AB 3152: Property taxation: welfare exemption: rental housing: moderate income housing.
- Session Year: 2017-2018
- House: Assembly
- Latest Version Date: 2018-04-16
Existing property tax law, in accordance with the California Constitution, provides for a welfare exemption for property used exclusively for religious, hospital, scientific, or charitable purposes and that is owned or operated by certain types of nonprofit entities, if certain qualifying criteria are met. Under existing property tax law, property that meets these requirements that is used exclusively for rental housing and related facilities is entitled to a partial exemption, equal to that percentage of the value of the property that is equal to the percentage that the number of units serving lower income households represents of the total number of residential units, in any year that any of certain criteria apply.
This bill, on and after January 1, 2019, would provide a similar exemption for qualified property, as defined, that meets the requirements of the welfare exemption and that is used exclusively for rental housing and related facilities, equal to that percentage of the value of the property that is equal to the percentage that the number of units serving moderate income households, as defined, represents of the total number of residential units. The bill would require the owner of the property to certify specified information under penalty of perjury.
By imposing new duties upon local government officials with respect to the exemption provided by this bill, and by expanding the scope of the crime of perjury, the bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that with regard to certain mandates no reimbursement is required by this act for a specified reason.
With regard to any other mandates, this bill would provide that, if the Commission on State Mandates determines that the bill contains costs so mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.
Existing law requires the state to reimburse local agencies annually for certain property tax revenues lost as a result of any exemption or classification of property for purposes of ad valorem property taxation.
This bill would provide that, notwithstanding those provisions, no appropriation is made and the state shall not reimburse local agencies for property tax revenues lost by them pursuant to the bill.
This bill would take effect immediately as a tax levy.
Existing property tax law, in accordance with the California Constitution, provides for a welfare exemption for property used exclusively for religious, hospital, scientific, or charitable purposes and that is owned or operated by certain types of nonprofit entities, if certain qualifying criteria are met. Under existing property tax law, property that meets these requirements that is used exclusively for rental housing and related facilities is entitled to a partial exemption, equal to that percentage of the value of the property that is equal to the percentage that the number of units serving lower income households represents of the total number of residential units, in any year that any of certain criteria apply.
This bill, on and after January 1, 2019, would provide a similar exemption for qualified property, as defined, that meets the requirements of the welfare exemption that is used exclusively for rental housing and related facilities, equal to that percentage of the value of the property that is equal to the percentage that the number of units serving moderate income households, as defined, represents of the total number of residential units. The bill would require the owner of the property to certify specified information under penalty of perjury.
By imposing new duties upon local government officials with respect to the exemption provided by this bill, and by expanding the scope of the crime of perjury, the bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that with regard to certain mandates no reimbursement is required by this act for a specified reason.
With regard to any other mandates, this bill would provide that, if the Commission on State Mandates determines that the bill contains costs so mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.
Existing law requires the state to reimburse local agencies annually for certain property tax revenues lost as a result of any exemption or classification of property for purposes of ad valorem property taxation.
This bill would provide that, notwithstanding those provisions, no appropriation is made and the state shall not reimburse local agencies for property tax revenues lost by them pursuant to the bill.
This bill would take effect immediately as a tax levy.
Existing property tax law, in accordance with the California Constitution, provides for a welfare exemption for property used exclusively for religious, hospital, scientific, or charitable purposes and that is owned or operated by certain types of nonprofit entities, if certain qualifying criteria are met. Under existing property tax law, property that meets these requirements that is used exclusively for rental housing and related facilities is entitled to a partial exemption, equal to that percentage of the value of the property that is equal to the percentage that the number of units serving lower income households represents of the total number of residential units, in any year that any of certain criteria apply.
This bill, on and after January 1, 2019, would provide a similar exemption for qualified property, as defined, that meets the requirements of the welfare exemption that is used exclusively for rental housing and related facilities, equal to that percentage of the value of the property that is equal to the percentage that the number of units serving moderate income households, as defined, represents of the total number of residential units. The bill would require the owner of the property to certify specified information under penalty of perjury.
By imposing new duties upon local government officials with respect to the exemption provided by this bill, and by expanding the scope of the crime of perjury, the bill would impose a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that with regard to certain mandates no reimbursement is required by this act for a specified reason.
With regard to any other mandates, this bill would provide that, if the Commission on State Mandates determines that the bill contains costs so mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.
Existing law requires the state to reimburse local agencies annually for certain property tax revenues lost as a result of any exemption or classification of property for purposes of ad valorem property taxation.
This bill would provide that, notwithstanding those provisions, no appropriation is made and the state shall not reimburse local agencies for property tax revenues lost by them pursuant to the bill.
This bill would take effect immediately as a tax levy.
(a)Property used exclusively for religious, hospital, scientific, or charitable purposes owned and operated by community chests, funds, foundations, limited liability companies, or corporations organized and operated for religious, hospital, scientific, or charitable purposes is exempt from taxation, including ad valorem taxes to pay the interest and redemption charges on any indebtedness approved by the voters prior to July 1, 1978, or any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition, if:
(1)The owner is not organized or operated for profit. However, in the case of hospitals, the organization shall not be deemed to be organized or operated for profit if, during the immediately preceding fiscal year, operating revenues, exclusive of gifts, endowments, and grants-in-aid, did not exceed operating expenses by an amount equivalent to 10 percent of those operating expenses. As used herein, operating expenses include depreciation based on cost of replacement and amortization of, and interest on, indebtedness.
(2)No part of the net earnings of the owner inures to the benefit of any private shareholder or individual.
(3)The property is used for the actual operation of the exempt activity, and does not exceed an amount of property reasonably necessary to the accomplishment of the exempt purpose.
(A)For the purposes of determining whether the property is used for the actual operation of the exempt activity, consideration shall not be given to use of the property for either or both of the following described activities if that use is occasional:
(i)The owner conducts fundraising activities on the property and the proceeds derived from those activities are not unrelated business taxable income, as defined in Section 512 of the Internal Revenue Code, of the owner and are used to further the exempt activity of the owner.
(ii)The owner permits any other organization that meets all of the requirements of this subdivision, other than ownership of the property, to conduct fundraising activities on the property and the proceeds derived from those activities are not unrelated business taxable income, as defined in Section 512 of the Internal Revenue Code, of the organization, are not subject to the tax on unrelated business taxable income that is imposed by Section 511 of the Internal Revenue Code, and are used to further the exempt activity of the organization.
(B)For purposes of subparagraph (A):
(i)Occasional use means use of the property on an irregular or intermittent basis by the qualifying owner or any other qualifying organization described in clause (ii) of subparagraph (A) that is incidental to the primary activities of the owner or the other organization.
(ii)Fundraising activities means both activities involving the direct solicitation of money or other property and the anticipated exchange of goods or services for money between the soliciting organization and the organization or person solicited.
(C)Subparagraph (A) shall have no application in determining whether paragraph (3) has been satisfied unless the owner of the property and any other organization using the property as provided in subparagraph (A) have filed with the assessor a valid organizational clearance certificate issued pursuant to Section 254.6.
(D)For the purposes of determining whether the property is used for the actual operation of the exempt activity, consideration shall not be given to the use of the property for meetings conducted by any other organization if the meetings are incidental to the other organizations primary activities, are not fundraising meetings or activities as defined in subparagraph (B), are held no more than once per week, and the other organization and its use of the property meet all other requirements of paragraphs (1) to (5), inclusive, of this subdivision. The owner or the other organization also shall file with the assessor a copy of a valid, unrevoked letter or ruling from the Internal Revenue Service or the Franchise Tax Board stating that the other organization, or the national organization of which it is a local chapter or affiliate, qualifies as an exempt organization under Section 501(c)(3) or 501(c)(4) of the Internal Revenue Code or Section 23701d, 23701f, or 23701w.
(E)Nothing in subparagraph (A), (B), (C), or (D) shall be construed to either enlarge or restrict the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(4)The property is not used or operated by the owner or by any other person so as to benefit any officer, trustee, director, shareholder, member, employee, contributor, or bondholder of the owner or operator, or any other person, through the distribution of profits, payment of excessive charges or compensations, or the more advantageous pursuit of their business or profession.
(5)The property is not used by the owner or members thereof for fraternal or lodge purposes, or for social club purposes except where that use is clearly incidental to a primary religious, hospital, scientific, or charitable purpose.
(6)The property is irrevocably dedicated to religious, charitable, scientific, or hospital purposes and upon the liquidation, dissolution, or abandonment of the owner will not inure to the benefit of any private person except a fund, foundation, or corporation organized and operated for religious, hospital, scientific, or charitable purposes.
(7)The property, if used exclusively for scientific purposes, is used by a foundation or institution that, in addition to complying with the foregoing requirements for the exemption of charitable organizations in general, has been chartered by the Congress of the United States (except that this requirement shall not apply when the scientific purposes are medical research), and whose objects are the encouragement or conduct of scientific investigation, research, and discovery for the benefit of the community at large.
The exemption provided for herein shall be known as the welfare exemption. This exemption shall be in addition to any other exemption now provided by law, and the existence of the exemption provision in paragraph (2) of subdivision (a) of Section 202 shall not preclude the exemption under this section for museum or library property. Except as provided in subdivision (e), this section shall not be construed to enlarge the college exemption.
