SB 588: Property taxation: welfare exemption: lower income households: cap.
- Session Year: 2023-2024
- House: Senate
- Latest Version Date: 2023-06-30
Current Status:
Failed
(2024-07-01: July 1 set for second hearing canceled at the request of author.)
Introduced
In Committee
First Chamber
In Committee
Second Chamber
Enacted
The California Constitution authorizes the Legislature to exempt from taxation, in whole or in part, property that is used exclusively for religious, hospital, or charitable purposes, and is owned or held in trust by a nonprofit entity. Pursuant to this constitutional authority, existing law partially exempts, as described, from property taxation property that is used exclusively for rental housing and related facilities and that is owned and operated by specified entities if any of specified criteria are met. Under existing law, one of those criteria requires, except in the case of a limited partnership in which the managing general partner is a nonprofit corporation eligible for the exemption, that 90% or more of the occupants of the property be lower income households whose rents do not exceed the rent limits prescribed by a specified law. Existing law limits the total exemption amount allowed to a taxpayer under that criteria, with respect to a single property or multiple properties for any fiscal year on the sole basis of the application of that criterion, to $20,000,000 of assessed value.
This bill would remove remove, for the 202425 fiscal year through the 202829 fiscal year, the above-described limit on the total exemption amount for any property for which a claim is filed and granted for the 202425 fiscal year or any fiscal year thereafter if, in addition to the above-described requirement, at least 90% of the propertys units are made continuously available to, as defined, or are occupied by lower income households, as defined, at a rent that does not exceed the rent for lower income households, as prescribed by specified law. law, the property is owned and operated by an eligible nonprofit corporation, and the claimant provides an affidavit, signed under penalty of perjury, that any additional moneys that would have been used to pay any ad valorem property taxes on the property if not for the removal of the exemption cap will be used for the construction or rehabilitation of single or multifamily residential units on specified properties. The bill would require the claimant seeking an exemption pursuant to the bills provisions to provide to the county assessor any additional documents and materials requested by the county assessor necessary to evaluate the claimants eligibility for the exemption. The bill would also provide that the claimant is liable for property tax for the years for which the property received the bills tax benefit if single or multifamily residential units were not constructed or rehabilitated or were not in the course of construction or rehabilitation by specified dates, as specified. By expanding the crime of perjury and imposing additional duties on local tax officials, the bill would impose a state-mandated local program.
Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.
This bill would state the intent of the Legislature to comply with that requirement with respect to the above-described removal of the exemption cap. include findings and reporting requirements in compliance with this requirement.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that with regard to certain mandates no reimbursement is required by this act for a specified reason.
With regard to any other mandates, this bill would provide that, if the Commission on State Mandates determines that the bill contains costs so mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.
Existing law requires the state to reimburse local agencies annually for certain property tax revenues lost as a result of any exemption or classification of property for purposes of ad valorem property taxation.
This bill would provide that, notwithstanding those provisions, no appropriation is made and the state shall not reimburse local agencies for property tax revenues lost by them pursuant to the bill.
This bill would take effect immediately as a tax levy.
The California Constitution authorizes the Legislature to exempt from taxation, in whole or in part, property that is used exclusively for religious, hospital, or charitable purposes, and is owned or held in trust by a nonprofit entity.Pursuant to this constitutional authority, existing law exempts categories of properties from property taxation, as prescribed. partially exempts, as described, from property taxation property that is used exclusively for rental housing and related facilities and that is owned and operated by specified entities if any of specified criteria are met. Under existing law, one of those criteria requires, except in the case of a limited partnership in which the managing general partner is a nonprofit corporation eligible for the exemption, that 90% or more of the occupants of the property be lower income households whose rents do not exceed the rent limits prescribed by a specified law. Existing law limits the total exemption amount allowed to a taxpayer under that criteria, with respect to a single property or multiple properties for any fiscal year on the sole basis of the application of that criterion, to $20,000,000 of assessed value.
This bill would make nonsubstantive changes to those exemptions.This bill would remove the above-described limit on the total exemption amount for any property for which a claim is filed and granted for the 202425 fiscal year or any fiscal year thereafter if, in addition to the above-described requirement, at least 90% of the propertys units are made continuously available to, as defined, or are occupied by lower income households, as defined, at a rent that does not exceed the rent for lower income households, as prescribed by specified law. The bill would require the claimant seeking an exemption pursuant to the bills provisions to provide to the county assessor any additional documents and materials requested by the county assessor necessary to evaluate the claimants eligibility for the exemption. By imposing additional duties on local tax officials, the bill would impose a state-mandated local program.
Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.
This bill would state the intent of the Legislature to comply with that requirement with respect to the above-described removal of the exemption cap.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.
Existing law requires the state to reimburse local agencies annually for certain property tax revenues lost as a result of any exemption or classification of property for purposes of ad valorem property taxation.
This bill would provide that, notwithstanding those provisions, no appropriation is made and the state shall not reimburse local agencies for property tax revenues lost by them pursuant to the bill.
This bill would take effect immediately as a tax levy.
The California Constitution authorizes the Legislature to exempt from taxation, in whole or in part, property that is used exclusively for religious, hospital, or charitable purposes, and is owned or held in trust by a nonprofit entity.Pursuant to this constitutional authority, existing law exempts categories of properties from property taxation, as prescribed.
This bill would make nonsubstantive changes to those exemptions.
(a)Property used exclusively for religious, hospital, scientific, or charitable purposes owned and operated by community chests, funds, foundations, limited liability companies, or corporations organized and operated for religious, hospital, scientific, or charitable purposes is exempt from taxation, including ad valorem taxes to pay the interest and redemption charges on any indebtedness approved by the voters before July 1, 1978, or any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition, if:
(1)The owner is not organized or operated for profit. However, in the case of hospitals, the organization shall not be deemed to be organized or operated for profit if, during the immediately preceding fiscal year, operating revenues, exclusive of gifts, endowments, and grants-in-aid, did not exceed operating expenses by an amount equivalent to 10 percent of those operating expenses. As used herein, operating expenses include depreciation based on cost of replacement and amortization of, and interest on, indebtedness.
(2)No part of the net earnings of the owner inures to the benefit of any private shareholder or individual.
(3)The property is used for the actual operation of the exempt activity, and does not exceed an amount of property reasonably necessary to the accomplishment of the exempt purpose.
(A)For the purposes of determining whether the property is used for the actual operation of the exempt activity, consideration shall not be given to use of the property for either or both of the following described activities if that use is occasional:
(i)The owner conducts fundraising activities on the property and the proceeds derived from those activities are not unrelated business taxable income, as defined in Section 512 of the Internal Revenue Code, of the owner and are used to further the exempt activity of the owner.
(ii)The owner permits any other organization that meets all of the requirements of this subdivision, other than ownership of the property, to conduct fundraising activities on the property and the proceeds derived from those activities are not unrelated business taxable income, as defined in Section 512 of the Internal Revenue Code, of the organization, are not subject to the tax on unrelated business taxable income that is imposed by Section 511 of the Internal Revenue Code, and are used to further the exempt activity of the organization.
(B)For purposes of subparagraph (A):
(i)Occasional use means use of the property on an irregular or intermittent basis by the qualifying owner or any other qualifying organization described in clause (ii) of subparagraph (A) that is incidental to the primary activities of the owner or the other organization.
(ii)Fundraising activities means both activities involving the direct solicitation of money or other property and the anticipated exchange of goods or services for money between the soliciting organization and the organization or person solicited.
(C)Subparagraph (A) shall have no application in determining whether paragraph (3) has been satisfied unless the owner of the property and any other organization using the property as provided in subparagraph (A) have filed with the assessor a valid organizational clearance certificate issued pursuant to Section 254.6.
(D)For the purposes of determining whether the property is used for the actual operation of the exempt activity, consideration shall not be given to the use of the property for meetings conducted by any other organization if the meetings are incidental to the other organizations primary activities, are not fundraising meetings or activities as defined in subparagraph (B), are held no more than once per week, and the other organization and its use of the property meet all other requirements of paragraphs (1) to (5), inclusive, of this subdivision. The owner or the other organization also shall file with the assessor a copy of a valid, unrevoked letter or ruling from the Internal Revenue Service or the Franchise Tax Board stating that the other organization, or the national organization of which it is a local chapter or affiliate, qualifies as an exempt organization under Section 501(c)(3) or 501(c)(4) of the Internal Revenue Code or Section 23701d, 23701f, or 23701w.
(E)Subparagraph (A), (B), (C), or (D) shall not be construed to either enlarge or restrict the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(4)The property is not used or operated by the owner or by any other person so as to benefit any officer, trustee, director, shareholder, member, employee, contributor, or bondholder of the owner or operator, or any other person, through the distribution of profits, payment of excessive charges or compensations, or the more advantageous pursuit of their business or profession.
(5)The property is not used by the owner or members thereof for fraternal or lodge purposes, or for social club purposes except where that use is clearly incidental to a primary religious, hospital, scientific, or charitable purpose.
(6)The property is irrevocably dedicated to religious, charitable, scientific, or hospital purposes and, upon the liquidation, dissolution, or abandonment of the owner, will not inure to the benefit of any private person except a fund, foundation, or corporation organized and operated for religious, hospital, scientific, or charitable purposes.
(7)The property, if used exclusively for scientific purposes, is used by a foundation or institution that, in addition to complying with the foregoing requirements for the exemption of charitable organizations in general, has been chartered by the Congress of the United States (except that this requirement shall not apply when the scientific purposes are medical research), and whose objects are the encouragement or conduct of scientific investigation, research, and discovery for the benefit of the community at large.
The exemption provided for herein shall be known as the welfare exemption. This exemption is in addition to any other exemption now provided by law, and the existence of the exemption provision in paragraph (2) of subdivision (a) of Section 202 does not preclude the exemption under this section for museum or library property. Except as provided in subdivision (e), this section shall not be construed to enlarge the college exemption.
(b)Property used exclusively for school purposes of less than collegiate grade and owned and operated by religious, hospital, or charitable funds, foundations, limited liability companies, or corporations, which property and funds, foundations, limited liability companies, or corporations meet all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(c)Property used exclusively for nursery school purposes and owned and operated by religious, hospital, or charitable funds, foundations, limited liability companies, or corporations, which property and funds, foundations, limited liability companies, or corporations meet all the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(d)Property used exclusively for a noncommercial educational FM broadcast station or an educational television station, and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(e)Property used exclusively for religious, charitable, scientific, or hospital purposes and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations or educational institutions of collegiate grade, as defined in Section 203, which property and funds, foundations, limited liability companies, corporations, or educational institutions meet all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section. As to educational institutions of collegiate grade, as defined in Section 203, the requirements of paragraph (6) of subdivision (a) shall be deemed to be met if both of the following are met:
(1)The property of the educational institution is irrevocably dedicated in its articles of incorporation to charitable and educational purposes, to religious and educational purposes, or to educational purposes.
(2)The articles of incorporation of the educational institution provide for distribution of its property upon its liquidation, dissolution, or abandonment to a fund, foundation, or corporation organized and operated for religious, hospital, scientific, charitable, or educational purposes meeting the requirements for exemption provided by Section 203 or this section.
(f)Property used exclusively for housing and related facilities for elderly or handicapped families and financed by, including, but not limited to, the federal government pursuant to Section 202 of Public Law 86-372 (12 U.S.C. Sec. 1701q), as amended, Section 231 of Public Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of Public Law 90-448 (12 U.S.C. Sec. 1715z), or Section 811 of Public Law 101-625 (42 U.S.C. Sec. 8013), and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of this section shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
The amendment of this paragraph made by Chapter 1102 of the Statutes of 1984 does not constitute a change in, but is declaratory of, existing law. However, no refund of property taxes shall be required as a result of this amendment for any fiscal year prior to the fiscal year in which the amendment takes effect.
Property used exclusively for housing and related facilities for elderly or handicapped families at which supplemental care or services designed to meet the special needs of elderly or handicapped residents are not provided, or that is not financed by the federal government pursuant to Section 202 of Public Law 86-372 (12 U.S.C. Sec. 1701q), as amended, Section 231 of Public Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of Public Law 90-448 (12 U.S.C. Sec. 1715z), or Section 811 of Public Law 101-625 (42 U.S.C. Sec. 8013), shall not be entitled to exemption pursuant to this subdivision unless the property is used for housing and related facilities for low- and moderate-income elderly or handicapped families. Property that would otherwise be exempt pursuant to this subdivision, except that it includes some housing and related facilities for other than low- or moderate-income elderly or handicapped families, shall be entitled to a partial exemption. The partial exemption shall be equal to that percentage of the value of the property that is equal to the percentage that the number of low- and moderate-income elderly and handicapped families represents of the total number of families occupying the property.
As used in this subdivision, low and moderate income has the same meaning as the term persons and families of low or moderate income as defined by Section 50093 of the Health and Safety Code.
