BILL ANALYSIS                                                                                                                                                                                                    

                            Senator Robert M. Hertzberg, Chair
                                2015 - 2016  Regular 

          |Bill No:  |SCA 9                            |Hearing    | 1/13/16 |
          |          |                                 |Date:      |         |
          |Author:   |Beall                            |Tax Levy:  | No      |
          |Version:  |8/18/15                          |Fiscal:    | No      |
          |Consultant|Grinnell                                              |
          |:         |                                                      |


          Amends the California Constitution to allow base year value  
          transfers to properties of equal or greater value.

           Background and Existing Law

           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).  Voters subsequently approved change in  
          ownership exclusions to allow homeowners over the age of 55 and  
          disabled persons (regardless of age) to transfer their home's  
          base year values to a replacement home of equal or lesser value  
          within the same county (Proposition 60, 1988, and Proposition  
          110, 1990), or to homes in counties that adopt ordinances  
          allowing the transfer (Proposition 90, 1990).  Ten counties  
          currently allow these out-of-county transfers (Alameda, El  
          Dorado, Los Angeles, Orange, Riverside, San Bernardino, San  
          Diego, San Mateo, Santa Clara, and Ventura).  Base year value  
          transfers allow taxpayers to continue to pay property taxes at  
          the factored base year value of their previous home, and not on  
          the cash value of their newly purchased home, often resulting in  
          tax savings, and is only available for a taxpayer's principal  


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          place of residence. 

           Proposed Law

           Senate Constitutional Amendment 9 allows disabled persons or  
          those over the age of 55 to transfer their base year value to a  
          home of greater value.  The measure applies to transfers within  
          the same county, or to transfers when the replacement property  
          is located in a county that has enacted an ordinance to allow  
          inbound out-of-county transfers.  In the case of a transfer to a  
          property of greater value, the taxpayer must add to the original  
          base year value the difference in price between the full cash  
          value of the original property and the full cash value of the  
          replacement dwelling.

           State Revenue Impact

           No estimate.


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           1.   Purpose of the bill  .  According to the author, "Proposition  
          60 allows homeowners over the age of 55 and any severely or  
          permanently disabled person to transfer the base year assessed  
          value of their principal residence to a replacement home in the  
          same county.  For example, if an individual purchased their  
          principal residence in 1985 for $100,000 and then sold the home  
          for $200,000 in 2015, they would be able to transfer the  
          $100,000 base year assessed value and be taxed on that value  
          instead of on the assessed value of the replacement home.  Due  
          to the increased housing market and higher housing prices, many  
          seniors seeking to downsize to a newer, smaller home that more  
          appropriately suits their needs, must buy a home with a value  
          greater than that of their current residence.  These bills will  
          allow seniors and any severely or permanently disabled person to  
          transfer their property tax basis to another home, even if the  
          home they purchase has a higher sales price than their original  
          home.  To ensure a homeowner doesn't receive more of a property  
          tax benefit than that to which they are entitled, these bills  
          require that the difference between the value of the replacement  
          home and that of the original residence is added to the base  
          year assessed value.  By allowing and encouraging seniors to  
          downsize to newer and smaller homes, these bills will also allow  
          more homes to be available for families to move into."   

           2.   Too many benefits  ?  Proposition 13 provided property owners  
          in California with substantial protections from higher property  
          tax rates and annual reassessments.  However, because the  
          initiative generally set a property's taxable value at its  
          purchase price plus growth of up to 2% per year, taxpayers who  
          sold their homes and purchased new ones will likely pay higher  
          property taxes, thereby levying a tax penalty on those seeking  
          to acquire housing that more closely meet their demands.  For  
          example, a four-bedroom single family home may be more house  
          than an empty-nest couple need, but purchasing a two-bedroom  
          condominium may lead to a tax increase, especially if the  
          taxpayer's current home has appreciated in value significantly  
          during the time they owned it.  Proposition 60 and 90 removed  
          that incentive and allowed persons over 55 and the disabled to  
          move without the tax consequence, so long as the value of the  
          replacement home met the definition of "equal or lesser value"  