(b)Property used exclusively for school purposes of less than collegiate grade and owned and operated by religious, hospital, or charitable funds, foundations, limited liability companies, or corporations, which property and funds, foundations, limited liability companies, or corporations meet all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(c)Property used exclusively for nursery school purposes and owned and operated by religious, hospital, or charitable funds, foundations, limited liability companies, or corporations, which property and funds, foundations, limited liability companies, or corporations meet all the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(d)Property used exclusively for a noncommercial educational FM broadcast station or an educational television station, and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(e)Property used exclusively for religious, charitable, scientific, or hospital purposes and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations or educational institutions of collegiate grade, as defined in Section 203, which property and funds, foundations, limited liability companies, corporations, or educational institutions meet all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section. As to educational institutions of collegiate grade, as defined in Section 203, the requirements of paragraph (6) of subdivision (a) shall be deemed to be met if both of the following are met:
(1)The property of the educational institution is irrevocably dedicated in its articles of incorporation to charitable and educational purposes, to religious and educational purposes, or to educational purposes.
(2)The articles of incorporation of the educational institution provide for distribution of its property upon its liquidation, dissolution, or abandonment to a fund, foundation, or corporation organized and operated for religious, hospital, scientific, charitable, or educational purposes meeting the requirements for exemption provided by Section 203 or this section.
(f)Property used exclusively for housing and related facilities for elderly or handicapped families and financed by, including, but not limited to, the federal government pursuant to Section 202 of Public Law 86-372 (12 U.S.C. Sec. 1701q), as amended, Section 231 of Public Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of Public Law 90-448 (12 U.S.C. Sec. 1715z), or Section 811 of Public Law 101-625 (42 U.S.C. Sec. 8013), and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of this section shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
The amendment of this paragraph made by Chapter 1102 of the Statutes of 1984 does not constitute a change in, but is declaratory of, existing law. However, no refund of property taxes shall be required as a result of this amendment for any fiscal year prior to the fiscal year in which the amendment takes effect.
Property used exclusively for housing and related facilities for elderly or handicapped families at which supplemental care or services designed to meet the special needs of elderly or handicapped residents are not provided, or that is not financed by the federal government pursuant to Section 202 of Public Law 86-372 (12 U.S.C. Sec. 1701q), as amended, Section 231 of Public Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of Public Law 90-448 (12 U.S.C. Sec. 1715z), or Section 811 of Public Law 101-625 (42 U.S.C. Sec. 8013), shall not be entitled to exemption pursuant to this subdivision unless the property is used for housing and related facilities for low- and moderate-income elderly or handicapped families. Property that would otherwise be exempt pursuant to this subdivision, except that it includes some housing and related facilities for other than low- or moderate-income elderly or handicapped families, shall be entitled to a partial exemption. The partial exemption shall be equal to that percentage of the value of the property that is equal to the percentage that the number of low- and moderate-income elderly and handicapped families represents of the total number of families occupying the property.
As used in this subdivision, low and moderate income has the same meaning as the term persons and families of low or moderate income as defined by Section 50093 of the Health and Safety Code.
(g)(1)Property used exclusively for rental housing and related facilities and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations, including limited partnerships in which the managing general partner is an eligible nonprofit corporation or eligible limited liability company, meeting all of the requirements of this section, or by veterans organizations, as described in Section 215.1, meeting all the requirements of paragraphs (1) to (7), inclusive, of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section and shall be entitled to a partial exemption equal to that percentage of the value of the property that is equal to the percentage that the number of units serving lower income households represents of the total number of residential units in any year in which any of the following criteria applies:
(A)The acquisition, rehabilitation, development, or operation of the property, or any combination of these factors, is financed with tax-exempt mortgage revenue bonds or general obligation bonds, or is financed by local, state, or federal loans or grants and the rents of the occupants who are lower income households do not exceed those prescribed by deed restrictions or regulatory agreements pursuant to the terms of the financing or financial assistance.
(B)The owner of the property is eligible for and receives low-income housing tax credits pursuant to Section 42 of the Internal Revenue Code of 1986, as added by Public Law 99-514.
(C)In the case of a claim, other than a claim with respect to property owned by a limited partnership in which the managing general partner is an eligible nonprofit corporation, that is filed for the 200001 fiscal year or any fiscal year thereafter, 90 percent or more of the occupants of the property are lower income households whose rent does not exceed the rent prescribed by Section 50053 of the Health and Safety Code. The total exemption amount allowed under this subdivision to a taxpayer, with respect to a single property or multiple properties for any fiscal year on the sole basis of the application of this subparagraph, may not exceed ten million dollars ($10,000,000) in assessed value.
(D)(i)The property was previously purchased and owned by the Department of Transportation pursuant to a consent decree requiring housing mitigation measures relating to the construction of a freeway and is now solely owned by an organization that qualifies as an exempt organization under Section 501(c)(3) of the Internal Revenue Code.
(ii)This subparagraph shall not apply to property owned by a limited partnership in which the managing partner is an eligible nonprofit corporation.
(2)In order to be eligible for the exemption provided by this subdivision, the owner of the property shall do both of the following:
(A)(i)For any claim filed for the 200001 fiscal year or any fiscal year thereafter, certify and ensure, subject to the limitation in clause (ii), that there is an enforceable and verifiable agreement with a public agency, a recorded deed restriction, or other legal document that restricts the projects usage and that provides that the units designated for use by lower income households are continuously available to or occupied by lower income households, subject to the exception in clause (iii), at rents that do not exceed those prescribed by Section 50053 of the Health and Safety Code, or, to the extent that the terms of federal, state, or local financing or financial assistance conflicts with Section 50053, rents that do not exceed those prescribed by the terms of the financing or financial assistance.
(ii)In the case of a limited partnership in which the managing general partner is an eligible nonprofit corporation, the restriction and provision specified in clause (i) shall be contained in an enforceable and verifiable agreement with a public agency, or in a recorded deed restriction to which the limited partnership certifies.
(iii)(I)In the case of an owner of property that is eligible for and receives a low-income housing tax credit pursuant to Section 42 of the Internal Revenue Code, relating to low-income housing credit, a unit shall continue to be treated as occupied by a lower income household if the occupants were lower income households on the lien date in the fiscal year in which their occupancy of the unit commenced and the unit continues to be rent restricted, notwithstanding an increase in the income of the occupants of the unit to 140 percent of area median income, adjusted for family size. However, the unit shall cease to be treated as a lower income unit if the income of the occupants of the unit increases above 140 percent of area median income, adjusted for family size.
(II)This clause shall only be operative from the 201819 fiscal year through the 202728 fiscal year.
(B)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.
(3)As used in this subdivision:
(A)Lower income households has the same meaning as the term lower income households as defined by Section 50079.5 of the Health and Safety Code.
(B)Related facilities means any managers 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.
(C)(i)Units serving lower income households shall mean units that are occupied by lower income households at an affordable rent, as defined in Section 50053 of the Health and Safety Code or, to the extent that the terms of federal, state, or local financing or financial assistance conflicts with 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.
(ii)(I)Units serving lower income households shall also mean units specified in clause (iii) of subparagraph (A) of paragraph (2).
(II)This clause shall only be operative from the 201819 fiscal year through the 202728 fiscal year.
(h)(1)Qualified property used exclusively for rental housing and related facilities and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations, including limited partnerships in which the managing general partner is an eligible nonprofit corporation or eligible limited liability company, meeting all of the requirements of this section, or by veterans organizations, as described in Section 215.1, meeting all the requirements of paragraphs (1) to (7), inclusive, of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section, and shall be entitled to a partial exemption equal to that percentage of the value of the property that is equal to the percentage that the number of units serving moderate-income households represents of the total number of residential units.
(2)In order to be eligible for the exemption provided by this subdivision, the owner of the property shall certify under penalty of perjury all of the following:
(A)(i)That there is an enforceable and verifiable agreement with a public agency, a recorded deed restriction, or other legal document that restricts the projects usage and that provides that the units designated for use by moderate-income households are continuously available to, or occupied by, moderate-income households.
(ii) In the case of a limited partnership in which the managing general partner is an eligible nonprofit corporation, the restriction and provision specified in clause (i) shall be contained in an enforceable and verifiable agreement with a public agency, or in a recorded deed restriction to which the limited partnership certifies.
(B)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 moderate-income households.
(C)That the rents charged are at least 10 percent below the fair market rent for the county, as determined by the federal Department of Housing and Urban Development. A city, county, or third party may provide a market study that establishes a higher fair market rent for the county than that determined by the federal Department of Housing and Urban Development. The California Housing Finance Agency shall review and certify the validity of a market study provided by a city, county, or third party pursuant to this subparagraph.
(3)For purposes of this subdivision, all of the following definitions shall apply.
(A)High-cost county means a county identified by the California Housing Finance Agency as a high-cost county.
(B)Moderate-income households means households whose incomes are between 80 percent and 120 percent of area median income.
(C)Qualified property means property that is satisfies both of the following:
(i)Is located in a high-cost county.
(ii)Is a rental housing development of five or more units for which construction commences on or after January 1, 2019.
(D)Related facilities means any managers 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.
(E)Units serving moderate-income households means units that are occupied by moderate-income households at an affordable rent, as defined by Section 50053 of the Health and Safety Code.
(4)This subdivision shall apply with respect to lien dates occurring on and after January 1, 2019.
(i)Property used exclusively for an emergency or temporary shelter and related facilities for homeless persons and families and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of this section shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section. Property that otherwise would be exempt pursuant to this subdivision, except that it includes housing and related facilities for other than an emergency or temporary shelter, shall be entitled to a partial exemption.
