BILL NUMBER: AB 1559	CHAPTERED  10/10/99

	CHAPTER   927
	FILED WITH SECRETARY OF STATE   OCTOBER 10, 1999
	APPROVED BY GOVERNOR   OCTOBER 10, 1999
	PASSED THE ASSEMBLY   AUGUST 30, 1999
	PASSED THE SENATE   AUGUST 25, 1999
	AMENDED IN SENATE   AUGUST 18, 1999
	AMENDED IN SENATE   JULY 15, 1999
	AMENDED IN ASSEMBLY   MAY 18, 1999
	AMENDED IN ASSEMBLY   APRIL 7, 1999

INTRODUCED BY   Assembly Member Wiggins
   (Coauthor:  Senator Chesbro)

                        FEBRUARY 26, 1999

   An act to amend Sections 214 and 254.5 of, and to add Section
214.15 to, the Revenue and Taxation Code, relating to taxation, to
take effect immediately, tax levy.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 1559, Wiggins.  Property tax welfare exemption:  low- and
moderate-income housing.
   Existing property tax law establishes a welfare exemption under
which property is exempt from taxation if, among other things, that
property is used exclusively for religious, hospital, scientific, or
charitable purposes and is owned and operated by an entity, as
provided, that is itself organized and operated for those purposes.
Existing law also establishes a partial welfare exemption for
property used exclusively for rental housing and related facilities
and owned and operated by a nonprofit entity or veterans'
organization that meets exemption requirements.  This partial
exemption corresponds to the proportion of the property that serves
lower income households and applies in certain instances, including
the instance in which a minimum of 20% of households are lower income
households with rent not in excess of a statutorily prescribed
level.  This partial exemption requires, among other things, the
certification by the owner that the property is subject to a deed
restriction, agreement, or other legal document that restricts the
property's usage, as provided.
   This bill would eliminate the application of the exemption in the
instance in which the 20% lower income standard is met and would
revise the certification requirement to instead require a property
owner to certify the existence of an enforceable and verifiable
agreement with a public agency or a recorded deed restriction with
respect to the property's usage.
   This bill would also clarify that the welfare exemption applies to
property that is owned and operated by a nonprofit corporation,
otherwise qualifying for the welfare exemption, that is organized and
operated for the purpose of building and rehabilitating
single-family or multifamily residences for sale, as provided, at
cost to low-income families.  This bill would, in the case of
property not previously designated as open space, also specify that
the welfare exemption as so applied may not be denied on the basis
that the subject property does not currently include a residence or a
residence under construction.  This bill would, with respect to
exempt property as so described, also apply provisions that, subject
to certain conditions, exclude a welfare exemption claimant from
annual exemption reapplication requirements.
   This bill would make legislative findings and declarations that
certain of the changes made by this bill do not constitute a change
in, but are declaratory of, existing law.
   Section 2229 of the Revenue and Taxation Code requires the
Legislature to reimburse local agencies annually for certain property
tax revenues lost as a result of any exemption or classification of
property for purposes of ad valorem property taxation.
   This bill would provide that, notwithstanding Section 2229 of the
Revenue and Taxation Code, no appropriation is made and the state
shall not reimburse local agencies for property tax revenues lost by
them pursuant to the bill.
   This bill would result in a change in state taxes for the purpose
of increasing state revenues within the meaning of Section 3 of
Article XIII-A of the California Constitution, and thus would require
for passage the approval of 2/3 of the membership of each house of
the Legislature.
