BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 996 |Hearing |3/30/16 |
| | |Date: | |
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|Author: |Hill |Tax Levy: |No |
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|Version: |2/10/16 Click here to enter |Fiscal: |Yes |
| |text. | | |
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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
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,
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The property is enforceably restricted for low-income
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 has increased, compelling some
non-profits to pay taxes on amounts that exceed the $20,000 cap,
and discouraging other groups from acquiring rental housing in
the hopes of preserving existing affordable units in their
areas. After the Long Beach Affordable Housing Coalition
acquired housing constructed as mitigation when the Century
Freeway (I-105) in Los Angeles was built, the Legislature
deleted the cap for those specific units (SB 1284, Lowenthal,
2008). Other nonprofit organizations want the Legislature to
increase the statewide cap.
Proposed Law
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Senate Bill 996 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
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
According to the Board of Equalization (BOE), SB 996 results in
property tax revenue losses of $240,000 annually, and one-time
refunds and cancellations of $400,000.
Comments
1. Purpose of the bill . According to the author, "California
has a serious shortage of affordable housing. SB 996 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 owners were not
providing basic maintenance to the housing that qualifies them
for 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. BOE
monitors the statewide cap, as it receives annual welfare
exemption filings filed with assessors. Based on this data, the
legislative reforms were successful: BOE reports that only 26
organizations in the state own housing subject to the limit, of
which, only three exceed the cap, with five more close to it.
However, the cap hinders nonprofit organizations that own or
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want to purchase affordable housing in their communities, and
can be especially burdensome for statewide organizations because
the cap applies to all of its property in California.
Additionally, no other organizations claiming the welfare
exemption are subject to a similar cap, such as hospitals,
churches, and universities.
3. Do it again . SB 996 is identical to SB 678 (Hill), which
the Committee approved in January. However, that measure was
held on the Senate Appropriations Committee's suspense file.
Support and
Opposition (3/23/16)
Support : County of San Mateo, Ministry Services of the
Daughters of Charity of St. Vincent De Paul, Saint Francis
Center
Opposition : Unknown.
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