(g)(1)Property used exclusively for rental housing and related facilities and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations, including limited partnerships in which the managing general partner is an eligible nonprofit corporation or eligible limited liability company, meeting all of the requirements of this section, or by veterans organizations, as described in Section 215.1, meeting all the requirements of paragraphs (1) to (7), inclusive, of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section and shall be entitled to a partial exemption equal to that percentage of the value of the property that is equal to the percentage that the number of units serving lower income households represents of the total number of residential units in any year in which any of the following criteria applies:
(A)The acquisition, rehabilitation, development, or operation of the property, or any combination of these factors, is financed with tax-exempt mortgage revenue bonds or general obligation bonds, or is financed by local, state, or federal loans or grants and the rents of the occupants who are lower income households do not exceed those prescribed by deed restrictions or regulatory agreements pursuant to the terms of the financing or financial assistance.
(B)The owner of the property is eligible for and receives low-income housing tax credits pursuant to Section 42 of the Internal Revenue Code of 1986, as added by Public Law 99-514.
(C)(i)In the case of a claim, other than a claim with respect to property owned by a limited partnership in which the managing general partner is an eligible nonprofit corporation, that is filed for the 200001 fiscal year or any fiscal year thereafter, 90 percent or more of the occupants of the property are lower income households whose rent does not exceed the rent prescribed by Section 50053 of the Health and Safety Code. Except as provided in clause (ii), the total exemption amount allowed under this subdivision to a taxpayer, with respect to a single property or multiple properties for any fiscal year on the sole basis of the application of this subparagraph, may not exceed twenty million dollars ($20,000,000) in assessed value.
(ii)(I)The twenty-million-dollar ($20,000,000) exemption cap described in clause (i) shall not apply to any property for which a claim is filed and granted pursuant to this subparagraph for the 202425 fiscal year or any fiscal year thereafter if, in if all of the following conditions are met:
(ia)In addition to the requirement in clause (i), at least 90 percent of the propertys units are made continuously available to or are occupied by lower income households at a rent that does not exceed the rent for lower income households, as prescribed by Section 50053 of the Health and Safety Code. The
(ib)Except as described in sub-subclause (ic), the claimant shall submit, at the same time they submit a claim for exemption under clause (i), to the county assessor an affidavit signed, under penalty of perjury, by an officer of the nonprofit corporation affirming to the county assessor that any additional moneys that would have been used to pay any ad valorem property taxes on the property if not for the removal of the exemption cap pursuant to this clause will be used for the construction or rehabilitation of single or multifamily residential units on that property or any other properties that are qualified to receive the benefit under this clause that are owned and operated by the claimant.
(ic)If the claimant is seeking the benefit under this clause for a fiscal year in which the property is newly constructed or purchased, the claimant may submit the affidavit described in sub-subclause (ib) within three months after the property is newly constructed or purchased.
(id)The property is owned and operated by an eligible nonprofit corporation.
(II)The county assessor shall determine whether a claimant is eligible for the exemption in this subclause based on the percentage of the propertys units and completed affidavit that meet the requirements of this subclause as of the January 1 lien date for the fiscal year the claim is made for. made.
(III)(ia)Notwithstanding any law, the claimant shall be liable for property tax for the years for which the property received the benefit pursuant to this clause if single or multifamily residential units were not constructed or rehabilitated or were not in the course of construction or rehabilitation, in accordance with this clause, as follows:
(Ia)In the case of property acquired by the claimant before January 1, 2024, by January 1, 2029.
(Ib)In the case of property acquired by the claimant on or after January 1, 2024, but before January 1, 2029, within five years of the lien date following the acquisition of the property by the claimant.
(ib)The claimant shall notify the assessor of the county in which the property is located if property or other properties that are qualified to receive the benefit under this clause are not in the course of construction or rehabilitation by the dates specified in sub-subclause (ia).
(II)(IV)For purposes of this clause, the following definitions apply:
(ia)Lower income households has the same meaning as in Section 50079.5.
(ib)Made continuously available to means the unit is being advertised to lower income households as available for lease and a deed has been recorded as an encumbrance against title to the property in the official records of the county in which the property is located, which specifies that all or 90 percent or more of the propertys usage is restricted to rental to lower income households at a rent that does not exceed the rent for lower income households, as prescribed by Section 50053 of the Health and Safety Code, and which identifies the number of units subject to that restriction.
(III)(V)A claimant seeking an exemption pursuant to this clause shall provide to the county assessor any additional documents and materials requested by the county assessor necessary to evaluate the claimants eligibility for this exemption.
(VI)This clause (ii) shall only be operative from the 202425 fiscal year through the 202829 fiscal year.
(D)(i)The property was previously purchased and owned by the Department of Transportation pursuant to a consent decree requiring housing mitigation measures relating to the construction of a freeway and is now solely owned by an organization that qualifies as an exempt organization under Section 501(c)(3) of the Internal Revenue Code.
(ii)This subparagraph does not apply to property owned by a limited partnership in which the managing partner is an eligible nonprofit corporation.
(2)In order to be eligible for the exemption provided by this subdivision, the owner of the property shall do both of the following:
(A)(i)For any claim filed for the 200001 fiscal year or any fiscal year thereafter, certify and ensure, subject to the limitation in clause (ii), that there is an enforceable and verifiable agreement with a public agency, a recorded deed restriction, or other legal document that restricts the projects usage and that provides that the units designated for use by lower income households are continuously available to or occupied by lower income households, subject to the exception in clause (iii), at rents that do not exceed those prescribed by Section 50053 of the Health and Safety Code, or, to the extent that the terms of federal, state, or local financing or financial assistance conflicts with Section 50053 of the Health and Safety Code, rents that do not exceed those prescribed by the terms of the financing or financial assistance.
(ii)In the case of a limited partnership in which the managing general partner is an eligible nonprofit corporation, the restriction and provision specified in clause (i) shall be contained in an enforceable and verifiable agreement with a public agency, or in a recorded deed restriction to which the limited partnership certifies.
(iii)(I)In the case of an owner of property that is eligible for and receives a low-income housing tax credit pursuant to Section 42 of the Internal Revenue Code, relating to low-income housing credit, a unit shall continue to be treated as occupied by a lower income household if the occupants were lower income households on the lien date in the fiscal year in which their occupancy of the unit commenced and the unit continues to be rent restricted, notwithstanding an increase in the income of the occupants of the unit to 140 percent of area median income, adjusted for family size. However, the unit shall cease to be treated as a lower income unit if the income of the occupants of the unit increases above 140 percent of area median income, adjusted for family size.
(II)This clause shall only be operative from the 201819 fiscal year through the 202728 fiscal year.
(iv)(I)In the case of an owner of property that is a community land trust and whose property is leased to a lower income household, subject to a contract that complies with the requirements of paragraph (11) of subdivision (a) of Section 402.1, a unit shall continue to be treated as occupied by a lower income household if the occupants were lower income households on the lien date in the fiscal year in which their occupancy of the unit commenced and the unit continues to be rent restricted, notwithstanding an increase in the income of the occupants of the unit to 140 percent of area median income, adjusted for family size. However, the unit shall cease to be treated as a lower income unit if the income of the occupants of the unit increases above 140 percent of area median income, adjusted for family size.
(II)This clause shall only be operative from the 202223 fiscal year through the 202728 fiscal year.
(B)Certify that the funds that would have been necessary to pay property taxes are used to maintain the affordability of, or reduce rents otherwise necessary for, the units occupied by lower income households.
(3)As used in this subdivision:
(A)Community land trust has the same meaning as defined in Section 402.1.
(B)Lower income households has the same meaning as the term lower income households as defined by Section 50079.5 of the Health and Safety Code.
(C)Related facilities means any managers units and any and all common area spaces that are included within the physical boundaries of the rental housing development, including, but not limited to, common area space, walkways, balconies, patios, clubhouse space, meeting rooms, laundry facilities, and parking areas, except any portions of the overall development that are nonexempt commercial space.
(D)(i)Units serving lower income households shall mean units that are occupied by lower income households at an affordable rent, as defined in Section 50053 of the Health and Safety Code or, to the extent that the terms of federal, state, or local financing or financial assistance conflicts with Section 50053 of the Health and Safety Code, rents that do not exceed those prescribed by the terms of the financing or financial assistance. Units reserved for lower income households at an affordable rent that are temporarily vacant due to tenant turnover or repairs shall be counted as occupied.
(ii)(I)Units serving lower income households shall also mean units specified in clause (iii) of subparagraph (A) of paragraph (2).
(II)This clause shall only be operative from the 201819 fiscal year through the 202728 fiscal year.
(iii)(I)Units serving lower income households shall also mean units specified in clause (iv) of subparagraph (A) of paragraph (2).
(II)This clause shall only be operative from the 202223 fiscal year through the 202728 fiscal year.
(h)Property used exclusively for an emergency or temporary shelter and related facilities for homeless persons and families and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of this section shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section. Property that otherwise would be exempt pursuant to this subdivision, except that it includes housing and related facilities for other than an emergency or temporary shelter, shall be entitled to a partial exemption.
As used in this subdivision, emergency or temporary shelter means a facility that would be eligible for funding pursuant to Chapter 11.5 (commencing with Section 50800) of Part 2 of Division 31 of the Health and Safety Code.
(i)Property used exclusively for housing and related facilities for employees of religious, charitable, scientific, or hospital organizations that meet all the requirements set forth in subdivision (a) and owned and operated by funds, foundations, limited liability companies, or corporations that meet all the requirements of subdivision (a) shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section to the extent the residential use of the property is institutionally necessary for the operation of the organization.
(j)For purposes of this section, charitable purposes include educational purposes. For purposes of this subdivision, educational purposes means those educational purposes and activities for the benefit of the community as a whole or an unascertainable and indefinite portion thereof, and do not include those educational purposes and activities that are primarily for the benefit of an organizations shareholders. Educational activities include the study of relevant information, the dissemination of that information to interested members of the general public, and the participation of interested members of the general public.
(k)In the case of property used exclusively for the exempt purposes specified in this section, owned and operated by limited liability companies that are organized and operated for those purposes, the State Board of Equalization shall adopt regulations to specify the ownership, organizational, and operational requirements for those companies to qualify for the exemption provided by this section.
(l)The amendments made by Chapter 354 of the Statutes of 2004 apply with respect to lien dates occurring on and after January 1, 2005.
(m)The amendments made by Chapter 836 of the Statutes of 2016 apply with respect to lien dates occurring on and after January 1, 2017.
(n)The amendments made by Chapter 694 of the Statutes of 2018 apply with respect to lien dates occurring on and after January 1, 2019.
(o)Notwithstanding Section 20 or any other law, the State Board of Equalization is responsible for administering the welfare exemption provided by this section, except where the law places responsibility for administering that exemption with the county assessor.
SEC. 2.It is the intent of the Legislature to apply the requirements of Section 41 of the Revenue and Taxation Code with respect to the removal of the exemption cap under subparagraph (C) of paragraph (1) of subdivision (g) of Section 214 of the Revenue and Taxation Code, as amended by this act.SEC. 3.If the Commission on State Mandates determines that this act contains costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code.SEC. 2.(a)It is the intent of the Legislature to apply the requirements of Section 41 of the Revenue and Taxation Code with respect to the expanded exemption under clause (ii) of subparagraph (C) of paragraph (1) of subdivision (g) of Section 214 of the Revenue and Taxation Code, as added by this act (hereafter expanded exemption).
(b)The goal, purpose, and objective of the exemption is to provide a tax incentive to nonprofit affordable housing developers that use private capital only to assist them in reducing the cost to produce low-income affordable housing units and creating more low-income affordable housing units.
(c)(1)To assist the Legislature in determining whether the expanded exemption allowed by this act fulfills the goal, purpose, and objective as described in subdivision (b), the State Board of Equalization shall, to the extent data is available from county assessors, annually collect and report to specified committees of the Legislature, pursuant to paragraph (2), the following data:
(A)The number of claimants that have applied and qualified for the expanded exemption.
(B)The dollar amount of taxes that would have been collected if there was no expanded exemption.
(C)The aggregate value of the properties receiving the expanded exemption for each claimant.
(D)The value of each property receiving the expanded exemption, in terms of affordable housing units for low-income tenants that did not have to be developed by local or state government.
(E)The number of affordable housing units created by each claimant.
(F)The average rent assessed on tenants in each property receiving the expanded exemption.
(2)By July 1, 2025, and every July 1 thereafter until July 1, 2030, the State Board of Equalization shall report this information to the Senate Committee on Budget and Fiscal Review, Assembly Committee on Budget, the Senate and Assembly Committees on Appropriations, the Senate Committee on Governance and Finance, and the Assembly Committee on Revenue and Taxation.
SEC. 3.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution for certain costs that may be incurred by a local agency or school district because, in that regard, this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.
However, if the Commission on State Mandates determines that this act contains other costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code.
SEC. 4.Notwithstanding Section 2229 of the Revenue and Taxation Code, no appropriation is made by this act and the state shall not reimburse any local agency for any property tax revenues lost by it pursuant to this act.
SEC. 5.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
(a)Property used exclusively for religious, hospital, scientific, or charitable purposes owned and operated by community chests, funds, foundations, limited liability companies, or corporations organized and operated for religious, hospital, scientific, or charitable purposes is exempt from taxation, including ad valorem taxes to pay the interest and redemption charges on any indebtedness approved by the voters before July 1, 1978, or any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition, if:
(1)The owner is not organized or operated for profit. However, in the case of hospitals, the organization shall not be deemed to be organized or operated for profit if, during the immediately preceding fiscal year, operating revenues, exclusive of gifts, endowments, and grants-in-aid, did not exceed operating expenses by an amount equivalent to 10 percent of those operating expenses. As used herein, operating expenses include depreciation based on cost of replacement and amortization of, and interest on, indebtedness.
