BILL ANALYSIS �
AB 1172
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Date of Hearing: January 16, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 1172 (Bocanegra) - As Amended: January 6, 2014
Majority vote. Fiscal committee.
SUBJECT : Property tax: portability study
SUMMARY : Requires the California Research Bureau to provide the
Legislature with a report on Florida's "Save Our Homes"
portability statute. Specifically, this bill :
1)Requires the California Research Bureau to provide the
Legislature with a report evaluating the impact of Florida's
"Save Our Homes" portability statute on state and local
revenue and the potential revenue impact on California if a
similar statute were enacted within California.
2)Requires the report to be submitted to the Legislature, on or
before December 1, 2015, in compliance with Government Code
Section 9795.
3)Repeals this section on December 1, 2019.
EXISTING LAW :
1)Provides that all property is taxable, unless otherwise
provided by the California Constitution or federal laws
[Section 1(a), Article XIII, California Constitution]. Limits
ad valorem taxes on real property to 1% of the full cash value
of that property (Proposition 13).
2)Requires real property to be reassessed to its current fair
market value whenever a "change in ownership" occurs.
[California Constitution, Article XIII A, Section 2; Revenue
and Taxation Code (R&TC) Sections 60 - 69.5.]
3)Requires business personal property to be reassessed annually
at its current market value. Personal property owned by a
homeowner is not generally subject to property taxation.
FISCAL EFFECT : Unknown
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COMMENTS :
1)The author has provided the following statement:
Since the passage of Proposition 13 in 1978, property is
generally taxed on the value at the time of acquisition,
with increases thereafter limited to 2% per year. The 2%
increase is generally not enough to keep up with the
natural rise in home prices, which eventually creates a gap
between the assessed value of the property and its actual
market value. In general, the longer the owner holds on to
the property, the wider the gap becomes. The disparity
between assessed property value and market value leads to
serious economic inefficiencies. Specifically, it increases
the cost of purchasing property and imposes moving
penalties. Florida's portability statute, which allows a
homeowner to transfer the accumulated property tax savings
to a new home, may help alleviate the immobility created by
moving penalties. This would allow homeowners to make the
move without fear of having to pay substantially higher
property taxes. AB 1172 will study the fiscal and economic
impact of Florida's portability statute as well as the
fiscal and economic impact in California if a similar
program were to be enacted.
2)Florida's "Save Our Homes" Amendment : In 1992, Florida voters
approved the "Save Our Homes" amendment to Florida's
Constitution. The amendment caps the annual growth of
assessed value of residential property to a maximum of 3% or
the rate of inflation, whichever is less. The amendment
allows for the reassessment of property to market value upon a
change in ownership, with future assessment growth capped at
3% or inflation. On
January 29, 2008, Florida voters approved the "Portability of
Save Our Homes" amendment. The amendment modified Florida's
Constitution, allowing residential property owners to keep
some of their property tax savings when moving to a new
property. The amendment is not restricted by age, county, or
home value, and is, therefore, much broader than those allowed
under the California Constitution. Specifically, the
portability statute allows a residential property owner to
transfer accumulated "Save Our Homes" benefits, up to
$500,000, to a new residential property within two years of
leaving his or her previous residence.
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Under the portability statute, a homeowner who is moving to a
larger home is allowed to subtract the accumulated "Save Our
Homes" benefits from the market value of the new home. As an
example, if the owner's current home has an assessed value of
$200,000 and a market value of $375,000, the tax savings the
homeowner has accumulated in his or her current home is
$175,000 (375,000 - 200,000 = 175,000). If the newly
purchased home has a market value of $400,000, the homeowner
be able to deduct the accumulated tax savings from the new
home's market value, bringing the assessed value down to
$225,000, minus any other exemptions.
3)California's Proposition 13 : California's property tax is one
of the major revenue sources for local governments in
California. As a general rule, property tax applies to all
classes of property, is imposed on property owners, and is
based on the value of the property in question. Much of the
law pertaining to property taxation is prescribed by Articles
XIII and XIII A (commonly known as Proposition 13) of the
California Constitution. Proposition 13 was adopted in 1978
to provide real property tax relief by imposing a set of
interlocking limitations upon the assessment and taxing powers
of state and local governments.<1> Similar to the "Save Our
Homes" provision, Proposition 13 generally limits the maximum
amount of any ad valorem tax on real property to no more than
1% of the property's full cash value, as adjusted for the
lesser of inflation or 2% per year. Proposition 13 also
requires that real property be reassessed to its current fair
market value whenever a "change in ownership" occurs.
