BILL ANALYSIS �
AB 1760
Page A
ASSEMBLY THIRD READING
AB 1760 (Chau and Bocanegra)
As Amended May 28, 2014
Majority vote
REVENUE & TAXATION 6-1
-----------------------------------------------------------------
|Ayes:|Bocanegra, Gordon, | | |
| |Mullin, Pan, | | |
| |V. Manuel P�rez, Ting | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Beth Gaines | | |
| | | | |
-----------------------------------------------------------------
SUMMARY : Provides that, on or after January 1, 2015, a "local
government" shall not enter into a "payment in lieu of taxes
agreement" (PILOT agreement) with a "low-income housing project"
owner. Specifically, this bill :
1)Provides that any PILOT agreement entered into in violation of
this prohibition shall be void and unenforceable.
2)Establishes a presumption that any payments made under a PILOT
agreement entered into before January 1, 2015, are used to
maintain the affordability of, or reduce rents otherwise
necessary for, the units occupied by low-income households.
3)Provides that any outstanding ad valorem tax, interest, or
penalty that was levied between January 1, 2012, and January
1, 2015, as a result of a PILOT agreement shall be canceled;
and any tax, interest, or penalty, as so levied, that was paid
before January 1, 2015, shall be refunded.
4)Defines a "local government" as any city, county, city and
county, housing authority, housing successor to a
redevelopment agency, or a joint powers agency that has
approved land use entitlements or building permits, provided
land or financing, or approved the issuance of tax-exempt
bonds pursuant to the federal Tax Equity and Fiscal
Responsibility Act for the low-income housing project.
5)Defines a "PILOT agreement" as any agreement entered into
AB 1760
Page B
between a local government and a "low-income housing project"
owner that requires the owner to pay the local government a
"charge", including any charge designed to compensate the
local government for lost property tax revenues resulting from
the low-income housing project receiving a welfare exemption.
6)Specifies that the term "charge" shall not include a fee that
is permitted by the Mitigation Fee Act pursuant to Government
Code Section 65008(d).
7)Defines a "low-income housing project" as a low-income housing
project that is eligible for the welfare exemption.
EXISTING LAW :
1)Authorizes the Legislature to exempt from taxation property
used exclusively for religious, hospital, or charitable
purposes, as specified. The Legislature has implemented this
"welfare exemption" in Revenue and Taxation Code (RTC) Section
214.
2)Exempts low-income housing developments operated by non-profit
organizations, as specified.
3)Imposes a "certification requirement" for low-income housing
owners seeking the welfare exemption. Specifically, the law
requires a project's owner to "[c]certify that the funds that
would have been necessary to pay property taxes are used to
maintain the affordability of, or reduce rents otherwise
necessary for, the units occupied by lower income households."
FISCAL EFFECT : Unknown. The State Board of Equalization (BOE)
notes that information on the number of PILOT agreements in
place has been difficult to obtain, making it impossible to
assess the full fiscal impact of this proposal. To date, the
BOE has identified four low-income housing projects that have
received escape assessments for prior years' taxes as a result
of PILOT payments. Two of these projects have entered into
five-year payment plans and have paid a total of $450,000 toward
outstanding liabilities of over $6.1 million. In other projects
where PILOT agreements became an issue, the local government
dropped the PILOT payment requirement to ensure the project
would remain eligible for the welfare exemption.
AB 1760
Page C
COMMENTS :
1)The author has provided the following statement in support of
this bill:
Beginning in 1987, low-income housing developers were
authorized to claim a property tax welfare exemption.
Low-income housing developers have come to rely upon
the welfare exemption as a way to build housing that
is affordable to low-income tenants. At the same
time, some low-income housing developers have entered
into PILOTs, to pay cities and counties all or a
portion of the property taxes they would have
received, but for the exemption. These agreements are
now jeopardizing the developers' welfare exemption and
threatening the future of the projects. More
importantly, they are threatening the tenants that
live in the developments and rely upon the housing.