(2)No part of the net earnings of the owner inures to the benefit of any private shareholder or individual.
(3)The property is used for the actual operation of the exempt activity, and does not exceed an amount of property reasonably necessary to the accomplishment of the exempt purpose.
(A)For the purposes of determining whether the property is used for the actual operation of the exempt activity, consideration shall not be given to use of the property for either or both of the following described activities if that use is occasional:
(i)The owner conducts fundraising activities on the property and the proceeds derived from those activities are not unrelated business taxable income, as defined in Section 512 of the Internal Revenue Code, of the owner and are used to further the exempt activity of the owner.
(ii)The owner permits any other organization that meets all of the requirements of this subdivision, other than ownership of the property, to conduct fundraising activities on the property and the proceeds derived from those activities are not unrelated business taxable income, as defined in Section 512 of the Internal Revenue Code, of the organization, are not subject to the tax on unrelated business taxable income that is imposed by Section 511 of the Internal Revenue Code, and are used to further the exempt activity of the organization.
(B)For purposes of subparagraph (A):
(i)Occasional use means use of the property on an irregular or intermittent basis by the qualifying owner or any other qualifying organization described in clause (ii) of subparagraph (A) that is incidental to the primary activities of the owner or the other organization.
(ii)Fundraising activities means both activities involving the direct solicitation of money or other property and the anticipated exchange of goods or services for money between the soliciting organization and the organization or person solicited.
(C)Subparagraph (A) shall have no application in determining whether paragraph (3) has been satisfied unless the owner of the property and any other organization using the property as provided in subparagraph (A) have filed with the assessor a valid organizational clearance certificate issued pursuant to Section 254.6.
(D)For the purposes of determining whether the property is used for the actual operation of the exempt activity, consideration shall not be given to the use of the property for meetings conducted by any other organization if the meetings are incidental to the other organizations primary activities, are not fundraising meetings or activities as defined in subparagraph (B), are held no more than once per week, and the other organization and its use of the property meet all other requirements of paragraphs (1) to (5), inclusive, of this subdivision. The owner or the other organization also shall file with the assessor a copy of a valid, unrevoked letter or ruling from the Internal Revenue Service or the Franchise Tax Board stating that the other organization, or the national organization of which it is a local chapter or affiliate, qualifies as an exempt organization under Section 501(c)(3) or 501(c)(4) of the Internal Revenue Code or Section 23701d, 23701f, or 23701w.
(E)Subparagraph (A), (B), (C), or (D) shall not be construed to either enlarge or restrict the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(4)The property is not used or operated by the owner or by any other person so as to benefit any officer, trustee, director, shareholder, member, employee, contributor, or bondholder of the owner or operator, or any other person, through the distribution of profits, payment of excessive charges or compensations, or the more advantageous pursuit of their business or profession.
(5)The property is not used by the owner or members thereof for fraternal or lodge purposes, or for social club purposes except where that use is clearly incidental to a primary religious, hospital, scientific, or charitable purpose.
(6)The property is irrevocably dedicated to religious, charitable, scientific, or hospital purposes and, upon the liquidation, dissolution, or abandonment of the owner, will not inure to the benefit of any private person except a fund, foundation, or corporation organized and operated for religious, hospital, scientific, or charitable purposes.
(7)The property, if used exclusively for scientific purposes, is used by a foundation or institution that, in addition to complying with the foregoing requirements for the exemption of charitable organizations in general, has been chartered by the Congress of the United States (except that this requirement shall not apply when the scientific purposes are medical research), and whose objects are the encouragement or conduct of scientific investigation, research, and discovery for the benefit of the community at large.
The exemption provided for herein shall be known as the welfare exemption. This exemption is in addition to any other exemption now provided by law, and the existence of the exemption provision in paragraph (2) of subdivision (a) of Section 202 does not preclude the exemption under this section for museum or library property. Except as provided in subdivision (e), this section shall not be construed to enlarge the college exemption.
(b)Property used exclusively for school purposes of less than collegiate grade and owned and operated by religious, hospital, or charitable funds, foundations, limited liability companies, or corporations, which property and funds, foundations, limited liability companies, or corporations meet all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(c)Property used exclusively for nursery school purposes and owned and operated by religious, hospital, or charitable funds, foundations, limited liability companies, or corporations, which property and funds, foundations, limited liability companies, or corporations meet all the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(d)Property used exclusively for a noncommercial educational FM broadcast station or an educational television station, and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(e)Property used exclusively for religious, charitable, scientific, or hospital purposes and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations or educational institutions of collegiate grade, as defined in Section 203, which property and funds, foundations, limited liability companies, corporations, or educational institutions meet all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section. As to educational institutions of collegiate grade, as defined in Section 203, the requirements of paragraph (6) of subdivision (a) shall be deemed to be met if both of the following are met:
(1)The property of the educational institution is irrevocably dedicated in its articles of incorporation to charitable and educational purposes, to religious and educational purposes, or to educational purposes.
(2)The articles of incorporation of the educational institution provide for distribution of its property upon its liquidation, dissolution, or abandonment to a fund, foundation, or corporation organized and operated for religious, hospital, scientific, charitable, or educational purposes meeting the requirements for exemption provided by Section 203 or this section.
(f)Property used exclusively for housing and related facilities for elderly or handicapped families and financed by, including, but not limited to, the federal government pursuant to Section 202 of Public Law 86-372 (12 U.S.C. Sec. 1701q), as amended, Section 231 of Public Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of Public Law 90-448 (12 U.S.C. Sec. 1715z), or Section 811 of Public Law 101-625 (42 U.S.C. Sec. 8013), and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of this section shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
The amendment of this paragraph made by Chapter 1102 of the Statutes of 1984 does not constitute a change in, but is declaratory of, existing law. However, no refund of property taxes shall be required as a result of this amendment for any fiscal year prior to the fiscal year in which the amendment takes effect.
Property used exclusively for housing and related facilities for elderly or handicapped families at which supplemental care or services designed to meet the special needs of elderly or handicapped residents are not provided, or that is not financed by the federal government pursuant to Section 202 of Public Law 86-372 (12 U.S.C. Sec. 1701q), as amended, Section 231 of Public Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of Public Law 90-448 (12 U.S.C. Sec. 1715z), or Section 811 of Public Law 101-625 (42 U.S.C. Sec. 8013), shall not be entitled to exemption pursuant to this subdivision unless the property is used for housing and related facilities for low- and moderate-income elderly or handicapped families. Property that would otherwise be exempt pursuant to this subdivision, except that it includes some housing and related facilities for other than low- or moderate-income elderly or handicapped families, shall be entitled to a partial exemption. The partial exemption shall be equal to that percentage of the value of the property that is equal to the percentage that the number of low- and moderate-income elderly and handicapped families represents of the total number of families occupying the property.
As used in this subdivision, low and moderate income has the same meaning as the term persons and families of low or moderate income as defined by Section 50093 of the Health and Safety Code.
(g)(1)Property used exclusively for rental housing and related facilities and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations, including limited partnerships in which the managing general partner is an eligible nonprofit corporation or eligible limited liability company, meeting all of the requirements of this section, or by veterans organizations, as described in Section 215.1, meeting all the requirements of paragraphs (1) to (7), inclusive, of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section and shall be entitled to a partial exemption equal to that percentage of the value of the property that is equal to the percentage that the number of units serving lower income households represents of the total number of residential units in any year in which any of the following criteria applies:
(A)The acquisition, rehabilitation, development, or operation of the property, or any combination of these factors, is financed with tax-exempt mortgage revenue bonds or general obligation bonds, or is financed by local, state, or federal loans or grants and the rents of the occupants who are lower income households do not exceed those prescribed by deed restrictions or regulatory agreements pursuant to the terms of the financing or financial assistance.
(B)The owner of the property is eligible for and receives low-income housing tax credits pursuant to Section 42 of the Internal Revenue Code of 1986, as added by Public Law 99-514.
(C)(i)In the case of a claim, other than a claim with respect to property owned by a limited partnership in which the managing general partner is an eligible nonprofit corporation, that is filed for the 200001 fiscal year or any fiscal year thereafter, 90 percent or more of the occupants of the property are lower income households whose rent does not exceed the rent prescribed by Section 50053 of the Health and Safety Code. The Except as provided in clause (ii), the total exemption amount allowed under this subdivision to a taxpayer, with respect to a single property or multiple properties for any fiscal year on the sole basis of the application of this subparagraph, may not exceed twenty million dollars ($20,000,000) in assessed value.
(ii)(I)The twenty-million-dollar ($20,000,000) exemption cap described in clause (i) shall not apply to any property for which a claim is filed and granted pursuant to this subparagraph for the 202425 fiscal year or any fiscal year thereafter if, in addition to the requirement in clause (i), at least 90 percent of the propertys units are made continuously available to or are occupied by lower income households at a rent that does not exceed the rent for lower income households, as prescribed by Section 50053 of the Health and Safety Code. The county assessor shall determine whether a claimant is eligible for the exemption in this subclause based on the percentage of the propertys units that meet the requirements of this subclause as of the January 1 lien date for the fiscal year the claim is made for.
(II)For purposes of this clause, the following definitions apply:
(ia)Lower income households has the same meaning as in Section 50079.5.
(ib)Made continuously available to means the unit is being advertised to lower income households as available for lease and a deed has been recorded as an encumbrance against title to the property in the official records of the county in which the property is located, which specifies that all or 90 percent or more of the propertys usage is restricted to rental to lower income households at a rent that does not exceed the rent for lower income households, as prescribed by Section 50053 of the Health and Safety Code, and which identifies the number of units subject to that restriction.
(III)A claimant seeking an exemption pursuant to this clause shall provide to the county assessor any additional documents and materials requested by the county assessor necessary to evaluate the claimants eligibility for this exemption.
(D)(i)The property was previously purchased and owned by the Department of Transportation pursuant to a consent decree requiring housing mitigation measures relating to the construction of a freeway and is now solely owned by an organization that qualifies as an exempt organization under Section 501(c)(3) of the Internal Revenue Code.
(ii)This subparagraph does not apply to property owned by a limited partnership in which the managing partner is an eligible nonprofit corporation.
(2)In order to be eligible for the exemption provided by this subdivision, the owner of the property shall do both of the following:
(A)(i)For any claim filed for the 200001 fiscal year or any fiscal year thereafter, certify and ensure, subject to the limitation in clause (ii), that there is an enforceable and verifiable agreement with a public agency, a recorded deed restriction, or other legal document that restricts the projects usage and that provides that the units designated for use by lower income households are continuously available to or occupied by lower income households, subject to the exception in clause (iii), at rents that do not exceed those prescribed by Section 50053 of the Health and Safety Code, or, to the extent that the terms of federal, state, or local financing or financial assistance conflicts with Section 50053 of the Health and Safety Code, rents that do not exceed those prescribed by the terms of the financing or financial assistance.
(ii)In the case of a limited partnership in which the managing general partner is an eligible nonprofit corporation, the restriction and provision specified in clause (i) shall be contained in an enforceable and verifiable agreement with a public agency, or in a recorded deed restriction to which the limited partnership certifies.
(iii)(I)In the case of an owner of property that is eligible for and receives a low-income housing tax credit pursuant to Section 42 of the Internal Revenue Code, relating to low-income housing credit, a unit shall continue to be treated as occupied by a lower income household if the occupants were lower income households on the lien date in the fiscal year in which their occupancy of the unit commenced and the unit continues to be rent restricted, notwithstanding an increase in the income of the occupants of the unit to 140 percent of area median income, adjusted for family size. However, the unit shall cease to be treated as a lower income unit if the income of the occupants of the unit increases above 140 percent of area median income, adjusted for family size.
(II)This clause shall only be operative from the 201819 fiscal year through the 202728 fiscal year.
(iv)(I)In the case of an owner of property that is a community land trust and whose property is leased to a lower income household, subject to a contract that complies with the requirements of paragraph (11) of subdivision (a) of Section 402.1, a unit shall continue to be treated as occupied by a lower income household if the occupants were lower income households on the lien date in the fiscal year in which their occupancy of the unit commenced and the unit continues to be rent restricted, notwithstanding an increase in the income of the occupants of the unit to 140 percent of area median income, adjusted for family size. However, the unit shall cease to be treated as a lower income unit if the income of the occupants of the unit increases above 140 percent of area median income, adjusted for family size.
(II)This clause shall only be operative from the 202223 fiscal year through the 202728 fiscal year.
(B)Certify that the funds that would have been necessary to pay property taxes are used to maintain the affordability of, or reduce rents otherwise necessary for, the units occupied by lower income households.
(3)As used in this subdivision:
(A)Community land trust has the same meaning as defined in Section 402.1.
(B)Lower income households has the same meaning as the term lower income households as defined by Section 50079.5 of the Health and Safety Code.
