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