BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2818| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 2818 Author: Chiu (D) and Thurmond (D) Amended: 8/17/16 in Senate Vote: 21 SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 6/29/16 AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach NO VOTE RECORDED: Pavley SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/11/16 AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen ASSEMBLY FLOOR: 80-0, 6/1/16 - See last page for vote SUBJECT: Property taxation: community land trust SOURCE: California Community Land Trust Network DIGEST: This bill adds contracts with specified affordability restrictions to the list of items an assessor must consider when determining the value of land. Senate Floor Amendments of 8/17/16 require contracts that qualify for the assessor's consideration under the bill be recorded, and make technical changes. ANALYSIS: AB 2818 Page 2 Existing law: 1)Provides that all property is taxable unless explicitly exempted by the Constitution or federal law. 2)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. 3)Presumes for property tax purposes that a property's full cash or fair market value is its purchase price. 4)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. 5)Directs assessors to consider enforceable restrictions, such as zoning and environmental restrictions, as well as recorded contracts with government entities when valuing land. a) Establishes a rebuttable presumption that such a restriction is permanent, and that the value of the land is substantially equivalent to the value attributable to its legally permissible use. b) Allows to assessor to overcome the presumption by showing by a preponderance of the evidence that the restriction will be lifted in the predictable future. 1)Provides, generally, that assessors can only consider enforceable government restrictions when determining value; private parties cannot reduce the taxable value of their property by imposing private encumbrances upon it. However, in response to differing assessment methods, the Legislature recently added onto the list of enforceable restrictions AB 2818 Page 3 contracts applied to homes constructed and sold by Habitat for Humanity that meet all of the following requirements (AB 668, Gomez, Chapter 698, Statutes of 2015): a) With a nonprofit 501(c) (3) that has received a welfare exemption from property tax for properties intended to be sold to low-income families who participate in a special no-interest loan program. b) That restrict the use of the land for at least 30 years to owner-occupied housing available at affordable housing cost, as defined. c) 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. d) 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. e) That are recorded and provided to the assessor. This bill: 1)Enacts provisions for contracts with Community Land Trusts (CLTs), similar to those in place Habitat for Humanity, that require the assessor to consider contracts that: a) Are 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, AB 2818 Page 4 b) Subject 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, c) In which 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, and d) The recorded instrument is provided to the assessor. 1)Defines "affordability restrictions" to mean all of the following conditions have been met: a) The property can only be sold or resold to qualified owners, using the current definition in the Health and Safety Code for persons and families of low to moderate income, to be occupied as a principal place of residence. b) The sale or resale price of the property is determined by a formula that ensures that its purchase price is affordable to qualified owners. c) The CLT has a purchase option on the property intended to preserve the dwelling or unit as affordable to qualified owners. d) 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. AB 2818 Page 5 1)Defines a "community land trust": a) As a nonprofit corporation organized pursuant to Internal Revenue Code 501(c)(3), b) That has as its primary purposes the creation and maintenance of permanently affordable single-family or multifamily residences, c) As all dwellings and units located on the land owned by the nonprofit corporation are sold to a qualified owner to be occupied as the qualified owner's primary residence or rented to persons and families of low- or moderate-income, and d) As the land owned by the nonprofit corporation, on which a dwelling or unit sold to a qualified owner 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. 1)Defines other terms. 2)States that reimbursement for any state mandated costs be made pursuant to existing statute, but also provides that no reimbursement shall be made for reduced property tax revenue. Background Formed by local agencies, employers, nonprofits, or grassroots organizations, 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 AB 2818 Page 6 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: 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. AB 2818 Page 7 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." 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. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: Yes According to the Senate Appropriations Committee, this bill will result in an unknown annual property tax revenue loss, potentially in the low millions of dollars over several fiscal years. 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 this bill are expected to be minor. SUPPORT: (Verified8/12/16) California Community Land Trust Network (source) AMCAL Multi-Housing Bay Area Community Land Trust Beverly-Vermont Community Land Trust AB 2818 Page 8 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: (Verified8/12/16) None received ARGUMENTS IN SUPPORT: 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 AB 2818 Page 9 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 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." ASSEMBLY FLOOR: 80-0, 6/1/16 AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon Prepared by:Colin Grinnell / GOV. & F. / (916) 651-4119 8/18/16 16:11:11 **** END **** AB 2818 Page 10