BILL ANALYSIS Ó SB 587 Page 1 Date of Hearing: August 10, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair SB 587 (Stone) - As Amended August 4, 2016 ----------------------------------------------------------------- |Policy |Revenue and Taxation |Vote:|8 - 0 | |Committee: | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: YesReimbursable: Yes SUMMARY: This bill eliminates the inflation adjustment of the assessed value of a low-income senior's primary home. Specifically, this bill, beginning on January 1, 2017, eliminates future inflation factor increases for qualified homeowners 65 years or older who have an annual income of $25,000 or less, if single, or $50,000 or less, if married. FISCAL EFFECT: SB 587 Page 2 1)Annual property tax loss of approximately $27 million, resulting in GF costs of approximately $13.5 million as a result of the Proposition 98 guarantee. 2)Minor and absorbable costs to the Board of Equalization (BOE) to modify forms, publications, and website materials. 3)Unknown and possibly reimbursable costs for local assessors to verify the income of qualified seniors. COMMENTS: 1)Background. When a home is purchased, its assessed value is the purchase price, or "acquisition value." Each year thereafter, the property's assessed value increases by 2% or the rate of inflation, whichever is lower. This process continues until the property is sold, at which point the county assessor again assigns it an assessed value equal to its most recent purchase price. 2)How would SB 587 work? The elimination of the inflation-adjustment for seniors means that the property tax amount owed by a qualified senior is frozen until that senior moves or no longer meets the income requirements. For example, a home purchased in 2017 for $300,000 would see its assessed value increase to no more than $306,000 the following year. The resulting property tax amount owed would increase from $3,000 in 2017 to $3,060 in 2018. However, under SB 587, a qualified senior would still pay tax on an assessed value of $300,000, resulting in a $60 tax reduction relative to what they would otherwise have to pay. SB 587 Page 3 3)Other property tax benefits for seniors. Existing state law provides additional benefits to certain qualified senior households. Those benefits include: a) Base year value transfer. Persons over the age of 55 may "transfer" their base year value from one home to another that is of equal or lesser value, allowing these homeowners to avoid reassessment of the newly purchased home to its fair value. This is a once-in-a-lifetime benefit that tallows seniors to pay the same level of taxes if they move. B b) Property Tax Postponement Program. This State Controller-administered program, which is set to restart in October 2015, allows income-eligible persons 62 and older to postpone property tax payments on their principal residence. To participate, the program requires total household income of $35,500 or less and 40% home equity. The interest rate is 7%. Analysis Prepared by:Luke Reidenbach / APPR. / (916) 319-2081 SB 587 Page 4