BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 1126 |Hearing |4/27/16 |
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|Author: |Stone |Tax Levy: |Yes |
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|Version: |2/17/16 |Fiscal: |Yes |
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|Consultant|Grinnell |
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Property taxation: inflation factor: senior citizens
Eliminates the inflation adjustment for the principal place of
residence of an income-eligible taxpayer over the age of 65.
Background
The California Constitution provides that all property is
taxable unless explicitly exempted by the Constitution or
federal law. The Constitution limits the maximum amount of any
ad valorem tax on real property at 1% of full cash value, plus
any locally-authorized bonded indebtedness, and provides that
assessors can only reappraise property whenever it is purchased,
newly constructed, or when ownership changes (Proposition 13,
1978).
Proposition 13 also established Constitutional limits on the
inflationary growth of real property value to 2% per year.
State law implementing Proposition 13 generally sets a
property's value as its price when purchased or when ownership
changed, plus an annual inflation factor, calculated by the
Department of Industrial Relations using the California Consumer
Price Index for all items. 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%, but can be
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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 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 author wants to disconnect the inflation factor for
income-eligible seniors.
Proposed Law
Senate Bill 1126 eliminates the inflation adjustment for
taxpayers over the age of 65 with annual income of less than
$25,000 (single), or $50,000 (joint), essentially freezing the
affected taxpayer's base year value at its current amount, and
doing the same whenever eligible taxpayers turn 65. The bill
applies to married couples where one taxpayer is over 65, but
the other isn't. The measure applies to assessment years on or
after January 1, 2017.
State Revenue Impact
According to the Board of Equalization (BOE), SB 1126 results in
annual property tax revenue losses of $27 million annually.
Comments
1. Purpose of the bill . According to the author, "For many in
California, finding enough money to buy a home has become
difficult. For others, the challenge is not home ownership, but
finding ways to stay in the home they currently live in. Many
senior citizens are on a very fixed income, with most of that
coming from Social Security and pensions. With the rising costs
of health care and prescription drugs, and the economic
uncertainty taking place across the country, California's senior
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citizens find themselves in a very challenging time. There is
nothing more important than the pride and freedom that comes
with home ownership. For seniors at the lower end of the income
spectrum, the ability to stay in their own home is becoming
harder and harder, unless California finds ways to make the
American Dream more affordable. SB 1126 is a small attempt to
bring financial relief to senior citizens, who want to stay in
their own home. SB 1126 will help seniors avoid homelessness by
capping the property tax assessment for all senior citizens (age
65 or older) who meet the income requirements. If the qualified
taxpayer is single, his or her household income is twenty-five
thousand dollars ($25,000) or, if the qualified taxpayer is
married, his or her combined annual household income is fifty
thousand dollars ($50,000) or less."
2. Too many benefits ? Proposition 13 provided property owners
in California with substantial protections from higher property
tax rates and annual reassessments. SB 1126 would add to these
benefits by freezing an income-eligible taxpayer over the age of
65's base year value at its current amount. However, California
already has the lowest property tax rates and most
taxpayer-friendly reassessment triggers of almost any state in
the nation, thereby providing significant benefits to property
owners, especially those that have been in their homes for many
years. Taxpayers over the age of 55 can also transfer their
base year values to replacement homes of equal or lesser value
(Proposition 60, 1988, and Propositions 90 and 110, 1990).
Additionally, the State Controller administers the Property Tax
Postponement (PTP) Program, which allows the state to loan funds
to individuals over the age of 62 or disabled persons with less
than $39,000 in income per year to pay their property taxes to
the county tax collector. The Controller secures repayment by
recording a lien against the claimant's property, which is
satisfied when the home is sold or refinanced. As liens are
repaid, revenue flows back to the Controller, who in turn uses
these funds to pay property taxes for new applicants, up to $20
million annually; the Controller must shift any amounts received
above that amount to the General Fund. While PTP was defunct
from 2009 until recently, the Controller may not have sufficient
current resources to grant every claim, but the Legislature
could appropriate more, or remove the requirement to shift funds
back to the General Fund. The Committee may wish to consider
whether SB 1126's tax benefits are merited given those already
afforded under current law, or whether adding resources to PTP
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may be a better way of helping low-income senior taxpayers.
3. Testing . Generally, property tax benefits don't depend on
the taxpayer's income, with the exception of the disabled
veterans' exemption, which increases if the eligible taxpayer's
household income falls below a specified amount. SB 1126 would
grant a new property tax benefit that is contingent on a
taxpayer's age and income, which would assist taxpayers who may
not have sufficient income to both pay taxes and meet other
needs. However, assessors would incur expenses to verify that
taxpayers meet the bill's age and income requirements. The
Committee may wish to consider whether the bill's expansion of
property tax benefits should depend on the taxpayer's income,
and whether it's worth the potential administrative costs
necessary to implement.
4. Different treatment . Proposition 13's cap on assessed value
growth currently benefits all taxpayers regardless of age,
income, or other variable. SB 1126 sets a precedent by freezing
an income-eligible taxpayer over the age of 65's property tax
base at its amount today, as well as for other qualifying
taxpayers when they turn 65, while all other taxpayers would be
subject to annual inflation adjustments.
5. Related legislation . SB 1126's elimination of the inflation
factor for income-eligible taxpayers over the age of 65 is
similar to another measure. SB 1104 (Stone), which would do the
same for military veteran taxpayers over the age of 65 is
currently set for the Committee's May 11th hearing.
6. Mandate . The California Constitution requires the state to
reimburse local governments for the costs of new or expanded
state mandated local programs. Because SB 1126 changes the
manner in which assessors value real property, Legislative
Counsel says that it imposes a new state mandate. The measure
provides that the state shall not reimburse local agencies for
property tax revenue losses, instead stating that should the
Commission on State Mandates determine that the bill imposes a
reimbursable mandate, reimbursement must be made pursuant to
existing statutory provisions.
7. Technicals . BOE and Committee Staff recommend the following
technical amendments:
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On page 3, line 11, strike the second "taxpayer" and
insert "person that owns a dwelling as his or her principal
place of residence;" on line 12 after "older" insert "on
the lien date."
On page 3, lines 14 and 17, after income, insert "as
defined in Section 20504"
On page 3, line 20, after "older," insert "on the lien
date."
Specify filing requirements and deadlines for taxpayers
to claim the benefit, as assessors do not currently possess
age and income information for potentially eligible
taxpayers, including a process to continuously verify
income on annual basis.
Apply the bill's enhanced benefits for owners of mobile
homes by amending Revenue and Taxation Code §5813.
Support and
Opposition (4/21/16)
Support : Howard Jarvis Taxpayers Association
Opposition : California Tax Reform Association (unless amended).
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