BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 1126 (Stone) - Property taxation: inflation factor: senior
citizens
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|Version: May 4, 2016 |Policy Vote: GOV. & F. 7 - 0 |
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|Urgency: No |Mandate: Yes |
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|Hearing Date: May 16, 2016 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: SB 1126 would eliminate the inflation factor-related
assessed value increase for the principal place of residence of
an income-eligible taxpayer over the age of 65.
Fiscal
Impact: The Board of Equalization (BOE) indicates that the bill
would result in annual property tax revenue losses of $27
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).
SB 1126 (Stone) Page 1 of
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Additionally, the bill could result in unknown, but likely
minor, costs to reimburse local governments related to changes
in property tax administration.
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
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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.
Proposed Law:
Beginning January 1, 2017, this bill would eliminate future
inflation factor increases for qualified homeowners 65 years of
age or older. To qualify, the person must have an annual
household income of $25,000 or less if single, or $50,000 or
less if married. In the case of a married couple, only one
person must be 65 or older. This limitation only applies to a
person's principal place of residence, as defined. As a tax
levy, this bill is effective immediately upon enactment.
However, according to the bill's provisions, it will first apply
to property taxes due for the 2017-18 fiscal year, which are
based on January 1, 2017 lien date values.
Related
Legislation: AB 2459 (Davis, 2008) would have authorized any
county board of supervisors to allow persons 62 or older with
total household income below a specified amount to trade their
time and skills performing needed government services to offset
their property taxes. This bill was held under submission in the
Assembly Appropriations Committee.
Staff
Comments: Using previous example, had this bill's provisions
been in effect, a qualifying taxpayer would have seen a property
tax reduction (assuming the basic one percent rate) of $60 in
2012, rising to $65 by 2016.
BOE's revenue estimate utilizes U.S. Census data, which indicate
that about 750,000 homes in the State are owned by those
residents aged 65 years or older. The Census also provides data
on the median household incomes of seniors 65 and over, and
other details on living arrangements among that group. Based on
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that data, BOE estimates that up to 375,000 homes would qualify
under the bill.
In 2015-16, the average assessed value of homes receiving the
homeowners' exemption was $358,217. Using this information, and
assuming that annual inflation would exceed the 2 percent cap,
BOE estimates the bill would result in an annual revenue loss of
$27 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).
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