CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1743

Author:(Bloom)

As Amended Ver:September 6, 2019

Majority vote

SUMMARY:

Expands the properties that are exempt from community facility district (CFD) taxes to include properties that qualify for the property tax welfare exemption, and limits the ability for local agencies to reject housing projects because they qualify for the exemption.

The Senate Amendments:

1. Provide that "method of financing" under Zoning and Planning Law includes qualifying for the welfare exemption.
2. Provide, under the Housing Accountability Act (HAA), that inconsistency with the zoning ordinance or general plan land use designation or the receipt of a welfare exemption shall not constitute a specific, adverse impact upon the public health or safety.
3. Add chaptering language to avoid conflicts with SB 330 (Skinner) and SB 592 (Wiener) of the current legislative session.

COMMENTS:

Mello-Roos. The Mello-Roos Community Facilities Act allows counties, cities, special districts, and school districts to levy special taxes (parcel taxes) to finance a wide variety of public works, including parks, recreation centers, schools, libraries, child care facilities, and utility infrastructure. A Mello-Roos CFD issues bonds against these special taxes to finance the public works projects.

Mello-Roos is an important feature of the local fiscal landscape, providing local officials with a key tool for accumulating the public capital needed to pay for the public works projects that make new residential development possible. In addition to financing public works, such as park, school, and library facilities, CFDs can pay for improvements on privately owned buildings or real property. For example, CFDs may pay for work deemed necessary to bring buildings or real property, whether privately or publicly owned, into compliance with seismic safety standard and regulations.

Welfare Exemption. The California Constitution provides that all property is taxable, unless explicitly exempted by the Constitution or federal law, but also allows the Legislature to exempt property used for charitable purposes, and owned by nonprofit entities organized and operated for charitable purposes, such as universities, hospitals, and libraries. The Legislature enacted an exemption, commonly known as the "welfare exemption."

Housing Accountability Act. In 1982, the Legislature enacted the HAA to limit the ability of local agencies to reject or make housing developments infeasible without a thorough analysis of the economic, social, and environmental effects of their land use decisions. A person eligible to apply for residency in a proposed development or emergency shelter, or a housing organization, may bring a civil action in court under HAA. HAA prevents local agencies from disapproving a housing project containing units affordable to very low-, low-, or moderate-income renters, or conditioning the approval in a manner that renders the housing project infeasible, unless it makes certain findings, based on substantial evidence in the record.

According to the Author:

"California needs 1.8 million more affordable rental homes to meet the needs of low-income households. Renters need to earn 3.5 times the state minimum wage to afford the average monthly asking rent of $2004. California's lowest-income renters spend 66% of income on rent, leaving little left for food, transportation, healthcare, and other essentials. The lack of affordable housing directly contributes to the increased homelessness seen across the state. Even with important changes in land use policy to remove barriers and constraints to development, there is a huge gap between what affordable housing costs to build and maintain and the rents charged to lower income households. Without the help of local, state, and federal resources for creating, preserving, and operating affordable apartments, building these homes would be impossible. This is why the Legislature has passed many crucial policies to help finance affordable housing and remove barriers and constraints to development. Although exempt from paying property taxes, some affordable housing developments continue to be assessed Mello-Roos special taxes. These taxes make affordable housing development more expensive to build, and limit how much rents can be reduced for low-income households. AB 1743 will help reduce the cost of building affordable housing and allow rents to be affordable to our lowest income households. Additionally, AB 1743 will prohibit cities and counties from denying a housing project based on its eligibility to receive a welfare exemption."

Arguments in Support:

Supporters argue that, "Affordable housing is exempt from paying property taxes under the California Constitution. Known as the welfare exemption, it helps reduce the annual operating costs of low-income housing and is crucial for low-income housing to remain financially feasible. Most recently, in 2014, the Legislature reasserted the purpose of the welfare exemption by prohibiting a local agency from assessing affordable housing developments with payments in lieu of taxation (PILOT fees). Additionally, the HAA ensure that housing projects not be denied based on their method of financing. While affordable housing properties are not liable for property taxes, properties that lie within a CFD must pay the special tax to the city… AB 1743 extends the principals of the property tax welfare exemption by exempting affordable housing development from the new Mello-Roos special taxes. This will help reduce the cost of building affordable housing and allow rents to be affordable to our lowest income households. Additionally, AB 1743 will amend the HAA to prohibit cities and counties from denying a housing project based on it eligibility to receive a welfare exemption.

Arguments in Opposition:

None on file.

FISCAL COMMENTS:

None

VOTES:

ASM LOCAL GOVERNMENT: 8-0-0

YES: Aguiar-Curry, Lackey, Bloom, Boerner Horvath, Ramos, Luz Rivas, Robert Rivas, Voepel

ASSEMBLY FLOOR: 77-0-3

YES: Aguiar-Curry, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Muratsuchi, Nazarian, O'Donnell, Obernolte, Patterson, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

ABS, ABST OR NV: Arambula, Mullin, Quirk

SENATE FLOOR: 40-0-0

YES: Allen, Archuleta, Atkins, Bates, Beall, Borgeas, Bradford, Caballero, Chang, Dahle, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Grove, Hertzberg, Hill, Hueso, Hurtado, Jackson, Jones, Leyva, McGuire, Mitchell, Monning, Moorlach, Morrell, Nielsen, Pan, Portantino, Roth, Rubio, Skinner, Stern, Stone, Umberg, Wieckowski, Wiener, Wilk

UPDATED:

VERSION: September 6, 2019

CONSULTANT: Jimmy MacDonald / L. GOV. / (916) 319-3958 FN: 0002350

 THIRD READING  

Bill No: AB 1743

Author: Bloom (D)

Amended: 9/6/19 in Senate

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 7/3/19

AYES: McGuire, Moorlach, Beall, Hertzberg, Hurtado, Nielsen, Wiener

SENATE GOVERNANCE & FIN. COMMITTEE: 5-0, 9/4/19 (Pursuant to Senate Rule 29.10)

AYES: McGuire, Moorlach, Beall, Hurtado, Wiener

NO VOTE RECORDED: Hertzberg, Nielsen

ASSEMBLY FLOOR: 77-0, 5/2/19 - See last page for vote

SUBJECT: Local government: community facilities districts: special taxes: exemption

SOURCE: California Housing Consortium

DIGEST:

This bill expands properties exempt from community facility district taxes to include properties that qualify for the property tax welfare exemption, and limits the ability for local agencies to reject housing projects because they qualify for the exemption.

Senate Floor Amendments of 9/6/19 resolve conflicts with SB 330 (Skinner) and SB 592 (Wiener).

ANALYSIS:

Existing law:

