BILL ANALYSIS
SB 1250
Page A
Date of Hearing: June 28, 2010
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Anthony J. Portantino, Chair
SB 1250 (Ducheny) - As Amended: June 2, 2010
Majority vote.
SENATE VOTE : 33-0
SUBJECT : Taxation: military housing
SUMMARY : Modifies the statute that provides a possessory
interest tax exemption to private contractors that construct and
maintain military housing, provided certain conditions are met.
Specifically, this bill :
1)Eliminates the requirement that the housing be for "military
personnel and their dependents" and instead specifies that the
housing be for military personnel or their dependents, or
both, thereby allowing the exclusion to apply to long-term
leases of nonfamily or "bachelor" housing.
2)Specifies that the exclusion applies to housing used solely
for active duty military personnel.
EXISTING LAW :
1) Requires all property subject to tax to be assessed at
its full value. For property tax purposes, full value
generally equals the post-Proposition 13 acquisition price,
adjusted annually for inflation (not to exceed 2%).
Although public land is exempt from property tax, private
real property interests held in connection with public land
may be taxed as "possessory interests."
2) Provides that, for a taxable possessory interest to be
found, the possession must generally be "independent,"
"durable," and "exclusive" of rights held by others in the
SB 1250
Page B
property.<1> Possession is considered "independent" if the
holder has the ability to exert control over the property's
management, separate and apart from the public owner's
rules and policies. In other words, a possession or use is
independent if it is sufficiently autonomous to constitute
something more than a mere agency.
3)Provides that, if specified conditions are met, there is no
"independent" possession of land or improvements if the
possession is pursuant to a contract that includes a
long-term lease for the private construction, renovation,
or maintenance of housing for active duty military
personnel and their dependents. Among other things, the
military family housing so constructed and managed must be
situated on a military facility under military control. In
addition, existing law provides that any reduction in
property taxes on the leased property shall insure solely
to the benefit of the military housing residents through
improvements, such as a child care center provided by the
private contractor.
FISCAL EFFECT : Unknown. The Board of Equalization's staff
analysis notes:
This bill does not have a revenue impact since the Pacific
Beacon project is not subject to the property tax under
existing law. To date, the Pacific Beacon [project] is the
only privatized housing for unaccompanied service members
located in California. Depending on the success of the
pilot unaccompanied housing privatization projects,
Congress may decide to authorize the privatization of other
unaccompanied housing quarters as well. We are not aware
of any other projects on the horizon - but should there be
such a project in the future (that is not structured like
the fact pattern in this particular project) then this bill
might have some future, unknown revenue impact.
COMMENTS :
---------------------------
<1> Property Tax Rule 20(a)(1) additionally requires that the
possessor derive a "private benefit" from the property's use. A
"private benefit" means "that the possessor has the opportunity
to make a profit, or to use or be provided an amenity, or to
pursue a private purpose in conjunction with its use of the
possessory interest."
SB 1250
Page C
1)The author states:
In 2004 SB 451 was passed and signed into law and added
[S]ection 107.4 to the Revenue and Taxation [C]ode. This
new provision clarified that "military family housing"
meeting certain specified criteria did not rise to an
"independent" possession of federal land.
Section 107.4 does not apply to housing designed for
bachelor, or non-family military personnel. The need for
military housing exists for both married and unmarried
military personnel, and it is important to ensure that all
military [personnel] have access to adequate housing.
2)The County of San Diego (County) is sponsoring this bill. The
County notes:
The County is sponsoring SB 1250 to address an inadvertent
omission in SB 451 (Ducheny), Ch. 853 of the Statutes of
2004, which exempted military "family" housing projects
from the possessory interest classification. The intent of
SB 451 was to also include unaccompanied or single housing
which is in short supply as well. SB 1250 will further
promote the development of on-base military housing,
thereby increasing the supply of available affordable
housing for all military personnel.
3)Opponents state that, "by inserting the word "solely" into the
legislation, it effectively nullifies Rev. and Tax Section
107.4 for all privatized on-base military housing projects for
several reasons." Specifically, opponents state:
To satisfy lender requirements, every Military Housing
Privatization Initiative (MHPI) housing project contains
provisions in their lease that if there are not enough
active duty military personnel to occupy the units, a
hierarchy of other tenants may occupy the units with the
approval of the base commander. This hierarchy includes
Department of Defense personnel, retired military, and
finally, the general public. While no projects in the
State of California are currently utilizing this provision,
the fact that these provisions exist mean that the project
cannot meet the amended language " a long-term lease, for
the private construction, renovation, rehabilitation,
SB 1250
Page D
replacement, management, or maintenance of housing solely
for active duty military personnel or their dependents."
4)Committee Staff Comments:
a) Background : In 1996, Congress established the Military
Housing Privatization Initiative (MHPI) to give the
military a tool to improve the quality of military housing.
The MHPI was designed to attract private sector financing
and expertise to provide much-needed housing more
efficiently than traditional military construction
practices would allow. Under the MHPI, the military is
authorized to enter into agreements with private developers
selected in a competitive process to maintain and operate
family housing during a 50-year lease. In this manner, the
MHPI was aimed at addressing the generally poor condition
of military-owned housing, and the shortage of quality,
affordable private housing.
In response to the MHPI, SB 451 (Ducheny), Chapter 853,
Statutes of 2004, added Revenue and Taxation Code (R&TC)
Section 107.4, which provides specific rules for a private
contractor's interest in military housing to be exempt from
taxation as a possessory interest.<2> As noted above,
however, R&TC Section 107.4 only applies to housing for
"military personnel and their dependents."
In 2003, however, Congress authorized the Department of the
Navy to undertake up to three pilot projects for the
privatization of unaccompanied housing. On March 26, 2009,
the Department of the Navy and Clark Realty Capital
celebrated the opening of Pacific Beacon at Naval Base San
Diego - the nation's first large-scale privatized housing
community for unaccompanied military personnel.
This bill would simply extend the possessory interest
exemption to projects for unaccompanied service personnel
(i.e., bachelor housing).
b) Related Legislation : The following related bills were
introduced in the current legislative session:
--------------------------
<2> Among other things, R&TC Section 107.4(m) provides that any
reduction in property taxes resulting from the exclusion must be
used solely to benefit the military housing residents through
improvements like the provision of a child care center.
SB 1250
Page E
i) AB 1332 (Salas) : AB 1332 would have extended the
possessory interest tax exemption to long-term leases of
nonfamily housing. In addition, AB 1332 would have
modified the requirement that all property tax savings
resulting from the exclusion be used solely to benefit
the military housing residents. Finally, AB 1332 would
have required the private contractor, at the county
assessor's request, to provide certain substantiating
documentation. AB 1332 was held in the Assembly
Appropriations Committee.
ii) AB 1344 (Fletcher) : AB 1344 would have modified the
conditions that must be met for a private contractor's
long-term lease of military housing to be excluded from
classification as a possessory interest subject to
property taxation. AB 1344 died in this Committee.
iii) AB 1945 (Fletcher) : AB 1945 would have allowed, by
implication, the tax savings to be held in a reserve
account for use in future project construction if the
military so required. The bill's hearing in this
Committee was cancelled at the request of the author.
REGISTERED SUPPORT / OPPOSITION :
Support
County of San Diego (Sponsor)
Clark Realty Capital
County of San Diego Assessor/Recorder/County Clerk David L.
Butler
San Diego Regional Chamber of Commerce
Opposition
De Luz Family Housing
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098