   This bill would take effect immediately as a tax levy, but its
provisions would apply commencing on the January 1, 2000, property
tax lien date.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 214 of the Revenue and Taxation Code is amended
to read:
   214.  (a) Property used exclusively for religious, hospital,
scientific, or charitable purposes owned and operated by community
chests, funds, foundations or corporations organized and operated for
religious, hospital, scientific, or charitable purposes is exempt
from taxation, including ad valorem taxes to pay the interest and
redemption charges on any indebtedness approved by the voters prior
to July 1, 1978, or any bonded indebtedness for the acquisition or
improvement of real property approved on or after July 1, 1978, by
two-thirds of the votes cast by the voters voting on the proposition,
if:
   (1) The owner is not organized or operated for profit.  However,
in the case of hospitals, the organization shall not be deemed to be
organized or operated for profit if, during the immediately preceding
fiscal year, operating revenues, exclusive of gifts, endowments and
grants-in-aid, did not exceed operating expenses by an amount
equivalent to 10 percent of those operating expenses.  As used
herein, operating expenses include depreciation based on cost of
replacement and amortization of, and interest on, indebtedness.
   (2) No part of the net earnings of the owner inures to the benefit
of any private shareholder or individual.
   (3) The property is used for the actual operation of the exempt
activity, and does not exceed an amount of property reasonably
necessary to the accomplishment of the exempt purpose.
   (A) For the purposes of determining whether the property is used
for the actual operation of the exempt activity, consideration shall
not be given to use of the property for either or both of the
following described activities if that use is occasional:
   (i) The owner conducts fundraising activities on the property and
the proceeds derived from those activities are not unrelated business
taxable income, as defined in Section 512 of the Internal Revenue
Code, of the owner and are used to further the exempt activity of the
owner.
   (ii) The owner permits any other organization that meets all of
the requirements of this subdivision, other than ownership of the
property, to conduct fundraising activities on the property and the
proceeds derived from those activities are not unrelated business
taxable income, as defined in Section 512 of the Internal Revenue
Code, of the organization, are not subject to the tax on unrelated
business taxable income that is imposed by Section 511 of the
Internal Revenue Code, and are used to further the exempt activity of
the organization.
   (B) For purposes of subparagraph (A):
   (i) "Occasional use" means use of the property on an irregular or
intermittent basis by the qualifying owner or any other qualifying
organization described in clause (ii) of subparagraph (A) that is
incidental to the primary activities of the owner or the other
organization.
   (ii) "Fundraising activities" means both activities involving the
direct solicitation of money or other property and the anticipated
exchange of goods or services for money between the soliciting
organization and the organization or person solicited.
   (C) Subparagraph (A) shall have no application in determining
whether paragraph (3) has been satisfied unless the owner of the
property and any other organization using the property as provided in
subparagraph (A) have filed with the assessor duplicate copies of
valid unrevoked letters or rulings from the Internal Revenue Service
that state that the owner and the other organization qualify as
exempt organizations under Section 501(c)(3) of the Internal Revenue
Code.  The owner of the property and any other organization using the
property as provided in subparagraph (A) also shall file duplicate
copies of their most recently filed federal income tax returns.
   (D) For the purposes of determining whether the property is used
for the actual operation of the exempt activity, consideration shall
not be given to the use of the property for meetings conducted by any
other organization if the meetings are incidental to the other
organization's primary activities, are not fundraising meetings or
activities as defined in subparagraph (B), are held no more than once
per week, and the other organization and its use of the property
meet all other requirements of paragraphs (1) to (5), inclusive, of
subdivision (a).  The owner or the other organization also shall file
with the assessor duplicate copies of valid, unrevoked letters or
rulings from the Internal Revenue Service or the Franchise Tax Board
stating that the other organization, or the national organization of
which it is a local chapter or affiliate, qualifies as an exempt
organization under Section 501(c)(3) or Section 501(c)(4) of the
Internal Revenue Code or Section 23701d, 23701f, or 23701w, together
with duplicate copies of that organization's most recently filed
federal income tax return, if the organization is required by federal
law to file a return.
   Nothing in subparagraph (A), (B), (C), or (D) shall be construed
to either enlarge or restrict the exemption provided for in
subdivision (b) of Section 4 and Section 5 of Article XIII of the
California Constitution and this section.
   (4) The property is not used or operated by the owner or by any
other person so as to benefit any officer, trustee, director,
shareholder, member, employee, contributor, or bondholder of the
owner or operator, or any other person, through the distribution of
profits, payment of excessive charges or compensations, or the more
advantageous pursuit of their business or profession.