(C)Related facilities means any managers units and any and all common area spaces that are included within the physical boundaries of the rental housing development, including, but not limited to, common area space, walkways, balconies, patios, clubhouse space, meeting rooms, laundry facilities, and parking areas, except any portions of the overall development that are nonexempt commercial space.
(D)(i)Units serving lower income households shall mean units that are occupied by lower income households at an affordable rent, as defined in Section 50053 of the Health and Safety Code or, to the extent that the terms of federal, state, or local financing or financial assistance conflicts with Section 50053 of the Health and Safety Code, rents that do not exceed those prescribed by the terms of the financing or financial assistance. Units reserved for lower income households at an affordable rent that are temporarily vacant due to tenant turnover or repairs shall be counted as occupied.
(ii)(I)Units serving lower income households shall also mean units specified in clause (iii) of subparagraph (A) of paragraph (2).
(II)This clause shall only be operative from the 201819 fiscal year through the 202728 fiscal year.
(iii)(I)Units serving lower income households shall also mean units specified in clause (iv) of subparagraph (A) of paragraph (2).
(II)This clause shall only be operative from the 202223 fiscal year through the 202728 fiscal year.
(h)Property used exclusively for an emergency or temporary shelter and related facilities for homeless persons and families and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of this section shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section. Property that otherwise would be exempt pursuant to this subdivision, except that it includes housing and related facilities for other than an emergency or temporary shelter, shall be entitled to a partial exemption.
As used in this subdivision, emergency or temporary shelter means a facility that would be eligible for funding pursuant to Chapter 11.5 (commencing with Section 50800) of Part 2 of Division 31 of the Health and Safety Code.
(i)Property used exclusively for housing and related facilities for employees of religious, charitable, scientific, or hospital organizations that meet all the requirements set forth in subdivision (a) and owned and operated by funds, foundations, limited liability companies, or corporations that meet all the requirements of subdivision (a) shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section to the extent the residential use of the property is institutionally necessary for the operation of the organization.
(j)For purposes of this section, charitable purposes include educational purposes. For purposes of this subdivision, educational purposes means those educational purposes and activities for the benefit of the community as a whole or an unascertainable and indefinite portion thereof, and do not include those educational purposes and activities that are primarily for the benefit of an organizations shareholders. Educational activities include the study of relevant information, the dissemination of that information to interested members of the general public, and the participation of interested members of the general public.
(k)In the case of property used exclusively for the exempt purposes specified in this section, owned and operated by limited liability companies that are organized and operated for those purposes, the State Board of Equalization shall adopt regulations to specify the ownership, organizational, and operational requirements for those companies to qualify for the exemption provided by this section.
(l)The amendments made by Chapter 354 of the Statutes of 2004 apply with respect to lien dates occurring on and after January 1, 2005.
(m)The amendments made by Chapter 836 of the Statutes of 2016 apply with respect to lien dates occurring on and after January 1, 2017.
(n)The amendments made by Chapter 694 of the Statutes of 2018 apply with respect to lien dates occurring on and after January 1, 2019.
(o)Notwithstanding Section 20 or any other law, the State Board of Equalization is responsible for administering the welfare exemption provided by this section, except where the law places responsibility for administering that exemption with the county assessor.
SEC. 2.It is the intent of the Legislature to apply the requirements of Section 41 of the Revenue and Taxation Code with respect to the removal of the exemption cap under subparagraph (C) of paragraph (1) of subdivision (g) of Section 214 of the Revenue and Taxation Code, as amended by this act.
SEC. 3.If the Commission on State Mandates determines that this act contains costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code.
SEC. 4.Notwithstanding Section 2229 of the Revenue and Taxation Code, no appropriation is made by this act and the state shall not reimburse any local agency for any property tax revenues lost by it pursuant to this act.
SEC. 5.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
(a)Property used exclusively for religious, hospital, scientific, or charitable purposes owned and operated by community chests, funds, foundations, limited liability companies, or corporations organized and operated for religious, hospital, scientific, or charitable purposes is exempt from taxation, including ad valorem taxes to pay the interest and redemption charges on any indebtedness approved by the voters prior to before July 1, 1978, or any bonded indebtedness for the acquisition or improvement of real property approved on or after July 1, 1978, by two-thirds of the votes cast by the voters voting on the proposition, if:
(1)The owner is not organized or operated for profit. However, in the case of hospitals, the organization shall not be deemed to be organized or operated for profit if, during the immediately preceding fiscal year, operating revenues, exclusive of gifts, endowments, and grants-in-aid, did not exceed operating expenses by an amount equivalent to 10 percent of those operating expenses. As used herein, operating expenses include depreciation based on cost of replacement and amortization of, and interest on, indebtedness.
(2)No part of the net earnings of the owner inures to the benefit of any private shareholder or individual.
(3)The property is used for the actual operation of the exempt activity, and does not exceed an amount of property reasonably necessary to the accomplishment of the exempt purpose.
(A)For the purposes of determining whether the property is used for the actual operation of the exempt activity, consideration shall not be given to use of the property for either or both of the following described activities if that use is occasional:
(i)The owner conducts fundraising activities on the property and the proceeds derived from those activities are not unrelated business taxable income, as defined in Section 512 of the Internal Revenue Code, of the owner and are used to further the exempt activity of the owner.
(ii)The owner permits any other organization that meets all of the requirements of this subdivision, other than ownership of the property, to conduct fundraising activities on the property and the proceeds derived from those activities are not unrelated business taxable income, as defined in Section 512 of the Internal Revenue Code, of the organization, are not subject to the tax on unrelated business taxable income that is imposed by Section 511 of the Internal Revenue Code, and are used to further the exempt activity of the organization.
(B)For purposes of subparagraph (A):
(i)Occasional use means use of the property on an irregular or intermittent basis by the qualifying owner or any other qualifying organization described in clause (ii) of subparagraph (A) that is incidental to the primary activities of the owner or the other organization.
(ii)Fundraising activities means both activities involving the direct solicitation of money or other property and the anticipated exchange of goods or services for money between the soliciting organization and the organization or person solicited.
(C)Subparagraph (A) shall have no application in determining whether paragraph (3) has been satisfied unless the owner of the property and any other organization using the property as provided in subparagraph (A) have filed with the assessor a valid organizational clearance certificate issued pursuant to Section 254.6.
(D)For the purposes of determining whether the property is used for the actual operation of the exempt activity, consideration shall not be given to the use of the property for meetings conducted by any other organization if the meetings are incidental to the other organizations primary activities, are not fundraising meetings or activities as defined in subparagraph (B), are held no more than once per week, and the other organization and its use of the property meet all other requirements of paragraphs (1) to (5), inclusive, of this subdivision. The owner or the other organization also shall file with the assessor a copy of a valid, unrevoked letter or ruling from the Internal Revenue Service or the Franchise Tax Board stating that the other organization, or the national organization of which it is a local chapter or affiliate, qualifies as an exempt organization under Section 501(c)(3) or 501(c)(4) of the Internal Revenue Code or Section 23701d, 23701f, or 23701w.
(E)Subparagraph (A), (B), (C), or (D) shall not be construed to either enlarge or restrict the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(4)The property is not used or operated by the owner or by any other person so as to benefit any officer, trustee, director, shareholder, member, employee, contributor, or bondholder of the owner or operator, or any other person, through the distribution of profits, payment of excessive charges or compensations, or the more advantageous pursuit of their business or profession.
(5)The property is not used by the owner or members thereof for fraternal or lodge purposes, or for social club purposes except where that use is clearly incidental to a primary religious, hospital, scientific, or charitable purpose.
(6)The property is irrevocably dedicated to religious, charitable, scientific, or hospital purposes and, upon the liquidation, dissolution, or abandonment of the owner, will not inure to the benefit of any private person except a fund, foundation, or corporation organized and operated for religious, hospital, scientific, or charitable purposes.
(7)The property, if used exclusively for scientific purposes, is used by a foundation or institution that, in addition to complying with the foregoing requirements for the exemption of charitable organizations in general, has been chartered by the Congress of the United States (except that this requirement shall not apply when the scientific purposes are medical research), and whose objects are the encouragement or conduct of scientific investigation, research, and discovery for the benefit of the community at large.
The exemption provided for herein shall be known as the welfare exemption. This exemption is in addition to any other exemption now provided by law, and the existence of the exemption provision in paragraph (2) of subdivision (a) of Section 202 does not preclude the exemption under this section for museum or library property. Except as provided in subdivision (e), this section shall not be construed to enlarge the college exemption.
(b)Property used exclusively for school purposes of less than collegiate grade and owned and operated by religious, hospital, or charitable funds, foundations, limited liability companies, or corporations, which property and funds, foundations, limited liability companies, or corporations meet all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(c)Property used exclusively for nursery school purposes and owned and operated by religious, hospital, or charitable funds, foundations, limited liability companies, or corporations, which property and funds, foundations, limited liability companies, or corporations meet all the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(d)Property used exclusively for a noncommercial educational FM broadcast station or an educational television station, and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
(e)Property used exclusively for religious, charitable, scientific, or hospital purposes and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations or educational institutions of collegiate grade, as defined in Section 203, which property and funds, foundations, limited liability companies, corporations, or educational institutions meet all of the requirements of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section. As to educational institutions of collegiate grade, as defined in Section 203, the requirements of paragraph (6) of subdivision (a) shall be deemed to be met if both of the following are met:
(1)The property of the educational institution is irrevocably dedicated in its articles of incorporation to charitable and educational purposes, to religious and educational purposes, or to educational purposes.
(2)The articles of incorporation of the educational institution provide for distribution of its property upon its liquidation, dissolution, or abandonment to a fund, foundation, or corporation organized and operated for religious, hospital, scientific, charitable, or educational purposes meeting the requirements for exemption provided by Section 203 or this section.
(f)Property used exclusively for housing and related facilities for elderly or handicapped families and financed by, including, but not limited to, the federal government pursuant to Section 202 of Public Law 86-372 (12 U.S.C. Sec. 1701q), as amended, Section 231 of Public Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of Public Law 90-448 (12 U.S.C. Sec. 1715z), or Section 811 of Public Law 101-625 (42 U.S.C. Sec. 8013), and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of this section shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section.
The amendment of this paragraph made by Chapter 1102 of the Statutes of 1984 does not constitute a change in, but is declaratory of, existing law. However, no refund of property taxes shall be required as a result of this amendment for any fiscal year prior to the fiscal year in which the amendment takes effect.
Property used exclusively for housing and related facilities for elderly or handicapped families at which supplemental care or services designed to meet the special needs of elderly or handicapped residents are not provided, or that is not financed by the federal government pursuant to Section 202 of Public Law 86-372 (12 U.S.C. Sec. 1701q), as amended, Section 231 of Public Law 73-479 (12 U.S.C. Sec. 1715v), Section 236 of Public Law 90-448 (12 U.S.C. Sec. 1715z), or Section 811 of Public Law 101-625 (42 U.S.C. Sec. 8013), shall not be entitled to exemption pursuant to this subdivision unless the property is used for housing and related facilities for low- and moderate-income elderly or handicapped families. Property that would otherwise be exempt pursuant to this subdivision, except that it includes some housing and related facilities for other than low- or moderate-income elderly or handicapped families, shall be entitled to a partial exemption. The partial exemption shall be equal to that percentage of the value of the property that is equal to the percentage that the number of low- and moderate-income elderly and handicapped families represents of the total number of families occupying the property.
As used in this subdivision, low and moderate income has the same meaning as the term persons and families of low or moderate income as defined by Section 50093 of the Health and Safety Code.
(g)(1)Property used exclusively for rental housing and related facilities and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations, including limited partnerships in which the managing general partner is an eligible nonprofit corporation or eligible limited liability company, meeting all of the requirements of this section, or by veterans organizations, as described in Section 215.1, meeting all the requirements of paragraphs (1) to (7), inclusive, of subdivision (a), shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section and shall be entitled to a partial exemption equal to that percentage of the value of the property that is equal to the percentage that the number of units serving lower income households represents of the total number of residential units in any year in which any of the following criteria applies:
(A)The acquisition, rehabilitation, development, or operation of the property, or any combination of these factors, is financed with tax-exempt mortgage revenue bonds or general obligation bonds, or is financed by local, state, or federal loans or grants and the rents of the occupants who are lower income households do not exceed those prescribed by deed restrictions or regulatory agreements pursuant to the terms of the financing or financial assistance.
(B)The owner of the property is eligible for and receives low-income housing tax credits pursuant to Section 42 of the Internal Revenue Code of 1986, as added by Public Law 99-514.
(C)In the case of a claim, other than a claim with respect to property owned by a limited partnership in which the managing general partner is an eligible nonprofit corporation, that is filed for the 200001 fiscal year or any fiscal year thereafter, 90 percent or more of the occupants of the property are lower income households whose rent does not exceed the rent prescribed by Section 50053 of the Health and Safety Code. The total exemption amount allowed under this subdivision to a taxpayer, with respect to a single property or multiple properties for any fiscal year on the sole basis of the application of this subparagraph, may not exceed twenty million dollars ($20,000,000) in assessed value.
