BILL ANALYSIS �
SB 1203
Page 1
SENATE THIRD READING
SB 1203 (Jackson)
As Amended July 2, 2014
Majority vote
SENATE VOTE :33-0
REVENUE & TAXATION 8-1
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|Ayes:|Bocanegra, Harkey, | | |
| |Gordon, Bloom, Dahle, | | |
| |Pan, V. Manuel P�rez, | | |
| |Ting | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Beth Gaines | | |
| | | | |
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SUMMARY : Prohibits a local agency from entering into an
agreement to charge, or newly imposing, a charge or fee on a
low-income housing development, unless the charge or fee meets
specified conditions. Specifically, this bill :
1)Prohibits, on and after January 1, 2015, a local agency from:
a) Entering into an agreement to charge a charge or fee on
a low-income housing development, unless the charge or fee
meets specified conditions; and,
b) Newly imposing a charge or fee on a low-income housing
development, unless the charge or fee meets specified
conditions.
2)Specifies that any charge or fee imposed on a low-income
housing development must meet one of the following two
conditions:
a) The charge or fee is imposed under the Mitigation Fee
Act and its imposition does not prohibit or discriminate
against the housing development project because of any of
the following:
i) The method of financing the development;
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ii) The development is intended for occupancy by persons
and families of very low, low, or moderate income, as
defined in Health and Safety Code (H&SC) Section 50093,
or persons and families of middle income; or,
iii) The development is subsidized, financed, insured, or
otherwise assisted by the federal or state government or
by a local public entity as defined in H&SC Section
50079.
b) The charge or fee is for a specific service or product
provided directly to the housing development project, the
service or product is not provided to those developments
not charged, and the charge or fee does not exceed the
actual cost of providing the service or product.
3)Contains a legislative finding that payment-in-lieu-of-taxes
(PILOT) agreements are an issue of statewide concern because
of the need to prevent arbitrary and discriminatory financial
barriers that prevent the construction of needed low-income
housing in the state. Therefore, restricting agreements with
a local agency is a matter of statewide concern, and not a
municipal affair, as that term is used in California
Constitution Article XI Section 5.
4)Eliminates the "certification requirement" for low-income
housing owners seeking the welfare exemption. Specifically,
owners will no longer have to certify that funds that would
have been necessary to pay property taxes are used to maintain
unit affordability or reduce rents.
5)Prohibits an assessor from levying any escape or supplemental
assessment as a result of the certification requirement as it
read prior to January 1, 2015, because of a property owner's
certification concerning the use of funds that would have been
necessary to pay property taxes and a PILOT agreement with a
local government "for which the assessor did not, prior to
January 1, 2015, levy any assessment."
6)Establishes a conclusive presumption that funds from payments
under a PILOT agreement dated before January 1, 2015, were
used in compliance with the former certification requirement.
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7)Requires the cancellation of any outstanding ad valorem tax,
interest, or penalty that was levied between January 1, 2012,
and January 1, 2015, because of a property owner's
certification concerning the use of funds that would have been
necessary to pay property taxes and a PILOT agreement with a
local government.
8)Requires the refund of any tax, interest, or penalty, as so
levied, that was paid prior to January 1, 2015.
9)Defines "related facilities" to mean any manager's units and
any and all common area spaces that are included within the
physical boundaries of the low-income apartment development,
including common area space, walkways, balconies, patios,
clubhouse space, meeting rooms, and parking areas, except any
portions of the overall project that are nonexempt commercial
structures.
10)Provides that no inference shall be drawn from the changes
made by this bill with regard to whether existing law allows a
local agency to enter into a PILOT agreement with a property
owner of a low-income housing project eligible for the
property tax welfare exemption.
EXISTING LAW :
1)Authorizes the Legislature to exempt from taxation property
used exclusively for religious, hospital, or charitable
purposes, as specified. (California Constitution Article XIII
Section 4(b).) The Legislature has implemented this "welfare
exemption" in Revenue and Taxation Code (R&TC) Section 214.
2)Exempts low-income housing developments operated by non-profit
organizations, as specified.
3)Imposes a "certification requirement" on low-income housing
owners seeking the welfare exemption. Specifically, the law
requires a project's owner to "[c]ertify 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. This bill is keyed non-fiscal by the
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Legislative Counsel. 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 bill. 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.
