The California Constitution generally limits ad valorem taxes on real property to 1% of the full cash value of that property. For purposes of this limitation, full cash value is defined as the assessors valuation of real property as shown on the 197576 tax bill under full cash value or, thereafter, the appraised value of that real property when purchased, newly constructed, or a change in ownership has occurred. The California Constitution authorizes the Legislature to provide that persons over 55 years of age and severely disabled homeowners may transfer the base year value, as provided, of real property that is eligible for a homeowners property tax exemption to a replacement dwelling, if certain conditions are met.

This measure would additionally authorize the Legislature to provide for a similar transfer of base year value of real property to a replacement dwelling for homeowners who are honorably discharged veterans. qualified veterans, as defined. The measure would limit this provision to replacement dwellings purchased or newly constructed on or after the effective date of the measure.

The California Constitution generally limits ad valorem taxes on real property to 1% of the full cash value of that property. For purposes of this limitation, full cash value is defined as the assessors valuation of real property as shown on the 197576 tax bill under full cash value or, thereafter, the appraised value of that real property when purchased, newly constructed, or a change in ownership has occurred. The California Constitution authorizes the Legislature to provide that persons over 55 years of age and severely disabled homeowners may transfer the base year value, as provided, of real property that is eligible for a homeowners property tax exemption to a replacement dwelling, if certain conditions are met.

This measure would additionally authorize the Legislature to provide for a similar transfer of base year value of real property to a replacement dwelling for homeowners who are honorably discharged veterans. The measure would limit this provision to replacement dwellings purchased or newly constructed on or after the effective date of the measure.

Resolved by the Senate, the Assembly concurring, That the Legislature of the State of California at its 201718 Regular Session commencing on the fifth day of December 2016, two-thirds of the membership of each house concurring, hereby proposes to the people of the State of California, that the Constitution of the State be amended as follows:

(a)(1)The full cash value means the county assessors valuation of real property as shown on the 197576 tax bill under full cash value or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment. All real property not already assessed up to the 197576 full cash value may be reassessed to reflect that valuation. For purposes of this section, newly constructed does not include real property that is reconstructed after a disaster, as declared by the Governor, where the fair market value of the real property, as reconstructed, is comparable to its fair market value prior to the disaster. For purposes of this section, the term newly constructed does not include that portion of an existing structure that consists of the construction or reconstruction of seismic retrofitting components, as defined by the Legislature.

(2)However, the Legislature may provide that, under appropriate circumstances and pursuant to definitions and procedures established by the Legislature, any person over the age of 55 years who resides in property that is eligible for the homeowners exemption under subdivision (k) of Section 3 of Article XIII and any implementing legislation may transfer the base year value of the property entitled to exemption, with the adjustments authorized by subdivision (b), to any replacement dwelling of equal or lesser value located within the same county and purchased or newly constructed by that person as his or her principal residence within two years of the sale of the original property. For purposes of this section, any person over the age of 55 years includes a married couple one member of which is over the age of 55 years. For purposes of this section, replacement dwelling means a building, structure, or other shelter constituting a place of abode, whether real property or personal property, and any land on which it may be situated. For purposes of this section, a two-dwelling unit shall be considered as two separate single-family dwellings. This paragraph shall apply to any replacement dwelling that was purchased or newly constructed on or after November 5, 1986.

(3)In addition, the Legislature may authorize each county board of supervisors, after consultation with the local affected agencies within the countys boundaries, to adopt an ordinance making the provisions of this subdivision relating to transfer of base year value also applicable to situations in which the replacement dwellings are located in that county and the original properties are located in another county within this State. For purposes of this paragraph, local affected agency means any city, special district, school district, or community college district that receives an annual property tax revenue allocation. This paragraph applies to any replacement dwelling that was purchased or newly constructed on or after the date the county adopted the provisions of this subdivision relating to transfer of base year value, but does not apply to any replacement dwelling that was purchased or newly constructed before November 9, 1988.

(4)The Legislature may extend the provisions of this subdivision relating to the transfer of base year values from original properties to replacement dwellings of homeowners over the age of 55 years to either or both of the following:

(A)Severely disabled homeowners, but only with respect to those replacement dwellings purchased or newly constructed on or after June 6, 1990.

(B)(i)Homeowners who are honorably discharged qualified veterans, but only with respect to those replacement dwellings purchased or newly constructed on or after the effective date of this subparagraph.

(b)The full cash value base may reflect from year to year the inflationary rate not to exceed 2 percent for any given year or reduction as shown in the consumer price index or comparable data for the area under taxing jurisdiction, or may be reduced to reflect substantial damage, destruction, or other factors causing a decline in value.

(c)For purposes of subdivision (a), the Legislature may provide that the term newly constructed does not include any of the following:

(1)The construction or addition of any active solar energy system.

(2)The construction or installation of any fire sprinkler system, other fire extinguishing system, fire detection system, or fire-related egress improvement, as defined by the Legislature, that is constructed or installed after the effective date of this paragraph.

(3)The construction, installation, or modification on or after the effective date of this paragraph of any portion or structural component of a single- or multiple-family dwelling that is eligible for the homeowners exemption if the construction, installation, or modification is for the purpose of making the dwelling more accessible to a severely disabled person.

(4)The construction, installation, removal, or modification on or after the effective date of this paragraph of any portion or structural component of an existing building or structure if the construction, installation, removal, or modification is for the purpose of making the building more accessible to, or more usable by, a disabled person.

(d)For purposes of this section, the term change in ownership does not include the acquisition of real property as a replacement for comparable property if the person acquiring the real property has been displaced from the property replaced by eminent domain proceedings, by acquisition by a public entity, or governmental action that has resulted in a judgment of inverse condemnation. The real property acquired shall be deemed comparable to the property replaced if it is similar in size, utility, and function, or if it conforms to state regulations defined by the Legislature governing the relocation of persons displaced by governmental actions. This subdivision applies to any property acquired after March 1, 1975, but affects only those assessments of that property that occur after the provisions of this subdivision take effect.

(e)(1)Notwithstanding any other provision of this section, the Legislature shall provide that the base year value of property that is substantially damaged or destroyed by a disaster, as declared by the Governor, may be transferred to comparable property within the same county that is acquired or newly constructed as a replacement for the substantially damaged or destroyed property.

