BILL ANALYSIS Ó SB 801 Page 1 Date of Hearing: July 13, 2015 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Philip Ting, Chair SB 801 (Committee on Governance and Finance) - As Amended June 29, 2015 Majority vote. Non-fiscal SENATE VOTE: 36-0 SUBJECT: Property tax postponement. SUMMARY: Makes technical changes to the Senior Citizens and Disabled Citizens Property Tax Postponement (PTP) Law. Specifically, this bill: 1)Eliminates the outdated references to "a certificate of eligibility" and to certain duties of local tax officials, SB 801 Page 2 with respect to lien notices, to conform to the superseding duties of the State Controller (Controller) in preparing and filing the notice of lien for postponed taxes. 2)Specifies timing of payments by the Controller to the county and the refund by the county of taxes paid when a taxpayer successfully appeals his/her denial of postponement under the law. 3)Clarifies that the interest on existing loans made prior to June 30, 2016 will continue to accrue at the Pooled Money Investment Account rate, which was the rate in effect prior to the suspension of the PTP program. 4)Authorizes the Controller to release a lien if there is a foreclosure on an obligation secured by a lien that is senior in recording priority. 5)Revises the definition of a "claimant" for purposes of the cooperative housing and possessory interest property tax postponement provisions to clarify that blind and disabled persons are included in that definition, in addition to individuals who are 62 years or older. 6)Requires a person who has postponed his/her proportionate share of property tax in the cooperative housing to make a written request when requesting that the Controller issue a statement showing the total amount postponed and increases the fee amount that may be charged by the Controller for the provision of this statement from $10 to $30. 7)Deletes provisions relating to the eligibility of mobilehome properties for the PTP program and specifies that cooperative SB 801 Page 3 housing is eligible for the program. 8)Removes the exception to a prohibition on the ability of a claimant who is a holder of possessory interest in a residential dwelling to participate in the PTP program if any taxes or assessments on the possessory interest or improvement are delinquent. 9)Specifies that a claim for property tax postponement must be filed after October 1 of the fiscal year in which the postponement is claimed, instead of September 1, and before February 10 of that year, instead of April 10th. 10)Corrects grammatical errors, deletes duplicate numbering and erroneous references, and makes other technical and conforming changes. EXISTING LAW: 1)Reinstates a modified PTP program that provides property tax deferment to seniors and disabled persons and eliminates, effective July 1, 2016, the current prohibition on any person filing a claim and the Controller from accepting applications for the PTP program. 2)Allows the Controller to pay property taxes to county tax collectors, on behalf of individuals over the age of 62 or disabled persons with an annual household income of $39,000 or less. 3)Authorizes the Controller to secure repayment by recording a lien against the claimant's property, which is satisfied when the home is sold or refinanced. SB 801 Page 4 4)Requires the Controller to transfer to the General Fund (GF) repayments in excess of a $20 million total. FISCAL EFFECT: None COMMENTS: 1)Purpose of this bill . In 2014, the Legislature reinstated a modified PTP program to provide property tax deferment to seniors and disabled persons and to allow income-eligible senior citizens and disabled persons to apply to the Controller to defer payment of property taxes, beginning on July 1, 2016. Although the funding for the previous program was eliminated in 2009, the statute remained. However, not all of the statutory provisions related to the PTP program were amended in 2014, which made it difficult for the Controller to administer the program effectively. This bill would make several technical changes to the program to ensure that it is implemented correctly. 2)PTP Program: Background . California has several property tax programs benefiting the elderly and disabled individuals, including property tax assistance program and property tax postponement. The assistance program, which is administered by the FTB, was established in 1967 to provide direct property tax relief to seniors living on a fixed income. The assistance program provides a direct grant to qualifying seniors and disabled individuals who own or rent a residence. The program was later expanded to include renters who meet the income requirement, and to homeowners who are blind and/or disabled, regardless of their age. Unlike the property tax assistance program that refunds a percentage of property taxes paid, the PTP program allows eligible homeowners to defer payment of all or a portion of the property taxes on their residences. The program was enacted in 1977, after the passage of a constitutional SB 801 Page 5 amendment authorizing the postponement of property taxes (California Constitution Article XIII, Section 8) and is administered by the Controller's Office. The constitutional amendment was in response to concerns that senior homeowners on fixed incomes could lose their homes because of the inability to pay rising property tax bills. Originally designed for persons over 62 years of age, the program is now also available to eligible blind and disabled persons, regardless of age. 3)Suspension and Subsequent Reinstatement of the PTP program . On February 20, 2009, the PTP Program was indefinitely suspended as part of the budget reductions to the state's GF programs [SBx3 8 (Ducheny), Chapter 4, Statutes of 2009]. The funding for the program was eliminated and the Controller was prohibited from accepting any new applications after February 20, 2009. However, in 2014, the Governor signed into law