BILL ANALYSIS                                                                                                                                                                                                    






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          |SENATE RULES COMMITTEE            |                        SB 996|
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                                   THIRD READING 


          Bill No:  SB 996
          Author:   Hill (D) 
          Amended:  5/2/16  
          Vote:     21 

           SENATE GOVERNANCE & FIN. COMMITTEE:  7-0, 3/30/16
           AYES:  Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach,  
            Pavley

           SENATE APPROPRIATIONS COMMITTEE:  7-0, 5/27/16
           AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen
           
           SUBJECT:   Property taxation:  welfare exemption


          SOURCE:    Author

          DIGEST:  This bill increases the welfare exemption for  
          non-publicly financed affordable housing.

          ANALYSIS:  
          
          Existing law:

          1)Provides that all property is taxable unless explicitly  
            exempted by the Constitution or federal law.

          2)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 has enacted this  
            exemption, commonly known as the "welfare exemption."









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          3)Allows the welfare exemption for property used exclusively for  
            rental housing, so long as it meets the general requirements  
            to receive the welfare exemption, if:

             a)   The project is publicly financed with tax-exempt  
               mortgage revenue bonds, general obligation bonds, grants,  
               or low-income housing tax credits; the property is  
               enforceably restricted for low-income housing, 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.

             b)   In the case of non-publicly financed affordable housing,  
               90% of units are affordable, determined by reference to the  
               Health and Safety Code, and the property is managed solely  
               by a non-profit organization.  However, in this case, the  
               taxpayer is exempt only up to $20,000 in tax for all  
               properties the taxpayer owns in the state.

          This bill:

          1)Increases the exemption amount for non-publicly financed  
            affordable housing to $10 million ($100,000 in tax), and  
            deletes the former limit of $20,000 in tax, effective for lien  
            dates on or after January 1, 2017.

          2)Allows taxpayers to file claims to cancel current taxes, and  
            refund previous taxes, penalties, and interest imposed between  
            January 1, 2013, and January 1, 2017, for non-publicly  
            financed affordable housing that met the current requirements  
            for the welfare exemption.  This bill does not allow  
            cancellations or refunds of taxes that exceed the measure's  
            increased cap of $10 million in value.  

          3)Prohibits escape assessments on property for which the above  
            cancellation and refund authority applies.

          4)Requires claims for welfare exemptions for non-publicly  
            financed affordable housing to include an affidavit from the  
            property owner which includes a list of units occupied by  
            lower income households for which the exemption is claimed,  
            and nonpersonalized information regarding the actual household  
            income of the occupant, the maximum rent that may be charged  







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            to the occupant, and the actual rent charged to the occupant.   
            This bill provides that the affidavit is confidential and not  
            subject to public disclosure.

          5)Makes legislative findings and declarations:

             a)   Expressing the statewide interest necessary for the  
               bill's retroactive effect.

             b)   Stating that the interest of protecting the privacy of  
               an individual's personal and financial information  
               justifies the limitation on the public's right to know  
               under Section Three of Article I of the California  
               Constitution.

             c)   Provides that state reimbursement of local agency costs  
               or revenue losses is not required.

          Background
          
          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, Chapter 527, Statues of 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, Chapter 601, Statutes of  
          2000), which further refined the law to:

          1)Reenact the occupancy threshold, but increased to 90%, 

          2)Cap the exemption amount to $20,000 in tax for all properties  
            the taxpayer owns in the state, and

          3)Require the property be managed solely by a non-profit  
            organization, specifically excluding limited partnerships, to  
            be eligible for the exemption.  







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          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 to ensure they could  
          claim the welfare exemption (SB 1284, Lowenthal, Chapter 524,  
          Statutes of 2008).  
          BOE monitors the statewide cap, as it receives annual welfare  
          exemption filings filed with assessors.  Based on this data, the  
          1999/2000 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 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.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   Yes


          According to the Senate Appropriations Committee, "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.  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  







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          reimbursement by the State.  The magnitude of these potential  
          costs is unknown."


          SUPPORT:   (Verified5/27/16)




          The Arc and United Cerebral Palsy California Collaboration


          County of San Mateo
          Ministry Services of the Daughters of Charity of St. Vincent De  
          Paul
          Saint Francis Center


          OPPOSITION:   (Verified5/27/16)


          None received


          ARGUMENTS IN SUPPORT:     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. 

          Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119
          5/28/16 17:11:56


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