   (5) The property is not used by the owner or members thereof for
fraternal or lodge purposes, or for social club purposes except where
that use is clearly incidental to a primary religious, hospital,
scientific, or charitable purpose.
   (6) The property is irrevocably dedicated to religious,
charitable, scientific, or hospital purposes and upon the
liquidation, dissolution or abandonment of the owner will not inure
to the benefit of any private person except a fund, foundation, or
corporation organized and operated for religious, hospital,
scientific, or charitable purposes.
   (7) The property, if used exclusively for scientific purposes, is
used by a foundation or institution that, in addition to complying
with the foregoing requirements for the exemption of charitable
organizations in general, has been chartered by the Congress of the
United States (except that this requirement shall not apply when the
scientific purposes are medical research), and whose objects are the
encouragement or conduct of scientific investigation, research, and
discovery for the benefit of the community at large.
   The exemption provided for herein shall be known as the "welfare
exemption."  This exemption shall be in addition to any other
exemption now provided by law, and the existence of the exemption
provision in paragraph (2) of subdivision (a) of Section 202 shall
not preclude the exemption under this section for museum or library
property.  Except as provided in subdivision (e), this section shall
not be construed to enlarge the college exemption.
   (b) Property used exclusively for school purposes of less than
collegiate grade and owned and operated by religious, hospital, or
charitable funds, foundations, or corporations, which property and
funds, foundations, or corporations meet all of the requirements of
subdivision (a), shall be deemed to be within the exemption provided
for in subdivision (b) of Section 4 and Section 5 of Article XIII of
the California Constitution and this section.
   (c) Property used exclusively for nursery school purposes and
owned and operated by religious, hospital, or charitable funds,
foundations, or corporations, which property and funds, foundations,
or corporations meet all the requirements of subdivision (a), shall
be deemed to be within the exemption provided for in subdivision (b)
of Section 4 and Section 5 of Article XIII of the California
Constitution and this section.
   (d) Property used exclusively for a noncommercial educational FM
broadcast station or an educational television station, and owned and
operated by religious, hospital, scientific, or charitable funds,
foundations, or corporations meeting all of the requirements of
subdivision (a), shall be deemed to be within the exemption provided
for in subdivision (b) of Section 4 and Section 5 of Article XIII of
the California Constitution and this section.
   (e) Property used exclusively for religious, charitable,
scientific, or hospital purposes and owned and operated by religious,
hospital, scientific, or charitable funds, foundations, or
corporations or educational institutions of collegiate grade, as
defined in Section 203, which property and funds, foundations,
corporations, or educational institutions meet all of the
requirements of subdivision (a), shall be deemed to be within the
exemption provided for in subdivision (b) of Section 4 and Section 5
of Article XIII of the California Constitution and this section.  As
to educational institutions of collegiate grade, as defined in
Section 203, the requirements of paragraph (6) of subdivision (a)
shall be deemed to be met if both of the following are met:
   (1) The property of the educational institution is irrevocably
dedicated in its articles of incorporation to charitable and
educational purposes, to religious and educational purposes, or to
educational purposes.
   (2) The articles of incorporation of the educational institution
provide for distribution of its property upon its liquidation,
dissolution, or abandonment to a fund, foundation, or corporation
organized and operated for religious, hospital, scientific,
charitable, or educational purposes meeting the requirements for
exemption provided by Section 203 or this section.
   (f) Property used exclusively for housing and related facilities
for elderly or handicapped families and financed by, including, but
not limited to, the federal government pursuant to Section 202 of
Public Law 86-372 (12 U.S.C. Sec. 1701q), as amended, Section 231 of
Public Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of Public Law
90-448 (12 U.S.C. Sec.  1715z), or Section 811 of Public Law 101-625
(42 U.S.C. Sec. 8013), and owned and operated by religious, hospital,
scientific, or charitable funds, foundations, or corporations
meeting all of the requirements of this section shall be deemed to be
within the exemption provided for in subdivision (b) of Section 4
and Section 5 of Article XIII of the California Constitution and this
section.