As used in this subdivision, emergency or temporary shelter means a facility that would be eligible for funding pursuant to Chapter 11.5 (commencing with Section 50800) of Part 2 of Division 31 of the Health and Safety Code.
(j)Property used exclusively for housing and related facilities for employees of religious, charitable, scientific, or hospital organizations that meet all the requirements of subdivision (a) and owned and operated by funds, foundations, limited liability companies, or corporations that meet all the requirements of subdivision (a) shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section to the extent the residential use of the property is institutionally necessary for the operation of the organization.
(k)For purposes of this section, charitable purposes include educational purposes. For purposes of this subdivision, educational purposes means those educational purposes and activities for the benefit of the community as a whole or an unascertainable and indefinite portion thereof, and do not include those educational purposes and activities that are primarily for the benefit of an organizations shareholders. Educational activities include the study of relevant information, the dissemination of that information to interested members of the general public, and the participation of interested members of the general public.
(l)In the case of property used exclusively for the exempt purposes specified in this section, owned and operated by limited liability companies that are organized and operated for those purposes, the State Board of Equalization shall adopt regulations to specify the ownership, organizational, and operational requirements for those companies to qualify for the exemption provided by this section.
(m)The amendments made by Chapter 354 of the Statutes of 2004 shall apply with respect to lien dates occurring on and after January 1, 2005.
(n)The amendments made by Section 1 of Chapter 836 of the Statutes of 2016 shall apply with respect to lien dates occurring on and after January 1, 2017.
SEC. 2.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution for certain costs that may be incurred by a local agency or school district because, in that regard, this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.
However, if the Commission on State Mandates determines that this act contains other costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code.
SEC. 3.Notwithstanding Section 2229 of the Revenue and Taxation Code, no appropriation is made by this act and the state shall not reimburse any local agency for any property tax revenues lost by it pursuant to this act.
SEC. 4.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
(a)Property used exclusively for religious, hospital, scientific, or charitable purposes owned and operated by community chests, funds, foundations, limited liability companies, or corporations organized and operated for religious, hospital, scientific, or charitable purposes is exempt from taxation, including ad valorem taxes to pay the interest and redemption charges on any indebtedness approved by the voters prior to July 1, 1978, or any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition, if:
(1)The owner is not organized or operated for profit. However, in the case of hospitals, the organization shall not be deemed to be organized or operated for profit if, during the immediately preceding fiscal year, operating revenues, exclusive of gifts, endowments, and grants-in-aid, did not exceed operating expenses by an amount equivalent to 10 percent of those operating expenses. As used herein, operating expenses include depreciation based on cost of replacement and amortization of, and interest on, indebtedness.
(2)No part of the net earnings of the owner inures to the benefit of any private shareholder or individual.
(3)The property is used for the actual operation of the exempt activity, and does not exceed an amount of property reasonably necessary to the accomplishment of the exempt purpose.
(A)For the purposes of determining whether the property is used for the actual operation of the exempt activity, consideration shall not be given to use of the property for either or both of the following described activities if that use is occasional:
(i)The owner conducts fundraising activities on the property and the proceeds derived from those activities are not unrelated business taxable income, as defined in Section 512 of the Internal Revenue Code, of the owner and are used to further the exempt activity of the owner.
(ii)The owner permits any other organization that meets all of the requirements of this subdivision, other than ownership of the property, to conduct fundraising activities on the property and the proceeds derived from those activities are not unrelated business taxable income, as defined in Section 512 of the Internal Revenue Code, of the organization, are not subject to the tax on unrelated business taxable income that is imposed by Section 511 of the Internal Revenue Code, and are used to further the exempt activity of the organization.
(B)For purposes of subparagraph (A):
(i)Occasional use means use of the property on an irregular or intermittent basis by the qualifying owner or any other qualifying organization described in clause (ii) of subparagraph (A) that is incidental to the primary activities of the owner or the other organization.
(ii)Fundraising activities means both activities involving the direct solicitation of money or other property and the anticipated exchange of goods or services for money between the soliciting organization and the organization or person solicited.
(C)Subparagraph (A) shall have no application in determining whether paragraph (3) has been satisfied unless the owner of the property and any other organization using the property as provided in subparagraph (A) have filed with the assessor a valid organizational clearance certificate issued pursuant to Section 254.6.
(D)For the purposes of determining whether the property is used for the actual operation of the exempt activity, consideration shall not be given to the use of the property for meetings conducted by any other organization if the meetings are incidental to the other organizations primary activities, are not fundraising meetings or activities as defined in subparagraph (B), are held no more than once per week, and the other organization and its use of the property meet all other requirements of paragraphs (1) to (5), inclusive, of this subdivision. The owner or the other organization also shall file with the assessor a copy of a valid, unrevoked letter or ruling from the Internal Revenue Service or the Franchise Tax Board stating that the other organization, or the national organization of which it is a local chapter or affiliate, qualifies as an exempt organization under Section 501(c)(3) or 501(c)(4) of the Internal Revenue Code or Section 23701d, 23701f, or 23701w.
(E)Nothing in subparagraph (A), (B), (C), or (D) shall be construed to either enlarge or restrict the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(4)The property is not used or operated by the owner or by any other person so as to benefit any officer, trustee, director, shareholder, member, employee, contributor, or bondholder of the owner or operator, or any other person, through the distribution of profits, payment of excessive charges or compensations, or the more advantageous pursuit of their business or profession.
(5)The property is not used by the owner or members thereof for fraternal or lodge purposes, or for social club purposes except where that use is clearly incidental to a primary religious, hospital, scientific, or charitable purpose.
(6)The property is irrevocably dedicated to religious, charitable, scientific, or hospital purposes and upon the liquidation, dissolution, or abandonment of the owner will not inure to the benefit of any private person except a fund, foundation, or corporation organized and operated for religious, hospital, scientific, or charitable purposes.
(7)The property, if used exclusively for scientific purposes, is used by a foundation or institution that, in addition to complying with the foregoing requirements for the exemption of charitable organizations in general, has been chartered by the Congress of the United States (except that this requirement shall not apply when the scientific purposes are medical research), and whose objects are the encouragement or conduct of scientific investigation, research, and discovery for the benefit of the community at large.
The exemption provided for herein shall be known as the welfare exemption. This exemption shall be in addition to any other exemption now provided by law, and the existence of the exemption provision in paragraph (2) of subdivision (a) of Section 202 shall not preclude the exemption under this section for museum or library property. Except as provided in subdivision (e), this section shall not be construed to enlarge the college exemption.
(b)Property used exclusively for school purposes of less than collegiate grade and owned and operated by religious, hospital, or charitable funds, foundations, limited liability companies, or corporations, which property and funds, foundations, limited liability companies, or corporations meet all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(c)Property used exclusively for nursery school purposes and owned and operated by religious, hospital, or charitable funds, foundations, limited liability companies, or corporations, which property and funds, foundations, limited liability companies, or corporations meet all the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(d)Property used exclusively for a noncommercial educational FM broadcast station or an educational television station, and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(e)Property used exclusively for religious, charitable, scientific, or hospital purposes and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations or educational institutions of collegiate grade, as defined in Section 203, which property and funds, foundations, limited liability companies, corporations, or educational institutions meet all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section. As to educational institutions of collegiate grade, as defined in Section 203, the requirements of paragraph (6) of subdivision (a) shall be deemed to be met if both of the following are met:
(1)The property of the educational institution is irrevocably dedicated in its articles of incorporation to charitable and educational purposes, to religious and educational purposes, or to educational purposes.
(2)The articles of incorporation of the educational institution provide for distribution of its property upon its liquidation, dissolution, or abandonment to a fund, foundation, or corporation organized and operated for religious, hospital, scientific, charitable, or educational purposes meeting the requirements for exemption provided by Section 203 or this section.
(f)Property used exclusively for housing and related facilities for elderly or handicapped families and financed by, including, but not limited to, the federal government pursuant to Section 202 of Public Law 86-372 (12 U.S.C. Sec. 1701q), as amended, Section 231 of Public Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of Public Law 90-448 (12 U.S.C. Sec. 1715z), or Section 811 of Public Law 101-625 (42 U.S.C. Sec. 8013), and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of this section shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
The amendment of this paragraph made by Chapter 1102 of the Statutes of 1984 does not constitute a change in, but is declaratory of, existing law. However, no refund of property taxes shall be required as a result of this amendment for any fiscal year prior to the fiscal year in which the amendment takes effect.
Property used exclusively for housing and related facilities for elderly or handicapped families at which supplemental care or services designed to meet the special needs of elderly or handicapped residents are not provided, or that is not financed by the federal government pursuant to Section 202 of Public Law 86-372 (12 U.S.C. Sec. 1701q), as amended, Section 231 of Public Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of Public Law 90-448 (12 U.S.C. Sec. 1715z), or Section 811 of Public Law 101-625 (42 U.S.C. Sec. 8013), shall not be entitled to exemption pursuant to this subdivision unless the property is used for housing and related facilities for low- and moderate-income elderly or handicapped families. Property that would otherwise be exempt pursuant to this subdivision, except that it includes some housing and related facilities for other than low- or moderate-income elderly or handicapped families, shall be entitled to a partial exemption. The partial exemption shall be equal to that percentage of the value of the property that is equal to the percentage that the number of low- and moderate-income elderly and handicapped families represents of the total number of families occupying the property.
As used in this subdivision, low and moderate income has the same meaning as the term persons and families of low or moderate income as defined by Section 50093 of the Health and Safety Code.