(2)Except as provided in paragraph (3), this subdivision applies to any comparable replacement property acquired or newly constructed on or after July 1, 1985, and to the determination of base year values for the 198586 fiscal year and fiscal years thereafter.

(3)In addition to the transfer of base year value of property within the same county that is permitted by paragraph (1), the Legislature may authorize each county board of supervisors to adopt, after consultation with affected local agencies within the county, an ordinance allowing the transfer of the base year value of property that is located within another county in the State and is substantially damaged or destroyed by a disaster, as declared by the Governor, to comparable replacement property of equal or lesser value that is located within the adopting county and is acquired or newly constructed within three years of the substantial damage or destruction of the original property as a replacement for that property. The scope and amount of the benefit provided to a property owner by the transfer of base year value of property pursuant to this paragraph shall not exceed the scope and amount of the benefit provided to a property owner by the transfer of base year value of property pursuant to subdivision (a). For purposes of this paragraph, affected local agency means any city, special district, school district, or community college district that receives an annual allocation of ad valorem property tax revenues. This paragraph applies to any comparable replacement property that is acquired or newly constructed as a replacement for property substantially damaged or destroyed by a disaster, as declared by the Governor, occurring on or after October 20, 1991, and to the determination of base year values for the 199192 fiscal year and fiscal years thereafter.

(f)For the purposes of subdivision (e):

(1)Property is substantially damaged or destroyed if it sustains physical damage amounting to more than 50 percent of its value immediately before the disaster. Damage includes a diminution in the value of property as a result of restricted access caused by the disaster.

(2)Replacement property is comparable to the property substantially damaged or destroyed if it is similar in size, utility, and function to the property that it replaces, and if the fair market value of the acquired property is comparable to the fair market value of the replaced property prior to the disaster.

(g)For purposes of subdivision (a), the terms purchased and change in ownership do not include the purchase or transfer of real property between spouses since March 1, 1975, including, but not limited to, all of the following:

(1)Transfers to a trustee for the beneficial use of a spouse, or the surviving spouse of a deceased transferor, or by a trustee of such a trust to the spouse of the trustor.

(2)Transfers to a spouse that take effect upon the death of a spouse.

(3)Transfers to a spouse or former spouse in connection with a property settlement agreement or decree of dissolution of a marriage or legal separation.

(4)The creation, transfer, or termination, solely between spouses, of any coowners interest.

(5)The distribution of a legal entitys property to a spouse or former spouse in exchange for the interest of the spouse in the legal entity in connection with a property settlement agreement or a decree of dissolution of a marriage or legal separation.

(h)(1)For purposes of subdivision (a), the terms purchased and change in ownership do not include the purchase or transfer of the principal residence of the transferor in the case of a purchase or transfer between parents and their children, as defined by the Legislature, and the purchase or transfer of the first one million dollars ($1,000,000) of the full cash value of all other real property between parents and their children, as defined by the Legislature. This subdivision applies to both voluntary transfers and transfers resulting from a court order or judicial decree.

(2)(A)Subject to subparagraph (B), commencing with purchases or transfers that occur on or after the date upon which the measure adding this paragraph becomes effective, the exclusion established by paragraph (1) also applies to a purchase or transfer of real property between grandparents and their grandchild or grandchildren, as defined by the Legislature, that otherwise qualifies under paragraph (1), if all of the parents of that grandchild or those grandchildren, who qualify as the children of the grandparents, are deceased as of the date of the purchase or transfer.

(B)A purchase or transfer of a principal residence shall not be excluded pursuant to subparagraph (A) if the transferee grandchild or grandchildren also received a principal residence, or interest therein, through another purchase or transfer that was excludable pursuant to paragraph (1). The full cash value of any real property, other than a principal residence, that was transferred to the grandchild or grandchildren pursuant to a purchase or transfer that was excludable pursuant to paragraph (1), and the full cash value of a principal residence that fails to qualify for exclusion as a result of the preceding sentence, shall be included in applying, for purposes of subparagraph (A), the one-million-dollar ($1,000,000) full cash value limit specified in paragraph (1).

(i)(1)Notwithstanding any other provision of this section, the Legislature shall provide with respect to a qualified contaminated property, as defined in paragraph (2), that either, but not both, of the following apply:

(A)(i)Subject to the limitation of clause (ii), the base year value of the qualified contaminated property, as adjusted as authorized by subdivision (b), may be transferred to a replacement property that is acquired or newly constructed as a replacement for the qualified contaminated property, if the replacement real property has a fair market value that is equal to or less than the fair market value of the qualified contaminated property if that property were not contaminated and, except as otherwise provided by this clause, is located within the same county. The base year value of the qualified contaminated property may be transferred to a replacement real property located within another county if the board of supervisors of that other county has, after consultation with the affected local agencies within that county, adopted a resolution authorizing an intercounty transfer of base year value as so described.

(ii)This subparagraph applies only to replacement property that is acquired or newly constructed within five years after ownership in the qualified contaminated property is sold or otherwise transferred.

(B)In the case in which the remediation of the environmental problems on the qualified contaminated property requires the destruction of, or results in substantial damage to, a structure located on that property, the term new construction does not include the repair of a substantially damaged structure, or the construction of a structure replacing a destroyed structure on the qualified contaminated property, performed after the remediation of the environmental problems on that property, provided that the repaired or replacement structure is similar in size, utility, and function to the original structure.

(2)For purposes of this subdivision, qualified contaminated property means residential or nonresidential real property that is all of the following:

(A)In the case of residential real property, rendered uninhabitable, and in the case of nonresidential real property, rendered unusable, as the result of either environmental problems, in the nature of and including, but not limited to, the presence of toxic or hazardous materials, or the remediation of those environmental problems, except where the existence of the environmental problems was known to the owner, or to a related individual or entity as described in paragraph (3), at the time the real property was acquired or constructed. For purposes of this subparagraph, residential real property is uninhabitable if that property, as a result of health hazards caused by or associated with the environmental problems, is unfit for human habitation, and nonresidential real property is unusable if that property, as a result of health hazards caused by or associated with the environmental problems, is unhealthy and unsuitable for occupancy.

(B)Located on a site that has been designated as a toxic or environmental hazard or as an environmental cleanup site by an agency of the State of California or the federal government.