   The amendment of this paragraph made by Chapter 1102 of the
Statutes of 1984 does not constitute a change in, but is declaratory
of, the existing law.  However, no refund of property taxes shall be
required as a result of this amendment for any fiscal year prior to
the fiscal year in which the amendment takes effect.
   Property used exclusively for housing and related facilities for
elderly or handicapped families at which supplemental care or
services designed to meet the special needs of elderly or handicapped
residents are not provided, or that is not financed by the federal
government pursuant to Section 202 of Public Law 86-372 (12 U.S.C.
Sec. 1701q), as amended, Section 231 of Public Law 73-479 (12 U.S.C.
Sec. 1715v), Section 236 of Public Law 90-448 (12 U.S.C.  Sec.
1715z), or Section 811 of Public Law 101-625 (42 U.S.C. Sec. 8013),
shall not be entitled to exemption pursuant to this subdivision
unless the property is used for housing and related facilities for
low- and moderate-income elderly or handicapped families.  Property
that would otherwise be exempt pursuant to this subdivision, except
that it includes some housing and related facilities for other than
low- or moderate-income elderly or handicapped families, shall be
entitled to a partial exemption.  The partial exemption shall be
equal to that percentage of the value of the property that is equal
to the percentage that the number of low- and moderate-income elderly
and handicapped families occupying the property represents of the
total number of families occupying the property.
   As used in this subdivision, "low and moderate income" has the
same meaning as the term "persons and families of low or moderate
income" as defined by Section 50093 of the Health and Safety Code.
   (g) (1) Property used exclusively for rental housing and related
facilities and owned and operated by religious, hospital, scientific,
or charitable funds, foundations, or corporations, including limited
partnerships in which the managing general partner is an eligible
nonprofit corporation, meeting all of the requirements of this
section, or by veterans' organizations, as described in Section
215.1, meeting all the requirements of paragraphs (1) to (7),
inclusive, of subdivision (a), shall be deemed to be within the
exemption provided for in subdivision (b) of Section 4 and Section 5
of Article XIII of the California Constitution and this section and
shall be entitled to a partial exemption equal to that percentage of
the value of the property that the portion of the property serving
lower income households represents of the total property in any year
in which either of the following criteria applies:
   (A) The acquisition, rehabilitation, development, or operation of
the property, or any combination of these factors, is financed with
tax-exempt mortgage revenue bonds or general obligation bonds, or is
financed by local, state, or federal loans or grants and the rents of
the occupants who are lower income households do not exceed those
prescribed by deed restrictions or regulatory agreements pursuant to
the terms of the financing or financial assistance.
   (B) The owner of the property is eligible for and receives
low-income housing tax credits pursuant to Section 42 of the Internal
Revenue Code of 1986, as added by Public Law 99-514.
   (2) In order to be eligible for the exemption provided by this
subdivision, the owner of the property shall do both of the
following:
   (A) Certify and ensure that there is an enforceable and verifiable
agreement with a public agency or, a recorded deed restriction, that
restricts the project's usage and that provides that the units
designated for use by lower income households are continuously
available to or occupied by lower income households at rents that do
not exceed those prescribed by Section 50053 of the Health and Safety
Code, or, to the extent that the terms of federal, state, or local
financing or financial assistance conflicts with Section 50053, rents
that do not exceed those prescribed by the terms of the financing or
financial assistance.
   (B) Certify that the funds that would have been necessary to pay
property taxes are used to maintain the affordability of, or reduce
rents otherwise necessary for, the units occupied by lower income
households.
   (3) As used in this subdivision, "lower income households" has the
same meaning as the term "lower income households" as defined by
Section 50079.5 of the Health and Safety Code.
