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Home My WebLink About2022-03-14; Historic Preservation Commission; ; Mills Act Works SessionMeeting Date: March 14, 2022 To: Historic Preservation Commission From: Mike Strong, Assistant Community Development Director Staff Contact: Mike Strong, 760-602-2783, mike.strong@carlsbadca.gov Subject: Mills Act Works Session District: All Recommended Action Receive an informational presentation on the purpose of the Mills Act, receive public input, and provide feedback on what it would take to develop a local Mills Act Program. Executive Summary On July 20, 2021, the City Council received a report regarding the city’s possible acquisition of the Culver-Myers-Capp house for historical preservation and directed staff to return to the City Council with more information about the Mills Act, a state law enacted to help local governments preserve historic structures. On October 19, 2021, the City Council received an informational presentation on the Mills Act and provided direction to staff to initiate an amendment to the Carlsbad Municipal Code to authorize a local Mills Act Program. The Historic Preservation Commission previously received an overview of the Mills Act at its meeting on November 8, 2021. The Commission also received a status update on the work program on January 10, 2022. At its March 14, 2022 meeting, the Historic Preservation Commission will receive public input and provide feedback to city staff to help develop the local Mills Act program. Teri Delcamp, Project Manager for Delcamp Preservation & Planning, will present an overview of the regulatory framework and processing requirements and solicit recommendations on how to best develop a local Mills Act Program. Discussion Background The Mills Act, enacted in 1972 by the California Legislature, grants participating cities and counties the authority to enter into contracts with the owners of qualified historic properties March 14, 2022 Item #1 Page 1 of 2 HISTORIC PRESERVATION COMMISSION Staff Report who actively participate in the preservation, restoration, and maintenance of their historic properties. Property owners agree to maintain, and in some cases rehabilitate, their historic properties in exchange for having their property tax reduced. A Mills Act contract can provide tax benefits for both owner-occupied and income-producing properties. The property tax reduction makes the Mills Act contract one of the most valuable incentives offered to owners of historic properties. For more information about the Mills Act, please refer to the October 19, 2021 City Council staff report or the November 8, 2021 Historic Preservation Commission staff report. Fiscal Analysis There is no direct fiscal impact associated with receiving this report. Approximately $40,000 in funds needed for a professional services agreement with a consultant was included in the current fiscal year 2021-22 Community Development Department budget. Delcamp Preservation & Planning was contracted by the city in 2021 to perform these professional services and help develop the Mills Act Program. It is anticipated that at project close-out, all consultant-related costs will fall below the budget amount. Direct budget implications in future years would also include staff resources and/or other direct expenses to support the implementation of the Mills Act. These costs could be offset by Mills Act application fees and, if desired, any inspection monitoring fees established by the City Council. Public Notification and Outreach This item was noticed in accordance with the Ralph M. Brown Act and was available for public viewing and review at least 72 hours prior to scheduled meeting date. In addition, the city provided two-week notice in advance to business groups (i.e. the Carlsbad Village Association Board, North County Economic Development Council, Carlsbad Chamber of Commerce, and Building Industry Association); community groups (i.e. North County Association of Realtors and the Carlsbad Historical Society); and direct mailers to approximately 350 potentially eligible historic properties in the city. Exhibits None March 14, 2022 Item #1 Page 2 of 2 MILLS ACT PRESENTATION TO THE CITY OF CARLSBADHISTORIC PRESERVATION COMMISSION Teri Delcamp, Principal Delcamp Preservation & Planning March 14, 2022 ORIGIN OF THE MILLS ACT •Senator James Mills -GC §50280-50290 -RTC §439-439.4 •Law went into effect 1972/1976, amended 1985 & 2012 •Intended as incentive for restoring historic landmarks in California WHAT IS THE MILLS ACT? •Local property tax incentive •Encourages preservation and restoration of privately-owned historic buildings rather than redevelopment •Long-term preservation benefit •Property tax valuations completed by County Tax Assessor WHAT THE LAW DOES •Allows cities to put in place a Mills Act program for designated historic properties •Has mandatory requirements, but city may tailor program to meet needs of the community •Provides potential property tax reductions for privately-owned historic buildings WHAT THE LAW DOES, CONT’D •Property tax based on income potential •All types of taxable historic properties •Compliance with the State Historical Building Code and the federal Secretary of the Interior’s Standards I 0 :; . .;;. ·;:.cc ., ·-'" -- HOW