BILL ANALYSIS Ó
SB 996
Page 1
SENATE THIRD READING
SB
996 (Hill)
As Amended August 15, 2016
Majority vote
SENATE VOTE: 39-0
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Revenue & |9-0 |Ridley-Thomas, | |
|Taxation | |Brough, Dababneh, | |
| | |Gipson, Mullin, | |
| | |O'Donnell, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |15-0 |Gonzalez, Bigelow, | |
| | |Bloom, Bonilla, | |
| | |Bonta, Chang, Eggman, | |
| | |Eduardo Garcia, | |
| | |Jones, Obernolte, | |
| | |Quirk, Santiago, | |
| | |Weber, Wood, McCarty | |
| | | | |
| | | | |
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SB 996
Page 2
SUMMARY: Increases the total property tax welfare exemption
amount allowed to a qualified taxpayer from $20,000 to $100,000,
and allows a cancellation of property tax outstanding in excess
of $20,000 to the extent that the amount canceled does not
exceed $100,000. Specifically, this bill:
1)Increases the welfare exemption cap imposed on a qualified
taxpayer from $2 million of assessed value ($20,000) to $10
million of assessed value ($100,000), with respect to lien
dates occurring on and after January 1, 2017.
2)Requires any outstanding ad valorem tax in excess of the
$20,000 cap, and related interest or penalty, imposed on and
after January 1, 2013, and before January 1, 2017, to be
canceled if a qualified claim was filed, to the extent the
amount canceled does not result in a total exemption amount in
excess of $100,000 allowed to a qualified taxpayer.
3)Prohibits, on and after January 1, 2017, an escape assessment
from being levied on qualified property if that amount would
be subject to cancellation.
4)Requires a claim for the welfare exemption on qualified
property to be accompanied by a confidential affidavit, not
subject to public disclosure, including a list of units
occupied by lower income households for which the exemption is
claimed, and the following non-personally identifiable
information about the occupants:
a) The actual household income of the occupant;
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b) The maximum rent that may be charged to the occupant;
and,
c) The actual rent charged to the occupant.
5)Defines a "qualified taxpayer" as a taxpayer subject to the
total exemption amount limitation with respect to a single
property or multiple properties that is specified in Revenue
and Taxation Code (R&TC) Section 214(g)(1)(C).
6)Defines a "qualified claim" as a claim for exemption that was
filed for a qualified property with the assessor on and after
January 1, 2013, and before January 1, 2017, for which the
assessor granted a partial exemption.
7)Defines a "qualified property" as property used exclusively
for rental housing and related facilities where 90% or more of
the occupants of the property are lower income households as
prescribed by Health and Safety Code (H&SC) Section 50053, and
that qualifies for exemption under R&TC Section 214(g)(1)(C),
except for property owned by a limited partnership in which
the managing general partner is an eligible nonprofit
organization.
8)Makes findings and declarations that the cancelation of any
outstanding ad valorem tax fulfills a statewide public purpose
because it addresses California's serious shortage of
affordable, decent, safe, and sanitary housing for low or
moderate income households, including the elderly and
handicapped, by providing necessary property tax relief for
certain tax-exempt organizations providing affordable housing.
9)Makes findings and declarations that the protection of the
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confidential affidavit from public disclosure limits the
public's right of access to the writings of public officials
and agencies within the meaning of the California Constitution
Article I Section 3, but is necessary in the state's interest
to protect the privacy of an individual's personal and
financial information.
10)Imposes a state-mandated local program, for which no
reimbursement is required because the only costs that may be
incurred by a local agency or school district under this act
would result from a legislative mandated within the scope of
the California Constitution Article I Section 3(b)(7).
However, if the Commission on State Mandates determines that
this bill contains other costs mandated by the state,
reimbursement for those costs will be made as required by
statute.
11)Provides that no appropriation is made by this act and that
no reimbursement is required of any local agency for any
property tax revenues lost.
EXISTING LAW:
1)Limits the maximum amount of any ad valorem tax on real
property at 1% of full cash value.