   (h) Property used exclusively for an emergency or temporary
shelter and related facilities for homeless persons and families and
owned and operated by religious, hospital, scientific, or charitable
funds, foundations, or corporations meeting all of the requirements
of this section shall be deemed to be within the exemption provided
for in subdivision (b) of Section 4 and Section 5 of Article XIII of
the California Constitution and this section.  Property that
otherwise would be exempt pursuant to this subdivision, except that
it includes housing and related facilities for other than an
emergency or temporary shelter, shall be entitled to a partial
exemption.
   As used in this subdivision, "emergency or temporary shelter"
means a facility that would be eligible for funding pursuant to
Chapter 11 (commencing with Section 50800) of Part 2 of Division 31
of the Health and Safety Code.
   (i) Property used exclusively for housing and related facilities
for employees of religious, charitable, scientific, or hospital
organizations that meet all the requirements of subdivision (a) and
owned and operated by funds, foundations, or corporations that meet
all the requirements of subdivision (a) shall be deemed to be within
the exemption provided for in subdivision (b) of Sections 4 and 5 of
Article XIII of the California Constitution and this section to the
extent the residential use of the property is institutionally
necessary for the operation of the organization.
   (j) For purposes of this section, charitable purposes include
educational purposes.  For purposes of this subdivision, "educational
purposes" means those educational purposes and activities for the
benefit of the community as a whole or an unascertainable and
indefinite portion thereof, and shall not include those educational
purposes and activities that are primarily for the benefit of an
organization's shareholders.  Educational activities include the
study of relevant information, the dissemination of that information
to interested members of the general public, and the participation of
interested members of the general public.
  SEC. 2.  Section 214.15 is added to the Revenue and Taxation Code,
to read:
   214.15.  (a) Property is within the exemption provided by Sections
4 and 5 of Article XIII of the California Constitution if that
property is owned and operated by a nonprofit corporation, otherwise
qualifying for exemption under Section 214, that is organized and
operated for the specific and primary purpose of building and
rehabilitating single or multifamily residences for sale at cost to
low-income families, with financing in the form of a zero interest
rate loan and without regard to religion, race, national origin, or
the sex of the head of household.
   (b) (1) In the case of property not previously designated as open
space, the exemption specified by subdivision (a) may not be denied
to a property on the basis that the property does not currently
include a single or multifamily residence as described in that
subdivision, or a single or multifamily residence as so described
that is in the course of construction.
   (2) With regard to paragraph (1), the Legislature finds and
declares all of the following:
   (A) The exempt activities of a nonprofit corporation as described
in subdivision (a) qualitatively differ from the exempt activities of
other nonprofit entities that provide housing in that the exempt
purpose of a nonprofit corporation as described in subdivision (a) is
not to own and operate a housing project on an ongoing basis, but is
instead to make housing, and the land reasonably necessary for the
use of that housing, available for prompt sale to low-income
residents.
   (B) In light of this distinction, the holding of real property by
a nonprofit corporation as described in subdivision (a), for the
future construction on that property of a single or multifamily
residence as described in that same subdivision, is central to that
corporation's exempt purposes and activities.
   (C) In light of the factors set forth in subparagraphs (A) and
(B), the holding of real property by a nonprofit corporation
described in subdivision (a), for the future construction on that
property of a single or multifamily residence as described in that
same subdivision, constitutes the exclusive use of that property for
a charitable purpose within the meaning of subdivision (b) of Section
4 of Article XIII of the California Constitution.
  SEC. 3.  Section 254.5 of the Revenue and Taxation Code is amended
to read:
   254.5.  (a) Affidavits for the welfare exemption and the veterans'
organization exemption shall be filed in duplicate on or before
February 15 of each year with the assessor.  Affidavits of
organizations filing for the first time shall be accompanied by
duplicate certified copies of the financial statements of the owner
and operator.  Thereafter, financial statements shall be submitted
only if requested in writing by either the assessor or the board.
Copies of the affidavits and financial statements shall be forwarded
not later than April 1 by the assessor with his or her
recommendations for approval or denial to the board which shall
review all the affidavits and statements and may institute an
independent audit or verification of the operations of the owner and
operator to ascertain whether both the owner and operator meet the
requirements of Section 214 of the Revenue and Taxation Code.  In
this connection the board shall consider, among other matters,
whether:
   (1) The services and expenses of the owner or operator (including
salaries) are excessive, based upon like services and salaries in
comparable public institutions.
