BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 996 (Hill) - Property taxation: welfare exemption
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|Version: February 10, 2016 |Policy Vote: GOV. & F. 7 - 0 |
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|Urgency: No |Mandate: Yes |
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|Hearing Date: April 11, 2016 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: SB 996 would increase the welfare exemption tax cap on
certain low-income housing owned by nonprofit entities.
Fiscal
Impact:
The Board of Equalization (BOE) indicates that it would
incur minor and absorbable administrative costs to update
claim forms, Property Tax Rule 140, and its Assessors'
Handbook.
SB 996 (Hill) Page 1 of
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BOE estimates that the measure would result in an annual
reduction of $240,000 to local property tax revenues.
Additionally, the bill would result in a one-time property
tax refund or cancellation of roughly $100,000 per year for
four years. Lower local property tax revenues lead to
increased General Fund Proposition 98 spending by up to
roughly 50 percent (the exact amount depends on the
specific amount of the annual Proposition 98 guarantee,
which in turns depends upon a variety of economic,
demographic and budgetary factors).
Under the California Constitution, this bill's imposing
of new duties on local county officials related to the real
property tax assessment process could be subject to
reimbursement by the State. The magnitude of these
potential costs is unknown.
Background: All property in California is taxable unless
explicitly exempted. Specifically, the Legislature may exempt
property owned by nonprofit entities organized and operated for
charitable purposes, such as universities, hospitals, and
libraries (known as the "welfare exemption."). According to the
Legislative Analyst's Office, the welfare exemption results in
roughly $3 billion in foregone local property tax revenues.
The welfare exemption includes property used exclusively for
rental housing, if (1) specified financing mechanisms finance
the housing, (2) the property is restricted for low-income
housing, and rents do not exceed specified levels, and (3) 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.
Bill Summary: This bill would increase the amount of the
property tax welfare exemption for nonprofit agencies owning
non-publicly financed rental housing from $20,000 to $100,000.
Additionally, it would allow refunds and cancellations of taxes
imposed between January 1, 2013, and January 1, 2017 as a result
of the exemption cap. Finally, the bill would preclude assessors
from issuing an escape assessment for taxpayers with cancelled
or refunded taxes.
Legislative History: This measure is identical to SB 678 (Hill),
SB 996 (Hill) Page 2 of
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which was held on this Committee's suspense file in January
2016.
Staff Comments: Currently, 26 nonprofit organizations own 76
properties of various types, including single-family residences,
multifamily residences, and apartments, potentially subject to
the $20,000 cap. However, only the three organizations in San
Mateo County are known to own property exceeding the cap, which
consequently is partially taxable. Nonprofit organizations
report their holdings to their local assessor, and this
information is annually transmitted to BOE. Most counties report
that they have no such properties; the 76 properties are located
in only 11 counties.
The cap has not been increased since its creation over 15 years
ago. Twenty thousand dollars in tax is equivalent to $2 million
in assessed value at the basic 1 percent tax rate. Increasing
the cap to $100,000 in tax ($10 million in assessed value) would
allow the low-income housing properties owned by the three San
Mateo County organizations to be exempt under the welfare
exemption.
As noted above, the three impacted organizations would see
reduced property tax bills by up to $80,000 each ($240,000
total). Additionally, there would be a one-time property tax
refund of approximately $100,000 per year for four years (or
$400,000 total). BOE indicates that no other organizations
currently exceed the cap; however, five other organizations are
approaching it. The revenue loss resulting from the bill could
grow if other organizations acquire more property subject to the
cap or if assessed values over time exceed $20,000 in tax due to
the application of the annual inflation factor (up to 2
percent).
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, appear to have succeeded. Consequently, the cap could
hinder nonprofit organizations seeking that own, or want to
purchase, affordable housing in their communities, and can be
especially burdensome for organizations operating statewide.
SB 996 (Hill) Page 3 of
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Additionally, no other organizations claiming the welfare
exemption (such as hospitals, churches, and universities) are
subject to a similar cap.
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