(D)(i)The property was previously purchased and owned by the Department of Transportation pursuant to a consent decree requiring housing mitigation measures relating to the construction of a freeway and is now solely owned by an organization that qualifies as an exempt organization under Section 501(c)(3) of the Internal Revenue Code.
(ii)This subparagraph does not apply to property owned by a limited partnership in which the managing partner is an eligible nonprofit corporation.
(2)In order to be eligible for the exemption provided by this subdivision, the owner of the property shall do both of the following:
(A)(i)For any claim filed for the 200001 fiscal year or any fiscal year thereafter, certify and ensure, subject to the limitation in clause (ii), that there is an enforceable and verifiable agreement with a public agency, a recorded deed restriction, or other legal document that restricts the projects usage and that provides that the units designated for use by lower income households are continuously available to or occupied by lower income households, subject to the exception in clause (iii), at rents that do not exceed those prescribed by Section 50053 of the Health and Safety Code, or, to the extent that the terms of federal, state, or local financing or financial assistance conflicts with Section 50053 of the Health and Safety Code, rents that do not exceed those prescribed by the terms of the financing or financial assistance.
(ii)In the case of a limited partnership in which the managing general partner is an eligible nonprofit corporation, the restriction and provision specified in clause (i) shall be contained in an enforceable and verifiable agreement with a public agency, or in a recorded deed restriction to which the limited partnership certifies.
(iii)(I)In the case of an owner of property that is eligible for and receives a low-income housing tax credit pursuant to Section 42 of the Internal Revenue Code, relating to low-income housing credit, a unit shall continue to be treated as occupied by a lower income household if the occupants were lower income households on the lien date in the fiscal year in which their occupancy of the unit commenced and the unit continues to be rent restricted, notwithstanding an increase in the income of the occupants of the unit to 140 percent of area median income, adjusted for family size. However, the unit shall cease to be treated as a lower income unit if the income of the occupants of the unit increases above 140 percent of area median income, adjusted for family size.
(II)This clause shall only be operative from the 201819 fiscal year through the 202728 fiscal year.
(iv)(I)In the case of an owner of property that is a community land trust and whose property is leased to a lower income household, subject to a contract that complies with the requirements of paragraph (11) of subdivision (a) of Section 402.1, a unit shall continue to be treated as occupied by a lower income household if the occupants were lower income households on the lien date in the fiscal year in which their occupancy of the unit commenced and the unit continues to be rent restricted, notwithstanding an increase in the income of the occupants of the unit to 140 percent of area median income, adjusted for family size. However, the unit shall cease to be treated as a lower income unit if the income of the occupants of the unit increases above 140 percent of area median income, adjusted for family size.
(II)This clause shall only be operative from the 202223 fiscal year through the 202728 fiscal year.
(B)Certify that the funds that would have been necessary to pay property taxes are used to maintain the affordability of, or reduce rents otherwise necessary for, the units occupied by lower income households.
(3)As used in this subdivision:
(A)Community land trust has the same meaning as defined in Section 402.1.
(B)Lower income households has the same meaning as the term lower income households as defined by Section 50079.5 of the Health and Safety Code.
(C)Related facilities means any managers units and any and all common area spaces that are included within the physical boundaries of the rental housing development, including, but not limited to, common area space, walkways, balconies, patios, clubhouse space, meeting rooms, laundry facilities, and parking areas, except any portions of the overall development that are nonexempt commercial space.
(D)(i)Units serving lower income households shall mean units that are occupied by lower income households at an affordable rent, as defined in Section 50053 of the Health and Safety Code or, to the extent that the terms of federal, state, or local financing or financial assistance conflicts with Section 50053 of the Health and Safety Code, rents that do not exceed those prescribed by the terms of the financing or financial assistance. Units reserved for lower income households at an affordable rent that are temporarily vacant due to tenant turnover or repairs shall be counted as occupied.
(ii)(I)Units serving lower income households shall also mean units specified in clause (iii) of subparagraph (A) of paragraph (2).
(II)This clause shall only be operative from the 201819 fiscal year through the 202728 fiscal year.
(iii)(I)Units serving lower income households shall also mean units specified in clause (iv) of subparagraph (A) of paragraph (2).
(II)This clause shall only be operative from the 202223 fiscal year through the 202728 fiscal year.
(h)Property used exclusively for an emergency or temporary shelter and related facilities for homeless persons and families and owned and operated by religious, hospital, scientific, or charitable funds, foundations, limited liability companies, or corporations meeting all of the requirements of this section shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section. Property that otherwise would be exempt pursuant to this subdivision, except that it includes housing and related facilities for other than an emergency or temporary shelter, shall be entitled to a partial exemption.
As used in this subdivision, emergency or temporary shelter means a facility that would be eligible for funding pursuant to Chapter 11 11.5 (commencing with Section 50800) of Part 2 of Division 31 of the Health and Safety Code.
(i)Property used exclusively for housing and related facilities for employees of religious, charitable, scientific, or hospital organizations that meet all the requirements of set forth in subdivision (a) and owned and operated by funds, foundations, limited liability companies, or corporations that meet all the requirements of subdivision (a) shall be deemed to be within the exemption provided for in subdivision (b) of Section 4 and Section 5 of Article XIII of the California Constitution and this section to the extent the residential use of the property is institutionally necessary for the operation of the organization.
(j)For purposes of this section, charitable purposes include educational purposes. For purposes of this subdivision, educational purposes means those educational purposes and activities for the benefit of the community as a whole or an unascertainable and indefinite portion thereof, and do not include those educational purposes and activities that are primarily for the benefit of an organizations shareholders. Educational activities include the study of relevant information, the dissemination of that information to interested members of the general public, and the participation of interested members of the general public.
(k)In the case of property used exclusively for the exempt purposes specified in this section, owned and operated by limited liability companies that are organized and operated for those purposes, the State Board of Equalization shall adopt regulations to specify the ownership, organizational, and operational requirements for those companies to qualify for the exemption provided by this section.
(l)The amendments made by Chapter 354 of the Statutes of 2004 apply with respect to lien dates occurring on and after January 1, 2005.
(m)The amendments made by Chapter 836 of the Statutes of 2016 apply with respect to lien dates occurring on and after January 1, 2017.
(n)The amendments made by Chapter 694 of the Statutes of 2018 apply with respect to lien dates occurring on and after January 1, 2019.
(o)Notwithstanding Section 20 or any other law, the State Board of Equalization is responsible for administering the welfare exemption provided by this section, except where the law places responsibility for administering that exemption with the county assessor.
|
Date
|
Status
|
|---|---|
| Jul 1, 2024 | July 1 set for second hearing canceled at the request of author. |
| Jul 10, 2023 | July 10 set for first hearing canceled at the request of author. |
| Jun 30, 2023 | From committee with author's amendments. Read second time and amended. Re-referred to Com. on REV. & TAX. |
| Jun 8, 2023 | Referred to Com. on REV. & TAX. |
| May 26, 2023 | In Assembly. Read first time. Held at Desk. |
| May 26, 2023 | Read third time. Passed. (Ayes 37. Noes 0. Page 1327.) Ordered to the Assembly. |
| May 18, 2023 | Read second time. Ordered to third reading. |
| May 18, 2023 | From committee: Do pass. (Ayes 7. Noes 0. Page 1176.) (May 18). |
| May 16, 2023 | Set for hearing May 18. |
| May 15, 2023 | May 15 hearing: Placed on APPR suspense file. |
| May 5, 2023 | Set for hearing May 15. |
| May 3, 2023 | From committee: Do pass and re-refer to Com. on APPR. (Ayes 7. Noes 0. Page 993.) (May 3). Re-referred to Com. on APPR. |
| Apr 20, 2023 | Set for hearing May 3. |
| Mar 29, 2023 | Re-referred to Com. on GOV. & F. |
| Mar 20, 2023 | From committee with author's amendments. Read second time and amended. Re-referred to Com. on RLS. |
| Feb 22, 2023 | Referred to Com. on RLS. |
| Feb 16, 2023 | From printer. May be acted upon on or after March 18. |
| Feb 15, 2023 | Introduced. Read first time. To Com. on RLS. for assignment. To print. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| May 26, 2023 | Senate 3rd Reading SB588 Allen | Senate Floor |
Passed |
|
| May 18, 2023 | Do pass | Senate Standing Committee on Appropriations |
Passed |
|
| May 15, 2023 | Placed on suspense file | Senate Standing Committee on Appropriations |
Passed |
|
| May 3, 2023 | Do pass, but first be re-referred to the Committee on [Appropriations] | Senate Standing Committee on Governance and Finance |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
|
Organization
|
Position
|
Date
|
|---|---|---|
| Aids Healthcare Foundation | ** Support | |
| Housing is a Human Right | * Support | May 3, 2023 |
| League Of California Cities | * Indeterminate | May 3, 2023 |
| Los Angeles County Democratic Party | ** Support | |
| State Board of Equalization | ** Support |
Date of Hearing: July 1, 2024
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Jacqui Irwin, Chair
SBPCA Bill Id:SB 588
Author:(Allen) – As Amended Ver:June 30, 2023
Majority vote. Tax levy. Fiscal committee.
SENATE VOTE: 37-0
SUBJECT: Property taxation: welfare exemption: lower income households: cap
SUMMARY: Removes the existing $20 million cap on exempt property value for certain nonprofit organizations under the low-income housing welfare exemption. Specifically, this bill:
- Removes, for the 2024-25 fiscal year (FY) through the 2028-29 FY, the existing $20 million cap on exempt property value for properties financed with private funds and owned by an eligible nonprofit organization under the low-income housing welfare exemption provided that:
- At least 90% of the property's units are made continuously available to, or are occupied by, "lower-income households" at an affordable rent, as defined;
- The nonprofit claiming the exemption submits to the county assessor a signed affidavit by an officer of the nonprofit corporation affirming to the assessor, under penalty of perjury, that any additional moneys that would have been used to pay any ad valorem property taxes on the property, if not for the removal of the exemption cap pursuant to this bill, will be used for the construction or rehabilitation of single or multifamily residential units on that property, or any other properties that are qualified to receive the low-income housing welfare exemption that are owned and operated by the claiming nonprofit corporation. A newly constructed or purchased property may submit the above described affidavit within three months of the claim when acquiring the property in the same FY as the claim; and,
- The property is owned and operated by an eligible nonprofit under the low-income rental welfare exemption.
- Requires the county assessor to determine whether a nonprofit corporation making a claim is eligible for the exemption under this bill based on the percentage of the property's units and the completed affidavit.
- Makes a claiming nonprofit organization liable for property tax in years during which the property received the benefit pursuant to this bill, but no single or multifamily residential units were constructed or rehabilitated, or were not in the course of construction or rehabilitation by January 1, 2029, if the property was acquired by the nonprofit before January 1, 2024, or within five years of the lien date following the acquisition of the property by the nonprofit, if the property was acquired on or after January 1, 2024, but before January 1, 2029. If another property is, or other properties are, qualified for the benefit under this bill's provisions and construction or rehabilitation has not begun within the above-described periods, the nonprofit claiming the exemption shall notify the assessor that the property is, or properties are, not in the course of construction or rehabilitation.
- Defines the phrase "lower income households" as it is defined in existing law.
- Defines a unit that is "made continuously available to" as being advertised to lower income households as available for lease, and that is subject to a deed recorded as an encumbrance against title to the property. The deed must specify that 90% or more of the property's usage is restricted for rental to lower income households at an affordable rate, and identify the number of units subject to that restriction.
- Requires a claiming nonprofit organization seeking this bill's exemption to provide to the county assessor any additional documents and materials requested by the county assessor necessary to evaluate the claimant's eligibility for this bill's exemption.
- Provides that this bill's provisions are only operative from the 2024-25 FY through the 2028-29 FY.
- States the intent of the Legislature to apply the requirements of Revenue and Taxation Code (R&TC) Section 41 to this bill's provisions by providing that the objective of this bill is to provide a tax incentive to nonprofit affordable housing developers that use private capital only to assist those developers in reducing the cost to produce low-income affordable housing and creating more low-income affordable housing units. This objective may be measured by the following metrics:
- The number of claimants that have applied and qualified for the expanded exemption;
- The dollar amount of taxes that would have been collected if there was no expanded exemption;
- The aggregate value of the properties receiving the expanded exemption for each claiming nonprofit organization;
- The value of each property receiving the expanded exemption, in terms of affordable housing units for low-income tenants that did not have to be developed by local or state government;
- The number of affordable housing units created by each claimant; and,
- The average rent assessed on tenants in each property receiving the expanded exemption.
- Requires the State Board of Equalization (BOE) to report the above-described metrics to the Legislature on an annual basis beginning July 1, 2025, and until July 1, 2030, to the extent that data is available from county assessors.
- Provides that no reimbursement is required by this bill for certain costs that may be incurred by a local agency or school district because this bill creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, pursuant to existing statutory or constitutional law.
- Requires reimbursement to local agencies and school districts if the Commission on State Mandates determines that this bill contains other costs mandated by the state.
- Provides that no appropriation is made by this bill and that the state shall not reimburse local agencies for any loss in property tax revenues resulting from this bill's provisions.
- Makes technical and conforming changes.
- Takes immediate effect as a tax levy.