(g)(1)Property used exclusively for rental housing and related facilities and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations, including limited partnerships in which the managing general partner is an eligible nonprofit corporation or eligible limited liability company, meeting all of the requirements of this section, or by veterans organizations, as described in Section 215.1, meeting all the requirements of paragraphs (1) to (7), inclusive, of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section and shall be entitled to a partial exemption equal to that percentage of the value of the property that is equal to the percentage that the number of units serving lower income households represents of the total number of residential units in any year in which any of the following criteria applies:
(A)The acquisition, rehabilitation, development, or operation of the property, or any combination of these factors, is financed with tax-exempt mortgage revenue bonds or general obligation bonds, or is financed by local, state, or federal loans or grants and the rents of the occupants who are lower income households do not exceed those prescribed by deed restrictions or regulatory agreements pursuant to the terms of the financing or financial assistance.
(B)The owner of the property is eligible for and receives low-income housing tax credits pursuant to Section 42 of the Internal Revenue Code of 1986, as added by Public Law 99-514.
(C)In the case of a claim, other than a claim with respect to property owned by a limited partnership in which the managing general partner is an eligible nonprofit corporation, that is filed for the 200001 fiscal year or any fiscal year thereafter, 90 percent or more of the occupants of the property are lower income households whose rent does not exceed the rent prescribed by Section 50053 of the Health and Safety Code. The total exemption amount allowed under this subdivision to a taxpayer, with respect to a single property or multiple properties for any fiscal year on the sole basis of the application of this subparagraph, may not exceed ten million dollars ($10,000,000) in assessed value.
(D)(i)The property was previously purchased and owned by the Department of Transportation pursuant to a consent decree requiring housing mitigation measures relating to the construction of a freeway and is now solely owned by an organization that qualifies as an exempt organization under Section 501(c)(3) of the Internal Revenue Code.
(ii)This subparagraph shall not apply to property owned by a limited partnership in which the managing partner is an eligible nonprofit corporation.
(2)In order to be eligible for the exemption provided by this subdivision, the owner of the property shall do both of the following:
(A)(i)For any claim filed for the 200001 fiscal year or any fiscal year thereafter, certify and ensure, subject to the limitation in clause (ii), that there is an enforceable and verifiable agreement with a public agency, a recorded deed restriction, or other legal document that restricts the projects usage and that provides that the units designated for use by lower income households are continuously available to or occupied by lower income households, subject to the exception in clause (iii), at rents that do not exceed those prescribed by Section 50053 of the Health and Safety Code, or, to the extent that the terms of federal, state, or local financing or financial assistance conflicts with Section 50053, rents that do not exceed those prescribed by the terms of the financing or financial assistance.
(ii)In the case of a limited partnership in which the managing general partner is an eligible nonprofit corporation, the restriction and provision specified in clause (i) shall be contained in an enforceable and verifiable agreement with a public agency, or in a recorded deed restriction to which the limited partnership certifies.
(iii)(I)In the case of an owner of property that is eligible for and receives a low-income housing tax credit pursuant to Section 42 of the Internal Revenue Code, relating to low-income housing credit, a unit shall continue to be treated as occupied by a lower income household if the occupants were lower income households on the lien date in the fiscal year in which their occupancy of the unit commenced and the unit continues to be rent restricted, notwithstanding an increase in the income of the occupants of the unit to 140 percent of area median income, adjusted for family size. However, the unit shall cease to be treated as a lower income unit if the income of the occupants of the unit increases above 140 percent of area median income, adjusted for family size.
(II)This clause shall only be operative from the 201819 fiscal year through the 202728 fiscal year.
(B)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.
(3)As used in this subdivision:
(A)Lower income households has the same meaning as the term lower income households as defined by Section 50079.5 of the Health and Safety Code.
(B)Related facilities means any managers 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.
(C)(i)Units serving lower income households shall mean units that are occupied by lower income households at an affordable rent, as defined in Section 50053 of the Health and Safety Code or, to the extent that the terms of federal, state, or local financing or financial assistance conflicts with 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.
(ii)(I)Units serving lower income households shall also mean units specified in clause (iii) of subparagraph (A) of paragraph (2).
(II)This clause shall only be operative from the 201819 fiscal year through the 202728 fiscal year.
(h)(1)Qualified property used exclusively for rental housing and related facilities and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations corporations, including limited partnerships in which the managing general partner is an eligible nonprofit corporation or eligible limited liability company, meeting all of the requirements of this section, or by veterans organizations, as described in Section 215.1, meeting all the requirements of paragraphs (1) to (7), inclusive, of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section, and shall be entitled to a partial exemption equal to that percentage of the value of the property that is equal to the percentage that the number of units serving moderate-income households represents of the total number of residential units.
(2)In order to be eligible for the exemption provided by this subdivision, the owner of the property shall certify under penalty of perjury both all of the following:
(A)That there is an enforceable and verifiable agreement with a public agency, a recorded deed restriction, or other legal document that restricts the projects usage and that provides that the units designated for use by moderate-income households are continuously available to, or occupied by, moderate-income households.
(B)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 moderate-income households.
(C)That the rents charged are at least 10 percent below the fair market rent for the county, as determined by the federal Department of Housing and Urban Development. A city, county, or third party may provide a market study that establishes a higher fair market rent for the county than that determined by the federal Department of Housing and Urban Development. The California Housing Finance Agency shall review and certify the validity of a market study provided by a city, county, or third party pursuant to this subparagraph.
(3)For purposes of this subdivision, all of the following definitions shall apply.
(A)High-cost county means a county identified by the Department of Housing and Urban Development as having the highest fair market rents in the state. the California Housing Finance Agency as a high-cost county.
(B)Moderate-income households means households whose incomes are between 80 percent and 120 percent of area median income.
(C)Qualified property means property that is located in a high-cost county.
(D)Related facilities means any managers 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.
(E)Units serving moderate-income households means units that are occupied by moderate-income households at an affordable rent, as defined by Section 50053 of the Health and Safety Code.
(4)This subdivision shall apply with respect to lien dates occurring on and after January 1, 2019.
(i)Property used exclusively for an emergency or temporary shelter and related facilities for homeless persons and families and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of this section shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section. Property that otherwise would be exempt pursuant to this subdivision, except that it includes housing and related facilities for other than an emergency or temporary shelter, shall be entitled to a partial exemption.
As used in this subdivision, emergency or temporary shelter means a facility that would be eligible for funding pursuant to Chapter 11.5 (commencing with Section 50800) of Part 2 of Division 31 of the Health and Safety Code.
(j)Property used exclusively for housing and related facilities for employees of religious, charitable, scientific, or hospital organizations that meet all the requirements of subdivision (a) and owned and operated by funds, foundations, limited liability companies, or corporations that meet all the requirements of subdivision (a) shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section to the extent the residential use of the property is institutionally necessary for the operation of the organization.
(k)For purposes of this section, charitable purposes include educational purposes. For purposes of this subdivision, educational purposes means those educational purposes and activities for the benefit of the community as a whole or an unascertainable and indefinite portion thereof, and do not include those educational purposes and activities that are primarily for the benefit of an organizations shareholders. Educational activities include the study of relevant information, the dissemination of that information to interested members of the general public, and the participation of interested members of the general public.
(l)In the case of property used exclusively for the exempt purposes specified in this section, owned and operated by limited liability companies that are organized and operated for those purposes, the State Board of Equalization shall adopt regulations to specify the ownership, organizational, and operational requirements for those companies to qualify for the exemption provided by this section.
(m)The amendments made by Chapter 354 of the Statutes of 2004 shall apply with respect to lien dates occurring on and after January 1, 2005.
(n)The amendments made by Section 1 of Chapter 836 of the Statutes of 2016 shall apply with respect to lien dates occurring on and after January 1, 2017.
SEC. 2.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution for certain costs that may be incurred by a local agency or school district because, in that regard, this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.
However, if the Commission on State Mandates determines that this act contains other costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code.
SEC. 3.Notwithstanding Section 2229 of the Revenue and Taxation Code, no appropriation is made by this act and the state shall not reimburse any local agency for any property tax revenues lost by it pursuant to this act.
SEC. 4.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
(a)Property used exclusively for religious, hospital, scientific, or charitable purposes owned and operated by community chests, funds, foundations, limited liability companies, or corporations organized and operated for religious, hospital, scientific, or charitable purposes is exempt from taxation, including ad valorem taxes to pay the interest and redemption charges on any indebtedness approved by the voters prior to July 1, 1978, or any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition, if:
(1)The owner is not organized or operated for profit. However, in the case of hospitals, the organization shall not be deemed to be organized or operated for profit if, during the immediately preceding fiscal year, operating revenues, exclusive of gifts, endowments, and grants-in-aid, did not exceed operating expenses by an amount equivalent to 10 percent of those operating expenses. As used herein, operating expenses include depreciation based on cost of replacement and amortization of, and interest on, indebtedness.
(2)No part of the net earnings of the owner inures to the benefit of any private shareholder or individual.
(3)The property is used for the actual operation of the exempt activity, and does not exceed an amount of property reasonably necessary to the accomplishment of the exempt purpose.
(A)For the purposes of determining whether the property is used for the actual operation of the exempt activity, consideration shall not be given to use of the property for either or both of the following described activities if that use is occasional:
(i)The owner conducts fundraising activities on the property and the proceeds derived from those activities are not unrelated business taxable income, as defined in Section 512 of the Internal Revenue Code, of the owner and are used to further the exempt activity of the owner.
