BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2818|
|Office of Senate Floor Analyses | |
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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:
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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
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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,
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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.
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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
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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.
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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
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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
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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
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