AB 1760 protects those tenants by preserving the
welfare exemption of low-income housing developments
with PILOTs and outlaws PILOTs going forward.
2)Assembly Revenue and Taxation Committee staff comments:
a) The welfare exemption for low-income housing
developments: California Constitution Article XIII Section
4(b) authorizes the Legislature to exempt from taxation
property used exclusively for religious, hospital, or
charitable purposes, as specified. The Legislature has
implemented this "welfare exemption" in RTC Section 214.
AB 2144 (Filante), Chapter 1469, Statutes of 1987, amended
RTC Section 214 specifically to exempt low-income housing
developments operated by non-profit organizations. As
noted in the Senate Revenue and Taxation Committee
analysis, AB 2144's proponents argued that the property tax
funds then being paid "could better be used in furtherance
of the goals of providing low income housing."
To this end, RTC Section 214(g) currently includes a
"certification requirement" for low-income housing owners
seeking the welfare exemption. Specifically, the law
requires a project's owner to "[c]certify that the funds
that would have been necessary to pay property taxes are
used to maintain the affordability of, or reduce rents
otherwise necessary for, the units occupied by lower income
AB 1760
Page D
households." (RTC Section 214(g)(2)(B).)
b) PILOT agreements: Since local governments do not
receive their share of property taxes from exempt
properties, certain local governments have entered into
agreements with low-income housing developers to compensate
them for their lost revenues. These agreements, known as
PILOT agreements, often provide for payments that closely
resemble property tax payments.
A recent informal survey of low-income housing developers
provides some insight into the nature and structure of
PILOT agreements currently in place in California.
According to the survey, payment amounts are determined in
various ways, including as: a portion or all of the
property taxes the local government would have received
without the exemption, a percentage of the project's
assessed value, a flat fee, and an amount to compensate for
police and fire service needs generated by the project's
residents. A few PILOT agreements provided to committee
staff were also structured to increase the payment amount
over time.
While there is no express authority for low-income housing
developers to pay PILOTs, PILOTs are authorized in state
statute in two cases: for low-income housing owned by
either public housing authorities or federally recognized
Indian tribes.
c) The potential impact of a PILOT agreement on a project's
welfare exemption: Recently, a question has arisen
regarding whether the existence of a PILOT agreement
jeopardizes a low-income development's welfare exemption.
Specifically, some have argued that the existence of a
PILOT agreement negates a developer's ability to certify,
as required by RTC Section 214(g)(2)(B), that property tax
savings are being used to reduce rents or maintain unit
affordability. As a result, at least one county assessor
has begun to pursue escape assessments for prior years,
claiming that back property taxes are owed for prior years
in which PILOT agreement payments were made. Affordable
housing advocates and low-income developers alike note that
the economic burden of these escape assessments jeopardizes
the very feasibility of these projects.
AB 1760
Page E
d) How this bill addresses the problem: This bill
addresses the prevailing state of confusion by making clear
that low-income housing developments should not face the
retroactive revocation of their welfare exemption simply by
virtue of having made payments under a PILOT agreement.
Specifically, this bill establishes a presumption that
payments made under a PILOT agreement entered into before
January 1, 2015, were and are used to maintain the
affordability of the low-income units. This provision is
intended to preserve the welfare exemption for low-income
projects subject to a PILOT agreement entered into before
January 1, 2015.<1>
This bill also reasserts the underlying purpose of the
welfare exemption by prohibiting local governments and
low-income housing owners from entering into any PILOT
agreement on or after January 1, 2015. A PILOT agreement
entered into in violation of this prohibition would be void
and enforceable. This bill would, however, preserve the
ability of local governments to impose fees under the
Mitigation Fee Act provided they are imposed in a
nondiscriminatory manner.
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0003863
---------------------------
<1> It should be noted, however, that this bill makes no
statement regarding the underlying legality or validity of such
PILOT agreements. This bill simply establishes a presumption
that payments made pursuant to such agreements do not, by
themselves, render a low-income developer ineligible for the
welfare exemption.