(ii)The owner permits any other organization that meets all of the requirements of this subdivision, other than ownership of the property, to conduct fundraising activities on the property and the proceeds derived from those activities are not unrelated business taxable income, as defined in Section 512 of the Internal Revenue Code, of the organization, are not subject to the tax on unrelated business taxable income that is imposed by Section 511 of the Internal Revenue Code, and are used to further the exempt activity of the organization.
(B)For purposes of subparagraph (A):
(i)Occasional use means use of the property on an irregular or intermittent basis by the qualifying owner or any other qualifying organization described in clause (ii) of subparagraph (A) that is incidental to the primary activities of the owner or the other organization.
(ii)Fundraising activities means both activities involving the direct solicitation of money or other property and the anticipated exchange of goods or services for money between the soliciting organization and the organization or person solicited.
(C)Subparagraph (A) shall have no application in determining whether paragraph (3) has been satisfied unless the owner of the property and any other organization using the property as provided in subparagraph (A) have filed with the assessor a valid organizational clearance certificate issued pursuant to Section 254.6.
(D)For the purposes of determining whether the property is used for the actual operation of the exempt activity, consideration shall not be given to the use of the property for meetings conducted by any other organization if the meetings are incidental to the other organizations primary activities, are not fundraising meetings or activities as defined in subparagraph (B), are held no more than once per week, and the other organization and its use of the property meet all other requirements of paragraphs (1) to (5), inclusive, of this subdivision. The owner or the other organization also shall file with the assessor a copy of a valid, unrevoked letter or ruling from the Internal Revenue Service or the Franchise Tax Board stating that the other organization, or the national organization of which it is a local chapter or affiliate, qualifies as an exempt organization under Section 501(c)(3) or 501(c)(4) of the Internal Revenue Code or Section 23701d, 23701f, or 23701w.
(E)Nothing in subparagraph (A), (B), (C), or (D) shall be construed to either enlarge or restrict the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(4)The property is not used or operated by the owner or by any other person so as to benefit any officer, trustee, director, shareholder, member, employee, contributor, or bondholder of the owner or operator, or any other person, through the distribution of profits, payment of excessive charges or compensations, or the more advantageous pursuit of their business or profession.
(5)The property is not used by the owner or members thereof for fraternal or lodge purposes, or for social club purposes except where that use is clearly incidental to a primary religious, hospital, scientific, or charitable purpose.
(6)The property is irrevocably dedicated to religious, charitable, scientific, or hospital purposes and upon the liquidation, dissolution, or abandonment of the owner will not inure to the benefit of any private person except a fund, foundation, or corporation organized and operated for religious, hospital, scientific, or charitable purposes.
(7)The property, if used exclusively for scientific purposes, is used by a foundation or institution that, in addition to complying with the foregoing requirements for the exemption of charitable organizations in general, has been chartered by the Congress of the United States (except that this requirement shall not apply when the scientific purposes are medical research), and whose objects are the encouragement or conduct of scientific investigation, research, and discovery for the benefit of the community at large.
The exemption provided for herein shall be known as the welfare exemption. This exemption shall be in addition to any other exemption now provided by law, and the existence of the exemption provision in paragraph (2) of subdivision (a) of Section 202 shall not preclude the exemption under this section for museum or library property. Except as provided in subdivision (e), this section shall not be construed to enlarge the college exemption.
(b)Property used exclusively for school purposes of less than collegiate grade and owned and operated by religious, hospital, or charitable funds, foundations, limited liability companies, or corporations, which property and funds, foundations, limited liability companies, or corporations meet all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(c)Property used exclusively for nursery school purposes and owned and operated by religious, hospital, or charitable funds, foundations, limited liability companies, or corporations, which property and funds, foundations, limited liability companies, or corporations meet all the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(d)Property used exclusively for a noncommercial educational FM broadcast station or an educational television station, and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(e)Property used exclusively for religious, charitable, scientific, or hospital purposes and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations or educational institutions of collegiate grade, as defined in Section 203, which property and funds, foundations, limited liability companies, corporations, or educational institutions meet all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section. As to educational institutions of collegiate grade, as defined in Section 203, the requirements of paragraph (6) of subdivision (a) shall be deemed to be met if both of the following are met:
(1)The property of the educational institution is irrevocably dedicated in its articles of incorporation to charitable and educational purposes, to religious and educational purposes, or to educational purposes.
(2)The articles of incorporation of the educational institution provide for distribution of its property upon its liquidation, dissolution, or abandonment to a fund, foundation, or corporation organized and operated for religious, hospital, scientific, charitable, or educational purposes meeting the requirements for exemption provided by Section 203 or this section.
(f)Property used exclusively for housing and related facilities for elderly or handicapped families and financed by, including, but not limited to, the federal government pursuant to Section 202 of Public Law 86-372 (12 U.S.C. Sec. 1701q), as amended, Section 231 of Public Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of Public Law 90-448 (12 U.S.C. Sec. 1715z), or Section 811 of Public Law 101-625 (42 U.S.C. Sec. 8013), and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of this section shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
The amendment of this paragraph made by Chapter 1102 of the Statutes of 1984 does not constitute a change in, but is declaratory of, existing law. However, no refund of property taxes shall be required as a result of this amendment for any fiscal year prior to the fiscal year in which the amendment takes effect.
Property used exclusively for housing and related facilities for elderly or handicapped families at which supplemental care or services designed to meet the special needs of elderly or handicapped residents are not provided, or that is not financed by the federal government pursuant to Section 202 of Public Law 86-372 (12 U.S.C. Sec. 1701q), as amended, Section 231 of Public Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of Public Law 90-448 (12 U.S.C. Sec. 1715z), or Section 811 of Public Law 101-625 (42 U.S.C. Sec. 8013), shall not be entitled to exemption pursuant to this subdivision unless the property is used for housing and related facilities for low- and moderate-income elderly or handicapped families. Property that would otherwise be exempt pursuant to this subdivision, except that it includes some housing and related facilities for other than low- or moderate-income elderly or handicapped families, shall be entitled to a partial exemption. The partial exemption shall be equal to that percentage of the value of the property that is equal to the percentage that the number of low- and moderate-income elderly and handicapped families represents of the total number of families occupying the property.
As used in this subdivision, low and moderate income has the same meaning as the term persons and families of low or moderate income as defined by Section 50093 of the Health and Safety Code.
(g)(1)Property used exclusively for rental housing and related facilities and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations, including limited partnerships in which the managing general partner is an eligible nonprofit corporation or eligible limited liability company, meeting all of the requirements of this section, or by veterans organizations, as described in Section 215.1, meeting all the requirements of paragraphs (1) to (7), inclusive, of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section and shall be entitled to a partial exemption equal to that percentage of the value of the property that is equal to the percentage that the number of units serving lower income households represents of the total number of residential units in any year in which any of the following criteria applies:
(A)The acquisition, rehabilitation, development, or operation of the property, or any combination of these factors, is financed with tax-exempt mortgage revenue bonds or general obligation bonds, or is financed by local, state, or federal loans or grants and the rents of the occupants who are lower income households do not exceed those prescribed by deed restrictions or regulatory agreements pursuant to the terms of the financing or financial assistance.
(B)The owner of the property is eligible for and receives low-income housing tax credits pursuant to Section 42 of the Internal Revenue Code of 1986, as added by Public Law 99-514.
(C)In the case of a claim, other than a claim with respect to property owned by a limited partnership in which the managing general partner is an eligible nonprofit corporation, that is filed for the 200001 fiscal year or any fiscal year thereafter, 90 percent or more of the occupants of the property are lower income households whose rent does not exceed the rent prescribed by Section 50053 of the Health and Safety Code. The total exemption amount allowed under this subdivision to a taxpayer, with respect to a single property or multiple properties for any fiscal year on the sole basis of the application of this subparagraph, may not exceed ten million dollars ($10,000,000) in assessed value.
(D)(i)The property was previously purchased and owned by the Department of Transportation pursuant to a consent decree requiring housing mitigation measures relating to the construction of a freeway and is now solely owned by an organization that qualifies as an exempt organization under Section 501(c)(3) of the Internal Revenue Code.
(ii)This subparagraph shall not apply to property owned by a limited partnership in which the managing partner is an eligible nonprofit corporation.
(2)In order to be eligible for the exemption provided by this subdivision, the owner of the property shall do both of the following:
(A)(i)For any claim filed for the 200001 fiscal year or any fiscal year thereafter, certify and ensure, subject to the limitation in clause (ii), that there is an enforceable and verifiable agreement with a public agency, a recorded deed restriction, or other legal document that restricts the projects usage and that provides that the units designated for use by lower income households are continuously available to or occupied by lower income households, subject to the exception in clause (iii), at rents that do not exceed those prescribed by Section 50053 of the Health and Safety Code, or, to the extent that the terms of federal, state, or local financing or financial assistance conflicts with Section 50053, rents that do not exceed those prescribed by the terms of the financing or financial assistance.
(ii)In the case of a limited partnership in which the managing general partner is an eligible nonprofit corporation, the restriction and provision specified in clause (i) shall be contained in an enforceable and verifiable agreement with a public agency, or in a recorded deed restriction to which the limited partnership certifies.