(C)Real property that contains a structure or structures thereon prior to the completion of environmental cleanup activities, and that structure or structures are substantially damaged or destroyed as a result of those environmental cleanup activities.

(D)Stipulated by the lead governmental agency, with respect to the environmental problems or environmental cleanup of the real property, not to have been rendered uninhabitable or unusable, as applicable, as described in subparagraph (A), by any act or omission in which an owner of that real property participated or acquiesced.

(3)It shall be rebuttably presumed that an owner of the real property participated or acquiesced in any act or omission that rendered the real property uninhabitable or unusable, as applicable, if that owner is related to any individual or entity that committed that act or omission in any of the following ways:

(A)Is a spouse, parent, child, grandparent, grandchild, or sibling of that individual.

(B)Is a corporate parent, subsidiary, or affiliate of that entity.

(C)Is an owner of, or has control of, that entity.

(D)Is owned or controlled by that entity.

If this presumption is not overcome, the owner shall not receive the relief provided for in subparagraph (A) or (B) of paragraph (1). The presumption may be overcome by presentation of satisfactory evidence to the assessor, who shall not be bound by the findings of the lead governmental agency in determining whether the presumption has been overcome.

(4)This subdivision applies only to replacement property that is acquired or constructed on or after January 1, 1995, and to property repairs performed on or after that date.

(j)Unless specifically provided otherwise, amendments to this section adopted prior to November 1, 1988, are effective for changes in ownership that occur, and new construction that is completed, after the effective date of the amendment. Unless specifically provided otherwise, amendments to this section adopted after November 1, 1988, are effective for changes in ownership that occur, and new construction that is completed, on or after the effective date of the amendment.

Resolved by the Senate, the Assembly concurring, That the Legislature of the State of California at its 201718 Regular Session commencing on the fifth day of December 2016, two-thirds of the membership of each house concurring, hereby proposes to the people of the State of California, that the Constitution of the State be amended as follows:

(a)(1)The full cash value means the county assessors valuation of real property as shown on the 197576 tax bill under full cash value or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment. All real property not already assessed up to the 197576 full cash value may be reassessed to reflect that valuation. For purposes of this section, newly constructed does not include real property that is reconstructed after a disaster, as declared by the Governor, where the fair market value of the real property, as reconstructed, is comparable to its fair market value prior to the disaster. For purposes of this section, the term newly constructed does not include that portion of an existing structure that consists of the construction or reconstruction of seismic retrofitting components, as defined by the Legislature.

(2)However, the Legislature may provide that, under appropriate circumstances and pursuant to definitions and procedures established by the Legislature, any person over the age of 55 years who resides in property that is eligible for the homeowners exemption under subdivision (k) of Section 3 of Article XIII and any implementing legislation may transfer the base year value of the property entitled to exemption, with the adjustments authorized by subdivision (b), to any replacement dwelling of equal or lesser value located within the same county and purchased or newly constructed by that person as his or her principal residence within two years of the sale of the original property. For purposes of this section, any person over the age of 55 years includes a married couple one member of which is over the age of 55 years. For purposes of this section, replacement dwelling means a building, structure, or other shelter constituting a place of abode, whether real property or personal property, and any land on which it may be situated. For purposes of this section, a two-dwelling unit shall be considered as two separate single-family dwellings. This paragraph shall apply to any replacement dwelling that was purchased or newly constructed on or after November 5, 1986.

(3)In addition, the Legislature may authorize each county board of supervisors, after consultation with the local affected agencies within the countys boundaries, to adopt an ordinance making the provisions of this subdivision relating to transfer of base year value also applicable to situations in which the replacement dwellings are located in that county and the original properties are located in another county within this State. For purposes of this paragraph, local affected agency means any city, special district, school district, or community college district that receives an annual property tax revenue allocation. This paragraph applies to any replacement dwelling that was purchased or newly constructed on or after the date the county adopted the provisions of this subdivision relating to transfer of base year value, but does not apply to any replacement dwelling that was purchased or newly constructed before November 9, 1988.

(4)The Legislature may extend the provisions of this subdivision relating to the transfer of base year values from original properties to replacement dwellings of homeowners over the age of 55 years to severely either or both of the following:

(A)Severely disabled homeowners, but only with respect to those replacement dwellings purchased or newly constructed on or after the effective date of this paragraph. June 6, 1990.

(b)The full cash value base may reflect from year to year the inflationary rate not to exceed 2 percent for any given year or reduction as shown in the consumer price index or comparable data for the area under taxing jurisdiction, or may be reduced to reflect substantial damage, destruction, or other factors causing a decline in value.

(c)For purposes of subdivision (a), the Legislature may provide that the term newly constructed does not include any of the following:

(1)The construction or addition of any active solar energy system.

(2)The construction or installation of any fire sprinkler system, other fire extinguishing system, fire detection system, or fire-related egress improvement, as defined by the Legislature, that is constructed or installed after the effective date of this paragraph.

(3)The construction, installation, or modification on or after the effective date of this paragraph of any portion or structural component of a single- or multiple-family dwelling that is eligible for the homeowners exemption if the construction, installation, or modification is for the purpose of making the dwelling more accessible to a severely disabled person.

(4)The construction, installation, removal, or modification on or after the effective date of this paragraph of any portion or structural component of an existing building or structure if the construction, installation, removal, or modification is for the purpose of making the building more accessible to, or more usable by, a disabled person.

(d)For purposes of this section, the term change in ownership does not include the acquisition of real property as a replacement for comparable property if the person acquiring the real property has been displaced from the property replaced by eminent domain proceedings, by acquisition by a public entity, or governmental action that has resulted in a judgment of inverse condemnation. The real property acquired shall be deemed comparable to the property replaced if it is similar in size, utility, and function, or if it conforms to state regulations defined by the Legislature governing the relocation of persons displaced by governmental actions. This subdivision applies to any property acquired after March 1, 1975, but affects only those assessments of that property that occur after the provisions of this subdivision take effect.

(e)(1)Notwithstanding any other provision of this section, the Legislature shall provide that the base year value of property that is substantially damaged or destroyed by a disaster, as declared by the Governor, may be transferred to comparable property within the same county that is acquired or newly constructed as a replacement for the substantially damaged or destroyed property.

(2)Except as provided in paragraph (3), this subdivision applies to any comparable replacement property acquired or newly constructed on or after July 1, 1985, and to the determination of base year values for the 198586 fiscal year and fiscal years thereafter.