1. Provides that all property is taxable at the same percentage of fair market value unless explicitly exempted by the Constitution or federal law (Article XIII).
2. 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 ownership changes (Proposition 13, 1978). Proposition 13 additionally limits any inflationary growth of the full cash value base to 2% per year.
3. Allows the Legislature to exempt property that is used for charitable purposes, and owned by non-profit entities organized and operated for charitable purposes, such as universities, hospitals, and libraries. The Legislature enacted this exemption, commonly known as the “welfare exemption.”
4. Provides that the welfare exemption includes property used for rental housing, if:
   1. Tax-exempt mortgage revenue bonds; general obligation bonds; federal, state, or local grants; or federal low-income housing tax credits finance the housing,
   2. The property is enforceably restricted for low-income housing, and rents do not exceed those prescribed in deed restrictions, and
   3. The property owner certifies that funds that would have been used to pay property taxes are used to maintain the affordability of the units or reduce rents.
5. Provides that qualified charities can apply a full welfare exemption for non-publicly financed rental housing property, subject to several requirements.
6. Enacts the Mello-Roos Community Facilities Act (the Act) to allow counties, cities, special districts, and school districts to levy special taxes (parcel taxes) to finance a wide variety of public works, including parks, recreation centers, schools, libraries, child care facilities, and utility infrastructure. A Mello-Roos Community Facilities District (CFD) issues bonds against these special taxes to finance specified public works projects.
7. Provides that the local agency seeking to establish the district must adopt a resolution to form the CFD. If more than 50% of registered voters protest the CFD’s formation, then the local agency cannot form the CFD. If no successful protest occurs, the local agency can pass a resolution to levy a special tax, which states the facilities or services it intends to fund with the special tax, the entity responsible for administering the tax, state that a lien applies to properties within the CFD, and record a map of the CFD with the county recorder’s office.
8. Provides that, if the local agency proposes to levy a special tax, then it must submit the tax to voters and receive a two-thirds vote. If the CFD has at least 12 individuals registered to vote, then the vote has to include all registered voters in the district. Otherwise, just the property owners within the CFD vote whether to impose the tax.
9. Prohibits local agencies from applying a CFD tax to state, federal, or local properties, but allows them to decide whether to exempt other properties from the tax.
10. Declares that land use project planning actions by a local agency are null and void if they deny to any individual or group of individuals the enjoyment or residence, landownership, tenancy, or any other land use because of specified reasons, including the method of financing of any residential development.
11. Prohibits a local agency, pursuant to the Housing Accountability Act (HAA), from disapproving a housing project containing units affordable to very low-, low-, moderate-income renters, or conditioning the approval in a manner that renders the housing project infeasible, unless it makes one of the following findings, based on substantial evidence in the record:
12. The jurisdiction has adopted an updated housing element in substantial compliance with the law, and the jurisdiction met its share of the regional housing need for that income category;
13. The project will have a specific, adverse impact on the public health or safety and there is no feasible method to mitigate or avoid the impact without rendering the housing development unaffordable to very low-, low-, or moderate-income renters;
14. The denial or imposition of conditions is required to comply with state or federal law;
15. The project is located on agricultural or resource preservation land that does not have adequate water or wastewater facilities;
16. The jurisdiction has identified sufficient and adequate sites to accommodate its share of the regional housing need and the project is inconsistent with both the general plan land use designation and the zoning ordinance.

This bill:

1. Expands the types of properties exempt from CFD taxes to include affordable housing properties that qualify a property tax welfare exemption provided the local agency levying the tax adopted the CFD tax on or after January 1, 2020.
2. Provides that “method of financing” under Zoning and Planning Law includes qualifying for the welfare exemption.
3. Provides, under the HAA, that inconsistency with the zoning ordinance or general plan land use designation or the receipt of a welfare exemption shall not constitute a specific, adverse impact upon the public health or safety.

Background

Welfare exemption. The welfare exemption has a similar policy genesis as non-profit status for charitable groups: revenues paid in tax to the government divert needed resources away from the organization’s good work. According to the Legislative Analyst’s Office, local agencies statewide forego $3 billion annually in property tax revenues from welfare exempt properties.

CFD exemptions. Some cities already exempt affordable housing developments, or other types of properties, from their CFDs. For example, the City of Rohnert Park imposed a CFD tax in 2015 in which it exempted public property, property owner association property, and below market rate units of multi-family housing.

Comments

1. Purpose of the bill. According to the author, “Californians need 1.4 million more affordable rental homes to meet the needs of low-income households. And renters need to earn 3.5 times the state minimum wage to afford the average monthly rent. The legislature has passed many crucial policies to help finance affordable housing and remove barriers and constraint to development. However, affordable housing properties within a Community Facilities District must pay the Mello-Roos Special Tax, which can be as much as $1000 per unit per year. AB 1743 will exempt affordable housing projects from the Special Tax, and extend our efforts to increase the supply of affordable housing and reduce the financial barriers to housing development.”
2. No looking back. AB 1743 only applies to CFD taxes adopted on or after January 1, 2020, meaning that welfare-exempt properties currently paying a CFD tax will continue to do so regardless of whether the Governor signs the bill into law. Local agencies currently considering whether to impose a CFD will have to incorporate this exemption into their budgeting process, since CFD revenue may be lower than they were expecting as a result of having some properties exempt from the tax.
3. Denying projects claiming welfare exemptions. The author states that local agencies have been trying to deny projects based on the project qualifying for a welfare exemption because such projects would lead to increased crime and create additional service burdens on public safety officers. Since the welfare-exempt project does not bring in property tax revenue to cover these additional costs, some local agencies argue that the project could hinder public health and safety. Adding language to HAA and zoning and planning law specifying that qualifying for the welfare exemption is not sufficient to deny projects would help these projects move forward unless a local agency denies the project on the remaining grounds to do so, such as a complying with state or federal law.

Related/Prior Legislation

SB 196 (Beall, 2019) enacts a new welfare exemption from property tax for property owned by a community land trust that otherwise qualifies as a nonprofit for purposes of the welfare exemption.  SB 196 is currently on the Assembly Appropriations Committee suspense file.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 8/27/19)

California Housing Consortium (source)

Abode Communities

Affirmed Housing Group

C & C Development

California Association of Housing Authorities

EAH Housing

Eden Housing

Palm Communities

San Francisco Housing Action Coalition

TELACU

The Pacific Companies

Wakeland Housing and Development Corporation

OPPOSITION: (Verified 8/27/19)

None received

ASSEMBLY FLOOR: 77-0, 5/2/19

AYES: Aguiar-Curry, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Arambula, Mullin, Quirk

Prepared by: Jonathan Peterson / GOV. & F. / (916) 651-4119

9/9/19 18:08:05

**** END ****

 THIRD READING  

Bill No: AB 1743

Author: Bloom (D)

Amended: 8/26/19 in Senate

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 7/3/19

AYES: McGuire, Moorlach, Beall, Hertzberg, Hurtado, Nielsen, Wiener

SENATE GOVERNANCE & FIN. COMMITTEE: 5-0, 9/4/19 (Pursuant to Senate Rule 29.10)

AYES: McGuire, Moorlach, Beall, Hurtado, Wiener

NO VOTE RECORDED: Hertzberg, Nielsen

ASSEMBLY FLOOR: 77-0, 5/2/19 - See last page for vote

SUBJECT: Local government: community facilities districts: special taxes: exemption

SOURCE: California Housing Consortium

DIGEST:

This bill expands properties exempt from community facility district taxes to include properties that qualify for the property tax welfare exemption.

ANALYSIS:

Existing law:

