BILL ANALYSIS Ó SB 996 Page 1 Date of Hearing: August 3, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair SB 996 (Hill) - As Amended June 23, 2016 ----------------------------------------------------------------- |Policy |Revenue and Taxation |Vote:|9 - 0 | |Committee: | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: YesReimbursable: No SUMMARY: This bill increases the total property tax welfare exemption allowed to a qualified nonprofit taxpayer from $20,000 to $100,000 with respect to lien dates occurring on or after January 1, 2017. This bill also allows a cancellation or refund of property tax outstanding or paid in excess of $20,000 between January 1, 2013 and January 1, 2017, to the extent that the amount canceled or refunded does not exceed $100,000. FISCAL EFFECT: SB 996 Page 2 1)Annual ongoing property tax revenue losses of approximately $240,000, resulting in GF costs of approximately $120,000 as a result of the Proposition 98 guarantee. 2)One-time property tax refund or cancellations of about $400,000, resulting in GF costs of approximately $200,000 as a result of the Proposition 98 guarantee. COMMENTS: 1)Purpose. According to the author, SB 996 will provide property tax relief to certain nonprofit organizations that can provide more affordable housing for low-income families. 2)The Property Tax Welfare Exemption. Existing law provides a partial property tax welfare exemption to property owned by a nonprofit organization and operated exclusively for rental housing occupied by lower income households. The partial exemption is granted in proportion to the percentage of rental units serving lower income households. For example, if lower income households occupy 95% of a rental property, the welfare exemption is granted in an amount equal to 95% of the value of the property. The amount of exemption also depends on the property's financing. There is no cap on the amount of exemption if the rental property receives government financing. Alternatively, rental properties without government financing may also qualify for the rental exemption, but under more restrictive conditions. The rental property must be solely managed by a nonprofit organization and lower income households must comprise 90% or more of its occupants. For these properties, there is a statewide cap on the total amount of exempt SB 996 Page 3 property from which a nonprofit organization may benefit, limited to the first $20,000 of property tax ($2 million of assessed value), with respect to a single property or multiple properties for any fiscal year. 3)The impact of SB 996. SB 996 increases the statewide cap on the total property exemption available to certain nonprofits. This cap was originally intended to preclude "bad actors" from exploiting the welfare exemption by creating shell nonprofit organizations. Currently, there are 26 nonprofit organizations in California that provide affordable rental housing subject to the cap. These 26 organizations own 76 properties of various types (single-family residences, multifamily residences, and apartment complexes) located across 11 counties. Currently, three of these 26 organizations own an amount rental property which puts them over the cap, and must therefore pay property taxes in excess of the first $20,000 otherwise due. The Assembly Revenue and Taxation Committee's analysis of SB 996 notes that since the creation of the welfare exemption cap over 15 years ago, few nonprofit organizations that own rental housing have exceeded the cap. This is largely because a majority of affordable housing projects receive government financing and are therefore not subject to the cap. However, as property values continue to rise across California, it is possible that more and more properties may become limited by the cap, especially in areas with high costs of living such as the San Francisco Bay Area. Analysis Prepared by:Luke Reidenbach / APPR. / (916) 319-2081 SB 996 Page 4