(3)In addition to the transfer of base year value of property within the same county that is permitted by paragraph (1), the Legislature may authorize each county board of supervisors to adopt, after consultation with affected local agencies within the county, an ordinance allowing the transfer of the base year value of property that is located within another county in the State and is substantially damaged or destroyed by a disaster, as declared by the Governor, to comparable replacement property of equal or lesser value that is located within the adopting county and is acquired or newly constructed within three years of the substantial damage or destruction of the original property as a replacement for that property. The scope and amount of the benefit provided to a property owner by the transfer of base year value of property pursuant to this paragraph shall not exceed the scope and amount of the benefit provided to a property owner by the transfer of base year value of property pursuant to subdivision (a). For purposes of this paragraph, affected local agency means any city, special district, school district, or community college district that receives an annual allocation of ad valorem property tax revenues. This paragraph applies to any comparable replacement property that is acquired or newly constructed as a replacement for property substantially damaged or destroyed by a disaster, as declared by the Governor, occurring on or after October 20, 1991, and to the determination of base year values for the 199192 fiscal year and fiscal years thereafter.

(f)For the purposes of subdivision (e):

(1)Property is substantially damaged or destroyed if it sustains physical damage amounting to more than 50 percent of its value immediately before the disaster. Damage includes a diminution in the value of property as a result of restricted access caused by the disaster.

(2)Replacement property is comparable to the property substantially damaged or destroyed if it is similar in size, utility, and function to the property that it replaces, and if the fair market value of the acquired property is comparable to the fair market value of the replaced property prior to the disaster.

(g)For purposes of subdivision (a), the terms purchased and change in ownership do not include the purchase or transfer of real property between spouses since March 1, 1975, including, but not limited to, all of the following:

(1)Transfers to a trustee for the beneficial use of a spouse, or the surviving spouse of a deceased transferor, or by a trustee of such a trust to the spouse of the trustor.

(2)Transfers to a spouse that take effect upon the death of a spouse.

(3)Transfers to a spouse or former spouse in connection with a property settlement agreement or decree of dissolution of a marriage or legal separation.

(4)The creation, transfer, or termination, solely between spouses, of any coowners interest.

(5)The distribution of a legal entitys property to a spouse or former spouse in exchange for the interest of the spouse in the legal entity in connection with a property settlement agreement or a decree of dissolution of a marriage or legal separation.

(h)(1)For purposes of subdivision (a), the terms purchased and change in ownership do not include the purchase or transfer of the principal residence of the transferor in the case of a purchase or transfer between parents and their children, as defined by the Legislature, and the purchase or transfer of the first one million dollars ($1,000,000) of the full cash value of all other real property between parents and their children, as defined by the Legislature. This subdivision applies to both voluntary transfers and transfers resulting from a court order or judicial decree.

(2)(A)Subject to subparagraph (B), commencing with purchases or transfers that occur on or after the date upon which the measure adding this paragraph becomes effective, the exclusion established by paragraph (1) also applies to a purchase or transfer of real property between grandparents and their grandchild or grandchildren, as defined by the Legislature, that otherwise qualifies under paragraph (1), if all of the parents of that grandchild or those grandchildren, who qualify as the children of the grandparents, are deceased as of the date of the purchase or transfer.

(B)A purchase or transfer of a principal residence shall not be excluded pursuant to subparagraph (A) if the transferee grandchild or grandchildren also received a principal residence, or interest therein, through another purchase or transfer that was excludable pursuant to paragraph (1). The full cash value of any real property, other than a principal residence, that was transferred to the grandchild or grandchildren pursuant to a purchase or transfer that was excludable pursuant to paragraph (1), and the full cash value of a principal residence that fails to qualify for exclusion as a result of the preceding sentence, shall be included in applying, for purposes of subparagraph (A), the one-million-dollar ($1,000,000) full cash value limit specified in paragraph (1).

(i)(1)Notwithstanding any other provision of this section, the Legislature shall provide with respect to a qualified contaminated property, as defined in paragraph (2), that either, but not both, of the following apply:

(A)(i)Subject to the limitation of clause (ii), the base year value of the qualified contaminated property, as adjusted as authorized by subdivision (b), may be transferred to a replacement property that is acquired or newly constructed as a replacement for the qualified contaminated property, if the replacement real property has a fair market value that is equal to or less than the fair market value of the qualified contaminated property if that property were not contaminated and, except as otherwise provided by this clause, is located within the same county. The base year value of the qualified contaminated property may be transferred to a replacement real property located within another county if the board of supervisors of that other county has, after consultation with the affected local agencies within that county, adopted a resolution authorizing an intercounty transfer of base year value as so described.

(ii)This subparagraph applies only to replacement property that is acquired or newly constructed within five years after ownership in the qualified contaminated property is sold or otherwise transferred.

(B)In the case in which the remediation of the environmental problems on the qualified contaminated property requires the destruction of, or results in substantial damage to, a structure located on that property, the term new construction does not include the repair of a substantially damaged structure, or the construction of a structure replacing a destroyed structure on the qualified contaminated property, performed after the remediation of the environmental problems on that property, provided that the repaired or replacement structure is similar in size, utility, and function to the original structure.

(2)For purposes of this subdivision, qualified contaminated property means residential or nonresidential real property that is all of the following:

(A)In the case of residential real property, rendered uninhabitable, and in the case of nonresidential real property, rendered unusable, as the result of either environmental problems, in the nature of and including, but not limited to, the presence of toxic or hazardous materials, or the remediation of those environmental problems, except where the existence of the environmental problems was known to the owner, or to a related individual or entity as described in paragraph (3), at the time the real property was acquired or constructed. For purposes of this subparagraph, residential real property is uninhabitable if that property, as a result of health hazards caused by or associated with the environmental problems, is unfit for human habitation, and nonresidential real property is unusable if that property, as a result of health hazards caused by or associated with the environmental problems, is unhealthy and unsuitable for occupancy.

(B)Located on a site that has been designated as a toxic or environmental hazard or as an environmental cleanup site by an agency of the State of California or the federal government.

(C)Real property that contains a structure or structures thereon prior to the completion of environmental cleanup activities, and that structure or structures are substantially damaged or destroyed as a result of those environmental cleanup activities.