1. Provides that all property is taxable at the same percentage of fair market value unless explicitly exempted by the Constitution or federal law (Article XIII).
2. 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 ownership changes (Proposition 13, 1978). Proposition 13 additionally limits any inflationary growth of the full cash value base to 2% per year.
3. Allows the Legislature to exempt property that is used for charitable purposes, and owned by non-profit entities organized and operated for charitable purposes, such as universities, hospitals, and libraries. The Legislature enacted this exemption, commonly known as the “welfare exemption.”
4. Provides that the welfare exemption includes property used for rental housing, if:
   1. Tax-exempt mortgage revenue bonds; general obligation bonds; federal, state, or local grants; or federal low-income housing tax credits finance the housing,
   2. The property is enforceably restricted for low-income housing, and rents do not exceed those prescribed in deed restrictions, and
   3. The property owner certifies that funds that would have been used to pay property taxes are used to maintain the affordability of the units or reduce rents.
5. Provides that qualified charities can apply a full welfare exemption for non-publicly financed rental housing property, subject to several requirements.
6. Enacts the Mello-Roos Community Facilities Act (the Act) to allow counties, cities, special districts, and school districts to levy special taxes (parcel taxes) to finance a wide variety of public works, including parks, recreation centers, schools, libraries, child care facilities, and utility infrastructure. A Mello-Roos Community Facilities District (CFD) issues bonds against these special taxes to finance specified public works projects.
7. Provides that the local agency seeking to establish the district must adopt a resolution to form the CFD. If more than 50% of registered voters protest the CFD’s formation, then the local agency cannot form the CFD. If no successful protest occurs, the local agency can pass a resolution to levy a special tax, which states the facilities or services it intends to fund with the special tax, the entity responsible for administering the tax, state that a lien applies to properties within the CFD, and record a map of the CFD with the county recorder’s office.
8. Provides that, if the local agency proposes to levy a special tax, then it must submit the tax to voters and receive a two-thirds vote. If the CFD has at least 12 individuals registered to vote, then the vote has to include all registered voters in the district. Otherwise, just the property owners within the CFD vote whether to impose the tax.
9. Prohibits local agencies from applying a CFD tax to state, federal, or local properties, but allows them to decide whether to exempt other properties from the tax.
10. Declares that land use project planning actions by a local agency are null and void if they deny to any individual or group of individuals the enjoyment or residence, landownership, tenancy, or any other land use because of specified reasons, including the method of financing of any residential development.
11. Prohibits a local agency, pursuant to the Housing Accountability Act (HAA), from disapproving a housing project containing units affordable to very low-, low-, moderate-income renters, or conditioning the approval in a manner that renders the housing project infeasible, unless it makes one of the following findings, based on substantial evidence in the record:
12. The jurisdiction has adopted an updated housing element in substantial compliance with the law, and the jurisdiction met its share of the regional housing need for that income category;
13. The project will have a specific, adverse impact on the public health or safety and there is no feasible method to mitigate or avoid the impact without rendering the housing development unaffordable to very low-, low-, or moderate-income renters;
14. The denial or imposition of conditions is required to comply with state or federal law;
15. The project is located on agricultural or resource preservation land that does not have adequate water or wastewater facilities;
16. The jurisdiction has identified sufficient and adequate sites to accommodate its share of the regional housing need and the project is inconsistent with both the general plan land use designation and the zoning ordinance.

This bill:

1. Expands the types of properties exempt from CFD taxes to include affordable housing properties that qualify a property tax welfare exemption provided the local agency levying the tax adopted the CFD tax on or after January 1, 2020.
2. Provides that “method of financing” under Zoning and Planning Law includes qualifying for the welfare exemption.
3. Provides, under the HAA, that inconsistency with the zoning ordinance or general plan land use designation or the receipt of a welfare exemption shall not constitute a specific, adverse impact upon the public health or safety.

Background

Welfare exemption. The welfare exemption has a similar policy genesis as non-profit status for charitable groups: revenues paid in tax to the government divert needed resources away from the organization’s good work. According to the Legislative Analyst’s Office, local agencies statewide forego $3 billion annually in property tax revenues from welfare exempt properties.

CFD exemptions. Some cities already exempt affordable housing developments, or other types of properties, from their CFDs. For example, the City of Rohnert Park imposed a CFD tax in 2015 in which it exempted public property, property owner association property, and below market rate units of multi-family housing.

Comments

1. Purpose of the bill. According to the author, “Californians need 1.4 million more affordable rental homes to meet the needs of low-income households. And renters need to earn 3.5 times the state minimum wage to afford the average monthly rent. The legislature has passed many crucial policies to help finance affordable housing and remove barriers and constraint to development. However, affordable housing properties within a Community Facilities District must pay the Mello-Roos Special Tax, which can be as much as $1000 per unit per year. AB 1743 will exempt affordable housing projects from the Special Tax, and extend our efforts to increase the supply of affordable housing and reduce the financial barriers to housing development.”
2. No looking back. AB 1743 only applies to CFD taxes adopted on or after January 1, 2020, meaning that welfare-exempt properties currently paying a CFD tax will continue to do so regardless of whether the Governor signs the bill into law. Local agencies currently considering whether to impose a CFD will have to incorporate this exemption into their budgeting process, since CFD revenue may be lower than they were expecting as a result of having some properties exempt from the tax.
3. Denying projects claiming welfare exemptions. The author states that local agencies have been trying to deny projects based on the project qualifying for a welfare exemption because such projects would lead to increased crime and create additional service burdens on public safety officers. Since the welfare-exempt project does not bring in property tax revenue to cover these additional costs, some local agencies argue that the project could hinder public health and safety. Adding language to HAA and zoning and planning law specifying that qualifying for the welfare exemption is not sufficient to deny projects would help these projects move forward unless a local agency denies the project on the remaining grounds to do so, such as a complying with state or federal law.

Related/Prior Legislation

SB 196 (Beall, 2019) enacts a new welfare exemption from property tax for property owned by a community land trust that otherwise qualifies as a nonprofit for purposes of the welfare exemption.  SB 196 is currently on the Assembly Appropriations Committee suspense file.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 8/27/19)

California Housing Consortium (source)

Abode Communities

Affirmed Housing Group

C & C Development

California Association of Housing Authorities

EAH Housing

Eden Housing

Palm Communities

San Francisco Housing Action Coalition

TELACU

The Pacific Companies

Wakeland Housing and Development Corporation

OPPOSITION: (Verified 8/27/19)

None received

ASSEMBLY FLOOR: 77-0, 5/2/19

AYES: Aguiar-Curry, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Arambula, Mullin, Quirk

Prepared by: Jonathan Peterson / GOV. & F. / (916) 651-4119

9/4/19 19:14:27

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2019 - 2020 Regular

Local government: properties eligible to claim or receiving a welfare exemption

PURSUANT TO SENATE RULE 29.10(b)

Expands properties exempt from community facility district taxes to include properties that qualify for the property tax welfare exemption, and limits the ability for local agencies to reject housing projects because they qualify for the exemption.

Background

Property taxes. Article XIII of the California Constitution provides that all property is taxable at the same percentage of fair market value 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 ownership changes (Proposition 13, 1978). Proposition 13 additionally limits any inflationary growth of the full cash value base to 2% per year.

Welfare exemption. While the California Constitution provides that all property is taxable unless explicitly exempted by the Constitution or federal law, it also allows the Legislature to exempt property that is used for charitable purposes, and is owned by non-profit entities organized and operated for charitable purposes, such as universities, hospitals, and libraries. The Legislature enacted this exemption, commonly known as the “welfare exemption.” The welfare exemption has a similar policy genesis as non-profit status for charitable groups: revenues paid in tax to the government divert needed resources away from the organization’s good work. According to the Legislative Analyst’s Office, local agencies statewide forego $3 billion annually in property tax revenues from welfare exempt properties.

The welfare exemption includes property used for rental housing, if:

• The housing is financed by tax-exempt mortgage revenue bonds; general obligation bonds; federal, state, or local grants; or federal low-income housing tax credits,
• The property is enforceably restricted for low-income housing, and rents do not exceed those prescribed in deed restrictions, and
• The property owner certifies that funds that would have been used to pay property taxes are used to maintain the affordability of the units or reduce rents.

Additionally, qualified charities can apply a full welfare exemption for non-publicly financed rental housing property, subject to several requirements.

Payment in lieu of taxes. Welfare exempt properties decrease revenue that otherwise would flow to local agencies. In response to this lost revenue, local agencies put in place “payment in lieu of taxes” (PILOT) agreements. Under these agreements, local agencies would require property owners of lower income housing developments to pay the local agency a fee as compensation for the property tax revenue it lost due to that property’s welfare exemption.
SB 1203 (Jackson, 2014) and AB 1760 (Chau, 2014) prevented local agencies from entering into PILOT agreements, and required local agencies to refund penalties or interest payments. The elimination of PILOT fees ruled out one source of revenue local agencies used to make up for losses in property tax revenue resulting from welfare exemptions.

