BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 2818 |Hearing |6/29/16 |
| | |Date: | |
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|Author: |Chiu |Tax Levy: |Yes |
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|Version: |6/22/16 Amended |Fiscal: |Yes |
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|Consultant|Grinnell |
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Property taxation: community land trust
Adds contracts with affordability restrictions to the list of
items an assessor must consider when determining the value of
land.
Background
Article XIII of the California Constitution provides that all
property is taxable unless explicitly exempted by the
Constitution or federal law. 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).
Community Land Trusts. Formed by local agencies, employers,
nonprofits, or grassroots organizations, Community Land Trusts
(CLTs) are typically non-profit organizations that seek to
promote affordable housing by acquiring and retaining ownership
of real property in a specific geographic area using capital or
land from private donations or public sources. While the first
CLTs were formed in rural areas in the 1970s, nearly 200 exist
nationwide today, with approximately 20 in California. CLTs
mostly operate in higher-income urban and suburban areas, and
under federal law, must:
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Not be sponsored by a for-profit organization;
Be established to acquire parcels of land, held in
perpetuity, primarily for conveyance under long-term ground
leases; transfer ownership of any structural improvements
located on such leased parcels to the lessees; and retain a
preemptive option to purchase any such structural
improvement at a price determined by formula that is
designed to ensure that the improvement remains affordable
to low- and moderate-income families in perpetuity;
Have corporate membership that is open to any adult
resident of a particular geographic area specified in the
bylaws of the organization; and whose board of directors
must be equally comprised of leaseholders, community
representatives, and other individuals representing the
public interest.
In addition to operating rental units, CLTs use a creative
ownership model to fund affordable housing sales. First, the CLT
divides the underlying land, which it owns in perpetuity, from
the home, which is sold to the qualifying resident. The CLT
leases the land to the resident via a 99-year ground lease.
Only residents considered low- to moderate income in that area
can buy the home, which is subject to resale price restrictions
contained in the ground lease that stipulate the resale price
formula that provides for a fair, but below-market, return on
the resident's investment. Additionally, restrictions only
allow sales to other low-to-moderate income individuals. The
CLT maintains the option to repurchase any structure on its
land. When the CLT owns the land, it pays property taxes, but
residents are assessed after purchasing the property from the
CLT.
Assessors' considerations. To determine value, 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 land. State law
establishes a rebuttable presumption that such a restriction is
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permanent, and that the value of the land is substantially
equivalent to the value attributable to its legally permissible
use. The assessor can overcome the 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. Until recently,
assessors could only consider contracts with government agencies
when determining the effect upon value of enforceable
restrictions except for land preservation easements held by
non-profit entities. Last year, the Legislature added onto the
list of enforceable restrictions contracts in response to
differing assessment methods applied to homes constructed and
sold by Habitat for Humanity (AB 886, Gomez, 2015) that meet all
of the following requirements:
With a nonprofit 501(c)(3) that has received a welfare
exemption for properties intended to be sold to low-income
families who participate in a special no-interest loan
program.
That restrict the use of the land for at least 30 years
to owner-occupied housing available at affordable housing
cost, as defined,
That include a deed of trust on the property in favor of
the nonprofit corporation to ensure compliance with the
terms of the program, which has no value unless the owner
fails to comply with the covenants and restrictions of the
terms of the home sale.
Where the local housing authority or, if none exists,
the city attorney or county counsel, has made a finding
that the long-term deed restrictions in the contract serve
a public purpose, and
That are recorded and provided to the assessor.
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Some CLTs argue that assessment of community land trust property
varies considerably in the state. Seeking to improve
consistency of assessment of CLT properties statewide, CLTs want
to explicitly include their model on the list of enforceable
restrictions assessors must consider when valuing land.
Proposed Law
Assembly Bill 2818 adds to the list of enforceable restrictions
that the assessor must consider recorded instruments where the
following apply:
The contract is a renewable 99-year ground lease between
a community land trust and the qualified owner of an
owner-occupied single-family dwelling or an owner-occupied
unit in a multi-family dwelling.
The contract subjects a single-family dwelling or unit
in a multifamily dwelling, and the land on which the
dwelling or unit is situated that is leased to the
qualified owner by a community land trust for the
convenient occupation and use of that dwelling or unit, to
affordability restrictions.
The county counsel, the director of a county housing
department, the city attorney, the director of a city
housing department, makes a finding that the affordability
restriction in the contract serves the public interest to
create and preserve the affordability of residential
housing.
The recorded instrument is provided to the assessor.