   (2) The operations of the owner or operator, either directly or
indirectly, materially enhance the private gain of any individual or
individuals.
   (3) Any capital investment of the owner or operator for expansion
of physical plant is justified by the contemplated return thereon,
and required to serve the interests of the community.
   (4) The property on which exemption is claimed is used for the
actual operation of an exempt activity and does not exceed an amount
of property reasonably necessary to the accomplishment of the exempt
purpose.
   (b) The board shall make a finding as to the eligibility of each
applicant and the applicant's property and shall forward its finding
to the assessor concerned.  In a case where the board conducts a
hearing with respect to the eligibility of the applicant and the
applicant's property, the finding shall be forwarded to the assessor
concerned within 30 days after the decision is made by the board
following the hearing.  The assessor may deny the claim of an
applicant the board finds eligible but may not grant the claim of an
applicant the board finds ineligible.
   (c) Notwithstanding subdivision (a), an applicant, granted a
welfare exemption and owning any property exempted pursuant to
Section 214.15 or Section 231, shall not be required to reapply for
the welfare exemption in any subsequent year in which there has been
no transfer of, or other change in title to, the exempted property
and the property is used exclusively by a governmental entity or by a
nonprofit corporation described in Section 214.15 for its interest
and benefit.  The applicant shall notify the assessor on or before
March 15 if, on or before the preceding lien date, the applicant
became ineligible for the welfare exemption or if, on or before that
lien date, the property was no longer owned by the applicant or
otherwise failed to meet all requirements for the welfare exemption.

   Prior to the lien date, the assessor shall annually mail a notice
to every applicant relieved of the requirement of filing an annual
application by this subdivision.
   The notice shall be in a form and contain that information that
the board may prescribe, and shall set forth the circumstances under
which the property may no longer be eligible for exemption and advise
the applicant of the duty to inform the assessor if the property is
no longer eligible for exemption.
   The notice shall include a card that is to be returned to the
assessor by any applicant desiring to maintain eligibility for the
welfare exemption under Section 214.15 or Section 231.  The card
shall be in the following form:     To all persons who have received
a welfare exemption under Section 214.15 or Section 231 of the
Revenue and Taxation Code for the ____ fiscal year.  Question:  Will
the property to which the exemption applies in the ____ fiscal year
continue to be used exclusively by government or by an organization
as described in Section 214.15 for its interest and benefit in the
____ fiscal year?
      YES ___   NO ___
    Signature: ____________ Title: ______________    Failure to
return this card does not of itself constitute a waiver of exemption
as called for by the California Constitution, but may result in
onsite inspection to verify exempt activity.
   (d) Upon any indication that a welfare exemption has been
incorrectly granted, the assessor shall redetermine eligibility for
the exemption.  If the assessor determines that the property, or any
portion thereof, is no longer eligible for the exemption, he or she
shall immediately cancel the exemption on so much of the property as
is no longer eligible for the exemption.
   (e) If a welfare exemption has been incorrectly allowed, an escape
assessment as provided by Article 4 (commencing with Section 531) of
Chapter 3 in the amount of the exemption, with interest as provided
in Section 506, shall be made, and a penalty shall be assessed for
any failure to notify the assessor as required by this section in an
amount equaling 10 percent of the escape assessment, but in no event
exceeding two hundred fifty dollars ($250).
  SEC. 4.  The addition of subdivision (a) of Section 214.15 of the
Revenue and Taxation Code by this act does not constitute a change
in, but is declaratory of, existing law.
  SEC. 5.  Notwithstanding Section 2229 of the Revenue and Taxation
Code, no appropriation is made by this act and the state shall not
reimburse any local agency for any property tax revenues lost by it
pursuant to this act.
  SEC. 6.  This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.
However, the provisions of this act shall apply on and after the
property tax lien date on January 1, 2000.