(D)Stipulated by the lead governmental agency, with respect to the environmental problems or environmental cleanup of the real property, not to have been rendered uninhabitable or unusable, as applicable, as described in subparagraph (A), by any act or omission in which an owner of that real property participated or acquiesced.

(3)It shall be rebuttably presumed that an owner of the real property participated or acquiesced in any act or omission that rendered the real property uninhabitable or unusable, as applicable, if that owner is related to any individual or entity that committed that act or omission in any of the following ways:

(A)Is a spouse, parent, child, grandparent, grandchild, or sibling of that individual.

(B)Is a corporate parent, subsidiary, or affiliate of that entity.

(C)Is an owner of, or has control of, that entity.

(D)Is owned or controlled by that entity.

If this presumption is not overcome, the owner shall not receive the relief provided for in subparagraph (A) or (B) of paragraph (1). The presumption may be overcome by presentation of satisfactory evidence to the assessor, who shall not be bound by the findings of the lead governmental agency in determining whether the presumption has been overcome.

(4)This subdivision applies only to replacement property that is acquired or constructed on or after January 1, 1995, and to property repairs performed on or after that date.

(j)Unless specifically provided otherwise, amendments to this section adopted prior to November 1, 1988, are effective for changes in ownership that occur, and new construction that is completed, after the effective date of the amendment. Unless specifically provided otherwise, amendments to this section adopted after November 1, 1988, are effective for changes in ownership that occur, and new construction that is completed, on or after the effective date of the amendment.

SENATE COMMITTEE ON

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SCA 19 (Gaines) - Property taxation: base year value transfers: qualified veterans

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

SCA 19, if approved by the voters, would amend the California Constitution to allow homeowners who are honorably discharged veterans to claim a base year value transfer.

Fiscal Impact:

• This bill would result in one-time General Fund costs to the Secretary of State (SOS) in the range of $438,000 to $584,000, likely in 2018-19, for printing and mailing costs to place the measure on the ballot in a statewide election. Actual costs may be higher or lower, depending on the length of required elements and the overall size of the ballot.
• The Board of Equalization (BOE) indicates that the bill would result in an annual property tax revenue loss of $105 million. Reductions in local property tax revenues, in turn, increase General Fund Proposition 98 spending by up to roughly 50 percent (the exact amount depends on the specific amount of the annual Proposition 98 guarantee, which in turns depends upon a variety of economic, demographic and budgetary factors). BOE would incur absorbable costs to update publications and its Internet site.

Background:

The California Constitution provides that all property is taxable unless explicitly exempted by the Constitution or federal law. The Constitution (1) limits the maximum amount of any ad valorem tax on real property at 1 percent of full cash value, plus any locally-authorized bonded indebtedness, and (2) provides that assessors can only reappraise property whenever it is purchased, newly constructed, or when ownership changes (Proposition 13, 1978). Proposition 13 also limits on the inflationary growth of real property value to 2 percent per year.

Thus, when real property is purchased, the county assessor assigns it an assessed value that is equal to its purchase price, or “acquisition value,” referred to as the "base year value." Each year thereafter, the property’s assessed value increases by 2 percent or the rate of inflation (as measured by the California Consumer Price Index), whichever is lower. This process continues until the property is sold, at which point the county assessor again assigns it an assessed value equal to its most recent purchase price. In other words, a property’s assessed value resets to market value (what a willing buyer would pay for it) when it is sold. In most years, under this assessment practice, a property’s market value is greater than its assessed value. This occurs because assessed values increase by a maximum of 2 percent per year, whereas market values tend to increase more rapidly. Therefore, as long as a property does not change ownership, its assessed value increases predictably from one year to the next and is unaffected by higher annual increases in market value.

For example, a home purchased in 2011 for $300,000, has a maximum taxable base year value of $306,000 in 2012, $312,200 in 2013, $318,440 in 2014, $325,808 in 2015, and $332,324 in 2016. This base year value is then multiplied by the appropriate rate (usually 1 percent, but can be slightly more) to determine tax due. The annual values in the years after the home was purchased are referred to as factored base year values.

Reassessment limits and capped inflation growth ensure a predictable, slowly growing tax obligation for the taxpayer, and predictable revenue for local agencies; however, these provisions may also result in a taxable base year value below the property’s fair market value, which grows in magnitude the longer the assessor hasn’t reassessed the property. In most cases, this system results in shifting the cost of public services from incumbent homeowners onto individuals who recently purchased property.

Under certain circumstances, property owners may avoid reassessment when acquiring or purchasing a particular property by way of a base year value transfer. As an example, Proposition 50 (approved in 1986) allows taxpayers to transfer their base year value when their property is damaged by a major misfortune or calamity and located in an area declared to be in a state of disaster by the Governor.

Base year value transfers allow taxpayers to continue to pay property taxes at the factored base year value of their previous home, and not on the cash value of their newly purchased home, often resulting in tax savings. After the taxpayer transfers the base year value to the replacement property, the assessor revalues the damaged property to its current full cash value.

Additionally, voters subsequently allowed taxpayers to transfer base year values to other counties when their property is damaged by a major misfortune or calamity and located in an area declared to be in a state of disaster by the Governor (Proposition 171, 1993). However, the initiative only allowed transfers to other counties for a taxpayer’s principal places of residence, and solely when the board of supervisors in the county where the replacement property is located has adopted an ordinance making this benefit available. As of August 2014, there are ten counties that have such an ordinance: Contra Costa, Los Angeles, Modoc, Orange, San Francisco, Santa Clara, Solano, Sonoma, Sutter, and Ventura. Additionally, replacement homes must be purchased within three years rather than five years.

Under the California Constitution, a veterans’ exemption applies to any property owned by a person who serves or has served in the military. However, the exemption is effectively obsolete because the $4,000 amount is less than the general homeowners' exemption of $7,000. Additionally, the Constitution disqualifies veterans who do not own homes, but own other taxable property worth more than $5,000 (if single) or $10,000 (if married). Consequently, BOE indicates that a total of two veterans in California qualified for the exemption in 2016.

Proposed Law:

This measure would amend the California Constitution to provide qualified veterans, as defined, a base year value transfer on their primary residence to a replacement dwelling on or after January 1, 2019.