DOES IT WORK? •For privately-owned buildings designated historic at the federal, state or local level •City enters into a contract with property owner, Assessor uses additional valuation formula and compares to find lowest •No zoning or use restrictions but owner contractually agrees to maintain and restore per federal, state and local standards and guidelines BENEFITS TO CITY •Preserves historic properties •Revitalizes downtown areas and neighborhoods •Boosts cultural tourism and increases civic pride BENEFITS TO PROPERTY OWNERS •Most Mills Act properties receive property tax reduction between 40%-60%* •Property tax savings help offset maintenance and restoration costs •Especially beneficial to recent buyers/owners who have completed major restoration *Actual savings are very specific to each property, based on a number of factors and variables; this range is likely for some but is intended for illustrative purposes only VALUATION •Establishes 3rd method of valuation for Assessor to use -income approach to value •Assessor still calculates factored base year value and fair market value, compares all 3 •The Assessed Value is the lowest of the 3 •Reflected on following full tax year’s bill VALUATION, CONT’D •Only the Assessor can calculate actual savings •Assessor determines fair rent/gross income, vacancy rate, operating costs, amortization rate; Board of Equalization sets the interest rate •Formula differs for owner-occupied SFR vs. all other properties INCOME APPROACH EXAMPLE: INCOME APPROACH TO VALUE Annual potential gross income ($5,000/month) Less 20% annual expenses/vacancy Net operating income (NOi) Capitalization Rate: Interest component (2022): Risk component (owner-occupied SFR): Property tax component (approx): Amortization component (hypothetical): 2.75% 4.00% 1.10% 0.50% 8.35% "Restricted Value" is NOi + Cap Rate, or $48,000 + 8.35%: $60,000 (12,000) $48,000 $574,850 HYPOTHETICAL SAVINGS •Property could have low or high existing property tax depending on number of factors •Prior example property tax bill might range between $8,000 to $16,000 if ownership changed post Prop 13 to recently •Mills Act Restricted value of $574,850 results in property tax of approx. $6,300 IMPACT ON CITY REVENUE •City is allocated a percentage of overall property taxes (PT) collected, assume 10% •Illustrative only using prior example •10% x $16,000 = $1,600 city receives •10% x $6,300 = $630 city would receive •Loss of about $970 of the total $77 million PT the city anticipates receiving this fiscal year PROPERTY OWNER RESPONSIBILITIES •Contract term is minimum of 10 years •Contract runs with the land •Maintain property per Secretary of the Interior’s Standards, State Historical Building Code •Allow city to periodically inspect •Restore property if required CONTRACT •Automatic annual renewals = perpetual 10-year term •Contract covers whole property: -Building exterior/interior -Systems -Grounds/landscaping CONTRACT, CONT’D •City inspects every five years •Renews annually, but either party can file notice to allow current 10-year term to expire •Failure to comply with contract is a breach, may cause cancellation •Owner pays cancellation penalty -12.5% of fair market value at time of cancellation RECOMMENDED CARLSBAD PROGRAM •Amend CMC Titles 2 and 22 •Designated national, California, and Carlsbad historic sites •June 1 application deadline •Require pre -application meeting CARLSBAD PROGRAM, CONT’D •Recommend adopt application/inspection fees •Staff or third party review process/inspections •Limit # applications to 3 each year •Owner completes 10-year work plan of preservation/restoration improvements •City provide program/application guidance APPLICATION REQUIREMENTS •Application forms, site plan, photos, title report •Historic status verification (or concurrent designation application) •Work plan of improvements for first 10 years •Work plan/designation application -qualified professionals retained by owner MILLS ACT APPLICATION PROCESS •Applications submitted to Planning •City staff/third party inspects property •Historic Preservation Commission makes recommendation in September •Owners notarize contract •City Council takes final action in November CONTRACT GOES INTO EFFECT •Before December 31, City records approved/ executed contract •City notifies County Tax Assessor, owner and State Office of Historic Preservation •Assessor takes contract into account for next year’s property tax bill •Owner sees result of Mills Act in next tax bill CONTRACT MONITORING •Owner maintains the property, completes work plan, restores if necessary •Allows city to inspect interior and exterior of property every five years •County annually re-assesses under the Mills Act •Contract automatically renews annually PROGRESS & NEXT STEPS •Kicked-off December 2021 •Program details and materials prepared •Work session and feedback, finalize program details and ordinance •HPC meeting tentatively July 2022 •City Council meeting tentatively September 2022 FEEDBACK REQUESTED •Appropriate to adopt fees •Limit to 3 applications/year •10-year work plan •Other suggestions: limit to most significant historic properties, limit to historic properties that need most repair, etc. Q & A Teri Delcamp, Principal Delcamp Preservation & Planning teri@delcamp-preservation.com