BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 996 - Lowenthal
Amended: March 25, 2010
Hearing: April 14, 2010 Fiscal: Yes
SUMMARY: Provides Refunds for Taxes Previously Paid on
Properties Allowed to Qualify under the Welfare
Exemption from Property Tax under SB 1284
(Lowenthal, 2008).
EXISTING LAW (State Constitution) allows the
Legislature to exempt property used for charitable purposes
owned by nonprofit entities organized and operated for
charitable purposes, none of whose income inure to the
benefit of any private shareholder or individual. The
Legislature enacted this exemption, commonly known as the
"welfare exemption."
EXISTING LAW provides that property used exclusively
for rental housing is eligible for a partial exemption
equal to the percentage of the value of the property
serving low-income persons, if all the following conditions
are met:
The acquisition, development,
rehabilitation, or operation of the property is
paid for by tax-exempt mortgage revenue bonds,
general obligation bonds, or financed by federal,
state, or local grants, or the owner is eligible
for and receives federal low-income housing tax
credits.
The property is enforceably restricted
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for low-income housing, and rents do not exceed
those prescribed in deed restrictions.
Funds that would have been used to pay
property taxes are used to maintain the
affordability of the units or reduce rents.
EXISTING LAW states that when a non-profit corporation
owns property used for low-income housing that is not
publicly financed by bonds or grants, the property owner is
eligible for a welfare exemption from property tax for up
to $20,000, or $2 million in assessed valuation, for all
properties the non-profit owns (AB 1559, Wiggins, 1999, and
AB 693, Wiggins, 2000). Furthermore, property eligible for
the exemption must be enforceably restricted for low-income
housing, 90% of the occupants must be low-income, and funds
that would have been used to pay property taxes must be
used to maintain the affordability of the units or reduce
rents.
EXISTING LAW allows property previously purchased and
owned by the Department of Transportation pursuant to a
consent decree requiring housing mitigation measures due to
freeway construction to qualify for the welfare exemption
for low-income housing (SB 1284, Lowenthal, 2008). To be
eligible, the property must be owned by an organization
exempt under Section 501(c) (3) of the Internal Revenue
Code. The owner must meet the enforceable restriction,
rent limitation, and use of funds requirements in current
law that applies to other welfare exemption-eligible
low-income housing projects. SB 1284 cancelled any taxes
due between January 1, 2002 and January 1, 2009 for
property that qualified under the expanded welfare
exemption.
THIS BILL allows refunds, in addition to
cancellations, of property taxes paid on property
previously purchased and owned by the Department of
Transportation pursuant to a consent decree requiring
housing mitigation measures due to freeway construction to
qualify for the welfare exemption for low-income housing.
The measure also makes legislative findings regarding the
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public purpose necessary for refunds of previously paid
taxes.
FISCAL EFFECT:
According to the State Board of Equalization, SB 996
results in property tax refunds from Los Angeles County of
$637,792.60.
COMMENTS:
A. Purpose of the Bill
In 1972 to settle a court case, Caltrans agreed to
maintain 222 units of affordable rental housing to replace
housing destroyed for the Century Freeway. When these
properties were sold to the Long Beach Affordable Housing
Coalition in the early 2000s, the sale was completed on the
assumption that the properties would be exempt from
property taxes like all other non-profit affordable
housing. Because of a technicality, the Legislature
adopted SB 1284 (Lowenthal), Chapter 524, Statutes of 2008,
to clarify this exemption and cancel all outstanding taxes
back to the date of acquisition. After SB 1284 was
enacted, it was learned, however, that LBAHC's lender had
paid some of the outstanding taxes to avoid a tax
foreclosure on the properties and that the cancellation did
not apply to these payments. LBAHC's lenders are now
demanding repayment of these advances, and the affordable
nature of the housing does not provide the revenue for
LBAHC to make these repayments. As a result, the
affordable housing the state was required to provide as
replacement housing for the Century Freeway project is
again at risk of losing its affordability, this time as a
result of potential foreclosure to the lender. SB 996
further clarifies that LBAHC is entitled to a refund of the
property taxes paid on its behalf for the Century Freeway
properties. Because affordable housing is exempt from
property taxation under the welfare exemption and these
properties should never have paid property taxes in the
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first place, it is appropriate to refund the amounts that
were paid while this unusual situation was resolved.
B. End of the Century
In 2008, SB 1284 expanded the welfare exemption from
property tax to include properties conveyed to a non-profit
organization because of a consent decree relating to
highway construction. The measure applied solely to one
organization, the Long Beach Affordable Housing Coalition,
and only to properties conveyed to LBAHC by way of the
consent decree in Keith v. Volpe, a case originally filed
in 1972 to halt development of the Century Freeway (I-105)
in Los Angeles County (Ralph Keith lived in the path of the
proposed highway). The proposed freeway displaced
residents, leading to the lawsuit, and as part of the
settlement, the consent decree agreed to by the parties in
1981 directed the California Department of Transportation
(Cal-Trans) to create affordable housing. Cal-Trans
purchased and developed 222 units of rental housing in 12
separate developments to be maintained as affordable
housing for low-income households. Cal-Trans transferred
the properties to its Century Freeway Program, which was
subsequently privatized as the Century Housing Corporation
in 1995. With the help of the National Housing Development
Corporation, the Century Housing Corporation sold the
properties to LBAHC in 2004, which purchased the property
using conventional funding from Downey Savings and Loan.
SB 1284 removed an unintentional implication of law whereby
failing to use exclusively public funding triggered
limiting the amount of welfare exemption to the 20,000 cap,
despite 100% of residents qualifying as low-income and the
property being enforceably restricted property for
low-income housing like LBAHC's other properties which
enjoyed the welfare exemption.
C. Fuhgettaboutit or Is this Going to Cost Me?
When you do something wrong, sometimes the right thing
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to do is to apologize and move on, when other times, some
remuneration must be paid to compensate for the sin. SB
1284 specifically cancelled taxes due on the LBAHC
properties. Banks who paid these taxes believe they should
be refunded previous taxes paid because the properties
should've qualified for the welfare exemption in the first
place, and have sent LBAHC a bill.
The Legislature is quite stingy when allowing property
tax refunds. Property tax law is very specific about when
counties should refund previously paid taxes, and when
cancellation suffices. General law sections state that
refunds may only be granted if the taxes were:
Paid more than once
Erroneously collected or levied
Illegally assessed or levied
An assessor's clerical error, or an error based on
erroneous information supplied by the assessee
When improvements were assessed on the lien date
but didn't exist
When an assessment appeals board finds that taxes
were overpaid
Overpaid by the taxpayer
Additionally, taxpayers may receive refunds when the
assessor corrects the role when the taxpayer is eligible
for a parent-child transfer, but delays filing the claim.
When the Legislature cancelled reassessment for changes in
ownership resulting from transfers between registered
domestic partners, it allowed for cancellations, but not
refunds (SB 559, Kehoe, 2007). The Legislature cancelled
future taxes for the LBAHC properties, but is now being
asked to refund those taxes retroactively paid, and likely
spent, by the County. While the properties are now covered
by the welfare exemption by Legislative action, does
refunding past taxes square with the above list, which
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allows refunds for mostly administrative delays and
unintentional mistakes? The law at the time precluded
privately-funded properties from being eligible for the
exemption at the time the taxes were assessed.
Support and Opposition
Support:Long Beach Affordable Housing Coalition
Oppose: Los Angeles County Board of Supervisors
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Consultant: Colin Grinnell