The measure defines several terms, including "affordability
restrictions" to mean that all of the following must be met:
The property can only be sold or resold to qualified
owners, defined as persons and families of low to moderate
income, to be occupied as a principal place of residence.
The sale or resale price of the property is determined
by a formula that ensures that its purchase price is
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affordable to qualified owners.
The community land trust has a purchase option on the
property intended to preserve the dwelling or unit as
affordable to qualified owners.
The property remains affordable to persons and families
of low or moderate income by recorded deed, deed
restriction, ground lease, covenant, memorandum, or other
recorded instrument.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the author, "Community
Land Trusts (CLTs) are nonprofit organizations that employ a
unique and innovative method to permanently preserve the
availability of affordable homeownership opportunities. CLTs
achieve this goal by separating the ownership of land from the
ownership of a home (the improvements). A CLT home is sold to a
qualifying low or moderate-income family, but the cost of the
land is not passed on through the transaction. Instead, the
nonprofit CLT retains ownership of the land and maintains a
supportive relationship with homeowners to help ensure their
success. While the homeowner does not possess title to the
land, they lease the land from the CLT for a nominal monthly
administrative fee which grants them exclusive rights to the
land. Homeowners are able to capture a portion of the equity
when the home is sold but not all of it, keeping the home
affordable for the subsequent homeowner. Homeowners that own
CLT homes throughout the state have experienced an inconsistent
methodology for assessing property taxes. In some cases the
homes are assessed at the "fair market value" which does not
take into consideration the underlying land lease and its
restrictions on the resale price. In other cases, homes are
assessed somewhere in between market and the actual restricted
value with varying explanations for the inconsistency. The
ongoing affordability of CLT homes critically relies on the
accurate and fair assessment of the home. In some cases, the
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property taxes are nearly double what they should be,
particularly when assessed at the market value. Even 10 to 20
percent higher taxes can make these homes no longer affordable,
putting the homeowner in jeopardy of foreclosure or unable to
properly maintain the physical property. AB 2818 would require
assessors to consider the underlying land lease and the
affordability restrictions on a CLT home to determine the value
of the property for the purpose of assessment."
2. Need . The CLT affordable housing model does not cleanly
fit the general practice of determining value for property tax
purposes, which generally sets the purchase prices of the entire
property as its base year value, because the CLT sells only the
structure, but retains ownership of the land under the 99-year
ground lease. As such, CLTs report 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,
while in others, 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." OakCLT believes that the total assessed value, both
improvements and land, of a CLT property should be based upon
the restricted sales price of the home. AB 2818 seeks to
address this inconsistency by adding the CLT model onto the list
of enforceable restrictions state law directing assessors to
consider when determining value.
3. Parity, part one . For many years, assessors could not
consider enforceable restrictions imposed by private parties
when determining the value of land except for land conservation
easements. After several years of unsuccessful legislative
efforts to create valuation uniformity, the Legislature last
year directed assessors to consider the Habitat for Humanity
"silent second," housing affordability model, where Habitat
records a deed of trust that has no value other than to ensure
compliance with their affordable housing program. AB 2818
enacts a similar policy for the CLT model.
4. Parity, part two . State law affords Habitat for Humanity,
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and other organizations like it, an additional benefit not
currently contemplated by AB 2818: a welfare exemption from
property tax for the period of time after they acquire the
property, but before they sell it to a qualified buyer. The
California Constitution allows for welfare exemptions for a
variety of organizations and uses of property. State law
details these exemptions which provide that the property owner
need not pay property tax, presuming that the organization will
more charitably use any funds that would have used to pay the
tax, and therefore any government services it would have funded.
Assembly Actions
Assembly Revenue and Taxation 9-0
Assembly Appropriations 14-0
Assembly Floor 80-0
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Support and
Opposition (6/23/16)
Support : AMCAL Multi-Housing, Bay Area Community Land Trust,
Beverly-Vermont Community Land Trust, Bolina Community Land
Trust, California Association of Local Housing Finance Agencies,
California Housing Consortium, Community Land Trust Association
of Western Marin, The Dellums Institute of Social Justice,
Enterprise Community Partners, Greenlining Institute, Grounded
Solutions Network, Habitat for Humanity, Housing Land Trust of
Sonoma County, Irvine Community Land Trust, Marty's House
Affordable Housing Corporation, Northern California Land Trust,
Oakland Community Land Trust, PolicyLink, Preserving Affordable
Housing Assets Longterm Incorporated; San Diego Community Land
Trust, San Diego Housing Federation, San Francisco Community
Land Trust, Sustainable Economies Law Center, T.R.U.S.T. South
LA, Urban Strategies Council, 11 individuals.
Opposition : None received.
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