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Home My WebLink About2020-05-11; Historic Preservation Commission; ; MILLS ACT PRESENTATION ITEM #5 Meeting Date: May 11, 2020 To: Historic Preservation Commission From: Suzanne Smithson, Deputy Library Director Staff Contact: Jennifer Davidson, Senior Office Specialist Subject: Mills Act – presentation by Principal Planner Teri Delcamp Recommended Action: Informational presentation. Executive Summary: Historic Preservation Commissioners have inquired about the Mills Act as an economic incentive to reduce the property taxes of owners of historic properties in Carlsbad. The City of Carlsbad has not established a Mills Act program so owners of historic properties currently cannot participate in the Mills Act. Principal Planner for the City of Carlsbad Teri Delcamp has worked in other local jurisdictions which participate in the Mills Act and she worked to establish and implement programs in those cities. She will share an informational presentation with the Commissioners and answer their questions. Exhibits: None. HISTORIC PRESERVATION COMMISSION Teri Delcamp, Principal Planner May 11, 2020 Mills Act Presentation Carlsbad Historic Preservation Commission Origin of the Mills Act •Senate Bill 357 -Senator James Mills •Signed into law December 1972, amended 1985 & 2012 •Intended as incentive for restoring historic landmarks in California What is the Mills Act? •Local property tax incentive •Encourages restoration, rehabilitation and preservation of privately-owned historic resources rather than redevelopment/sale •Program designed and administered by the local government with valuations completed by County Tax Assessor What it Does •“Enabling” legislation allows cities and counties to develop and implement a Mills Act program for designated historic properties •Mandatory requirements, but city may tailor program to meet needs of the community •Provides potential property tax reductions for privately-owned historic buildings What it Does, cont’d •Property tax based on income potential •All types of taxable properties •Applies Secretary of the Interior’s Standards for the Treatment of Historic Properties How does it Work? •Listed in National or California Registers, or locally-designated •Cities enters into a contract with property owner, recorded with the county •Assessor uses additional formula for valuation •Owners agree to restore or maintain historic property per federal, state and local standards Benefits to Local Government •Retain historic properties •Revitalize downtown areas •Boost cultural tourism and increase civic pride •Focus on specific resources Property Tax Savings •Mills Act valuation may reduce property tax between 20%-70% compared to prior bill •Property–specific, so savings vary –not guaranteed •Older base years do not usually benefit •Especially beneficial to recent buyers/current owners who made/make major improvements Property Owner Responsibilities •Term: minimum of 10 years •Contract runs with the land •Maintain per Secretary of the Interior’s Standards •Allow periodic inspection •Fulfill any conditions of approval Contract •Perpetual 10-year term •Contract can cover entire property: -Exterior/interior -Grounds/landscaping -Systems Contract, cont’d •Inspection every five years •Failure to comply with contract is a breach, may cause cancellation •Cancellation penalty equals 12.5% of fair market value at time of cancellation •Renews annually, but either party can file notice to terminate current term Valuation •Establishes 3rd method of valuation for Assessor to use -income approach to value •Assessor still calculates factored base value and estimated current market value •The Assessed Value shall be the lowest of the three •Reflected on following year tax bill Valuation, cont’d •Formula is complex, slight differences for residential and commercial properties •Only assessor can calculate actual savings •Assessor determines fair rent/gross income, operating costs, amortization rate; law states others for capitalization rate Income Approach EXAMPLE: INCOME APPROACH VALUE Annual Potential Gross Income ($5,ooo/month) Less 5% Vacancy Effective Gross Income Less 25% Operating Expense Net Operating Income Divided by Cap Rate Capitalized Property Value $60,000 -3,000 57,000 -14,250 $42,750 + 11.45% Hypothetical 3-Way Comparison •Restricted value property tax: –$373,000 x 0.011 = $4,103/year •Factored base year value property tax: –$500,000 x 0.011 = $5,500/year •Current market value property tax: –$900,000 x 0.011 = $9,900/year •Potential tax savings:$5,797 Program Options City can include in program: •Application fee •Inspection fee •Conditions requiring repairs/restoration •Limitations on eligible properties •Spend what they save •Annual reporting •Prioritize eligibility criteria •Cap overall property tax revenue loss to city Other City Examples •City of San Diego –non-voluntary designations, 100s of Mills Acts as incentive •City of San Clemente –200 historic properties, caps number of contracts per year •City of Los Angeles –caps total revenue loss at $2m, requires/prioritizes restoration work •City of Riverside –requires annual reporting Administration •Administration support/cost depends on size and nature of program •Staff to process requests for contracts and conduct pre-inspections, report to HPC •Additional staff may be needed -annual reports of savings/expenses, monitor compliance with conditions, etc. Teri Delcamp, Principal Planner Community Development Department teri.delcamp@carlsbadca.gov Q & A