(iii)(I)In the case of an owner of property that is eligible for and receives a low-income housing tax credit pursuant to Section 42 of the Internal Revenue Code, relating to low-income housing credit, a unit shall continue to be treated as occupied by a lower income household if the occupants were lower income households on the lien date in the fiscal year in which their occupancy of the unit commenced and the unit continues to be rent restricted, notwithstanding an increase in the income of the occupants of the unit to 140 percent of area median income, adjusted for family size. However, the unit shall cease to be treated as a lower income unit if the income of the occupants of the unit increases above 140 percent of area median income, adjusted for family size.
(II)This clause shall only be operative from the 201819 fiscal year through the 202728 fiscal year.
(B)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.
(3)As used in this subdivision:
(A)Lower income households has the same meaning as the term lower income households as defined by Section 50079.5 of the Health and Safety Code.
(B)Related facilities means any managers 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.
(C)(i)Units serving lower income households shall mean units that are occupied by lower income households at an affordable rent, as defined in Section 50053 of the Health and Safety Code or, to the extent that the terms of federal, state, or local financing or financial assistance conflicts with 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.
(ii)(I)Units serving lower income households shall also mean units specified in clause (iii) of subparagraph (A) of paragraph (2).
(II)This clause shall only be operative from the 201819 fiscal year through the 202728 fiscal year.
(h)(1)Qualified property used exclusively for rental housing and related facilities and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of this section, or by veterans organizations, as described in Section 215.1, meeting all the requirements of paragraphs (1) to (7), inclusive, of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section, and shall be entitled to a partial exemption equal to that percentage of the value of the property that is equal to the percentage that the number of units serving moderate-income households represents of the total number of residential units.
(2)In order to be eligible for the exemption provided by this subdivision, the owner of the property shall certify under penalty of perjury both of the following:
(A)That there is an enforceable and verifiable agreement with a public agency, a recorded deed restriction, or other legal document that restricts the projects usage and that provides that the units designated for use by moderate-income households are continuously available to, or occupied by, moderate-income households.
(B)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 moderate-income households.
(3)For purposes of this subdivision, all of the following definitions shall apply.
(A)High-cost county means a county identified by the Department of Housing and Urban Development as having the highest fair market rents in the state.
(B)Moderate-income households means households whose incomes are between 80 percent and 120 percent of area median income.
(C)Qualified property means property that is located in a high-cost county.
(D)Related facilities means any managers 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.
(E)Units serving moderate-income households means units that are occupied by moderate-income households at an affordable rent, as defined by Section 50053 of the Health and Safety Code.
(4)This subdivision shall apply with respect to lien dates occurring on and after January 1, 2019.
(h)(i)Property used exclusively for an emergency or temporary shelter and related facilities for homeless persons and families and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of this section shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section. Property that otherwise would be exempt pursuant to this subdivision, except that it includes housing and related facilities for other than an emergency or temporary shelter, shall be entitled to a partial exemption.
As used in this subdivision, emergency or temporary shelter means a facility that would be eligible for funding pursuant to Chapter 11 11.5 (commencing with Section 50800) of Part 2 of Division 31 of the Health and Safety Code.
(i)(j)Property used exclusively for housing and related facilities for employees of religious, charitable, scientific, or hospital organizations that meet all the requirements of subdivision (a) and owned and operated by funds, foundations, limited liability companies, or corporations that meet all the requirements of subdivision (a) shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section to the extent the residential use of the property is institutionally necessary for the operation of the organization.
(j)(k)For purposes of this section, charitable purposes include educational purposes. For purposes of this subdivision, educational purposes means those educational purposes and activities for the benefit of the community as a whole or an unascertainable and indefinite portion thereof, and do not include those educational purposes and activities that are primarily for the benefit of an organizations shareholders. Educational activities include the study of relevant information, the dissemination of that information to interested members of the general public, and the participation of interested members of the general public.
(k)(l)In the case of property used exclusively for the exempt purposes specified in this section, owned and operated by limited liability companies that are organized and operated for those purposes, the State Board of Equalization shall adopt regulations to specify the ownership, organizational, and operational requirements for those companies to qualify for the exemption provided by this section.
(l)(m)The amendments made by Chapter 354 of the Statutes of 2004 shall apply with respect to lien dates occurring on and after January 1, 2005.
(m)(n)The amendments made by the act adding this subdivision Section 1 of Chapter 836 of the Statutes of 2016 shall apply with respect to lien dates occurring on and after January 1, 2017.
SEC. 2.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution for certain costs that may be incurred by a local agency or school district because, in that regard, this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.
However, if the Commission on State Mandates determines that this act contains other costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code.
SEC. 3.Notwithstanding Section 2229 of the Revenue and Taxation Code, no appropriation is made by this act and the state shall not reimburse any local agency for any property tax revenues lost by it pursuant to this act.
SEC. 4.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
|
Date
|
Status
|
|---|---|
| May 25, 2018 | In committee: Held under submission. |
| May 16, 2018 | In committee: Set, first hearing. Referred to APPR. suspense file. |
| May 9, 2018 | From committee: Do pass and re-refer to Com. on APPR. (Ayes 7. Noes 0.) (May 9). Re-referred to Com. on APPR. |
| Apr 17, 2018 | Re-referred to Com. on H. & C.D. |
| Apr 16, 2018 | Read second time and amended. |
| Apr 12, 2018 | From committee: Amend, and do pass as amended and re-refer to Com. on H. & C.D. (Ayes 8. Noes 0.) (April 9). |
| Apr 4, 2018 | Re-referred to Com. on REV. & TAX. |
| Apr 3, 2018 | From committee chair, with author's amendments: Amend, and re-refer to Com. on REV. & TAX. Read second time and amended. |
| Mar 12, 2018 | Referred to Coms. on REV. & TAX. and H. & C.D. |
| Feb 17, 2018 | From printer. May be heard in committee March 19. |
| Feb 16, 2018 | Read first time. To print. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| May 9, 2018 | Do pass and be re-referred to the Committee on [Appropriations] | Assembly Standing Committee on Housing and Community Development |
Passed |
|
| Apr 9, 2018 | Do pass as amended and be re-referred to the Committee on [Housing and Community Development] | Assembly Standing Committee on Revenue and Taxation |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
|
Organization
|
Position
|
Date
|
|---|---|---|
| Association Of Regional Center Agencies | ** Support | May 7, 2018 |
| BRIDGE Housing | * Support | May 9, 2018 |
| California Apartment Association | ** Support | May 7, 2018 |
| California Association of Housing Authorities and Local Housing Finance Agencies | * Support | May 9, 2018 |
| California Council For Affordable Housing | ** Support | May 7, 2018 |
| California Counsel for Affordable Housing | * Indeterminate | Apr 9, 2018 |
| California Housing Consortium | * Support | May 9, 2018 |
| LeadingAge California | ** Support | May 7, 2018 |
| Mark Farrell, Mayor, City Of San Francisco | ** Support | May 7, 2018 |
| Non-Profit Housing Association Northern California | * Support | May 9, 2018 |
| Non-profit Housing Association of California | * Support | Apr 9, 2018 |
| San Francisco Housing and Community Development | * Support | Apr 9, 2018 |
Date of Hearing: May 16, 2018
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez Fletcher, Chair
ABPCA Bill Id:AB 3152
Author:(Chiu) – As Amended Ver:April 16, 2018
Policy Committee: | Revenue and Taxation | Vote: | 8 - 0 |
Housing and Community Development | 7 - 0 | ||
|
|
Urgency: No State Mandated Local Program: Yes Reimbursable: Yes
SUMMARY:
This bill creates a property tax exemption for nonprofit-owned rental housing occupied by moderate-income households. A property is eligible if it is located in a high-cost county and is a rental property of five or more units for which construction begins on or after January 1, 2019.
FISCAL EFFECT:
- Unknown local revenue loss because it is unknown how many properties will be eligible for the new exemption. The average local property tax loss per eligible property will be in the range of $25,000, and General Fund Proposition 98 spending will increase by roughly 50% of the total local revenue loss.
- Unknown, and potentially reimbursable costs, for local county officials related to the property tax assessment process.
COMMENTS:
- Background. All property in California is taxable unless explicitly exempted. Specifically, the Legislature may exempt property owned by nonprofit entities organized and operated for charitable purposes, and this welfare exemption currently results in $3 billion in annual foregone local property tax revenues.
Nonprofit-owned low-income housing is eligible for the welfare exemption if certain conditions apply. Moreover, the exemption applies differently to projects receiving government assistance: Nonprofit-owned low-income rental housing receiving government financing or low-income housing tax credits are allowed an unlimited exemption, whereas similar properties that do not receive such financing or tax credits are allowed an exemption for up to $10 million in assessed value. Moreover, properties rented to low- or moderate-income elderly or handicapped families qualify for a partial exemption equal to the share of occupants that are low- or moderate- income elderly and handicapped families.
- Purpose. According to the author, AB 3152 will provide an incentive to developers to include rental units for low- to moderate-income households. Supporters of the note that many low- and moderate-income households have trouble finding affordable housing in high-cost areas.
- Related legislation. SB 1115 (Hill), of the 2017-18 Legislative Session, removes the $10 million in assessed value limitation for low-income housing owned and operated by an eligible non-profit organization that is not receiving government financing or tax credits. SB 1115 is currently pending on the Senate Appropriations Committee’s Suspense File.
Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081
Date of Hearing: May 9, 2018
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
David Chiu, Chair
ABPCA Bill Id:AB 3152 (
Author:Chiu) – As Amended Ver:April 16, 2018
SUBJECT: Property taxation: welfare exemption: rental housing: moderate income housing
SUMMARY: Creates a property tax exemption for newly constructed rental housing occupied by moderate-income households in certain counties if rents charged are 10% less than fair market rent for that county. Specifically, this bill:
- Exempts, under the welfare exemption, "qualified property" used exclusively for rental housing for moderate-income households and related facilities owned and operated by non-profit organizations, including limited partnerships in which the managing general partner is an eligible nonprofit corporation or an eligible limited liability company, as specified.
- Deems qualified property to be within the charitable exemption provided for in the California Constitution if the non-profit organization meets all the requirements of the welfare exemption (Article XIII Section 4(b) and Section 5; Revenue and Taxation Code (R&TC Section 214)).
- Allows a partial exemption equal to that percentage of the property's value that is equal to the percentage that the number of units serving moderate-income households represents to the total number of residential units.
- Allows the partial exemption percentage, as calculated above, to apply to related facilities.
- Defines "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.
- Requires the property owner to certify, under penalty of perjury, the following:
- For a nonprofit organization, that there is an enforceable and verifiable agreement with a public agency or a recorded deed restriction, or other legal document that restricts the project's usage and that provides that the units designated for use by moderate-income households are continuously available to, or occupied by, moderate-income households;
- For a limited partnership in which the managing partner is a nonprofit, that there is an enforceable and verifiable agreement with a public agency or a recorded deed restriction, which the limited partner certifies;
- 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, moderate-income household occupied units; and,
- That rents charged to the moderate-income households are at least 10% below the fair market rent for the county, as determined by the federal Department of Housing and Urban Development (HUD), or at least 10% below a higher rent that has been "certified" by the California Housing Finance Agency (CHFA) as fair market rent for the county.
- Requires the CHFA to review and certify the validity of a rent market study submitted by a city, county, or third party to establish a higher fair market rent for a county for purposes of the moderate-income exemption.
- Defines "moderate-income households" as households between 80% and 120% of Area Median Income (AMI).
- Defines a "qualified property" to mean a property that satisfies both of the following:
- Is located in a high-cost county; and
- Is a rental property of five or more units for which construction begins on or after January 1, 2019.
- Defines "high-cost county" as a county so identified by the CHFA.
- Requires rents to be offered at an affordable rent which is defined as 30% of a moderate income household's income.
- Takes immediate effect as a tax levy, but applies beginning with lien dates (January 1) occurring on and after January 1, 2019.
- Specifies that the state will not reimburse any local agency for any resulting property tax revenue loss from the exemption.
- Provides that reimbursement to local agencies shall be made for the costs, if the Commission on State Mandates determines that this bill contains state-mandated costs.
EXISTING LAW:
- Authorizes the Legislature to exempt from taxation, in whole or in part, 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.
- Exempts low-income rental housing owned and operated by non-profit organizations, including limited partnerships in which the managing general partner is an eligible nonprofit corporation, as specified. (R&TC Section 214(g).)
- Defines "low-income" as households at 80% of AMI adjusted for family size. Provides an exception for a unit occupied by a household that qualified at move-in but household income subsequently increased up to 140% AMI, provided the unit's rent remains restricted. (R&TC Section 214(g)(2)(C)(i).)
- Exempts moderate-income rental housing owned and operated by non-profit organizations, only if the housing is for elderly or disabled families and rented at an affordable rent. (R&TC Section 214(f).)
- Disallows the extension of the welfare exemption to both low-income and moderate-income rental housing for the elderly and disabled families where a non-profit organization does not own and operate the property and instead the non-profit serves as the managing general partner in a limited partnership. (R&TC Section 214(f).)
- Disallows the use of "other legal document" to certify low-income occupancy restrictions at specified rents where a non-profit serves as the managing general partner in a limited partnership. (R&TC Section 214(g)(2)(A)(ii).)
- Caps the exemption provided to a non-profit organization that owns and operates low-income housing to $10 million in assessed value for those properties the organization owns that do not receive government financing or income tax credits. (R&TC Section 214(g)(1)(C).)
FISCAL EFFECT: Unknown
COMMENTS:
Background: Article XIII, Section 4(b) of the California Constitution 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), of the 1987-88 Regular Session, 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]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." (R&TC Section 214(g)(2)(B).)
The existing welfare exemption is only available to non-profit developers who offer rental housing to households at or below 80% or AMI or less. This bill would expand the exemption to units rented to households between 80% and 120% of AMI. To qualify the rental unit must be rented at 10% below the HUD fair market rent (FRMs). Because HUD FMRs are updated every five years and do not always accurately reflect the market, a local government or a developer could pay for an alternative rent study and submit it to CalHFA for approval. In addition, developers could only charge households an affordable rental rate -- 30% of their household income in rent.
Purpose of this bill: According to the author, "AB 3152 would provide an incentive to developers to include rental units for community members who are often commuting long distances from low-cost areas because they cannot secure housing at an affordable rate. In order to receive the welfare exemption, developers would be required to certify under penalty of perjury that the funds needed to pay the property taxes are used to reduce the rents to moderate-income households. Importantly, while AB 3152 assists in the production of units for residents between 80% to 120% of AMI, it would not draw subsidy and resources away from state and federal programs restricted to funding rental units at or below 80% of AMI. Addressing the lack of units for extremely low- and very low-income households should be a priority for California. But the state can't afford to ignore the major gap in available housing for low- to moderate-income households. To adequately solve the housing crisis, we need a series of policies that make up a comprehensive solution.
Related legislation:
SB 1115 (Hill) would remove the $10 million in assessed value limitation for low-income housing owned and operated by an eligible non-profit organization that is not receiving government financing or tax credits. SB 1115 is pending hearing by the Senate Appropriations Committee.
AB 1193 (Gloria), Chapter 756, Statutes of 2017, extended the welfare exemption to units occupied by persons up to 140% of AMI if they were initially income qualified (80% of AMI) when they moved in, so long as rent restrictions remain in effect.
SB 2 (Atkins), Chapter 364, Statutes of 2017, in part, created a funding stream for affordable housing that included a component for moderate-income housing through additional fees charged when certain documents are recorded.
Double-referred: This bill is double-referred. It was heard in the Assembly Committee on Revenue and Taxation and passed out on a vote of 8-0 on April 9, 2018.
REGISTERED SUPPORT / OPPOSITION:
Support
Association of Regional Center Agencies
California Apartment Association
California Council for Affordable Housing
California Housing Consortium
Fiona Ma, CPA, Vice Chair, State Board of Equalization, District 2
LeadingAge California
Mark Farrell, Mayor, City of San Francisco
Non-Profit Housing Association of Northern California
Opposition
None on file
Analysis Prepared by: Lisa Engel / H. & C.D. / (916) 319-2085
Date of Hearing: April 9, 2018
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Autumn R. Burke, Chairwoman
ABPCA Bill Id:AB 3152 (
Author:Chiu) – As Amended Ver:April 3, 2018
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Property taxation: welfare exemption: rental housing: moderate income housing
SUMMARY: Creates a property tax exemption for rental housing occupied by moderate-income households in certain counties if rents charged are 10% less than fair market rent for that county. Specifically, this bill:
- Exempts, under the welfare exemption, "qualified property" used exclusively for rental housing for moderate-income households and related facilities owned and operated by non-profit organizations, including limited partnerships in which the managing general partner is an eligible nonprofit corporation or an eligible limited liability company, as specified.
- Deems qualified property to be within the charitable exemption provided for in the California Constitution if the non-profit organization meets all the requirements of the welfare exemption (Article XIII Section 4(b) and Section 5; Revenue and Taxation Code (R&TC Section 214)).
- Allows a partial exemption equal to that percentage of the property's value that is equal to the percentage that the number of units serving moderate-income households represents to the total number of residential units.
- Allows the partial exemption percentage, as calculated above, to apply to related facilities.
- Defines "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.
- Requires the property owner to certify, under penalty of perjury, the following:
- That there is an enforceable and verifiable agreement with a public agency, a recorded deed restriction, or other legal document that restricts the project's usage and that provides that the units designated for use by moderate-income households are continuously available to, or occupied by, moderate-income households;
- 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, moderate-income household occupied units; and,
- That rents charged to the moderate-income households are at least 10% below the fair market rent for the county, as determined by the federal Department of Housing and Urban Development (HUD), or at least 10% below a higher rent that has been "certified" by the California Housing Finance Agency (CHFA) as fair market rent for the county.
- Requires the CHFA to review and certify the validity of a rent market study submitted by a city, county, or third party to establish a higher fair market rent for a county for purposes of the moderate-income exemption.
- Defines "moderate-income households" as households between 80% and 120% of Area Median Income (AMI).
- Defines "qualified property" as property that is located in a high-cost county.
- Defines "high-cost county" as a county so identified by the CHFA.
- Provides competing definitions of "moderate-income household" and allowable "rent" by also defining the phrase "units serving moderate-income households" as units that are occupied by moderate-income households at an affordable rent, as defined by Health and Safety Code Section 50053.
- Takes immediate effect as a tax levy, but applies beginning with lien dates (January 1) occurring on and after January 1, 2019.
- Specifies that the state will not reimburse any local agency for any resulting property tax revenue loss from the exemption.
- Provides that reimbursement to local agencies shall be made for the costs, if the Commission on State Mandates determines that this bill contains state-mandated costs.
EXISTING LAW:
- Authorizes the Legislature to exempt from taxation, in whole or in part, 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.
