BILL ANALYSIS �
SB 1203
Page 1
SENATE THIRD READING
SB 1203 (Jackson)
As Amended August 21, 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 : Provides that, notwithstanding any other law, on or
after January 1, 2015, a local government shall not enter into a
payment in lieu of taxes (PILOT) agreement with a property owner
of a low-income housing project. Specifically, this bill :
1)Provides that any PILOT agreement entered into in violation of
this prohibition shall be void and unenforceable.
2)Provides that, notwithstanding any other law, 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 cancelled, and any tax, interest, or
penalty, as so levied, that was paid prior to January 1, 2015,
shall be refunded.
3)Provides that, on or after January 1, 2015, an escape or
supplemental assessment shall not be levied on the basis that
payments made under a PILOT agreement were, or are being, used
in a manner incompatible with the certification requirement
contained in Revenue and Taxation Code (R&TC) Section
214(g)(2)(B).
4)Amends R&TC Section 214 (governing the welfare exemption) in
numerous respects, by:
a) Providing that, for purposes of the low-income housing
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exemption, owners shall be entitled to a partial exemption
equal to that percentage of the property's value that is
equal to the percentage that the number of units serving
lower income households represents of the total number of
residential units;
b) Defining the term "related facilities" as any manager's
units and any and all common area spaces that are included
within the physical boundaries of the rental housing
development, including, but not limited to, common area
space, walkways, balconies, patios, clubhouse space,
meeting rooms, laundry facilities and parking areas, except
any portions of the overall development that are nonexempt
commercial space; and,
c) Defining the term "units serving lower income
households" as units that are occupied by lower income
households at an affordable rent, as defined in Health and
Safety Code (HSC) Section 50053 or, to the extent that the
terms of federal, state, or local financing or financial
assistance conflicts with HSC Section 50053, rents that do
not exceed those prescribed by the terms of the financing
or financial assistance. Units reserved for lower income
households at an affordable rent that are temporarily
vacant due to tenant turnover or repairs shall be counted
as occupied.
5)Provides that this bill shall become operative only if AB 1760
(Chau) of the current legislative session is enacted and takes
effect on or before January 1, 2015.
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 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
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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
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
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protected by the welfare exemption, not burdened by
local governments requiring PILOT fees.
Assembly Revenue and Taxation Committee comments:
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 R&TC Section 214.
AB 2144 (Filante), Chapter 1469, Statutes of 1987, amended R&TC
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, R&TC 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 households." (R&TC Section
214(g)(2)(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
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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.
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 R&TC 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.
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
provides that, notwithstanding any other law, 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 cancelled, and any tax, interest, or penalty,
as so levied, that was paid prior to January 1, 2015, shall be
refunded.
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.
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
SB 1203
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FN: 0005163