EXISTING FEDERAL LAW:
- Provides that all income from whatever source derived is taxable, unless specifically excluded. (Internal Revenue Code (IRC) Section 61.)
- Exempts from taxation corporations and foundations organized and operated exclusively for certain purposes, including charitable purposes. (IRC Section 501(c)(3).)
- Establishes the low-income housing tax credit (LIHTC), which provides a credit for the costs of constructing, rehabilitating, or acquiring low-income rental housing. The credit may be claimed over a 10-year period and equals either 70% of the qualified basis for projects that are not federally subsidized, or 30% for projects that are federally subsidized. (IRC Section 42 et seq.)
EXISTING STATE LAW:
- Enacts the Personal Income Tax (PIT) Law, which imposes a tax at specified percentages on a taxpayer's taxable income, as defined, and the Corporation Tax (CT) Law, which generally imposes a tax at the rate of 8.84% on the net income of a corporation. (R&TC Section 17041 et seq. and R&TC Section 23151 et seq.)
- Imposes a tax on the gross premiums, as specified, of insurers, as defined, at the rate of 2.35%. (California Constitution, Article XIII, Section 28.)
- Authorizes, under the tax on the gross premiums of insurers, the PIT Law, and the CT Law, a state LIHTC that is calculated in partial conformity with the federal LIHTC and may only be claimed over a period of four years. (R&TC Sections 12206, 17058, and 23610.5.)
- Provides that all property is taxable unless otherwise provided by the California Constitution or the laws of the United States. (California Constitution, Article XIII, Section 1.)
- Limits the maximum amount of ad valorem property taxation to 1% of the full cash value of the property. Generally, the Constitution restricts the full cash value of a property to the assessed value upon a change of ownership in, or new construction on, the property. This is referred to as the base year value, which may be adjusted upwards for inflation at no more than 2% annually. (California Constitution, Article XIIIA, Sections 1 and 2.)
- Authorizes the Legislature to partially or fully exempt property used for certain purposes, including charitable purposes, when owned by a nonprofit organization organized and operated for those certain purposes if no part of the organization's earnings inure to the benefit of any private shareholder or individual. (California Constitution, Article XIII, Section 4.) Properties with buildings under construction, land required for convenient use of the buildings, and equipment in the buildings qualify for the exemption. (California Constitution, Article XIII, Section 5.) Existing statute implements this authorization by requiring that eligible property is irrevocably dedicated and used for the exempt purpose, and that property is used in an amount reasonably necessary to accomplish the exempt purpose. This exemption is commonly referred to as the "welfare exemption." (R&TC Section 214(a).)
- Provides that property owned by a qualifying non-profit organization that is used exclusively for rental housing and related facilities is a charitable purpose eligible for the welfare exemption if:
- The property is financed with tax-exempt mortgage revenue bonds or general obligation bonds, or local, state, or federal loans or grants, and the rents of lower-income households do not exceed the amount prescribed by deed restrictions or regulatory agreements, as specified;
- The property receives LIHTCs;
- 90% or more of the occupants of the property are lower-income households, as defined, and the maximum aggregate assessed value that may be exempted is $20 million; or,
- The property was previously purchased and owned by the Department of Transportation, as provided.
Property owners must certify that there is an enforceable and verifiable agreement with a public agency, a recorded deed restriction, or other legal document that restricts the property's usage and must rent units to households with low-income, defined as 80% or less of the area median income (AMI), at an affordable rent. Additionally, property owners must certify that funds that would have been used to pay property taxes are used to maintain unit affordability or reduce rents to lower-income households. This exemption is often referred to as the "low-income housing welfare exemption." (R&TC Section 214(g).)
- Defines a "lower-income household" as, generally, a household with income equal to 80% of the AMI. (Health and Safety Code (H&SC) Section 50079.5.)
- Provides that an affordable rent is 30% of a household's AMI. (H&SC Section 50053.)
FISCAL EFFECT: The BOE, in its analysis of this bill, notes that only one entity in one county exceeds the exemption cap in existing law, resulting in an estimated property tax revenue loss of $40,000. The BOE additionally states, however, that there are 13 other organizations that have received exemptions subject to the cap, and that revenue loss would likely be greater should these organizations acquire more property. Given these unknown losses, this bill is a candidate for this Committee's Suspense File.
COMMENTS:
- The author has submitted the following statement in support of this bill:
The latest annual Affordable Housing Needs Report from the California Housing Partnership found that while median rent in California has increased 38% since 2000, median renter household income has only increased by 7% (adjusted for inflation), pushing many of California's estimated 5.9 million lower income renter households further and further into severe rent burden. While the state has made many concerted efforts to boost affordable housing production and address the shortfall in availability, the same report found that the state is only funding 20% of what is needed to meet its RHNA goals. A crisis of this scale requires thoughtful solutions from all angles and stakeholders.
Under current law, nonprofit developers who use public funds to build affordable rental housing are awarded a 100% property tax exemption, so long as 90% of its tenants are low income and their rent rates do not exceed the rent levels prescribed in statute for low income households. Conversely, nonprofit developers of privately funded projects that meet the same requirements are limited to a property tax welfare exemption of $20 million in assessed value annually. This means that nonprofit affordable housing developers with rental projects in high-assessed-value areas and those with multiple projects throughout the state face greater tax liabilities than their publicly funded counterparts, thus diverting essential resources that could otherwise be directed towards meeting a community's housing need. In a time where the state is seeking ways to stretch its dollar, it seems counter-productive to tie the hands of nonprofits who want to advance affordable housing projects without tapping into public resources.
SB 588 brings nonprofit developers with private funding in line with their publicly funded counterparts by creating a narrow exception for those that meet a series of additional accountability and oversight requirements.
- The AIDS Healthcare Foundation (AHF), writing in support of a previous, but similar, version of this bill, states, in part:
AHF and its Healthy Housing Foundation effectively illustrated the disincentives [that existing tax law] creates for organizations that choose to invest private capital in affordable housing and save the state millions of dollars. In 2018, AHF embarked on an ambitious effort to develop new affordable housing opportunities for very and extremely low-income Californians. Through the acquisition and rehabilitation of fourteen existing properties in Los Angeles, AHF is providing more than 1425 units of low-income housing from East Los Angeles, through Downtown to Hollywood, and the Valley. And more are on the way.
AHF has achieved this status without the use of local, state, or federal grants, loans, bonds, or tax credits; every dollar that AHF has spent has been privately secured. As a result, AHF is developing these units and helping the state meet its obligation to assist homeless or housing burdened Californians at no cost to the state.
With a total value of over $160 million (funds the state did not need to spend on affordable housing), most of AHF's properties receive no property tax exemption.
- Committee Staff Comments:
- Low-income housing welfare exemption: In 1987, the Legislature allowed certain low-income rental housing to qualify for the welfare exemption by enacting AB 2144 (Filante), Chapter 1469, Statutes of 1987, thereby creating the low-income housing welfare exemption. When enacted, AB 2144 provided that property owners must certify that property tax savings be used to maintain affordability of units or reduce rents to lower income households. Initially, this provision required a property owner to demonstrate that those funds would be used for the specified purposes. The BOE, in a staff analysis of AB 2144, noted that, "it is not clear how the owner of the property could demonstrate that this requirement is satisfied [. . .] the vagueness of the standard suggested that it may be subject to varying interpretations." In response, the SB 2144 was amended to provide that a property owner certify, rather than demonstrate, that the funds were used for the stipulated purposes. This too, however, raised questions as to the benefit of that requirement. In that staff analysis, the BOE continues, stating, "the certification requirements appear to have doubtful value since eligibility depends on whether or not the owner has made the certification, not on whether the facts are true." Put plainly, it is extremely difficult to ensure that forgone property tax revenues are used for the purposes required by law.
- Impetus and history of the exemption cap: Before 1999, a property owner could claim the low-income housing welfare exemption if 20% of the residents of a property were low-income. This provision was removed, however, by AB 1559 (Wiggins), Chapter 927, Statutes of 1999. AB 1559 was sponsored by the Los Angeles Housing Project (LAHP) after the organization conducted an investigation of tax-exempt property owners in the City of Los Angeles. The LAHP found certain owners were not providing basic maintenance to rental housing that made them eligible for the low-income housing welfare exemption. As noted in the analysis for AB 1599 when being considered in the Senate Committee on Revenue and Taxation, the LAHP sought to "prevent the use of the welfare exemption by what may amount to 'slum lords.'" Thus, AB 1559 removed the 20% occupancy test and instead provided that owners must receive public financing in order to qualify, in addition to the affordability restriction and certification requirements. The rationale behind public funds being the only eligible form of financing under the exemption was that some form of government oversight was ensured through the application and award process of that financing. This modification, however, excluded all properties that were not financed by public funds, whether or not the owners were appropriately maintaining their properties. In turn, the Legislature enacted AB 659 (Wiggins), Chapter 601, Statutes of 2000, which reauthorized the exemption for properties that did not receive public funding if:
- 90% or more of the property's households were low income with rents below certain affordability limits;
- The property was subject to a verifiable and enforceable affordability restriction;
- The owner did not have more than $20,000 in exempt property taxes under the exemption; and,
- The property was not managed by a limited partnership.
The Legislature subsequently enacted SB 996 (Hill), Chapter 836, Statutes of 2016, which applied the cap to the property value, not the tax paid, and established the new cap threshold at $10 million. Additionally, SB 996 created a process for property owners to cancel outstanding taxes or escape assessments on values that exceeded the previous cap. Additionally, property owners were required to furnish information on the household income of, and rents charged to, occupants of exempt units. In 2018, the Legislature increased the cap to $20 million in value by authorizing SB 1115 (Hill), Chapter 694, Statutes of 2018.
The BOE is responsible for monitoring organizations that are subject to the cap through annual welfare exemption filings submitted by county assessors. The BOE, in its staff analysis of this bill, notes that only one organization in California owns exempt-eligible property that is in excess of the $20 million cap.
- Recent efforts to increase or remove the cap: In 2018, the Legislature passed SB 294 (Hill), which increased the cap from $20 million to $100 million in assessed value and reduced the low-income occupancy threshold from 90% to 50%. Governor Brown vetoed SB 1456, noting in his veto message that:
[SB 294] makes changes to the property tax welfare exemption that could have significant long-term General Fund costs and reduced local revenue. In addition to tax exemptions under current law, properties that are in need of assistance to maintain long-term affordability have access to a range of state and local preservation financing programs.
In 2022, SB 1456 (Stern) proposed removing the existing cap on these types of properties. SB 1456 failed passage out of this Committee, with the Committee analysis noting that:
A qualified nonprofit organization could receive the property tax exemption benefits from [SB 1456] on their existing properties and spend those tax savings on other expenditures, instead of building more affordable housing developments. Therefore, [SB 1456] may not assure that the "unlimited" tax exemption provided in this bill will incentivize the new development of housing.
- This bill: As currently drafted, this bill would remove the existing welfare exemption cap on the assessed value of non-publicly financed low-income housing developments owned by qualifying nonprofit organizations. This bill, however, takes a slightly different approach than did SB 1456. Rather than simply striking the exemption cap in existing law, as proposed by SB 1456, this bill removes the cap only if the qualifying nonprofit organization files a signed affidavit, under penalty of perjury, that any exempt property taxes will be spent on the construction or rehabilitation of low-income residential units on that property or any other eligible properties owned and operated by the organization. The author and sponsor note that this provision is intended to address the concern raised in this Committee's analysis of SB 1456. As noted previously in this analysis, however, questions still remain as to whether this type of certification fulfills its intended purpose of ensuring property tax savings are used in the specified manner. Indeed, the fungible nature of money inherently complicates this verification. Thus, it may be that this provision does not result in the intended outcome.
- Concerns on maintenance status of existing low-income units: As noted above, the BOE staff analysis of this bill states that only one organization exceeds the existing cap. While that analysis does not identify which organization, the AHF appears to be the organization to which the BOE staff analysis refers. In 2022, a number of articles published by the Los Angeles Times and a series published by Knock LA, a nonprofit journalism outlet, highlighted potential maintenance issues with AHF-owned properties. Those publications cited hundreds of violations across numerous AHF properties in Los Angeles.
Committee staff could not locate records indicating the number of violations per property, but was able to determine the number of property cases containing at least one violation occurring through 2022. Of the 12 properties listed on AHF's website as providing low-income rental housing, eight properties had more than 450 property cases brought before the Los Angeles Housing Department's Code Enforcement Division since 2013, constituting an average of more than five cases with violations per property per year. This data did not break down the number of violations per case, but each of these cases had at least one violation observed by the assigned enforcement officer. Given the alleged, and documented, cases with violations at AHF-owned properties, along with the exemption cap's original intent to prevent maintenance abuses by property owners, this bill's removal of the exemption cap in existing law seems imprudent.
- Claw-back mechanism of exempt property taxes for uncreated units: This bill includes a mechanism to make qualifying nonprofit organizations liable for property taxes on units that were not constructed or not rehabilitated within a five-year period, as specified. Existing law, however, provides that a county assessor may only correct the property tax roll within four years related to a non-value judgement error. The author and Committee may wish to align this bill's claw-back mechanism with the four-year roll correction period in existing statute to avoid confusion.