Staff Comments:

SOS indicates that printing and mailing costs associated with placing a measure on the statewide ballot are approximately $73,000 per page, depending on the length of the ballot. The fiscal estimates noted above reflect the addition of 6-8 pages in the Voter Information Guide. Actual costs would depend upon the length of the title and summary, analysis by the Legislative Analyst’s Office, proponent and opponent arguments, and text of the proposal.

Using U.S. Census and Department of Defense data, BOE estimates that 440,000 veteran homeowners in California would qualify for a base year value transfer under this measure. BOE data indicates that (1) an average of 740,000 annual single family home transfers across the State annually, and (2) claims for the homeowners' exemption total 5.3 million. Thus, the average annual rate of transfer for primary residences is estimated at 14 percent, implying that the number of transfers by qualified veterans would be 61,600.

California Association of Realtors data indicate that the median California home price in March 2018 was $564,000. The 2017-18 average assessed value of a property receiving the homeowners' exemption was $394,000. Thus, BOE estimates that for each transfer, the estimated assessed value difference would be $170,000, or $1,700 per transfer in revenue at the basic 1 percent property tax rate. The total revenue loss would be $105 million (61,600 annual transfers multiplied by $1,700).

BOE notes that the revenue loss described above would be somewhat offset by increased property tax resulting from a sale of the original property (i.e. a change in ownership subjecting the original property to reappraisal at its current fair market value). The amount of this offset cannot be calculated.

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SENATE COMMITTEE ON

ELECTIONS AND CONSTITUTIONAL AMENDMENTS

Senator Henry Stern, Chair

2017 - 2018 Regular

Bill No: SCA Hearing Date: 5/15/18

Subject: Property taxation: base year value transfers: qualified veterans

DIGEST

This measure amends the California Constitution to allow homeowners who are qualified veterans to claim a base year value transfer.

ANALYSIS

Existing law:

1. Provides that all property is taxable, unless exempted by the California Constitution or federal law.
2. Limits the maximum amount of any ad valorum taxes on real property generally to 1% of the full cash value of that property.
3. Defines “full cash value” as the county assessor’s valuation of real property as shown on the 1975-76 tax bill or, thereafter, as the appraised value of the real property when newly constructed, purchased, or have changed ownership.
4. Requires real property to be reassessed to its current fair market value whenever a change in ownership occurs.
5. Provides homeowners over the age of 55 and severely disabled homeowners may transfer their dwelling’s base year values to a replacement dwelling of equal or lesser value within the same county, or to dwellings in other counties that adopt ordinances allowing the transfer.
6. Requires assessors to report quarterly to the Board of Equalization (BOE) to track base year value transfers in order to ensure that taxpayers are not filing multiple claims for benefits when they are not eligible.

This measure:

1. Amends the California Constitution to allow a homeowner who is a qualified veteran to transfer the base year value from an original property to a replacement dwelling. This would apply to newly constructed or replacement dwellings on or after voter approval of a subsequent ballot measure.
2. Defines a “qualified veteran” as a person who:
   1. Is an honorably discharged veteran.
   2. Has an annual income, as defined, of less than $50,000 if single or less than $100,000 if married.

BACKGROUND

Assessors and the Board of Equalization. In 1850, the Legislature first directed county assessors to tax property. However, assessors in different counties often applied different tax rates and methods of assessment. In 1879, through a constitutional amendment, the BOE was created to standardize assessment practices among counties. State law also requires assessors to report quarterly to the BOE to track base year value transfers in order to ensure that taxpayers are not filing multiple claims for benefits when they are not eligible.

Proposition 13. Proposition 13 was added to the California Constitution in June 1978 and most recently amended by Proposition 26 in 2010. Proposition 13 was designed to provide real property tax relief by imposing a set of limitations upon the assessment and taxing powers of state and local governments.

Base year value transfers. Base year transfers allow homeowners to continue paying property taxes at the amount and rate of growth of their previous homes and prevent reassessments of their newly constructed or purchased homes to full market value. In California, within two years from the sale of the original residence and if certain conditions are met, a homeowner over the age of 55 or a homeowner who is a severely disabled person has an opportunity to transfer the base year value of his or her principal residence to a replacement home of equal or lesser value within the same county or to a replacement home in counties that have adopted ordinances allowing the transfer. For a homeowner who is severely disabled and seeks a base year value transfer, the person also provides certain information to the assessor including proof of severe and permanent disability to the county assessor, the move must be necessary to meet disability requirements with the new home being of equal or lesser value as well as located in the same county or another county that offers an intercounty base year value transfer.

Intercounty Transfers. Each county is permitted to accept intercounty transfers. As of December 12, 2017, 11 counties have an ordinance allowing an intercounty base year transfer. The counties with active enabling ordinances include: Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolumne, and Ventura. It should also be noted that El Dorado County Board of Supervisors, on December 12, 2017, approved a rescission of their ordinance that will expire on November 7, 2018.

Veterans Exemption. The California Constitution provides for a veterans’ exemption that applies to any property owned by a person who serves or has served in the military. However, the exemption is effectively obsolete because its $4,000 amount is less than the general homeowners' exemption of $7,000. Additionally, the Constitution disqualifies veterans who do not own homes, but own other taxable property worth more than $5,000 (if single) or $10,000 (if married).

Types of Discharges. According to population estimates from the California Department of Veteran Affairs, there are over 1.5 million veterans residing in California. However, under SCA 19 only honorably discharged veterans who additionally meet the income requirements will be eligible for a base year value transfer. An Honorable Discharge is the most common discharge status and is given when a service member meets the standards of acceptable conduct and performance of duty. All service members earn an Honorable Discharge unless they experience significant problems and receive a lower type of discharge.

Four additional types of discharges are given based on the characterization of the individual’s service. In addition to an Honorable Discharge, a General Discharge, under honorable conditions, and an Other than Honorable or “OTH” discharge can be given. The remaining two types of discharges are punitive discharges and are authorized punishments through an imposition of an approved court-martial sentence following a person’s conviction for violating the Code of Military Justice. This includes a Bad Conduct Discharge and a Dishonorable Discharge.

Other state programs, such as the Disabled Veterans’ Exemption, permit veterans who received a General or an OTH Discharge to participate if they meet the criteria established for the exemption.

