the term in Civil Code Section 817.
8)Defines "persons and families of low or moderate income" as
having the same meaning as the term in Health and Safety Code
(H&SC) Section 50093.
9)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 those
costs shall be made pursuant to these statutory provisions.
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10)Provides that no appropriation is made and the state will not
reimburse local agencies for property tax revenues lost by
them pursuant to this bill.
11)Takes effect immediately as a tax levy.
EXISTING LAW:
1)Limits the maximum amount of any ad valorem tax on real
property at 1% of full cash value.
2)Requires property to be reassessed to current fair market
value whenever it is purchased, newly constructed, or when
ownership changes, with specified exceptions, and provides a
rebuttable presumption that the fair market value is the
purchase price.
3)Defines "purchase price" as the total consideration provided
by the purchaser or on the purchaser's behalf, valued in
money, whether paid in money or otherwise.
4)Requires county assessors, when determining assessed
valuation, to consider the effect on property of the value of
any enforceable restrictions against the use of the land,
including but not limited to:
a) Zoning restrictions;
b) Development controls in accordance with local coastal or
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protection programs;
c) Statutory environmental constraints;
d) Hazardous waste land-use restrictions;
e) Recorded conservation, trail, or scenic easements;
f) Solar-use easements; or,
g) Recorded contracts with a non-profit corporation granted
a welfare exemption for properties intended to be sold to
low-income families who participate in a special
no-interest loan program. The contract must restrict use
of the land for owner-occupied affordable housing for at 30
years, include a deed of trust in favor of the nonprofit
corporation to ensure compliance, and be provided to the
assessor. The local housing authority or equivalent agency
must also make a finding that the long-term deed
restrictions serve a public purpose. (R&TC Section 402.1)
5)Authorizes the Legislature to exempt from taxation property
used exclusively for religious, hospital, or charitable
purposes, as specified. (California Constitution Article
XIII, Section 4(b)). The Legislature has implemented this
"welfare exemption" in R&TC Section 214.
6)Grants the welfare exemption to property used exclusively for
rental housing and related facilities for lower income
households, as defined in H&SC Section 50053, operated by
non-profit organizations, as specified.
7)Grants the welfare exemption to property acquired by a
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nonprofit corporation organized and operated for the specific
and primary purpose of building and rehabilitating single or
multi-family residences. (R&TC Section 214.15.)
FISCAL EFFECT: According to the Assembly Appropriations
Committee, moderate property tax revenue loss as a result of the
reduced assessed value of CLT-provided homes. For example, CLTs
are more common in expensive areas in California, such as 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.
COMMENTS:
1)Community Land Trusts: CLTs provide an affordable housing
model to help LMI households that may not otherwise be able to
purchase a home. The CLT acquires and develops properties for
sale to LMI households, but retains ownership of the
underlying land and leases the land to the homeowner for a
nominal fee through a long-term ground lease (usually a
99-year term). The home is therefore more affordable because
the homeowner is only buying the building and not the land
underneath. If the homeowner decides to sell the property,
the home must be resold to another LMI household, and the
original owner will only be eligible for a smaller share of
its appreciated value. Since the CLT is the owner of the
land, it will be a party to all future sales and enforce
resale restrictions. According to the California CLT Network,
it appears that many CLTs in California also have robust
rental portfolios restricted for LMI households.
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A CLT is generally formed as a membership-based, non-profit
organization with a professional staff, led by a
member-elected board of directors and funded by land rent
fees. Members include CLT homeowners, neighbors, and other
local residents, providing community buy-in over local
development. Many CLTs also provide homeowners with homebuyer
education and financial literacy courses. 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 CLT 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)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. The co-op model can be
used for virtually any type of housing construction covering
high-end, mid-range, and affordable developments, with LEHCs
specifically developed to offer permanently affordable
homeownership opportunities for LMI households. Share prices
in these co-ops are usually low, member households are limited
to owning only one share, and price restrictions are put on
the sale of shares to prevent speculative resale and preserve
affordability.
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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 existing 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. As
such, non-LMI individuals may be able to benefit from reduced
property tax assessments if they own a share in a LEHC.
3)Assessment of Restricted Homes: Existing law requires every
assessor to assess property subject to tax at its full value.
In the assessment of land, the assessor must consider the
effect of any enforceable restrictions to which the use of
land may be subject, such as zoning, easements, environmental
restrictions, and recorded contracts with governmental
agencies including those outlining affordable housing
restrictions. However, "[a]s a general rule, private parties
cannot reduce the taxable value of their property by imposing
private encumbrances upon it; only enforceable government
restrictions under [R&TC] Section 402.1 are recognized as
limiting the full fee simple interest." (Assessor's Handbook
Section 502, ADVANCED APPRAISAL December 1998, Reprinted
January 2015, pg. 6). The inability of private parties to
reduce the taxable value of their property through
self-imposed private encumbrances has long been recognized by
the courts. (Carlson v. Assessment Appeals Board (1985) 167
Cal. App. 3d 1004).
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
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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.
4)How Are CLTs Assessed? According to the author, CLTs in
California experience an inconsistent methodology for
assessing property taxes. In some cases, the units are
assessed at "fair market value," which does not take into
consideration the underlying land lease and restrictions on
home resale price. In other cases, the units are assessed in
between the market and restricted value with varying
explanations for the inconsistency. For example, the Oakland
CLT (OakCLT) states that while it technically owns the land,
"there is no value to the land that it can realize apart from
the nominal below-market monthly lease fee ($50/month)
collected?the value of the land under an OakCLT home is fully
included in the restricted sales price (i.e., $150,000)." As
such, OakCLT believes that the total assessed value
(improvements and land) of a CLT property should be based upon
the restricted sales price of the home.
5)Purpose of This Bill - Consistent Assessments: This bill
follows the precedent established by AB 668 and requires the
county assessor to consider the effect of private party
affordability restrictions on a property's use when
determining that property's assessed valuation. In order to
benefit from such consideration, a recorded instrument must be
provided to the county assessor that subjects the property to
specified affordability restrictions. The recorded instrument
must also contain a finding by a public agency or official
that the restrictions serve the public interest to create and
preserve the affordability of residential housing for LMI
households.
Requiring county assessors to consider the impact of private
party enforceable restrictions when valuing real property for
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property taxation purposes is intended to result in more
consistent assessments of homes on CLT-leased land. However,
this bill suggests but does not explicitly provide that the
assessment consideration is limited only to CLT homes and land
subject to affordability restrictions via a 99-year ground
lease, and whether all CLTs serving LMI households in such a
manner qualify for the assessment consideration. Any
remaining ambiguity may result in continued inconsistency by
county assessors when valuing CLT property.
Analysis Prepared by:
Irene Ho / REV. & TAX. / (916) 319-2098 FN:
0003345