2)Requires property to be reassessed to current fair market
value whenever it is purchased, newly constructed, or when
ownership changes, with specified exceptions, and provides a
rebuttable presumption that the fair market value is the
purchase price.
3)Defines "purchase price" as the total consideration provided
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by the purchaser or on the purchaser's behalf, valued in
money, whether paid in money or otherwise.
4)Authorizes the Legislature to exempt from taxation property
used exclusively for religious, hospital, or charitable
purposes, as specified. (California Constitution Article
XIII, Section 4(b).) The Legislature has implemented this
"welfare exemption" in R&TC Section 214.
5)Grants a partial welfare exemption, equal to the percentage of
units serving lower income households as defined in H&SC
Section 50053, to property used exclusively for rental housing
and operated by non-profit organizations, as specified, under
either of the following conditions:
a) The project is publicly financed with tax-exempt
mortgage revenue bonds, general obligation bonds, grants,
or low-income housing tax credits (LIHTCs); or,
b) In the case of non-publicly financed affordable housing,
90% of units are affordable for lower income households,
and the property is managed solely by a non-profit
organization, with the taxpayer only exempt from the first
$20,000 in tax for all properties the taxpayer owns in the
state.
6)Requires rental property owners seeking the welfare exemption
to do the following:
a) File an enforceable and verifiable agreement with a
public agency or other restriction, as specified, that
provides that the units designated for use by lower income
households are continuously available to or occupied by
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lower income households; and,
b) Certify that the funds that would have been used to pay
property taxes are used to maintain the affordability of,
or reduce rents otherwise necessary for, the units occupied
by lower income households.
FISCAL EFFECT: According to the Assembly Appropriations
Committee, annual ongoing property tax revenue losses of
approximately $240,000, resulting in General Fund (GF) costs of
approximately $120,000 as a result of the Proposition 98
guarantee.
COMMENTS:
1)Property Tax Welfare Exemption: The California Constitution
exempts from property taxes, in whole or in part, "property
used exclusively for religious, hospital, or charitable
purposes and owned or held in trust by corporations or other
entities (1) that are organized and operating for those
purposes, (2) that are nonprofit, and (3) no part of whose net
earnings inures to the benefit of any private shareholder or
individual." With regard to housing owned and used by these
nonprofit entities, courts have ruled that this "welfare
exemption" applies to uses that are either primary to or
incidental to and reasonably necessary for the accomplishment
of the exempt purposes of the organization.
Existing law provides that a partial welfare exemption also
applies to property owned by a non-profit organization and
operated exclusively for rental housing occupied by lower
income households, defined as 30% to 60% of area median income
(AMI). The partial exemption is granted in proportion to the
percentage of rental units serving lower income households.
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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.
To qualify for the welfare exemption, the rental property must
be financed with tax-exempt mortgage revenue bonds or general
obligation bonds; local, state, or federal loans or grants; or
LIHTCs with rents of the lower-income households below deed
restrictions set by the terms of the financing. There is no
cap on the amount of exemption from which the non-profit
organization may benefit 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 non-profit organization
(limited partnerships with a non-profit organization serving
as the managing general partner are not eligible) and lower
income households must comprise 90% or more of its occupants.
Additionally, there is a statewide cap on the total amount of
exempt property from which a non-profit 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.
2)History of the Welfare Exemption Cap: Prior to 2000,
non-profit rental housing owners could generally claim the
welfare exemption if 20% of the property's occupants were low
income. After the Los Angeles Housing Project investigated
some of the city's worst housing projects, they discovered
abuse of the welfare exemption that enabled owners of
substandard housing properties to benefit from relief. It was
alleged that substandard housing owners were partnering with
nonprofit organizations in a limited partnership as a ruse to
obtain the welfare exemption, or were creating their own
non-profit organizations for the sole purpose of holding their
properties. In response, AB 1559 (Wiggins), Chapter 927,
Statutes of 1999, repealed the occupancy test and instead
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required owners to receive government financing to qualify for
the welfare exemption, as such properties would at least be
subject to some level of government oversight, presumably
resulting in less fraud and higher quality housing for
tenants. AB 1559 also imposed higher documentation standards
to substantiate that a rental property is dedicated to
low-income housing.
