BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 2207 (Gordon) - Property taxation welfare exemption: natural
resources and open-space lands.
Amended: July 5, 2012 Policy Vote: G&F 8-0
Urgency: No Mandate: Yes
Hearing Date: August 16, 2012
Consultant: Mark McKenzie
SUSPENSE FILE.
Bill Summary: AB 2207 would prohibit county assessors from
considering specified revenues and uses of property for purposes
of determining whether a property dedicated to open-space and
natural resource preservation qualifies for the welfare property
tax exemption.
Fiscal Impact:
Estimated statewide property tax revenue reduction of
approximately $225,000 annually (foregone revenues). Assuming
50 percent of the statewide property tax revenues offset
General Fund obligations to schools pursuant to Proposition 98
minimum funding guarantees, the General Fund impact would be
approximately $113,000 due to increased state backfill
provided to schools. Staff notes that actual state impacts
may vary as the school share of property tax is typically in
the range of 45 percent to 60 percent in most parts of the
state.
Likely minor reimbursable mandate costs related to the
imposition of new duties on local tax officials since the bill
revises the criteria that assessors would use to determine
eligibility for the welfare exemption that applies to property
dedicated to open-space and natural resource preservation
(General Fund).
Background: Existing law, Article XIII Section 4(b) of the
California Constitution, allows the Legislature to grant
exemptions from the property tax for property owned and operated
by nonprofit organizations for religious, hospital, or
charitable purposes. When the Legislature enacted the "welfare
exemption" in 1945 to implement the Constitutional provision,
AB 2207 (Gordon)
Page 1
property used for scientific purposes was included in the
property tax exemption. In order to qualify for the exemption,
the property must be used for the actual operation of the exempt
activity and no part of the net earnings of the owner may inure
to the benefit of a private shareholder or individual. In 1971,
special session legislation was enacted to expand the welfare
exemption to include land owned and operated by specified
nonprofit organizations that is open to the general public and
used exclusively for the preservation of native plants or
animals, biotic communities, geological or geographical
formations of scientific or educational interest, and open space
lands used solely for recreation and for the enjoyment of scenic
beauty.
Existing law provides county assessors with sole authority to
determine eligibility for the welfare exemption. In order to
qualify for the property tax exemption, a property must be used
exclusively for the specified exempt purposes and activities,
but the courts have determined that exclusive use includes any
use of the property that is incidental to and reasonably
necessary for the accomplishment of the exempt purpose.
Assessors in five counties have disallowed the welfare exemption
for open space lands held by nonprofits organizations because of
certain revenue generating activities on the properties, such as
lease payments for cattle grazing and collection of hunting
fees. The Board of Equalization (BOE) has provided legal
opinions in two counties concluding that the properties in
question were not eligible for the welfare exemption on multiple
grounds, including the existence of cattle grazing leases that
were not deemed to be an incidental use of the property. The
BOE opinions are advisory and not binding on the decisions of
county assessors.
Proposed Law: For purposes of determining whether a property is
used for the actual operation of exempt activities required to
qualify for the welfare property tax exemption, AB 2207 would
prohibit the consideration of the use of the property for either
of the following:
Activities resulting in direct or in-kind revenues,
provided the activities further the conservation objectives
of the property as provided in a qualified conservation
management plan, including revenue from grazing leases,
hunting and camping permits, rents from persons residing on
the property who perform caretaking activities, and
AB 2207 (Gordon)
Page 2
admission fees collected for purposes of public enjoyment.
Any lease that furthers the conservation objectives of
the property as provided in a qualified conservation
management plan.
The bill would also specify the contents of a qualified
conservation management plan and prohibit the activities and
leases noted above from generating unrelated business income.
Related Legislation: AB 703 (Gordon), Chap 575/2011, extended
the welfare exemption for property dedicated to natural resource
protection and open-space purposes until January 1, 2022.
Staff Comments: This bill is intended to provide clarity to
assessors who may have differing interpretations related to the
allowable uses of properties held by nonprofits for natural
resource preservation and open-space purposes. By prohibiting
the consideration of leases and specified revenue-generating
activities that are consistent with conservation objectives
identified in a nonprofit's conservation management plan for a
property when determining eligibility for the welfare exemption,
AB 2207 would ensure more uniform application of the exemption
by county assessors.
Based upon the previous known instances in which county
assessors have denied the welfare exemption, this bill would
result in decreased statewide property tax collections of
approximately $225,000 annually, beginning in 2013-14. Assuming
half of this revenue would otherwise be allocated to schools,
the General Fund impact related to state backfills of schools'
losses would be about $113,000. This revenue impact could
increase to the extent more property owners claim the welfare
exemption as a result of the bill's broader interpretation of
the allowable uses of property that qualify as exempt
activities.