- Exempts low-income rental housing owned and operated by non-profit organizations, including limited partnerships in which the managing general partner is an eligible nonprofit corporation, as specified. (R&TC Section 214(g).)
- Defines "low-income" as households at 80% of AMI adjusted for family size. Provides an exception for a unit occupied by a household that qualified at move-in but household income subsequently increased up to 140% AMI, provided the unit's rent remains restricted. (R&TC Section 214(g)(2)(C)(i).)
- Exempts moderate-income rental housing owned and operated by non-profit organizations, only if the housing is for elderly or disabled families and rented at an affordable rent. (R&TC Section 214(f).)
- Disallows the extension of the welfare exemption to both low-income and moderate-income rental housing for the elderly and disabled families where a non-profit organization does not own and operate the property and instead the non-profit serves as the managing general partner in a limited partnership. (R&TC Section 214(f).)
- Disallows the use of "other legal document" to certify low-income occupancy restrictions at specified rents where a non-profit serves as the managing general partner in a limited partnership. (R&TC Section 214(g)(2)(A)(ii).)
- Caps the exemption provided to a non-profit organization that owns and operates low-income housing to $10 million in assessed value for those properties the organization owns that do not receive government financing or income tax credits. (R&TC Section 214(g)(1)(C).)
FISCAL EFFECT: Unknown
COMMENTS:
- The author has provided the following statement in support of this bill
AB 3152 would provide an incentive to developers to include rental units for community members who are often commuting long distances from low-cost areas because they cannot secure housing at an affordable rate.
In order to receive the welfare exemption, developers would be required to certify under penalty of perjury that the funds needed to pay the property taxes are needed to reduce the rents to moderate-income households.
Importantly, while AB 3152 assists in the production of units for residents between 80% to 120% of AMI, it would not draw subsidy and resources away from state and federal programs restricted to funding rental units at or below 80% of AMI.
Addressing the lack of units for extremely low- and very low-income households should be a priority for California. But the state can't afford to ignore the major gap in available housing for low- to moderate-income households. To adequately solve the housing crisis, we need a series of policies that make up a comprehensive solution.
- In support of this bill the California Council for Affordable Housing states:
California's housing crisis disproportionately affects low- and very low-income households, however many low- and moderate-income household also have trouble renting a home at an affordable level, particularly in high cost areas. According to the National Low Income Housing Coalition, California has a short-fall of 61,000 moderate income housing units.
In 2017, as part of the housing package, SB 2 (Atkins), Chapter 364, directed 15% of the revenues from the recording fee to the California Housing Financing Agency (CalHFA) to fund the construction of rental units for the "missing middle" or 80% to 120% of AMI. This bill would assist in the creation of those units by providing an additional subsidy in the form of a property tax exemption that can be invested into the developments, reducing the cost of the units.
- Committee Staff Comments:
- Is providing rental housing for moderate-income households at a 10% rent reduction charitable? This bill sets a precedent of exempting moderate-income rental housing that does not serve persons with special needs, such as the elderly and disabled. Courts have noted, with respect to the rental housing exemption provided to the elderly and the disabled, that "[s]ince the enactment of the Statute of Charitable Uses [1601] during the reign of Elizabeth, aid to the aged and infirm has been recognized as charitable." The courts have taken the view that constitutional provisions granting exemptions are to be construed strictly, but reasonably.
- Reasonable public benefit? The moderate-income exemption does not appear to require specific affordable rents. Instead, the standard is 10% below certain federally established fair market rents, but these amounts could be challenged to allow an even higher fair market rent basis upon which to deduct 10%. Long-term tenants may already have rents set at below 10% of market due to their tenure. Is a 10% fair market rent reduction to qualify for a property tax exemption a fair exchange to the public in terms of the community benefit? Is it a fair exchange with respect to the foregone property tax revenue loss? This question is particularly pressing, since the proposed exemption permits the two-entity structure currently only allowed under the welfare exemption for low-income housing - that is, a limited partnership with for-profit limited partners and a non-profit managing general partner.
- The high-cost counties: Of the 58 counties, the CHFA has identified 36 counties as "high-cost" counties. Thus, this bill extends moderate-income exemption availability to rental housing in every county but 22, which comprises the majority of the state. The composition of the counties, however, can change from year to year. For example, in 2017, San Joaquin County and Stanislaus County became "high-cost" counties and Butte County was dropped. This raises implementation considerations. Is the exemption revocable from year-to-year?
- Does this bill unintentionally create an incentive to convert existing low-income housing units to moderate-income housing units? For both exemptions, a 100% exemption would be available. Yet, the moderate-income exemption will have fewer restrictions while at the same time allowing higher rents –10% less than market. Will property owners transition their rental units from low-income to moderate-income units as soon as possible?
- What is past is prologue: In 1999, the Legislature placed limits on the low-income rental housing exemption after investigations revealed that substandard housing was benefiting because occupancy of the units by low-income persons was sufficient - that is to say, naturally occurring low-income housing. A series of reforms was instituted. A particular focus was the two-entity structure, unique in the welfare exemption, for low-income housing. (AB 1559 (Wiggins), Chapter 927, Statutes of 1999.) Does this bill sufficiently ensure that tax exemptions will not be bestowed on pre-existing substandard properties? Or, upon decent housing today, destined to become substandard in the future? Without sufficient controls, this bill raises the possibility of a repeat scenario.
- Deed restrictions and enforceable governmental agreements: This bill allows the limited partnership two-entity structure to use an "other legal document" to essentially allow the limited partnership to "self-impose" the moderate-income rent and occupancy restrictions rather than through a deed restriction or an enforceable and verifiable recorded agreement with a governmental entity. Committee staff notes for the low-income housing exemption, the “other legal document” is impermissible for limited partnerships. (See R&TC Section 214(g)(2)(A)(ii).) Typically, limited partnerships enter into enforceable agreements with a governmental entity, allowing some oversight to ensure that the restrictions are being followed.
- Erosion of the property tax base: Rental residential housing is a core component of the property tax base. Property tax revenues are a primary source of local government funding. Beginning in 2015, the Legislature prohibited payment in lieu of taxes (PILOT) agreements, which are agreements between a local government and a property owner of a low-income housing project that require the owner to pay a charge to compensate for lost revenue. (SB 1203 (Jackson) Chapter 693, Statutes of 2014, and AB 1760 (Chau and Bocanegra) Chapter 671, Statutes of 2014. In 2017, the low-income exemption was extended to units occupied by tenants earning up to 140% of AMI so long as they were qualified when they initially moved in. The two-prong impact of more people and property requiring government services, but no property tax revenue, puts financial pressure on local governments to reduce or cut services or enact parcel taxes, other special taxes, or property-related charges and fees to fund necessary local government services.
- Allows single family residences: While the welfare exemption applies to rental housing, it is not limited to rental multifamily housing developments. Thus, single-family residences, small multifamily residences (e.g., duplex, triplex, fourplex) and apartments can qualify. Private investment firms purchased thousands of single-family residences during the foreclosure crisis, which were turned into rental housing. Does this bill create opportunities for private investment firms to partner with a managing non-profit general partner to exempt these homes from property tax? Smaller landlords could also use this provision to structure ownership to avail themselves of the property tax exemption on their residential rental properties.
- Double definitions: This bill provides conflicting definitions of "moderate-income household" and allowable "rent." Corrective amendments are necessary.
- Possible modifications. To address the policy considerations noted above, when expanding the umbrella of the welfare exemption to include moderate-income rental housing, the Committee may wish to consider one or more of the following options:
- Limit the exemption to new multi-family housing developments.
- Limit the exemption to multi-family housing developments of a minimum number of units. (That is, exclude single-family homes, and small multi-family residences.)
- Differentiate between the two rental housing exemptions offered to provide a less generous exemption to moderate-income housing than low-income housing:
- Limit the exemption to a finite number of years from initial construction to kick-start construction.
- Limit the exemption to a level less than 100%.
- Limit the exemption to new multi-family housing developments that will receive funding from the new recording fee revenues for moderate-income housing construction.
- Increase the minimum rent reduction from 10% to a larger amount.
- Limit the counties eligible for the exemption, focusing on the most needy California locations.
- Related legislation:
- SB 1115 (Hill) would remove the $10 million in assessed value limitation for low-income housing owned and operated by an eligible non-profit organization that is not receiving government financing or tax credits. SB 1115 is pending hearing by the Senate Appropriations Committee.
- AB 1193 (Gloria), Chapter 756, Statutes of 2017, extended the welfare exemption to units occupied by persons up to 140% of AMI if they were initially income qualified (80% of AMI) when they moved in, so long as rent restrictions remain in effect.
- SB 2 (Atkins), Chapter 364, Statutes of 2017, in part, created a funding stream for affordable housing that included a component for moderate-income housing through additional fees charged when certain documents are recorded.
- Previous legislation: AB 2818 (Chiu), Chapter 701, Statutes of 2015, included provisions to exempt properties providing moderate-income housing relating to community land trusts. These provisions were deleted prior to enactment.
REGISTERED SUPPORT / OPPOSITION:
Support
California Apartment Association
California Council for Affordable Housing
LeadingAge California
Non-Profit Housing Association of Northern California
Opposition
None on file
Analysis Prepared by: Rose Marie Kinnee / REV. & TAX. / (916) 319-2098
Discussed in Hearing
10MIN
Assembly Standing Committee on Housing and Community Development
14MIN
Assembly Standing Committee on Revenue and Taxation
Bill Co-Author(s):