COMMENTS

1. According to the Author: California veterans risk their lives to defend our state and country from all threats and to safeguard our freedom. The state seeks ways to honor and reward the sacrifices made by our all-volunteer service by creating benefits and preferences for current members of our armed services, veterans and their families. The state should continue to seek avenues to offer thanks for military service.

California’s sky-high property costs are a burden to veterans and their families, and present an area where the state could provide some relief to those who have honorably served their country. Allowing honorably discharged veterans of any age to transfer their Prop. 13 base-year property tax valuation when they purchase an owner-occupied new or replacement home would help make properties more affordable those who have served our country.

This bill will allow for the transfer of base-year Proposition 13 tax valuations, provided that in the year the veteran claims the benefit his or her annual income is not more than $50,000 filing single or $100,000 filing jointly.

1. Argument in Support. In a letter supporting SCA 18 dated May 3, 2018, the American GI Forum of California and several additional veterans groups stated the following:

The median California home is now priced 2.5 times higher than the median national home. Due to these rising costs of homes and property taxes it is essential that California takes steps to encourage more veterans to move to or stay in California. In 2016-17 we saw a decrease of nearly 100,000 veterans in California. Veterans have put their lives on the line to protect our way of life, and this is a small way to show appreciation for their sacrifices.

1. Voter Approval and Companion Legislation. As a constitutional amendment, SCA 18 requires the approval of the voters to take effect. Typically, when the Legislature considers amending the California Constitution to modify property taxes, a companion bill is additionally introduced to implement the proposed constitutional changes in state statute. For example, AB 1596 (Gloria) of 2018, is a companion measure to ACA 12 (Gloria) of 2018 and would authorize the Legislature to provide for a transfer of base year value of property to a replacement dwelling for persons who have a severely disabled child. If the Legislature approves SCA 19, legislation aligning the current statutes with the provisions in SCA 19 will be necessary in order to avoid confusion in current law and ensure successful implementation.

RELATED/PRIOR LEGISLATION

ACA 20 (Steinorth) of 2018, would allow, on and after January 1, 2019, the base year value of property eligible for the homeowner’s exemption of any person aged 55 years or older or who is severely disabled to be transferred to any replacement dwelling, regardless of its value or whether it is located within the same county. This measure, on and after January 1, 2019, would also allow for such a transfer of base year value of property eligible for the homeowner’s exemption of any person younger than 55 years of age. ACA 20 is pending referral in the Assembly.

ACA 24 (Waldron) of 2018, among other provisions, would require the Legislature to provide for the transfer of base year value of property that is substantially damaged or destroyed by a disaster, occurring on or after January 1, 2017, to July 1, 2018, to comparable property located within the same or a different county that is acquired or newly constructed as a replacement for the substantially damaged or destroyed property. ACA 24 is pending referral in the Assembly.

ACA 12 (Gloria) of 2018, amends the California Constitution to allow parents or legal guardians of severely and permanently disabled children to claim a base year value transfer. ACA 12 was passed by this committee with a 5-0 vote on May 1, 2018 and is currently pending in the Senate Appropriations Committee.

AB 1596 (Gloria) of 2018, is the companion measure that would make necessary changes to state statutes to conform to the policy proposed by ACA 12 (Gloria). AB 1596 would become effective if ACA 12 was submitted to and approved by the voters. AB 1596 is currently pending in the Senate Appropriations Committee.

SB 1104 (Stone) of 2016, would have eliminated the inflation adjustment for the principal place of residence of veteran taxpayer over the age of 65 and expanded to a full exemption the current partial Disabled Veterans’ property tax exemption. SB 1104 was held in the Senate Appropriations Committee.

SB 1183 (Bates) of 2016, would have exempted from property tax the home of any person eligible for the disabled veterans’ exemption with a $1 million cap in assessed value that would be adjusted annually for inflation, and expanded eligibility for the exemption. SB 1183 was held in the Senate Appropriations Committee.

SB 1458 (Bates), Chapter 871, Statutes of 2016, among other provisions, expanded eligibility for the Disabled Veteran's Property Tax Exemption (Disabled Veteran's Exemption) to include a person who has been discharged under the "other than dishonorable conditions" but who is otherwise eligible for federal veterans' health and medical benefits.

PRIOR ACTION

POSITIONS

Sponsor: Author

Support: American GI Forum of California

American Legion – Department of California

AMVETS – Department of California

California Association of County Veterans Service Officers

California State Commanders Veterans Council

Military Officers Association of America – California Council of Chapters

Vietnam Veterans of America – California State Council

Oppose: None Received

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2017 - 2018 Regular

Property taxation: base year value transfers: honorably discharged veterans

Amends the California Constitution to allow homeowners who are honorably discharged veterans to claim a base year value transfer.

Background

Article XIII of the California Constitution provides that all property is taxable unless explicitly exempted by the Constitution or federal law. The Constitution limits the maximum amount of any ad valorem tax on real property at 1% of full cash value, and directs assessors to only reappraise property when newly constructed, or when ownership changes (Proposition 13, 1978).

Base year value transfers. Voters have approved change in ownership exclusions to allow homeowners over the age of 55 and disabled persons (regardless of age) to transfer their home’s base year values to a replacement home of equal or lesser value within the same county (Proposition 60, 1988, and Proposition 110, 1990), or to homes in other counties that adopt ordinances allowing the transfer (Proposition 90, 1990). Eleven counties currently allow these out-of-county transfers (Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolumne, and Ventura). Base year value transfers allow taxpayers to continue to pay property taxes at the factored base year value of their previous home, and not on the cash value of their newly purchased home, often resulting in tax savings. While the Constitution allows for base year value transfers, the Legislature provides the specific eligibility requirements in statute: taxpayers must be owners and residents of both the original and replacement dwelling, file a claim with the assessor, and can only transfer base year values once. Taxpayers can only transfer base year values between properties for which they claim the homeowners’ exemption. Taxpayers claiming a transfer must prove that they are either 55 years or older, or severely and permanently disabled at the time of sale

Veterans' Exemption. The California Constitution allows a veterans’ exemption that applies to any property owned by a person who serves or has served in the military. However, the exemption is effectively obsolete because its $4,000 amount is less than the general homeowners' exemption of $7,000. Additionally, the Constitution disqualifies veterans who do not own homes, but own other taxable property worth more than $5,000 (if single) or $10,000 (if married). As a result, only two veterans in California qualified for the exemption in 2016 according to BOE.