Mello-Roos. The Legislature enacted the Mello-Roos Community Facilities Act (the Act) to counter the Proposition 13 limitations on property taxes and provide local agencies with an alternative tool to raise revenue. The Act allows counties, cities, special districts, and school districts to levy special taxes (parcel taxes) to finance a wide variety of public works, including parks, recreation centers, schools, libraries, child care facilities, and utility infrastructure. A Mello-Roos Community Facilities District (CFD) issues bonds against these special taxes to finance specified public works projects.

To levy a CFD tax, the local agency seeking to establish the district must adopt a resolution to form the CFD. If more than 50% of registered voters protest the CFD’s formation, then the local agency cannot form the CFD. If no successful protest occurs, the local agency can pass a resolution to levy a special tax, which:

• Identifies the facilities or services it intends to fund with the special tax and the entity responsible for administering the tax,
• States that a lien applies to properties within the CFD, and
• Requires the district to record a map of the CFD with the county recorder’s office.

If the local agency proposes to levy a special tax, then it must submit the tax to voters and receive at least a two-thirds vote. If the CFD has at least 12 individuals registered to vote, then the vote must include all registered voters in the district. Otherwise, only the property owners within the CFD vote whether to impose the tax. Local agencies cannot apply a CFD tax to state, federal, or local properties, but can decide whether to exempt other properties from the tax. For example, the City of Rohnert Park imposed a CFD tax in 2015 in which it exempted public property, owner association property, and below market rate units of multi-family housing.

Planning and Zoning Law. State law provides certain powers and duties for cities and counties regarding land use. The Planning and Zoning Law requires every county and city to adopt a general plan that sets out planned uses for all of the area covered by the plan. A general plan must include specified mandatory “elements,” including a housing element that establishes the locations and densities of housing, among other requirements. Cities’ and counties’ major land use decisions—including most zoning ordinances and other aspects of development permitting—must be consistent with their general plans. The Planning and Zoning Law also establishes a planning agency in each city and county, which may be a separate planning commission, administrative body, or the legislative body of the city or county itself. Cities and counties must provide a path to appeal a decision to the planning commission and/or the city council or county board of supervisors. Planning and Zoning Law declares that land use actions local agencies make are invalid if they deny to any individual or group of individuals the enjoyment or residence, landownership, tenancy, or any other land use because of specified reasons, including the method of financing of any residential development.

Housing Accountability Act. In 1982, the Legislature enacted the Housing Accountability Act (HAA) to limit the ability of local agencies to reject or make housing developments infeasible without a thorough analysis of the economic, social, and environmental effects of their land use decisions. A person eligible to apply for residency in a proposed development or emergency shelter, or a housing organization, may bring a civil action in court under HAA. HAA prevents local agencies from disapproving a housing project containing units affordable to very low-, low-, or moderate-income renters, or conditioning the approval in a manner that renders the housing project infeasible, unless it makes one of the following findings, based on substantial evidence in the record:

• The jurisdiction has adopted an updated housing element in substantial compliance with the law, and the jurisdiction met its share of the regional housing need for that income category.
• The project will have a “specific, adverse impact” on the public health or safety and there is no feasible method to mitigate or avoid the impact without rendering the housing development unaffordable to very low-, low-, or moderate-income renters. Existing law defines “specific, adverse impact” as “a significant, quantifiable, direct, and unavoidable impact, based on objective, identified written public health or safety standards, policies or conditions as they existed on the date the application was deemed complete,” and states that it is the Legislature’s intent that these conditions arise infrequently.
• The denial or imposition of conditions is required to comply with state or federal law.
• The project is located on agricultural or resource preservation land that does not have adequate water or wastewater facilities.
• The jurisdiction has identified sufficient and adequate sites to accommodate its share of the regional housing need and the project is inconsistent with both the general plan land use designation and the zoning ordinance.

Nonprofit housing developers want properties that qualify for the welfare exemption to be exempt from CFD taxes and make sure that local agencies do not deny projects because they qualify for the welfare exemption.

Proposed Law

Assembly Bill 1743 expands the types of properties exempt from CFD taxes to include affordable housing properties that qualify for a property tax welfare exemption provided the local agency levying the tax adopted the CFD tax on or after January 1, 2020.

AB 1743 provides that the definition of “method of financing” under Planning and Zoning Law, which local agencies cannot use as a reason to deny a project, include eligibility for the welfare exemption.

AB 1743 provides, under HAA, that projects’ eligibility for the welfare exemption does not constitute a specific, adverse impact upon the public health or safety.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “Californians need 1.4 million more affordable rental homes to meet the needs of low-income households. And renters need to earn 3.5 times the state minimum wage to afford the average monthly rent. The legislature has passed many crucial policies to help finance affordable housing and remove barriers and constraint to development. However, affordable housing properties within a Community Facilities District must pay the Mello-Roos Special Tax, which can be as much as $1000 per unit per year. AB 1743 will exempt affordable housing projects from the Special Tax, and extend our efforts to increase the supply of affordable housing and reduce the financial barriers to housing development.”

2. No looking back. AB 1743 only applies to CFD taxes adopted on or after January 1, 2020, meaning that welfare-exempt properties currently paying a CFD tax will continue to do so regardless of whether the Governor signs the bill into law. Local agencies currently considering whether to impose a CFD will have to incorporate this exemption into their budgeting process, since CFD revenue may be lower than expected as a result of having some properties exempt from the tax.

3. Flexibility. CFDs provide local agencies with a flexible tool they can design to suit the needs of their community. The local agency, with voter approval, can fund many different types of projects and services ranging from infrastructure to police services. For example, the City of Elk Grove administers three different CFDs to meet the infrastructure needs of particular sectors of the City. Limiting the properties that can be subject to future CFD taxes could lead local agencies to look for other ways to raise revenue to provide community services, some of which may not provide them with the same level of flexibility.

4. A balancing act. AB 1743 seeks to spur affordable housing development. If the bill accomplishes its goal, then local agencies may see demand for various services increase. If local agencies cannot generate the level of revenue to provide a sufficient level of service with the CFD tax, they will have to look into other revenue-generating tools or make compromises on service delivery. On the other hand, spurring affordable housing projects may decrease demand for local services, since some individuals may not have to rely on various human services programs related to supporting individuals with insecure housing arrangements. For example, individuals with secure housing may not rely as much on county healthcare services. The Committee may wish to consider how to balance the bill’s potential benefits to affordable housing development with its impact on local governments’ ability to deliver services.

5. Denying projects claiming welfare exemptions. The author states that some local agencies are denying projects based on a project’s ability to qualify for a welfare exemption claiming such projects would increase crime and create additional service burdens on public safety officers. Since welfare-exempt projects do not bring in property tax revenue to cover these additional costs, some local agencies argue that welfare-exempt projects could hinder public health and safety. However, when the Legislature defined what constitutes an adverse impact on public health and safety, it included intent language stating these conditions arise infrequently. Nonprofit housing developers routinely claim the welfare exemption. Unless the project creates a more specific impact, denying a project on account of this exemption falls outside of the Legislature’s intent. Adding language to HAA and Planning and Zoning Law specifying that qualifying for the welfare exemption is not itself a sufficient justification to deny a project could remove one potential hurdle these projects may face, but continue to allow local agencies to exercise discretion over projects where conditions, like an adverse impact on public health and safety, exist.

6. 29.10 (b). As approved by the Committee at its July 3^rd meeting, AB 1743 contained only those provisions relating to CFDs. The Senate Rules Committee referred the bill back to the Committee when the author amended it on the Senate Floor to add provisions relating to HAA and Zoning and Planning Law, pursuant to Senate Rule 29.10(b). Under that Rule, the Committee has three choices at its September 4^th hearing: (1) hold the bill, (2) return the bill as approved to the Senate Floor, or (3) refer the bill to the Appropriations Committee.

7. Related legislation. SB 196 (Beall, 2019), which the Committee approved at its May 1^st meeting on a vote of 7 to 0, enacts a new welfare exemption from property tax for property owned by a community land trust that otherwise qualifies as a nonprofit for purposes of the welfare exemption. SB 196 is currently on the Assembly floor.