- Technical consideration: As currently drafted, this bill applies to the 2024-25 FY through the 2028-29 FY. The author and Committee may wish to delay the operative dates of this bill by one year such that this bill applies prospectively.
- What is a "tax expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, United States Treasury officials began arguing that these features of the tax law should be referred to as "expenditures" since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each of them, in the form of forgone revenues. This bill removes the cap on the low-income housing welfare property tax exemption for certain properties, thereby constituting a tax expenditure.
- Committee's tax expenditure policy: SB 1335 (Leno), Chapter 845, Statutes of 2014, added R&TC Section 41, which recognized that the Legislature should apply the same level of review used for government spending programs to tax credits introduced on or after January 1, 2015. AB 263 (Burke), Chapter 743, Statutes of 2019, extended the requirements in R&TC Section 41 to all tax expenditure measures under the Personal Income Tax Law, the Corporation Tax Law, and the Sales and Use Tax Law introduced on or after January 1, 2020. While R&TC Section 41 does not apply to proposals related to property taxation, this Committee treats all tax expenditures in a similar manner, and applies the requirements of R&TC Section 41 to bills that confer a property tax expenditure. A tax expenditure proposal must outline specific goals, purposes, and objectives that the tax expenditure will achieve, along with detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets those stated goals, purposes, and objectives. In addition to the R&TC Section 41 requirements, this Committee's policy also requires that all tax expenditure proposals contain an appropriate sunset provision to be eligible for a vote[1]. Sunsets are required because eliminating a tax expenditure generally requires a two-thirds vote. These requirements must be satisfied before a bill can receive a vote in this Committee. This bill complies with R&TC Section 41 and includes an appropriate five-year sunset.
REGISTERED SUPPORT / OPPOSITION:
Support
AIDS Healthcare Foundation (previous version)
Opposition
None on file
Analysis Prepared by: Harrison Bowlby / REV. & TAX. / (916) 319-2098
An "appropriate sunset provision" shall mean five years, except in the case of a tax expenditure measure providing relief to California veterans, in which case "appropriate sunset provision" shall mean 10 years. ↑
SENATE RULES COMMITTEE Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 | SB 588 |
THIRD READING
Bill No: SB 588
Author: Allen (D)
Amended: 3/20/23
Vote: 21- Urgency
SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 5/3/23
AYES: Caballero, Seyarto, Dahle, Durazo, Glazer, Skinner, Wiener
NO VOTE RECORDED: Blakespear
SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/18/23
AYES: Portantino, Jones, Ashby, Bradford, Seyarto, Wahab, Wiener
SUBJECT: Property taxation: welfare exemption: lower income households: cap
SOURCE: AIDS Health Care Foundation
DIGEST:
This bill lifts the cap on the value per property owner claiming the welfare exemption for non-publicly financed rental housing under specified circumstances
ANALYSIS:
Existing law:
- Provides that all property is taxable unless explicitly exempted by the Constitution or federal law (California Constitution, Article XIII, Section One).
- Allows the Legislature to exempt property used exclusively for charitable purposes so long as it is owned by non-profit entities organized and operated for charitable purposes, such as universities, hospitals, and libraries, known as the “welfare exemption” (California Constitution, Article XIII, Section Four).
- Allows the welfare exemption, and applies it to property used for rental housing when:
- 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.
- Provides that the exemption is equal to that percentage of the value of the property equal to the percentage that the number of units serving lower income households represents of the total number of residential units.
- Allows the exemption for non-publicly financed rental housing property when:
- 90% of the households occupying the housing must be low-income persons, whose rent does not exceed specified limits for low-income persons;
- The property is subject to a recorded deed restriction, regulatory agreement, or other legal document restricting the property’s use to low-income housing; and
- The property is managed solely by a charitable non-profit organization (specifically, excluding limited partnerships) to be eligible.
- Sets a statewide cap of $20 million in value per property owner claiming the welfare exemption for non-publicly financed rental housing (SB 1115, Hill, Chapter 694, Statutes of 2018).
- Requires property owners claiming the welfare exemption to provide specified information regarding the household income of and the rent charged to an occupant of an exempt unit.
This bill:
- Provides that for purposes of the welfare exemption from property tax for owners of affordable rental housing, the $20 million cap in value for the owners of property used for non-publicly financed affordable rental housing does not apply when:
- The property qualifies for the current exemption,
- The owner files a claim, which is granted by the assessor in the 2024-25 fiscal year or any year thereafter,
- At least ninety percent of the units are made continuously available to or are occupied by lower income households at a rent that does not exceed the rent for lower income households,
- Defines “made continuously available to mean “the unit is being advertised to lower income households as available for lease and a deed has been recorded as an encumbrance against title to the property in the official records of the county in which the property is located, which specifies that all or 90 percent or more of the property’s usage is restricted to rental to lower income households at a rent that does not exceed the rent for lower income households.”
- Directs the assessor to determine whether the $20 million cap applies based on the percentage of the property’s units that meet the requirements of the bill as of the January 1 lien date for the fiscal year the owner makes the claim.
- Requires any claimant seeking an exemption to provide to the assessor any additional documents and materials requested by the county assessor necessary to evaluate the claimant’s eligibility for this exemption.
- Defines “lower income” and “lower income households” by reference to the Health and Safety Code.
- Makes technical and conforming changes.
- States legislative intent to apply the requirements of Section 41 of the Revenue and Taxation Code to its provisions.
Background
Welfare exemption for property used for rental housing. Prior to 1999, rental housing owners could claim a welfare exemption from property tax for low-income housing if 20% of the property’s residents were low-income. After the Los Angeles Housing Project investigated some of the city’s worst housing projects, they discovered that tax-exempt property owners were not providing basic maintenance to housing that qualified them for the exemption from property tax. Responding to the investigation, the Legislature enacted AB 1559 (Wiggins, Chapter 927, Statutes of 1999), which required property owners to receive public financing in the forms listed above for the project to claim the welfare exemption, in addition to the above requirements. However, AB 1559 revoked the exemption for many worthy properties owned by charities that weren’t publicly financed, so the Legislature subsequently enacted AB 659 (Wiggins, Chapter 609, Statutes of 2000), which again allowed an exemption for non-publicly financed rental housing property, subject to several requirements, including a statewide cap of $20,000 in tax subject to the exemption.
Since 2000, the value of housing has increased, compelling some non-profits to pay taxes on amounts that exceeded the cap, and discouraging other groups from acquiring rental housing in the hopes of preserving existing affordable units in their areas. In response, the Legislature enacted SB 996 (Hill, Chapter 836, Statutes of 2016), which quintupled the cap, and revised it to instead apply to the property’s value, not the tax paid, with the new threshold at $10 million of assessed value, among other provisions.
In 2018, the Legislature again increased the cap to $20 million in value, and created a process for taxpayers to file a claim to have any outstanding taxes or escape assessments cancelled. In 2019, the Senate unanimously approved SB 294 (Hill), which would have increased the cap to $250 million. After the author amended the bill to reduce the cap increase from $250 million to $100 million, and sunset the change after ten years, the Assembly approved the bill. However, Governor Newsom vetoed the bill, citing potential significant long-term General Fund costs and reduced local revenue. Additionally, the Senate approved SB 1456 (Stern, 2022), which also would have eliminated the cap; however, that measure died in the Assembly Revenue and Taxation Committee.
The Board of Equalization monitors the statewide cap based on the annual welfare exemption filings it receives from county assessors. BOE states that only one organization in the state has exceeded the $20 million cap. No other organizations claiming the welfare exemption are subject to a similar cap, such as publicly-financed rental housing, hospitals, and universities.
Comments
What’s different? Unlike SBs 294 and 1456, SB 588 takes a slightly different approach to removing the value cap, which charitable organizations state serves as a disincentive to acquiring property for use as affordable rental housing, but not actually leasing it to low-income families. A property can qualify for the current exemption so long as it’s restricted for low-income housing by an enforceable and verifiable regulatory agreement, deed restriction, or other legal document, and rents do not exceed those prescribed in deed restrictions. As a result, a property can qualify by virtue of the enforceable restriction, even if it doesn’t have any tenants. Under SB 588, the $20 million cap applies only when the assessor can verify that the unit is occupied by or available for lease by an income-eligible household at or below the specified rent in the year in which the exemption applies. Additionally, SB 588 provides that the cap can only be exceeded when a deed has been recorded as an encumbrance against title to the property in the official records of the county in which the property is located; whereas the current exemption the property is eligible when it has either an enforceable and verifiable regulatory agreement, deed restriction, or other legal document that restricts use and specifies rents when occupied
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes
According to the Senate Appropriations Committee:
- The Board of Equalization (BOE) estimates that this bill would result in annual property tax revenue losses in the tens of thousands of dollars. Annual losses could increase to the hundreds of thousands of dollars, depending on future taxpayer behavior (See Staff Comments). 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 one-time costs of $29,053, and $6,000 annually thereafter, to update forms and the Assessors Handbook (General Fund).
- By adding to the duties of local tax officials, this bill creates a state-mandated local program. To the extent the Commission on State Mandates determines that the provisions of this bill create a new program or impose a higher level of service on local agencies, local agencies could claim reimbursement of those costs (General Fund). The magnitude is unknown.
SUPPORT: (Verified 5/19/23)
AIDS Health Care Foundation (source)
Los Angeles County Democratic Party
State Board of Equalization
OPPOSITION: (Verified 5/19/23)
None received
ARGUMENTS IN SUPPORT: According to the author, “Nonprofit housing developers have been outstanding partners in California’s efforts to address the rental housing shortage. Under existing law, an affordable rental housing project that is owned and operated by a qualified nonprofit organization can be fully exempted from property taxation when financed by public funds such as tax credits or government grants. Conversely, nonprofit developers of privately funded projects that meet the same requirements are limited to a property tax welfare exemption of $20 million in assessed value annually. This means that nonprofit affordable housing developers with rental projects in high-assessed-value areas and those with multiple projects throughout the state face more cost burdens and tax liabilities than their publicly funded counterparts. These obstacles divert essential resources from a nonprofit’s mission and deter them from expanding their affordable rental housing offerings at a pace that better serves the millions of California’s severely rent-burdened residents. If nonprofit developers are willing to step forward to help meet affordable housing needs, it is in California’s best interest to create opportunities that allow them to maximize their funding and impact. SB 588 will level the playing field by removing the $20 million property tax welfare exemption cap imposed on eligible nonprofit affordable housing projects that do not utilize public funds.
Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119
5/20/23 13:00:29
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SENATE COMMITTEE ON
Senator Anthony Portantino, Chair
2023 - 2024 Regular Session
SB 588 (Allen) - Property taxation: welfare exemption: lower income households: cap
Version: | Policy Vote: |
Urgency: | Mandate: |
Hearing Date: | Consultant: |
Bill Summary:
SB 588 would provide that the $20 million cap in value for the property tax welfare exemption claimed by owners of property used for non-publicly financed affordable rental housing does not apply under specified circumstances.
Fiscal Impact:
- The Board of Equalization (BOE) estimates that this bill would result in annual property tax revenue losses in the tens of thousands of dollars. Annual losses could increase to the hundreds of thousands of dollars, depending on future taxpayer behavior (See Staff Comments). 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 one-time costs of $29,053, and $6,000 annually thereafter, to update forms and the Assessors Handbook (General Fund).
- By adding to the duties of local tax officials, this bill creates a state-mandated local program. To the extent the Commission on State Mandates determines that the provisions of this bill create a new program or impose a higher level of service on local agencies, local agencies could claim reimbursement of those costs (General Fund). The magnitude is unknown.
Background:
All property in California is taxable unless explicitly exempted. Specifically, the Legislature may exempt property owned by nonprofit entities organized and operated for charitable purposes, such as universities, hospitals, and libraries (known as the “welfare exemption”). This exemption currently results in $3 billion in annual foregone local property tax revenues.
The welfare exemption includes property used exclusively for rental housing, if (1) specified financing mechanisms provide the financing, (2) the property is restricted for low-income housing, and rents do not exceed specified levels, 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.
For projects with both low-income and market rate units, the owner can claim a partial exemption, equal to that percentage of the value of the property equal to the percentage that the number of units serving lower income households represents of the total number of residential units.