AB 2231 (Gordon), Chapter 703, Statutes of 2014, which resurrected the PTP program, but with tightened eligibility criteria and a requirement for the Controller to transfer to the General Fund repayments in excess of a total of $20 million. AB 2231 also increased the amount of equity required in the home from 20% to 40%, and eliminated mobilehomes, houseboats, and floating homes from the definition of "residential dwelling." Increasing the necessary equity in the home was thought to help ensure that California is made whole in case of foreclosure or a forced sale. Additionally, AB 2231 modernized and streamlined payment methods by establishing the Senior Citizens and Disabled Citizens PTP Fund within the State Treasury, utilizing electronic fund transfer in place of certificates and eliminating the impound account. Finally, before 2009, the PTP Program included mobile and manufactured homes in the program. However, AB 2231 excluded mobilehomes from the new program. 4)The Definition of "Claimant. " For purposes of the PTP program, an individual is defined as a "claimant" if he/she is at least 62 years of age, blind or disabled, among other requirements, and owns or rents a residential dwelling. However, in the SB 801 Page 6 case of individuals who own a proportionate share in a cooperative housing corporation or a possessory interest in a dwelling, the definition of a "claimant" does not include individuals who are either blind or disabled and thus they are not able to participate in the PTP program. This bill proposes to standardize the definition of "claimant" for purposes of the PTP program to include blind and disabled individuals, regardless of whether they own a share in a cooperative housing, hold a possessory interest, or own and occupy a residential dwelling. This bill is intended to make sure that the PTP program is consistent across the board and that blind and disabled individuals are included in all categories of the program. 5)Changing the Filing Deadlines . Under existing program, a claim for postponement of property tax must be filed between September 1of the fiscal year in which the postponement is claimed and on, or before, April 10 of that fiscal year. This bill would revise this period for filing by requiring individuals to submit their claims between October 1 and February 10. Currently, April 1 is the due date for the property tax payments. According to the Controller's Office, the application period must be completed well before April 1 in order to ensure that the Controller will have adequate time to notify the claimants of the decision and to allow the unsuccessful claimants to make an alternative arrangement for the property tax payments. 6)Certificates of Eligibility . The PTP program formerly used a process where the Controller provided "certificates of eligibility" to applicants to pay their property taxes. The Controller submitted these "checks" to the county. The renewed program, instead, uses electronic funds transfers. This bill deletes the outdated reference to "a certificate of eligibility" and eliminates duplicate numbering in Government Code Section 16183. 7)Lien Notice . Under the previous PTP program, a county tax collector or assessor was required to enter, on a notice of SB 801 Page 7 lien, a description of the real property owned by individuals enrolled in the program and to forward the notice of lien to the county recorder. The new modified PTP program instead directs the Controller to prepare a notice of lien for postponed property taxes and file it with the county recorder. This bill makes technical changes to the relevant provisions of the PTP program to reflect the new requirements of the Controller. 8)Lien Release . Currently, a lien attached to the property has the priority of a judgment lien and remains in effect until it is released by the Controller, as prescribed. The Controller's Office argues that it needs the ability to release a lien in the case of foreclosure. Hence, this bill would provide that a lien may be released by the Controller in the case of the foreclosure or sale of an obligation secured by a lien which is senior in recording priority to the lien of the State. 9)Replication Payments . Existing law provides that when the Controller denies a taxpayer's application for the postponement of property taxes, the taxpayer has a right to appeal the Controller's decision. If the denial is reversed on appeal, the Controller is required to transfer funds to the county electronically for the amount of the property taxes. The law, however, is silent with respect to the taxpayer's right to receive a refund from the county for the property taxes already paid. This bill would expressly require the county to refund the overpayment of tax directly to the taxpayer if the Controller sends a payment for taxes due in the same fiscal year for which the taxpayer has paid the tax. 10)Conflicting Legislation . Provisions of this bill conflict with SB 477 (Levya) and may need amendments to resolve the conflict should both bills continue through the legislative process. 11)Proposed Technical Amendments . The Committee staff proposes SB 801 Page 8 the following technical amendments to SB 801: AMENDMENT 1 Amend Section 20602 to update the obsolete references to the Government Code. AMENDMENT 2 On page 13, line 25, strike out "otherwise" AMENDMENT 3 On page 13, in line 25, strike out "16100" and insert "16180" AMENDMENT 3 On page 20, line 9, strike out "Except as provided in this section, any" and insert "Any" AMENDMENT 4 On page 21, line 7, after "collector" insert: or chartered city which levies and collects its own taxes, AMENDMENT 5 On page 21, line 9, strike out "otherwise" AMENDMENT 6 On page 21, line 10, strike out "16100" and insert "16180" REGISTERED SUPPORT / OPPOSITION: Support SB 801 Page 9 Betty T. Yee, California State Controller Opposition None on file Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916) 319-2098