4)Acquisition-Value System : In an acquisition-value system,
property taxes are based on the purchase price of the
property, plus any allowed growth. Since market values
increase, on average, at a faster rate than those allowed
under the California or Florida Constitutions, the current
---------------------------
<1> Since any tax savings resulting from the real property tax
limitations provided in California Constitution Sections 1 and 2
of Article XIII A could be effectively eliminated through the
imposition of additional state and local taxes, Sections 3 and 4
place additional restrictions upon the imposition of any such
taxes. See Amador Valley Joint Union High Sch. Dist. v. State
Bd. of Equalization, (1978) 22 Cal.3d 208.
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assessed value of property in both states is presumed to be
lower than its market value. If market values continue to
outpace assessed value, property taxes for newly purchased
property will far exceed taxes for an identical property that
has not been sold. All else being equal, residential property
owners who have lived in their homes longer pay less in
property taxes than those who have recently acquired property.
The expense of operating local governments, therefore,
disproportionately falls on newer homebuyers.
The acquisition-value system also causes a reduction in
mobility. This phenomenon is known as a "moving penalty" or
"lock-in effect." Specifically, the current tax system
discourages a property owner from moving to a home that better
meets his or her needs because moving to a new property
triggers a reassessment to the full market value and, in some
cases, substantially higher property taxes. The threat of
higher property taxes lengthens the time a resident stays in a
particular home. In fact, from 1970 to 2000, the average
tenure length for owners and renters in California increased
by 1.04 years and .79 years, respectively. (Wasi, Nada and
White, Michelle J., Property Tax Limitations and Mobility: The
Lock-in Effect of California's Proposition 13, NBER Working
Paper No. 11108, Feb., 2005.)
The moving penalty causes several economic inefficiencies.
First, homeowners are less responsive to changes in financial
circumstances that could cause them to move to new locations.
This may include changes in income, job opportunities, and
family structure. Second, property owners may be more
inclined to modify their current homes instead of moving to
new homes, causing property owners to build up and add square
footage instead of moving out. [Sexton, Terri A. and
Sheffrin, Steven M, and O'Sullivan, Arthur, Proposition 13:
Unintended Effects and Feasible Reform. National Tax Journal,
52.1 (1999).] Finally, some studies suggest that the longer
tenure for homeowners forces younger households to delay the
transition from renting to owning. (Property Tax Limitations
and Mobility).
5)Response to Moving Penalties : Over the years, California
voters have sought to address the moving penalties associated
with an acquisition-value system by exempting certain
transfers from reassessment. In 1986, voters passed
Proposition 60, which allowed an individual over the age of 55
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to transfer the assessed value of his or her present home to a
new home within the same county. In 1988, Proposition 90
extended the benefits of Proposition 60 between counties as
long as the counties had approved the changes. Finally, in
1990, the voters passed Proposition 110, which authorized the
California Legislature to allow a severely disabled homeowner
to transfer the base year values to a new home.
6)The Perfect Case Study : California and Florida share similar
property tax treatment of residential property. Both states
provide a cap on assessment growth with a reassessment to
market value upon a change in ownership. Several studies have
been published examining the economic shortfalls of
Proposition 13 and the acquisition-value system, but it is
always difficult to predict, with certainty, the
implementation of broader reforms. On its face, Florida's
portability statute appears to address almost all of the
concerns associated with an acquisition-value system. The
statute also provides researchers with the ability to study
changes in revenue, turnover rates, and the length of tenure
for homeowners in a situation that is very similar to that of
California. Even more important, the finding will be based on
measureable facts instead of projections, providing the
Legislature with sound data to proceed with future
legislation.
7)Double-referral : This bill is double-referred with the
Assembly Committee on Local Government. AB 1172 passed out of
that committee on a 9-0 vote.
REGISTERED SUPPORT / OPPOSITION :
Support
Howard Jarvis
Opposition
None on file
Analysis Prepared by : Carlos Anguiano / REV. & TAX. / (916)
319-2098
AB 1172
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