Prior to 1999, rental housing owners could claim a welfare exemption from property tax for low-income housing if 20 percent of the property’s residents were low-income. After an investigation determined that tax-exempt property owners were not providing basic maintenance to housing that qualified them for the exemption from property tax, the Legislature enacted AB 1559 (Wiggins, 1999), which repealed the occupancy test. Instead, owners were required to receive public financing in the forms listed above for the project to claim the welfare exemption, in addition to the above requirements. However, AB 1559 revoked the exemption for many worthy properties owned by charities that weren’t publicly financed; subsequently, Legislature enacted AB 659 (Wiggins, 2000), which again allowed a full exemption for non-publicly financed rental housing property, subject to several requirements, including: (1) 90 percent of the households occupying the housing must be low-income persons, whose rent does not exceed specified limits for low-income persons, and (2) a cap in the exemption amount of $20,000 (translating to $2 million in assessed valuation) in tax for all properties the taxpayer owns in the state,
As assessed valuation in the State generally rose in the ensuing years, (1) some non-profits were required to pay taxes on property amounts that exceeded the $2 million cap, and (2) other groups were discouraged from constructing or acquiring rental housing, especially those regions of the state with higher property values. Other reforms adopted as part of the package, such as making the exemption contingent upon deed restrictions binding rents, and limiting the exemption solely to non-profit organizations owning the units, appear to have succeeded. Consequently, the cap could hinder nonprofit organizations that own, or want to purchase, affordable housing in their communities, and can be especially burdensome for organizations operating statewide. Additionally, no other organizations claiming the welfare exemption (such as hospitals, churches, and universities) are subject to a similar cap. In response, the Legislature enacted SB 996 (Hill, 2016), which among other things raised the cap from $2 million to $10 million. In 2018, the Legislature increased the cap yet again to $20 million in assessed value (SB 1115, Hill)
Proposed Law:
This bill, among other things, would do the following:
- Provide that for purposes of the welfare exemption from property tax for owners of affordable rental housing, the $20 million cap in value for the owners of property used for non-publicly financed affordable rental housing does not apply when (1) the property qualifies for the current exemption, (2) the owner files a claim, which is granted by the assessor in the 2024-25 fiscal year or any year thereafter, and (3) at least ninety percent of the units are made continuously available (as defined) to or are occupied by lower income households (as defined) at a rent that does not exceed the rent for lower income households.
- Provide that the county assessor would determine whether the $20 million cap applies based on the percentage of the property’s units that meet the requirements of the bill as of the January 1 lien date for the fiscal year the owner makes the claim. Any claimant seeking an exemption must provide to the county assessor any additional documents and materials requested by the county assessor necessary to evaluate the claimant’s eligibility for this exemption.
Related Legislation:
SB 294 (Hill, 2019) would have (1) revised the welfare exemption from property tax for non-publicly financed affordable housing to provide that the exemption applies when charities own non-publicly financed affordable housing where more than 50% of residents are low-income, and (2) increased the cap on value from $20 million to $100 million. The bill was vetoed by the Governor.
Staff Comments:
As noted above, this bill would eliminate the current exemption cap of $20 million in assessed value for non-government-assisted low-income rental housing owned and operated by eligible nonprofit organizations.
BOE has collected 2022-23 data from 24 counties. One county reported a single entity exceeding the current $20 million cap, by $4 million. Thus, at the one percent basic property tax rate, the elimination of the cap proposed by this bill would result in an annual revenue loss of $40,000. BOE notes that while only one entity has exceeded the cap thus far, information from reporting assessors indicates that there are at least 13 organizations with who have received exemptions on property that counts toward the $20 million exemption cap. Therefore, the revenue loss would be greater to the extent that these entities acquire more property. More generally, the revenue loss from the bill would increase to the extent that (1) organizations acquire more property that would have otherwise been subject to the $20 million cap, or (2) if the assessed values over time exceed $20 million due to the application of the annual inflation factor of up to 2 percent.
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SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Anna M. Caballero, Chair
2023 - 2024 Regular
Bill No: | SB 588 | Hearing Date: | 5/3/23 |
Author: | Allen | Tax Levy: | Yes |
Version: | 3/20/23 | Fiscal: | Yes |
Consultant: | Grinnell | ||
Property taxation: welfare exemption: lower income households: cap
Provides that the $20 million cap in value for the welfare exemption from property tax claimed by owners of property used for non-publicly financed affordable rental housing does not apply under specified circumstances.
Background
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 exclusively for charitable purposes so long as it 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 tax-exempt status for charitable groups: revenues paid in tax to the government divert needed resources away from the organizations’ good works.
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 restricted for low-income housing by an enforceable and verifiable regulatory agreement, deed restriction, or other legal document, 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.
Generally, the owner claims a partial exemption, equal to that percentage of the value from the units serving lower income households as a percentage of the value of the total number of residential units. The owner is then assessed on the full value of the other units.
Prior to 1999, rental housing owners could claim a welfare exemption from property tax for low-income housing if 20% of the property’s residents were low-income. After the Los Angeles Housing Project investigated some of the city’s worst housing projects, they discovered that tax-exempt property owners were not providing basic maintenance to housing that qualified them for the exemption from property tax. Responding to the investigation, the Legislature enacted AB 1559 (Wiggins, 1999), which repealed the occupancy test, instead requiring all owners to receive public financing in the forms listed above for the project to claim the welfare exemption, in addition to the above requirements. However, AB 1559 revoked the exemption for many worthy properties owned by charities that weren’t publicly financed, so the Legislature subsequently enacted AB 659 (Wiggins, 2000), which again allowed an exemption for non-publicly financed rental housing property, subject to several requirements:
- 90% or more of the households occupying the housing must be low-income persons, whose rent does not exceed specified limits for low-income persons;
- The property is subject to a recorded deed restriction, regulatory agreement, or other legal document restricting the property’s use to low-income housing.
- A cap in the exemption amount of $20,000 in tax for all properties the taxpayer owns in the state; and
- The property must be managed solely by a charitable non-profit organization (specifically, excluding limited partnerships) to be eligible for the exemption.
Since 2000, the value of housing has increased, compelling some non-profits to pay taxes on amounts that exceeded the cap, and discouraging other groups from acquiring rental housing in the hopes of preserving existing affordable units in their areas. In response, the Legislature enacted SB 996 (Hill, 2016), which:
- Quintupled the cap, and revised it to instead apply to the property’s value, not the tax paid, with the new threshold at $10 million of assessed value;
- Created a process for taxpayers to file a claim to cancel any outstanding taxes or escape assessments due on values that exceeded the previous cap; and
- Required property owners claiming the welfare exemption to provide specified information regarding the household income of and the rent charged to an occupant of an exempt unit.
In 2018, the Legislature again increased the cap to $20 million in value (SB 1115, Hill), and created a process for taxpayers to file a claim to have any outstanding taxes or escape assessments cancelled.
Charitable organizations owning property used for affordable housing can claim a welfare exemption, but must pay tax on any value above $20 million in value. The author wants to lift the cap so long as any value above the cap comes from a property where at least 90% of the units are made continuously available to, as defined, or are occupied by lower income households at a rent that does not exceed the rent for lower income households.
Proposed Law
Senate Bill 588 provides that for purposes of the welfare exemption from property tax for owners of affordable rental housing, the $20 million cap in value for the owners of property used for non-publicly financed affordable rental housing does not apply when:
- The property qualifies for the current exemption,
- The owner files a claim, which is granted by the assessor in the 2024-25 fiscal year or any year thereafter,
- At least ninety percent of the units are made continuously available to or are occupied by lower income households at a rent that does not exceed the rent for lower income households,
The measure defines “made continuously available to mean “the unit is being advertised to lower income households as available for lease and a deed has been recorded as an encumbrance against title to the property in the official records of the county in which the property is located, which specifies that all or 90 percent or more of the property’s usage is restricted to rental to lower income households at a rent that does not exceed the rent for lower income households.”
The county assessor determines whether the $20 million cap applies based on the percentage of the property’s units that meet the requirements of the bill as of the January 1 lien date for the fiscal year the owner makes the claim. Any claimant seeking an exemption must provide to the county assessor any additional documents and materials requested by the county assessor necessary to evaluate the claimant’s eligibility for this exemption.
SB 588 defines “lower income” and “lower income households” by reference to the Health and Safety Code. The measure makes technical and conforming changes, and states legislative intent to apply the requirements of Section 41 of the Revenue and Taxation Code
State Revenue Impact
Pending.
Comments
1. Purpose of the bill. According to the author, “Nonprofit housing developers have been outstanding partners in California’s efforts to address the rental housing shortage. Under existing law, an affordable rental housing project that is owned and operated by a qualified nonprofit organization can be fully exempted from property taxation when financed by public funds such as tax credits or government grants. Conversely, nonprofit developers of privately funded projects that meet the same requirements are limited to a property tax welfare exemption of $20 million in assessed value annually. This means that nonprofit affordable housing developers with rental projects in high-assessed-value areas and those with multiple projects throughout the state face more cost burdens and tax liabilities than their publicly funded counterparts. These obstacles divert essential resources from a nonprofit’s mission and deter them from expanding their affordable rental housing offerings at a pace that better serves the millions of California’s severely rent-burdened residents. If nonprofit developers are willing to step forward to help meet affordable housing needs, it is in California’s best interest to create opportunities that allow them to maximize their funding and impact. SB 588 will level the playing field by removing the $20 million property tax welfare exemption cap imposed on eligible nonprofit affordable housing projects that do not utilize public funds.
2. Do it again. SB 588 is the latest attempt to lift the cap last increased by the Legislature in 2018. In 2019, the Committee approved SB 294 (Hill) by a vote of 7 to 0 on March 27, 2019, which increased the cap from $20 million to $250 million, and also created a new partial exemption for property used for non-publicly financed rental housing where 50% or more of the occupants were low-income households. The exemption amount was prorated based on the percentage of occupants who were low income of the property’s total number of occupants. After the Senate approved the measure unanimously, the author amended the bill to reduce the cap increase from $250 million to $100 million, sunset the change after ten years, and create a process for the cancelling of outstanding property taxes on property eligible for exemption under the bill. However, Governor Newsom vetoed the bill, stating:
To the Members of the California State Senate:
I am returning Senate Bill 294 without my signature.
This bill would revise the current property tax welfare exemption for nonprofits that own and operate non-publicly financed affordable housing developments by increasing the current exemption for nonprofits from $20 million to $100 million and reducing the current low-income tenancy threshold from 90 percent to 50 percent for ten years. The bill would also allow outstanding unpaid property tax bills to be reduced or potentially forgiven on qualified properties.
While well intended, and specific to certain nonprofit entities that provide affordable housing, this bill makes changes to the property tax welfare exemption that could have significant long-term General Fund costs and reduced local revenue. In addition to tax exemptions under current law, properties that are in need of assistance to maintain long-term affordability have access to a range of state and local preservation financing programs.
Sustaining affordable housing in fiscally responsible manner for the long-term is a goal I share with the Legislature. Although this bill is not the solution, I am committed to working with the Legislature on bolstering existing programs and tailoring them to produce and preserve the State's much needed affordable housing stock.
Sincerely,
Gavin Newsom
Last year, the Committee approved SB 1456 (Stern), which also would have eliminated the cap; however, that measure died in the Assembly Revenue and Taxation Committee.
3. What’s different? Unlike SBs 294 and 1456, SB 588 takes a slightly different approach to removing the value cap, which charitable organizations state serves as a disincentive to acquiring property for use as affordable rental housing, but not actually leasing it to low-income families. A property can qualify for the current exemption so long as it’s restricted for low-income housing by an enforceable and verifiable regulatory agreement, deed restriction, or other legal document, and rents do not exceed those prescribed in deed restrictions. As a result, a property can qualify by virtue of the enforceable restriction, even if it doesn’t have any tenants. Under SB 588, the $20 million cap applies only when the assessor can verify that the unit is occupied by or available for lease by an income-eligible household at or below the specified rent in the year in which the exemption applies. Additionally, SB 588 provides that the cap can only be exceeded when a deed has been recorded as an encumbrance against title to the property in the official records of the county in which the property is located; whereas the current exemption the property is eligible when it has either an enforceable and verifiable regulatory agreement, deed restriction, or other legal document that restricts use and specifies rents when occupied.
4. As time goes by. When the Legislature set the cap in 2000, it was part of a series of reforms that responded to an investigation that showed property owners claiming the exemption were not providing basic maintenance for its housing projects. Other reforms adopted as part of the package, such as making the exemption contingent upon deed restrictions binding rents, and limiting the exemption solely to non-profit organizations owning the units, should have chased out any potential bad actors over the past nineteen years. The State Board of Equalization (BOE) monitors the statewide cap based on the annual welfare exemption filings it receives from county assessors. BOE states that only one organization in the state has exceeded the $20 million cap. No other organizations claiming the welfare exemption are subject to a similar cap, such as publicly-financed rental housing, hospitals, and universities. Continuing the cap for these properties may no longer be necessary.
5. Information. When the Legislature quintupled the cap in 2015, it required any non-profit organization qualifying for the exemption to provide additional information with their annual claim. The measure required the non-profit organization to annually provide non-personally identifiable information about the occupants, which includes the actual household income of the occupant, the maximum rent that may be charged to the occupant, and the actual rent charged to the occupant. As a result, assessors now have more information to ensure that the welfare exemption from property tax for affordable housing is correctly administered.
6. Mandate. The California Constitution requires the state to reimburse local governments for the costs of new or expanded state mandated local programs. Because SB 588 changes the manner in which assessors value real property, Legislative Counsel states that it imposes a new state mandate. The measure states that should the Commission on State Mandates determine that the bill imposes a reimbursable mandate, reimbursement must be made pursuant to existing statutory provisions. Additionally, the bill provides that the state shall not reimburse local agencies for any property tax revenue losses resulting from its expanded welfare exemption.
Support and Opposition
(4/28/2023)
Support: State Board of Equalization
AIDS Health Care Foundation
Opposition: None received.
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Discussed in Hearing
2MIN
Senate Floor
10MIN
Senate Standing Committee on Governance and Finance
Bill Author
Bill Co-Author(s):