BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 2818 (Chiu) - Property taxation: community land trust
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|Version: June 22, 2016 |Policy Vote: GOV. & F. 6 - 0 |
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|Urgency: No |Mandate: Yes |
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|Hearing Date: August 1, 2016 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 2818 would add contracts with affordability
restrictions to the list of items an assessor must consider when
determining the value of land.
Fiscal
Impact: The bill would result in an unknown annual property tax
revenue loss, potentially in the low millions of dollars over
several fiscal years (see Staff Comments). Reductions in local
property tax revenues, in turn, increase General Fund
Proposition 98 spending by up to roughly 50 percent (the exact
amount depends on the specific amount of the annual Proposition
98 guarantee, which in turns depends upon a variety of economic,
demographic and budgetary factors). Administration costs related
to the bill are expected to be minor.
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Background: Under the California Constitution, all property is taxable
unless explicitly exempted. The Constitution limits the maximum
amount of any ad valorem tax on real property at 1 percent of
full cash value, and directs assessors to only reappraise
property when newly constructed, or ownership changes.
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. CLTs initially formed in rural
areas in the 1970s; however, 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 meet specified criteria.
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.
To determine value, current 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 permanent, and that the value of the land is
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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.
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
specified requirements.
Proposed Law:
This bill would, in addition to defining terms, add 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
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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.
Staff
Comments: Available data indicate that only one CLT is building
new homes that will be ready for sale within the next two years.
About 20 homes per year are planned with an equal split between
low and moderate income buyers. Under this bill, the property
tax savings for a moderate income homebuyer are estimated to be
$650 and $1,800 for a low income homebuyer, based on current
median area home prices and income levels at that location.
Thus, the revenue impact of this measure is estimated to be a
property tax revenue loss of $24,500 annually for the next two
years.
However, over the long term, CLTs could develop and sell up to
2,500 homes in California. Assuming (1) similar property tax
savings for low and moderate income buyers, and (2) an equal
split between low and moderate income buyers, the associated
property tax revenue loss would be about $3 million. The
distribution of this amount across various fiscal years in
unknown.
Generally speaking, the property tax reduction in the out years
would increase as CLTs continue to become more common.
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