Assembly Actions

Assembly Local Government Committee: 8-0

Assembly Floor: 77-0

Support and Opposition

(9/3/19)

Support: California Housing Consortium (sponsor); Abode Communities; Affirmed Housing Group; C & C Development; California Association of Housing Authorities; EAH Housing; Eden Housing; Palm Communities; TELACU; The Pacific Companies; Wakeland Housing and Development Corporation.

Opposition: Unknown.

-- END --

 THIRD READING  

Bill No: AB 1743

Author: Bloom (D)

Amended: 8/26/19 in Senate

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 7/3/19

AYES: McGuire, Moorlach, Beall, Hertzberg, Hurtado, Nielsen, Wiener

ASSEMBLY FLOOR: 77-0, 5/2/19 - See last page for vote

SUBJECT: Local government: community facilities districts: special taxes: exemption

SOURCE: California Housing Consortium

DIGEST:

This bill expands properties exempt from community facility district taxes to include properties that qualify for the property tax welfare exemption.

Senate Floor Amendments of 8/26/19 (1) specify that local agencies cannot use eligibility for the welfare exemption as the basis for claiming that a project would have a specific, adverse impact on public health or safety; and, (2) include eligibility for the welfare exemption in the definition of method of financing for the purposes of local agencies’ land use planning project decisions.

ANALYSIS:

Existing law:

1. Provides that all property is taxable at the same percentage of fair market value unless explicitly exempted by the Constitution or federal law (Article XIII).
2. 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 ownership changes (Proposition 13, 1978). Proposition 13 additionally limits any inflationary growth of the full cash value base to 2% per year.
3. Allows the Legislature to exempt property that is used for charitable purposes, and owned by non-profit entities organized and operated for charitable purposes, such as universities, hospitals, and libraries. The Legislature enacted this exemption, commonly known as the “welfare exemption.”
4. Provides that the welfare exemption includes property used for rental housing, if:
   1. Tax-exempt mortgage revenue bonds; general obligation bonds; federal, state, or local grants; or federal low-income housing tax credits finance the housing,
   2. The property is enforceably restricted for low-income housing, and rents do not exceed those prescribed in deed restrictions, and
   3. The property owner certifies that funds that would have been used to pay property taxes are used to maintain the affordability of the units or reduce rents.
5. Provides that qualified charities can apply a full welfare exemption for non-publicly financed rental housing property, subject to several requirements.
6. Enacts the Mello-Roos Community Facilities Act (the Act) to allow counties, cities, special districts, and school districts to levy special taxes (parcel taxes) to finance a wide variety of public works, including parks, recreation centers, schools, libraries, child care facilities, and utility infrastructure. A Mello-Roos Community Facilities District (CFD) issues bonds against these special taxes to finance specified public works projects.
7. Provides that the local agency seeking to establish the district must adopt a resolution to form the CFD. If more than 50% of registered voters protest the CFD’s formation, then the local agency cannot form the CFD. If no successful protest occurs, the local agency can pass a resolution to levy a special tax, which states the facilities or services it intends to fund with the special tax, the entity responsible for administering the tax, state that a lien applies to properties within the CFD, and record a map of the CFD with the county recorder’s office.
8. Provides that, if the local agency proposes to levy a special tax, then it must submit the tax to voters and receive a two-thirds vote. If the CFD has at least 12 individuals registered to vote, then the vote has to include all registered voters in the district. Otherwise, just the property owners within the CFD vote whether to impose the tax.
9. Prohibits local agencies from applying a CFD tax to state, federal, or local properties, but allows them to decide whether to exempt other properties from the tax.
10. Declares that land use project planning actions by a local agency are null and void if they deny to any individual or group of individuals the enjoyment or residence, landownership, tenancy, or any other land use because of specified reasons, including the method of financing of any residential development.
11. Prohibits a local agency, pursuant to the Housing Accountability Act (HAA), from disapproving a housing project containing units affordable to very low-, low-, moderate-income renters, or conditioning the approval in a manner that renders the housing project infeasible, unless it makes one of the following findings, based on substantial evidence in the record:
12. The jurisdiction has adopted an updated housing element in substantial compliance with the law, and the jurisdiction met its share of the regional housing need for that income category;
13. The project will have a specific, adverse impact on the public health or safety and there is no feasible method to mitigate or avoid the impact without rendering the housing development unaffordable to very low-, low-, or moderate-income renters;
14. The denial or imposition of conditions is required to comply with state or federal law;
15. The project is located on agricultural or resource preservation land that does not have adequate water or wastewater facilities;
16. The jurisdiction has identified sufficient and adequate sites to accommodate its share of the regional housing need and the project is inconsistent with both the general plan land use designation and the zoning ordinance.

This bill:

1. Expands the types of properties exempt from CFD taxes to include affordable housing properties that qualify a property tax welfare exemption provided the local agency levying the tax adopted the CFD tax on or after January 1, 2020.
2. Provides that “method of financing” under Zoning and Planning Law includes qualifying for the welfare exemption.
3. Provides, under the HAA, that inconsistency with the zoning ordinance or general plan land use designation or the receipt of a welfare exemption shall not constitute a specific, adverse impact upon the public health or safety.

Background

Welfare exemption. The welfare exemption has a similar policy genesis as non-profit status for charitable groups: revenues paid in tax to the government divert needed resources away from the organization’s good work. According to the Legislative Analyst’s Office, local agencies statewide forego $3 billion annually in property tax revenues from welfare exempt properties.

CFD exemptions. Some cities already exempt affordable housing developments, or other types of properties, from their CFDs. For example, the City of Rohnert Park imposed a CFD tax in 2015 in which it exempted public property, property owner association property, and below market rate units of multi-family housing.

Comments

1. Purpose of the bill. According to the author, “Californians need 1.4 million more affordable rental homes to meet the needs of low-income households. And renters need to earn 3.5 times the state minimum wage to afford the average monthly rent. The legislature has passed many crucial policies to help finance affordable housing and remove barriers and constraint to development. However, affordable housing properties within a Community Facilities District must pay the Mello-Roos Special Tax, which can be as much as $1000 per unit per year. AB 1743 will exempt affordable housing projects from the Special Tax, and extend our efforts to increase the supply of affordable housing and reduce the financial barriers to housing development.”
2. No looking back. AB 1743 only applies to CFD taxes adopted on or after January 1, 2020, meaning that welfare-exempt properties currently paying a CFD tax will continue to do so regardless of whether the Governor signs the bill into law. Local agencies currently considering whether to impose a CFD will have to incorporate this exemption into their budgeting process, since CFD revenue may be lower than they were expecting as a result of having some properties exempt from the tax.
3. Denying projects claiming welfare exemptions. The author states that local agencies have been trying to deny projects based on the project qualifying for a welfare exemption because such projects would lead to increased crime and create additional service burdens on public safety officers. Since the welfare-exempt project does not bring in property tax revenue to cover these additional costs, some local agencies argue that the project could hinder public health and safety. Adding language to HAA and zoning and planning law specifying that qualifying for the welfare exemption is not sufficient to deny projects would help these projects move forward unless a local agency denies the project on the remaining grounds to do so, such as a complying with state or federal law.