COMMENTS : The author has provided the following statement in
support of this bill:
As a condition of project approval, some local
governments have required affordable housing
developers to agree to annual PILOT payments, often
equal to the share of the jurisdiction's share of the
property tax.
Most recently, some county assessors are threatening
certain affordable housing projects that make PILOT
payments with the cancellation of their welfare
exemption and the imposition of back taxes for past
years when PILOT payments were made.
Back taxes on PILOT agreements are often in the
hundreds of thousands of dollars. These assessments
threaten to bankrupt the affordable housing
developments, which would result in the loss of
precious affordable housing.
Affordable housing developments provide critical
opportunities for our low-income residents. Often,
these units can be their last resort before becoming
homeless. As confirmed by Legislative Counsel in
2012, there is no legal authority to charge these
PILOT fees. Affordable housing developments should be
protected by the welfare exemption, not burdened by
local governments requiring PILOT fees.
Assembly Revenue and Taxation Committee comments:
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Why is this all so familiar? Earlier this year, the Assembly
Revenue and Taxation Committee heard and passed AB 1760 (Chau)
of the current legislative session, which addresses many of the
same issues. While the goals of AB 1760 and this bill appear
largely compatible, the bills do differ in a number of respects.
The following discussion outlines a few of the major
differences:
1)The certification requirement: AB 1760 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 lower income households. This bill, on the
other hand, appears largely silent regarding past PILOT
payments, but prospectively eliminates the certification
requirement outright.
Advocates of eliminating the certification requirement argue
that it is effectively impossible to demonstrate that property
tax savings are being used to reduce rents or maintain unit
affordability. Thus, they argue that the state should
dispense with the "legal fiction" that gave rise to the
present controversy. However, critics of outright elimination
contend that some certification mechanism is useful to allow
county assessors to ensure that low-income housing
developments are appropriately claiming the welfare exemption.
2)Agreements, direct fees, or both? AB 1760 prohibits parties
from entering into new PILOT agreements on or after January 1,
2015. On the other hand, this bill applies to both agreements
and directly imposed fees. Specifically, this bill prohibits
a local agency from entering into an agreement to charge, or
newly imposing a charge, or fee on a low-income housing
development, unless the charge or fee meets specified
conditions. This bill allows a charge or fee if it is for "a
specific service or product" provided directly to the housing
development project, the service or product is not provided to
those developments not charged, and the charge or fee does not
exceed the actual cost of providing the service or product.
However, it is unclear to the Committee what the phrase
"specific service or product" is meant to encapsulate. While
proponents of this provision argue that the language simply
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reasserts the existing constitutional authority of local
governments, the Committee questions whether it might
inadvertently be read to confer additional authority on local
governments. Specifically, the Committee is concerned that
such language might inadvertently be read as conferring
authority to impose project-specific fees for services like
additional fire response. Obviously, low-income housing
advocates would argue that this bill's language precludes the
imposition of such charges since fire services are provided
universally, including to those developments not charged a
fee. Nevertheless, as has been seen, fiscal necessity is the
mother of legal invention, and the Committee questions whether
some local governments might view "supplemental" services as
distinct from normal fire services in such a scenario.
3)Related facilities: R&TC Section 214(g) low-income housing
provisions apply the welfare exemption to property used
exclusively for rental housing and related facilities, as
specified. Qualifying properties are entitled to a partial
exemption equal to that percentage of the property's value
that the portion of the property serving lower income
households represents of the total property. Unlike AB 1760,
this bill defines the term "related facilities" to include any
manager's units and any and all common area spaces included
within the development. While Committee staff assumes such
spaces would fall under the "proportional allocation" formula,
depending on the property's mix of market rate and affordable
units, the author may wish to take amendments making this
intent perfectly clear and specifying the formula for making
this allocation.
Suggested technical amendment: The author may wish to consider
amending this bill's "related facilities" provisions as outlined
in the BOE's staff analysis. These amendments would strike the
phrase "low-income apartment" and insert the phrase "rental
housing" instead. In addition, these amendments would insert
the term "development" after the phrase "overall project".
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0004267
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