BILL ANALYSIS
SB 1250
Page A
SENATE THIRD READING
SB 1250 (Ducheny)
As Amended June 2, 2010
Majority vote
SENATE VOTE :33-0
REVENUE & TAXATION 9-0
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|Ayes:|Portantino, DeVore, | | |
| |Beall, | | |
| |Charles Calderon, Coto, | | |
| |Fuentes, Gatto, Harkey, | | |
| |Nestande | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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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,"
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"durable," and "exclusive" of rights held by others in the
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 :
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<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."
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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."
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."
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, replacement,
management, or maintenance of housing solely for active duty
military personnel or their dependents.' "
Committee Staff Comments. Background: In 1996, Congress
established the Military Housing Privatization Initiative (MHPI)
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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).
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0005145
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<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.