Related/Prior Legislation

SB 196 (Beall, 2019) enacts a new welfare exemption from property tax for property owned by a community land trust that otherwise qualifies as a nonprofit for purposes of the welfare exemption.  SB 196 is currently on the Assembly Appropriations Committee suspense file.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 8/27/19)

California Housing Consortium (source)

Abode Communities

Affirmed Housing Group

C & C Development

California Association of Housing Authorities

EAH Housing

Eden Housing

Palm Communities

San Francisco Housing Action Coalition

TELACU

The Pacific Companies

Wakeland Housing and Development Corporation

OPPOSITION: (Verified 8/27/19)

None received

ASSEMBLY FLOOR: 77-0, 5/2/19

AYES: Aguiar-Curry, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Arambula, Mullin, Quirk

Prepared by: Jonathan Peterson / GOV. & F. / (916) 651-4119

8/29/19 14:38:46

**** END ****

 THIRD READING  

Bill No: AB 1743

Author: Bloom (D)

Introduced: 2/22/19

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 7/3/19

AYES: McGuire, Moorlach, Beall, Hertzberg, Hurtado, Nielsen, Wiener

ASSEMBLY FLOOR: 77-0, 5/2/19 - See last page for vote

SUBJECT: Local government: community facilities districts: special taxes: exemption

SOURCE: California Housing Consortium

DIGEST:

This bill expands properties exempt from community facility district taxes to include properties that qualify for the property tax welfare exemption.

ANALYSIS:

Existing law:

1. Provides that all property is taxable at the same percentage of fair market value unless explicitly exempted by the Constitution or federal law (Article XIII).
2. 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 ownership changes (Proposition 13, 1978). Proposition 13 additionally limits any inflationary growth of the full cash value base to 2% per year.
3. Allows the Legislature to exempt property that is used for charitable purposes, and owned by non-profit entities organized and operated for charitable purposes, such as universities, hospitals, and libraries. The Legislature enacted this exemption, commonly known as the “welfare exemption.”
4. Provides that the welfare exemption includes property used for rental housing, if:
   1. Tax-exempt mortgage revenue bonds; general obligation bonds; federal, state, or local grants; or federal low-income housing tax credits finance the housing,
   2. The property is enforceably restricted for low-income housing, and rents do not exceed those prescribed in deed restrictions, and
   3. The property owner certifies that funds that would have been used to pay property taxes are used to maintain the affordability of the units or reduce rents.
5. Provides that qualified charities can apply a full welfare exemption for non-publicly financed rental housing property, subject to several requirements.
6. Enacts the Mello-Roos Community Facilities Act (the Act) to allow counties, cities, special districts, and school districts to levy special taxes (parcel taxes) to finance a wide variety of public works, including parks, recreation centers, schools, libraries, child care facilities, and utility infrastructure. A Mello-Roos Community Facilities District (CFD) issues bonds against these special taxes to finance specified public works projects.
7. Provides that the local agency seeking to establish the district must adopt a resolution to form the CFD. If more than 50% of registered voters protest the CFD’s formation, then the local agency cannot form the CFD. If no successful protest occurs, the local agency can pass a resolution to levy a special tax, which states the facilities or services it intends to fund with the special tax, the entity responsible for administering the tax, state that a lien applies to properties within the CFD, and record a map of the CFD with the county recorder’s office.
8. Provides that, if the local agency proposes to levy a special tax, then it must submit the tax to voters and receive a two-thirds vote. If the CFD has at least 12 individuals registered to vote, then the vote has to include all registered voters in the district. Otherwise, just the property owners within the CFD vote whether to impose the tax.
9. Prohibits local agencies from applying a CFD tax to state, federal, or local properties, but allows them to decide whether to exempt other properties from the tax.

This bill rxpands the types of properties exempt from CFD taxes to include affordable housing properties that qualify a property tax welfare exemption provided the local agency levying the tax adopted the CFD tax on or after January 1, 2020.

Background

Welfare exemption. The welfare exemption has a similar policy genesis as non-profit status for charitable groups: revenues paid in tax to the government divert needed resources away from the organization’s good work. According to the Legislative Analyst’s Office, local agencies statewide forego $3 billion annually in property tax revenues from welfare exempt properties.

CFD exemptions. Some cities already exempt affordable housing developments, or other types of properties, from their CFDs. For example, the City of Rohnert Park imposed a CFD tax in 2015 in which it exempted public property, property owner association property, and below market rate units of multi-family housing.

Comments

1. Purpose of the bill. According to the author, “Californians need 1.4 million more affordable rental homes to meet the needs of low-income households. And renters need to earn 3.5 times the state minimum wage to afford the average monthly rent. The legislature has passed many crucial policies to help finance affordable housing and remove barriers and constraint to development. However, affordable housing properties within a Community Facilities District must pay the Mello-Roos Special Tax, which can be as much as $1000 per unit per year. AB 1743 will exempt affordable housing projects from the Special Tax, and extend our efforts to increase the supply of affordable housing and reduce the financial barriers to housing development.”
2. No looking back. AB 1743 only applies to CFD taxes adopted on or after January 1, 2020, meaning that welfare-exempt properties currently paying a CFD tax will continue to do so regardless of whether the Governor signs the bill into law. Local agencies currently considering whether to impose a CFD will have to incorporate this exemption into their budgeting process, since CFD revenue may be lower than they were expecting as a result of having some properties exempt from the tax.

Related/Prior Legislation

SB 196 (Beall, 2019), which the Senate Governance and Finance Committee approved at its May 1^st meeting on a vote of 7 to 0, enacts a new welfare exemption from property tax for property owned by a community land trust that otherwise qualifies as a nonprofit for purposes of the welfare exemption. SB 196 is currently pending in the Assembly Revenue and Taxation Committee.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 7/5/19)

California Housing Consortium (source)

Abode Communities

Affirmed Housing Group

C & C Development

California Association of Housing Authorities

EAH Housing

Eden Housing

Palm Communities

TELACU

The Pacific Companies

Wakeland Housing and Development Corporation

OPPOSITION: (Verified 7/5/19)

None received

ASSEMBLY FLOOR: 77-0, 5/2/19

AYES: Aguiar-Curry, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Arambula, Mullin, Quirk

Prepared by: Jonathan Peterson / GOV. & F. / (916) 651-4119

7/5/19 14:58:14

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2019 - 2020 Regular

Local government: community facilities districts: special taxes: exemption

Expands properties exempt from community facility district taxes to include properties that qualify for the property tax welfare exemption.

Background

Property taxes. Article XIII of the California Constitution provides that all property is taxable at the same percentage of fair market value 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 ownership changes (Proposition 13, 1978). Proposition 13 additionally limits any inflationary growth of the full cash value base to 2% per year.

Welfare exemption. While the California Constitution provides that all property is taxable unless explicitly exempted by the Constitution or federal law, it also allows the Legislature to exempt property that is used for charitable purposes, and owned by non-profit entities organized and operated for charitable purposes, such as universities, hospitals, and libraries. The Legislature enacted this exemption, commonly known as the “welfare exemption.” The welfare exemption has a similar policy genesis as non-profit status for charitable groups: revenues paid in tax to the government divert needed resources away from the organization’s good work. According to the Legislative Analyst’s Office, local agencies statewide forego $3 billion annually in property tax revenues from welfare exempt properties.

The welfare exemption includes property used for rental housing, if:

• Tax-exempt mortgage revenue bonds; general obligation bonds; federal, state, or local grants; or federal low-income housing tax credits finance the housing,
• The property is enforceably restricted for low-income housing, and rents do not exceed those prescribed in deed restrictions, and
• The property owner certifies that funds that would have been used to pay property taxes are used to maintain the affordability of the units or reduce rents.

Additionally, qualified charities can apply a full welfare exemption for non-publicly financed rental housing property, subject to several requirements.

Payment in lieu of taxes. Welfare exempt properties decrease revenue that otherwise would flow to local agencies. In response to this lost revenue, local agencies put in place “payment in lieu of taxes” (PILOT) agreements. Under these agreements, local agencies would require property owners of lower income housing developments to pay the local agency a fee as compensation for the property tax revenue it lost due to that property’s welfare exemption. SB 1203 (Jackson, 2014) and AB 1760 (Chau, 2014) prevented local agencies from entering into PILOT agreements, and required local agencies to refund penalties or interest payments. The elimination of PILOT fees ruled out one source of revenue local agencies used to make up for losses in property tax revenue resulting from welfare exemptions.