The author wants to allow honorably discharged veterans to transfer base year values as a reward for military service and to help with California’s high costs of living.

Proposed Law

Senate Constitutional Amendment 19 amends the California Constitution to allow homeowners who are honorable discharged veterans to claim a base year value transfer with respect to a replacement dwellings purchased or newly constructed on or after its effective date.

State Revenue Impact

Pending.

Comments

1. Purpose of the bill. According to the author, “California veterans risk their lives to defend our state and country from all threats and to safeguard our freedom. The state seeks ways to honor and reward the sacrifices made by our all-volunteer service by creating benefits and preferences for current members of our armed services, veterans and their families. The state should continue to seek avenues to offer thanks for military service. California’s sky-high property costs are a burden to veterans and their families, and present an area where the state could provide some relief to those who have honorably served their country. By allowing honorably discharged veterans of any age to transfer their Prop. 13 base-year property tax valuation when they purchase an owner-occupied new or replacement home, California can make home ownership more affordable and more widely available to veterans.”

2. Too many benefits? Proposition 13 provided property owners in California with substantial protections from higher property tax rates and annual reassessments. However, California already has the lowest property tax rates and most taxpayer-friendly reassessment triggers of almost any state in the nation, thereby providing significant benefits to property owners, especially those that have been in their homes for many years. SCA 19 expands those benefits to allow a base year value transfer (plus up to 2% per year in inflationary growth) for any honorably discharged veteran. The Committee may wish to consider whether this tax benefit is necessary given those already afforded under current law.

3. No income test. SCA 19 allows a base year value transfer for any honorably discharged veteran, regardless of income. As such, SCA 19 would afford a significant tax benefit to many taxpayers who likely have income sufficient to pay property taxes at the fair market value of their newly acquired properties. While property tax exemptions like base year value transfers generally don’t depend on the taxpayer’s income, the disabled veterans’ exemption has been contingent on income since its enactment in 1978. In 2016, the Committee approved SB 404 (Stone), which disconnected the inflation factor for property tax purposes for the principal place of residence of taxpayers over the age of 65 who were honorably discharged from military service, but only for veterans with household combined annual income of less than $100,000, or if single, annual income of less than $50,000. The Committee may wish to consider whether to limit base year value transfers to honorably discharged veterans with less than $50,000 (single)/$100,000 (joint) of income in the year in which he or she claims the base year value transfer.

4. Revenue loss. This bill would expand a current tax benefit, resulting in property tax revenue losses. As a result, the state and local agencies will have to reduce spending or increase taxes to match the foregone revenue. The Committee may wish to consider whether SCA 19 is worth the tradeoff of spending cuts, and raising taxes, or both.

5. Types of discharges. SCA 19 would allow honorably discharged veterans to transfer base year values to replacement dwellings. However, requiring an honorable discharge may leave some veterans out, and would apply a different standard than the disabled veterans’ exemption. In 2016, the Legislature enacted SB 1458 (Bates) which modified the eligibility for the disabled veterans’ exemption to include veterans who were discharged under “other than honorable conditions.” According to the Senate Committee on Veterans Affairs, the military separates its personnel from active service by formally discharging them, either administratively or punitively. Each of the five different discharge statuses is determined by the characterization of an individual’s service, which slides along a scale with “honorable” at the high end and “dishonorable” at the low end. Punitive discharges are reserved for the most negative cases and imposed only by special and general court-martial. Administrative separations cannot be awarded by a court-martial and are not punitive in nature. Enlisted personnel may be administratively separated with a characterization of service or a description of separation. Administrative discharges include:

• Honorable. This is the most common discharge status. It presumes creditable service and good behavior. All service members will earn an Honorable Discharge unless they experience significant problems and receive a lower type of discharge,
• General (under honorable conditions). Sometimes referred to as a “General Discharge,” it is granted if an individual’s commander determines that the service has been generally honest and faithful, even if the person ran into some trouble. General Discharges are given for a variety of reasons, including failure to progress in training; failure to maintain military standards in appearance, weight, or fitness; or for disciplinary infractions, including drug or alcohol abuse.
• Other than honorable. An “OTH” discharge usually is given when an individual’s service represents a broader pattern of departure from the conduct and performance expected of all military members. It can result from notable drug or alcohol problems, but also can be based on other misconduct, such as abuse of authority, fraternization, or a pattern of continued misconduct. OTH discharges bar the individual from reenlisting into any component of the Armed Forces, including the federal reserves and National Guard.

Punitive discharges are authorized punishments of court-martial and can only be imposed as an approved court-martial sentence following an individual’s conviction for violating the Uniform Code of Military Justice. There are two types of punitive discharges:

• Bad Conduct Discharge. This can be imposed by both special and general court-martial. This discharge is usually given for convictions of crimes such as absent without leave, drunk on duty, driving while under the influence, adultery, writing bad checks, and disorderly conduct.
• Dishonorable Discharge. This is the worst type of military discharge a service member can receive, and can be imposed only by a general court-martial. In most cases, a Dishonorable Discharge also involves being sentenced to serve time in a military prison.

As such, veterans who received general and other than honorable discharges are eligible for the disabled veterans’ exemption, so long as they met the other legal criteria, including receiving USDVA benefits, but could not claim SCA 19’s benefit.

6. Companionship? Generally, when the Legislature considers amending the Constitution to change property taxes, it does so with both a Constitutional Amendment and a legislative bill that implements the constitutional change in statute. For example, the Committee approved both ACA 12 (Gloria) and AB 1596 (Gloria) at its April 11^th hearing to allow the parents of disabled children to claim base year value transfers, and SCA 9 (Glazer) and SB 558 (Glazer) last year that provides a new construction exclusion for the construction or addition of a rain water capture system. If the Legislature approves SCA 19, a legislative bill altering current law specifying eligibility and setting forth the requirements to claim a transfer will be necessary to ensure successful implementation. No bill yet exists to make these conforming changes.

Support and Opposition

(5/4/18)

Support: American GI-Forum of California, American Legion – Department of California, AMVETS – Department of California, California Association of County Veteran Service Officers, California State Commanders Veterans Council, Military Officers Association of America – California Council of Chapters, Vietnam Veterans of America – California State Council.

Opposition: Unknown.

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