However, reforms set forth by AB 1559 inadvertently resulted
in revocation of the welfare exemption from otherwise
deserving non-profit organizations that provided affordable
rental housing without any government financing. In response,
AB 659 (Wiggins), Chapter 601, Statutes of 2000, reinstated
the welfare exemption for non-publicly financed rental housing
with the restrictions provided for in existing law today: a)
ineligibility of owners organized as a limited partnership, b)
90% lower-income households occupancy threshold, and c)
$20,000 statewide welfare exemption cap.
3)Purpose of this Bill - Increase the Cap: The cap was intended
to preclude "bad actors" from exploiting the welfare exemption
by creating shell non-profit organizations. According to data
compiled by the BOE, which monitors the welfare exemption and
the statewide cap, there are 26 non-profit 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.
According to the author, the three organizations over the cap
are located in the district he represents. For example, the
Ministry Services of the Daughters of Charity of St. Vincent
de Paul owns and operates housing in Los Altos Hills that
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exclusively serves low-income families and has been billed for
over $68,000 in property taxes (the amount in excess of the
current $20,000 cap) that could otherwise be put toward
providing more affordable housing for those in need. This
bill would increase the welfare exemption cap from $20,000 to
be expressed as $10 million in assessed value ($100,000).
Since the creation of the welfare exemption cap over 15 years
ago, few non-profit organizations that own rental housing have
exceeded the cap as the majority of affordable housing
projects receive government financing and are thus 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.
Increasing the cap to $10 million in assessed value would put
all non-publicly financed rental housing properties partially
exempt from property tax back under the cap and potentially
allow non-profit organizations to acquire and operate more
affordable housing units without fear of breaching the cap.
4)Cancellation of Property Taxes: This bill would also provide
a cancellation of property taxes owed between $20,000 and
$100,000 by the qualified non-profit organization if the
organization filed a welfare exemption claim within the last
four years but was required to pay tax because of the cap. As
amended, this bill would not provide a refund of property
taxes previously paid.
Prior legislation that altered when property tax was due has
provided for cancellations of tax, but not refunds of tax.
For example, SB 1284 (Lowenthal), Chapter 524, Statutes of
2008, provided that specified affordable housing properties
acquired by a non-profit organization in Long Beach, as a
result of mitigation efforts from the construction of the
Century Freeway (I-105) in Los Angeles County, were excluded
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from the welfare exemption cap that would have otherwise
applied, and canceled all outstanding taxes back to the date
of acquisition. Subsequent legislation, SB 996 (Lowenthal),
of the 2009-10 Legislative Session, would have allowed refunds
of property taxes paid on the properties exempt from the
welfare exemption cap by SB 1284, but was not enacted.
Similarly, SB 559 (Kehoe), Chapter 555, Statutes of 2007,
which reversed past assessments for changes in ownership
triggered by transfers of property between registered domestic
partners, provided for cancellations of tax in the assessment
year in which the claim for reassessment was filed, but
explicitly prohibited refunds of tax for any prior assessment
year.
5)Additional Reporting Requirements: This bill also requires
all non-publicly financed, non-profit organizations, not just
those that would benefit from increasing the cap, to report
additional information to county assessors when they claim the
welfare exemption. The required information will include a
list of units occupied by lower income households, actual
household income of the occupant, maximum rent that may be
charged to the occupant, and actual rent charged to the
occupant. According to the California Assessors Association,
additional reporting is needed because unlike rental housing
properties eligible for the welfare exemption because of
government financing, the county assessor's office is the only
government entity charged with exemption compliance for
non-publicly financed rental housing properties. To the
extent that additional properties become exempt from tax as a
result of increasing the cap, additional information may
facilitate efforts to verify eligibility.
Analysis Prepared by:
irene ho / REV. & TAX. / (916) 319-2098 FN:
0004269
SB 996
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