BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 1104 (Stone) - Property tax: senior and disabled veterans
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|Version: May 11, 2016 |Policy Vote: GOV. & F. 6 - 0 |
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|Urgency: No |Mandate: Yes |
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|Hearing Date: May 23, 2016 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: SB 1104 would (1) eliminate the inflation adjustment
for the principal place of residence of veteran taxpayers over
the age of 65, and (2) expand to a full exemption the current
partial Disabled Veterans' property tax exemption.
Fiscal
Impact: The Board of Equalization (BOE) indicates that the bill
would result in annual property tax revenue losses of $74
million. Reductions in local property tax revenues, in turn,
increase 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).
Additionally, the bill could result in unknown, but likely
minor, costs to reimburse local governments related to changes
in property tax administration
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Background: The California Constitution provides that all property is
taxable unless explicitly exempted by the Constitution or
federal law. The Constitution (1) limits the maximum amount of
any ad valorem tax on real property at 1 percent of full cash
value, plus any locally-authorized bonded indebtedness, and (2)
provides that assessors can only reappraise property whenever it
is purchased, newly constructed, or when ownership changes
(Proposition 13, 1978). Proposition 13 also limits on the
inflationary growth of real property value to 2 percent per
year.
Thus, when real property is purchased, the county assessor
assigns it an assessed value that is equal to its purchase
price, or "acquisition value." Each year thereafter, the
property's assessed value increases by 2 percent or the rate of
inflation (as measured by the California Consumer Price Index),
whichever is lower. This process continues until the property is
sold, at which point the county assessor again assigns it an
assessed value equal to its most recent purchase price. In other
words, a property's assessed value resets to market value (what
a willing buyer would pay for it) when it is sold. In most
years, under this assessment practice, a property's market value
is greater than its assessed value. This occurs because assessed
values increase by a maximum of 2 percent per year, whereas
market values tend to increase more rapidly. Therefore, as long
as a property does not change ownership, its assessed value
increases predictably from one year to the next and is
unaffected by higher annual increases in market value.
For example, a home purchased in 2011 for $300,000, has a
maximum taxable base year value of $306,000 in 2012, $312,200 in
2013, $318,440 in 2014, $325,808 in 2015, and $332,324 in 2016.
This base year value is then multiplied by the appropriate rate
(usually 1 percent, but can be slightly more) to determine tax
due.
Reassessment limits and capped inflation growth ensure a
predictable, slowly growing tax obligation for the taxpayer, and
predictable revenue for local agencies; however, these
provisions may also result in a taxable base year value below
the property's fair market value, which grows in magnitude the
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longer the assessor hasn't reassessed the property. In most
cases, this system results in shifting the cost of public
services from incumbent homeowners onto individuals who recently
purchased property.
The Constitution permits the Legislature to partially or wholly
exempt from property tax the value of a disabled veteran's
principal place of residence if the veteran has lost one or more
limbs, is totally blind, or is totally disabled, as a result of
a service-connected injury. This is known as the "disabled
veterans' exemption." The Constitution provides that disabled
veteran taxpayers, or unmarried surviving spouses of persons who
die while on active duty, must apply for the exemption instead
of, but not in combination with, other real property exemptions.
BOE indicates that the number of taxpayers claiming the disabled
veterans' exemption has increased by 344 percent between 1990
and 2015. Unlike the homeowners' property tax exemption, the
State does not backfill local property tax revenue losses
resulting from taxpayers applying the disabled veterans'
exemption.
State law implementing the exemption doesn't fully exclude
property value; instead, it enacts a partial exemption of
$100,000 for disabled veteran taxpayers with household income of
more than $40,000, or $150,000 for income lower than that
amount, with each threshold adjusted for inflation (as measured
by the California Consumer Price Index). The current inflation
adjusted value is $127,510 for disabled veterans with income of
more than $57,258, and $191,266 for those with less than that
amount.
Proposed Law:
This bill would make two changes to property tax law:
Growth limitation. The bill would eliminate annual
inflation factor-related assessed value increases on homes
owned by income-qualifying veterans 65 years and older. As
such, the measure would freeze the veteran taxpayer's base
year value at its current amount until newly construction
or a change in ownership occurs. The current version of the
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bill would (1) limit the benefit to veterans with household
incomes of $50,000 if single and $100,000 if married, (2)
specify the assessment freeze applies only to the home and
home site, (3) specify that age on the lien date determines
eligibility, and (4) extend these provisions to
manufactured homes.
Disabled veterans' exemption. The bill would exempt
from property tax the home of any person eligible for the
disabled veterans' exemption, commencing with lien date for
the 2017-18 fiscal year.
Related
Legislation: SB 1104's expansion of the disabled veterans'
exemption to a full exemption is also found in SB 1183 (Bates).
Additionally, the bill's disconnection of inflation adjustment
for veterans over the age of 65 is similar to provisions found
in SB 1126 (Stone), which provides the same treatment for
income-eligible taxpayers over the age of 65. SB 1458 (Bates)
would allow disabled veterans who were discharged under other
than dishonorable conditions, so long as they qualify for
benefits provided by the United States Department of Veterans
Affairs. All of these bills are currently on the Suspense File
of this Committee.
Staff
Comments: BOE indicates that the bill would result in annual
property tax revenue losses of $74 million. Of this amount, the
disabled veterans' exemption accounts for $66 million, while the
other $8 million is related to the assessment freeze.
To develop the revenue estimate for the disabled veterans'
exemption, BOE used 2015-16 data (the most recent period for
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which all necessary information is available). Specifically, BOE
staff estimated the number of disabled veteran-owned homes
currently receiving the exemption to be 37,653: 33,196 at the
basic level and 4,457 at the lower income level. Based on a
survey of several counties, BOE estimates that this bill would
not impact 21 percent of homes receiving the basic exemption
(6,971 homes), or 24 percent of homes receiving the lower income
exemption (1,070 homes). These homes are already fully exempt
because they have an assessed value below the requisite levels
in existing law. Thus, BOE estimates that the bill would exempt
29,612 homes: 26,225 currently receiving the basic exemption,
and 3,387 homes receiving the lower income exemption.
Using the average 2015-16 assessed value of $356,370, and the
basic one percent property tax rate, BOE calculates that the
bill would result in an annual property tax reduction of $66
million.
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