BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 678 |Hearing |1/13/16 |
| | |Date: | |
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|Author: |Hill |Tax Levy: |No |
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|Version: |1/4/16 |Fiscal: |Yes |
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|Consultant|Grinnell |
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PROPERTY TAXATION: WELFARE EXEMPTION
Increases the amount of the welfare exemption for non-publicly
financed affordable housing.
Background and Existing Law
The California Constitution provides that all property is
taxable unless explicitly exempted by the Constitution or
federal law, but also allows the Legislature to exempt property
used for charitable purposes, and owned by nonprofit entities
organized and operated for charitable purposes, such as
universities, hospitals, and libraries. The Legislature enacted
this exemption, commonly known as the "welfare exemption." The
welfare exemption has a similar policy genesis as non-profit
status for charitable groups: revenues paid in tax to the
government divert needed resources away from the organization's
good works. According to the Legislative Analyst's Office,
local agencies statewide forego $3 billion annually in property
tax revenues from welfare exempt properties.
The welfare exemption includes property used exclusively for
rental housing, if:
Tax-exempt mortgage revenue bonds; general obligation
bonds; federal, state, or local grants; or federal
low-income housing tax credits finance the housing,
The property is enforceably restricted for low-income
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housing, and rents do not exceed those prescribed in deed
restrictions, and
The property owner certifies that funds that would have
been used to pay property taxes are used to maintain the
affordability of the units or reduce rents.
Prior to 1999, rental housing owners could claim a welfare
exemption from property tax for low-income housing if 20% of the
property's residents were low-income. After the Los Angeles
Housing Project investigated some of the city's worst housing
projects, they discovered that some substandard housing projects
were exempt from property tax under that section of law.
Responding to the investigation, the Legislature enacted AB 1559
(Wiggins, 1999), which repealed the occupancy test, instead
requiring owners to receive public financing in the forms listed
above for the project to claim the welfare exemption, in
addition to the above requirements. However, AB 1559 revoked
the exemption for many worthy properties that weren't publicly
financed, so the Legislature subsequently enacted AB 659
(Wiggins, 2000), which further refined the law to:
Reenact the occupancy threshold, but increased to 90%,
Cap the exemption amount to $20,000 in tax for all
properties the taxpayer owns in the state, and
Require the property be managed solely by a non-profit
organization, specifically excluding limited partnerships,
to be eligible for the exemption.
Since 2000, the value of housing provided by nonprofits has
grown, potentially compelling these groups to pay taxes on
amounts that exceed the $20,000 cap. Additionally, other groups
want to acquire rental housing in the hopes of preserving
existing affordable units in their areas, but lack the available
funds to pay the taxes resulting from doing so. Some nonprofit
organizations want the Legislature to increase the cap.
Proposed Law
Senate Bill 678 increases the amount of the welfare exemption
from property tax for nonprofit agencies owning non-publicly
financed rental housing from $20,000 to $100,000, effective on
the January 1, 2017, lien date. The measure also creates a
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process for affected taxpayers to file a claim to have taxes in
the current year cancelled, and obtain refunds for previous
taxes paid, and also contains legislative findings and
declarations stating a public purpose necessary to issue refunds
of previously paid taxes. The bill also precludes assessors
from issuing an escape assessment for taxpayers with cancelled
or refunded taxes.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the author, "California
has a serious shortage of affordable housing. SB 678 provides
the necessary property tax relief to certain nonprofit
organizations so that these tax-exempt organizations can
continue to provide more affordable housing for low income
people and families."
2. As time goes by . When the Legislature set the $20,000 cap
in 2000, it was part of a series of reforms that responded to an
investigation that showed affordable housing developers were not
providing basic maintenance to the housing giving rise to the
exemption. Other reforms adopted as part of the package, such
as making the exemption contingent upon deed restrictions
binding rents, and limiting the exemption solely to non-profit
organizations owning the units, should have chased out any
potential bad actors over the past fifteen years. As such, the
cap hinders nonprofit organizations seeking that own, or want to
purchase, affordable housing in their communities, and can be
especially burdensome for organizations operating statewide.
Additionally, no other organizations claiming the welfare
exemption are subject to a similar cap, such as hospitals,
churches, and universities.
Support and
Opposition (1/7/16)
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Support : Ministry Services of the Daughters of Charity of St.
Vincent De Paul, Saint Francis Center
Opposition : None received.
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