Mello-Roos. The Legislature enacted the Mello-Roos Community Facilities Act (the Act) to counter the Proposition 13 limitations on property taxes and provide local agencies with an alternative tool to raise revenue. The Act allows counties, cities, special districts, and school districts to levy special taxes (parcel taxes) to finance a wide variety of public works, including parks, recreation centers, schools, libraries, child care facilities, and utility infrastructure. A Mello-Roos Community Facilities District (CFD) issues bonds against these special taxes to finance specified public works projects.

To levy a CFD tax, the local agency seeking to establish the district must adopt a resolution to form the CFD. If more than 50% of registered voters protest the CFD’s formation, then the local agency cannot form the CFD. If no successful protest occurs, the local agency can pass a resolution to levy a special tax, which states the facilities or services it intends to fund with the special tax, the entity responsible for administering the tax, state that a lien applies to properties within the CFD, and record a map of the CFD with the county recorder’s office. If the local agency proposes to levy a special tax, then it must submit the tax to voters and receive a two-thirds vote. If the CFD has at least 12 individuals registered to vote, then the vote has to include all registered voters in the district. Otherwise, just the property owners within the CFD vote whether to impose the tax. Local agencies cannot apply a CFD tax to state, federal, or local properties, but can decide whether to exempt other properties from the tax. For example, the City of Rohnert Park imposed a CFD tax in 2015 in which it exempted public property, property owner association property, and below market rate units of multi-family housing.

California’s housing crisis. California is in the midst of a serious housing crisis. California is home to 21 of the 30 most expensive rental housing markets in the country, which has had a disproportionate impact on the middle class and the working poor. Housing units affordable to low-income earners, if available, are often in serious states of disrepair. The Department of Housing and Community Development (HCD) estimates that approximately 2.7 million lower-income households are rent-burdened (meaning they spend at least 30 percent of their income on rent), 1.7 million of which are severely rent-burdened (spending at least 50 percent of their income on rent). According to a 2015 study by the California Housing Partnership Corporation, California has a shortfall of 1.5 million affordable homes and 13 of the 14 least affordable metropolitan areas in the country.

Nonprofit housing developers want properties that qualify for the welfare exemption to be exempt from CFD taxes.

Proposed Law

Assembly Bill 1743 expands the types of properties exempt from CFD taxes to include affordable housing properties that qualify a property tax welfare exemption provided the local agency levying the tax adopted the CFD tax on or after January 1, 2020.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “Californians need 1.4 million more affordable rental homes to meet the needs of low-income households. And renters need to earn 3.5 times the state minimum wage to afford the average monthly rent. The legislature has passed many crucial policies to help finance affordable housing and remove barriers and constraint to development. However, affordable housing properties within a Community Facilities District must pay the Mello-Roos Special Tax, which can be as much as $1000 per unit per year. AB 1743 will exempt affordable housing projects from the Special Tax, and extend our efforts to increase the supply of affordable housing and reduce the financial barriers to housing development.”

2. No looking back. AB 1743 only applies to CFD taxes adopted on or after January 1, 2020, meaning that welfare-exempt properties currently paying a CFD tax will continue to do so regardless of whether the Governor signs the bill into law. Local agencies currently considering whether to impose a CFD will have to incorporate this exemption into their budgeting process, since CFD revenue may be lower than they were expecting as a result of having some properties exempt from the tax.

3. Flexibility. CFDs provide local agencies with a flexible tool they can design to suit the needs of their community. The local agency, with voter approval, can fund many different types of projects and services ranging from infrastructure to police services. For example, the City of Elk Grove administers three different CFDs to meet the infrastructure needs of particular sectors of the City. Limiting the properties that can be subject to future CFD taxes could lead local agencies to look for other ways to raise revenue to provide community services, some of which may not provide them with the same level of flexibility.

4. A balancing act. AB 1743 seeks to spur affordable housing development. If the bill accomplishes its goal, then local agencies may see demand for various services increase. If local agencies cannot generate the level of revenue to provide a sufficient level of service with the CFD tax, they will have to look into other revenue-generating tools or make compromises on service delivery. On the other hand, spurring affordable housing projects may decrease demand for local services, since some individuals may not have to rely on various human services programs related to supporting individuals with insecure housing arrangements. The Committee may wish to consider how to balance the bill’s potential benefits to affordable housing development with its impact on local governments’ ability to deliver services.

5. Related legislation. SB 196 (Beall, 2019), which the Committee approved at its May 1^st meeting on a vote of 7 to 0, enacts a new welfare exemption from property tax for property owned by a community land trust that otherwise qualifies as a nonprofit for purposes of the welfare exemption. SB 196 is currently pending in the Assembly Revenue and Taxation Committee.

Assembly Actions

Assembly Local Government Committee: 8-0

Assembly Floor: 77-0

Support and Opposition

(6/28/19)Support: California Housing Consortium (sponsor); Abode Communities; Affirmed Housing Group; C & C Development; California Association of Housing Authorities; EAH Housing; Eden Housing; Palm Communities; TELACU; The Pacific Companies; Wakeland Housing and Development Corporation.

Opposition: Unknown.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1743

Author:(Bloom)

As Introduced Ver:February 22, 2019

Majority vote

SUMMARY:

Exempts specified affordable housing properties from Mello-Roos community facilities district (CFD) special taxes.

Major Provisions

Exempts specified affordable housing properties receiving a welfare exemption from a special tax imposed by a CFD if the tax is imposed on or after January 1, 2020.

COMMENTS:

Mello-Roos. The Mello-Roos Community Facilities Act allows counties, cities, special districts, and school districts to levy special taxes (parcel taxes) to finance a wide variety of public works, including parks, recreation centers, schools, libraries, child care facilities, and utility infrastructure. A Mello-Roos CFD issues bonds against these special taxes to finance the public works projects.

Mello-Roos is an important feature of the local fiscal landscape, providing local officials with a key tool for accumulating the public capital needed to pay for the public works projects that make new residential development possible. In addition to financing public works, such as park, school, and library facilities, CFDs can pay for improvements on privately owned buildings or real property. For example, CFDs may pay for work deemed necessary to bring buildings or real property, whether privately or publicly owned, into compliance with seismic safety standard and regulations.

To initiate the formation of a CFD, a local agency's legislative body must adopt a resolution of intention to establish the district, which must do all of the following: describe the district's boundaries; describe the facilities and services proposed to be financed; state that a special tax, secured by a lien against real property, will be annually levied; specify, in detail, the rate, method of apportionment, and manner of collections of the special tax; and, fix a time and place for public hearing. After holding the hearing and considering protests, the legislative body, to establish the CFD, must adopt a resolution of formation containing all of the information provided in the resolution of intention; and, if a special tax is to be levied, include additional information about the tax levy.

Policy Consideration. California is currently facing an affordable housing crisis and efforts to combat the crisis are being made at every level of government. However, CFDs are utilized in order to fund many of the public improvements that make new developments possible. By reducing the amount of taxes a CFD can collect, it may negatively affect the ability of a local agency to fund necessary projects. Additionally, CFD law allows a local agency to exempt certain properties from a tax at the time of formation of the CFD or at the time of the imposition of a new tax. The Legislature may wish to consider if exempting these properties should be mandatory or if the decision should be left to the local agency.