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          in statute.  However, California already has the lowest property  
          tax rates and most taxpayer-friendly reassessment triggers of  
          almost any state in the nation, thereby providing significant  
          benefits to property owners, especially those that have been in  
          their homes for many years.  SCA 9 expands those benefits to  
          allow base year value transfers values when a taxpayer purchases  
          a home at a higher price than for the one they sold.  The  
          Committee may wish to consider adding to the benefits afforded  
          property owners in California.
           3.   What's different  ?  SCA 9 grants taxpayers the ability to  
          transfer base year values to homes of greater value, but not  
          quite in the same way as transfers to properties with lesser  
          values.  Instead, the taxpayer must add the difference between  
          the full cash value of the original property and the full cash  
          value of the replacement property to the original base year  
          value.  For example, an eligible taxpayer who has a base year  
          value of $200,000 and property taxes of $2,000 per year, sold  
          her home for $300,000, and purchased a replacement home for  
          $400,000.  The new base year would be $300,000 (the $200,000  
          base year value of the original property plus the $100,000  
          difference in price between the original and replacement  
          dwellings), resulting in a property tax difference of $1,000  
          ($3,000 in property tax from a base year of $300,000, instead of  
          $4,000 in property tax resulting from the $400,000 purchase  
          price of the new dwelling).  By requiring the taxpayer to add  
          the price difference between the new dwelling and the original  
          property onto the base year, SCA 9 reduces the amount of  
          property tax revenue that local agencies would have received had  
          a taxpayer not eligible for the base year transfer purchased the  
          home, but provides a more limited form of tax benefit than  
          current base year transfers.  

          4.   Who benefits  ?  Currently, taxpayers can only transfer base  
          year values to homes of equal or lesser value than the one they  
          sold, under the assumption that taxpayers "downsizing" will sell  
          their larger home at a price higher than what they pay for the  
          smaller replacement.  SCA 9 would allow transfers to properties  
          with greater values, likely leading to more transfers,  
          especially in areas of California where high local property  
          values make finding homes at lower prices than their current  
          ones difficult.  Local agencies may receive less property tax  
          revenue to the extent that a taxpayer taking advantage of SCA  
          9's benefit buys a property instead of one who isn't, but these  


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          losses can be offset if the taxpayer's replacement property is  
          sold at a higher price than its current assessed value.   
          However, because SCA 9 applies to transfers within a county, as  
          well as transfers to counties that enact an ordinance, the  
          revenue loss and the offset may not occur in the same county.   
          Additionally, the amount of SCA 9's benefit depends on two  
          variables: the difference between the fair market value and  
          assessed value of the taxpayer's original property, and the  
          price of the replacement property.  Using the example above, SCA  
          9 saves a taxpayer $1,000 in annual property taxes when  
          transferring her base year value to a home with a sales price  
          $100,000 higher than the price at which she sold her original  
          property.  However, that same taxpayer who sells her house for  
          $1 million can transfer her base year value to a property worth  
          $1.2 million, so long as the difference between the two prices  
          is added back for an assessed value of $400,000.  A taxpayer not  
          eligible for a base year value transfer would pay three times as  
          much, as the tax would be based on the $1.2 million value.  

          5.   Current subsidies  . In the United States, federal and state  
          governments offer substantial tax subsidies for owning or  
          selling a home, such as:

                 Mortgage Loan Interest:  Taxpayers may deduct interest  
               payments on up to $500,000 single/$1 million joint of  
               indebtedness used to purchase a first and second home.   
               Taxpayers may also deduct interest payments on up to  
               $100,000 in home improvement loans.  

                 Capital Gains Exclusion:  Taxpayers may exclude up to  
               $250,000 single/$500,000 joint in income resulting from the  
               sale of their principal residence.

                 Deductibility of Property Taxes:  Taxpayers may deduct  
               property taxes and some other real estate taxes from  
               federal income, although California's low property tax  
               rates limit the benefit for Californians compared to  
               residents of other states.

          6.   Companionship  .  SCA 9 changes California's Constitution to  
          allow base year value transfers to homes of equal or greater  
          value.  Constitutional amendments must be approved by 2/3 vote  
          of each house of the Legislature, and receive majority voter  
          approval at the next statewide election.  SB 378 (Beall) makes  


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          statutory changes necessary to implement SCA 9, and will also be  
          heard at the Committee's January 13, 2016 hearing.  

          7.   Triple-referred  .  The Senate Rules Committee has referred  
          SCA 9 to the Committees on Elections and Constitutional  
          Amendments, as well as to the Committee on Appropriations.



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          Support and  
          Opposition   (1/7/15)

           Support  :  California Association of Realtors.

           Opposition  :  California State Association of Counties,  
          California Tax Reform Association, Rural County Representatives  
          of California.

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