According to the Author:

According to the author, "California needs 1.8 million more affordable rental homes to meet the needs of low-income households. Renters need to earn 3.5 times the state minimum wage to afford the average monthly asking rent of $2,004. California's lowest-income renters spend 66% of income on rent, leaving little left for food, transportation, healthcare, and other essentials. The lack of affordable housing directly contributes to the increased homelessness seen across the state. Even with important changes in land use policy to remove barriers and constraints to development, there is a huge gap between what affordable housing costs to build and maintain and the rents charged to lower-income households. Without the help of local, state, and federal resources for creating, preserving, and operating affordable apartments, building these homes would be impossible. This is why the Legislature has passed many crucial policies to help finance affordable housing and remove barriers and constraints to development. Although exempt from paying property taxes, some affordable housing developments continue to be assessed Mello-Roos special taxes. These taxes make affordable housing development more expensive to build, and limit how much rents can be reduced for low-income households. AB 1743 will help reduce the cost of building affordable housing and allow rents to be affordable to our lowest income households."

Arguments in Support:

According to the sponsors, "Affordable housing is exempt from paying property taxes in order to reduce the annual operating costs of low-income housing. This exemption is crucial for low-income housing to remain financially feasible. Most recently, in 2014, the Legislature reasserted the underlying purpose of the welfare exemption by prohibiting a local agency from assessing affordable housing developments with Payments in Lieu of Taxation (or PILOT fees). Similarly, AB 1743 extends this exemption to new Mello-Roos Community Facility District special taxes, which will help reduce the cost of building affordable housing and allow rents to be affordable to our lowest income households."

Arguments in Opposition:

None on file.

FISCAL COMMENTS:

None

VOTES:

ASM LOCAL GOVERNMENT: 8-0-0

YES: Aguiar-Curry, Lackey, Bloom, Boerner Horvath, Ramos, Luz Rivas, Robert Rivas, Voepel

UPDATED:

VERSION: February 22, 2019

CONSULTANT: Jimmy MacDonald / L. GOV. / (916) 319-3958 FN: 0000206

Date of Hearing: April 10, 2019

ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT

Cecilia Aguiar-Curry, Chair

ABPCA Bill Id:AB 1743 (

Author:Bloom) – As Introduced Ver:February 22, 2019

SUBJECT: Local government: community facilities districts: special taxes: exemption.

SUMMARY: Exempts specified affordable housing properties receiving a welfare exemption from a special tax imposed by a Mello-Roos community facilities district (CFD) if the tax is imposed on or after January 1, 2020.

EXISTING LAW:

1. Authorizes, under the Mello-Roos Community Facilities Act of 1982, a local agency to establish a CFD to finance public facilities and certain public services through the imposition of special taxes and the issuance of bonds.
2. Authorizes a CFD to finance the purchase, construction, expansion, improvement, or rehabilitation of certain facilities, including, among others, child care facilities, undergrounding of water transmission and distribution facilities, and the cleanup of hazardous materials.
3. Specifies the requirements for the establishment of a CFD, including, among other things,
   a petition, a hearing, establishment of the boundaries of the CFD, and an election on the question of establishment.
   
4. Specifies that properties or entities of the state, federal, or local governments shall be exempt, unless otherwise specified, from the special tax. No other properties or entities are exempt from the special tax, unless the properties or entities are expressly exempted in the resolution of formation to establish a district or in a resolution to impose a new tax.
   

FISCAL EFFECT: None

COMMENTS:

1. Mello-Roos. The Mello-Roos Community Facilities Act allows counties, cities, special districts, and school districts to levy special taxes (parcel taxes) to finance a wide variety of public works, including parks, recreation centers, schools, libraries, child care facilities, and utility infrastructure. A Mello-Roos CFD issues bonds against these special taxes to finance the public works projects.

Mello-Roos is an important feature of the local fiscal landscape, providing local officials with a key tool for accumulating the public capital needed to pay for the public works projects that make new residential development possible. In addition to financing public works, such as park, school, and library facilities, CFDs can pay for improvements on privately owned buildings or real property. For example, CFDs may pay for work deemed necessary to bring buildings or real property, whether privately or publicly owned, into compliance with seismic safety standard and regulations.

To initiate the formation of a CFD, a local agency's legislative body must adopt a resolution of intention to establish the district, which must do all of the following: describe the district's boundaries; describe the facilities and services proposed to be financed; state that a special tax, secured by a lien against real property, will be annually levied; specify, in detail, the rate, method of apportionment, and manner of collections of the special tax; and, fix a time and place for public hearing. After holding the hearing and considering protests, the legislative body, to establish the CFD, must adopt a resolution of formation containing all of the information provided in the resolution of intention; and, if a special tax is to be levied, include additional information about the tax levy.

1. Welfare Exemption. The California Constitution provides that all property is taxable, unless explicitly exempted by the Constitution or federal law, but also allows the Legislature to exempt property used for charitable purposes, and owned by nonprofit entities organized and operated for charitable purposes, such as universities, hospitals, and libraries. The Legislature enacted an exemption, commonly known as the “welfare exemption.”

The welfare exemption includes property used exclusively for rental housing, if:

1. Tax-exempt mortgage revenue bonds; general obligation bonds; federal, state, or local grants; or federal low-income housing tax credits finance the housing;
   
2. The property is restricted for low-income housing, and rents do not exceed those prescribed in deed restrictions; and,
   
3. The property owner certifies that funds that would have been used to pay property taxes are used to maintain the affordability of the units or reduce rents.
4. Bill Summary and Author’s Statement. This bill exempts certain affordable housing properties that receive a welfare exemption from paying a special tax imposed by a Mello-Roos CFD. This bill only applies to taxes imposed on or after January 1, 2020. The California Housing Consortium is the sponsor of this bill.

According to the author, “California needs 1.8 million more affordable rental homes to meet the needs of low-income households. Renters need to earn 3.5 times the state minimum wage to afford the average monthly asking rent of $2,004. California’s lowest-income renters spend 66% of income on rent, leaving little left for food, transportation, healthcare, and other essentials. The lack of affordable housing directly contributes to the increased homelessness seen across the state. Even with important changes in land use policy to remove barriers and constraints to development, there is a huge gap between what affordable housing costs to build and maintain and the rents charged to lower-income households. Without the help of local, state, and federal resources for creating, preserving, and operating affordable apartments, building these homes would be impossible. This is why the Legislature has passed many crucial policies to help finance affordable housing and remove barriers and constraints to development. Although exempt from paying property taxes, some affordable housing developments continue to be assessed Mello-Roos special taxes. These taxes make affordable housing development more expensive to build, and limit how much rents can be reduced for low-income households. AB 1743 will help reduce the cost of building affordable housing and allow rents to be affordable to our lowest income households.”

1. Policy Consideration. California is currently facing an affordable housing crisis and efforts to combat the crisis are being made at every level of government. However, CFDs are utilized in order to fund many of the public improvements that make new developments possible. By reducing the amount of taxes a CFD can collect, it may negatively affect the ability of a local agency to fund necessary projects. Additionally, CFD law allows a local agency to exempt certain properties from a tax at the time of formation of the CFD or at the time of the imposition of a new tax. The Committee may wish to consider if exempting these properties should be mandatory or if the decision should be left to the local agency.
2. Arguments in Support. According to the sponsors, “Affordable housing is exempt from paying property taxes in order to reduce the annual operating costs of low-income housing. This exemption is crucial for low-income housing to remain financially feasible. Most recently, in 2014, the Legislature reasserted the underlying purpose of the welfare exemption by prohibiting a local agency from assessing affordable housing developments with Payments in Lieu of Taxation (or PILOT fees). Similarly, AB 1743 extends this exemption to new Mello-Roos Community Facility District special taxes, which will help reduce the cost of building affordable housing and allow rents to be affordable to our lowest income households.”
   
3. Arguments in Opposition. None on file.
   

REGISTERED SUPPORT / OPPOSITION:

Support

California Housing Consortium [SPONSOR]
Affirmed Housing
C&C Development

Eden Housing
Palm Communities

TELACU

The Pacific Companies

Wakeland Housing and Development Corporation

Opposition

None on file

Analysis Prepared by: Jimmy MacDonald / L. GOV. / (916) 319-3958