Effective Jan. 1, 2015, low income housing projects face a modified legal regime when qualifying for property tax exemptions in California.
The new law benefits owners of low income housing:
- Local governments may no longer impose payment in lieu of tax agreements on owners. Referred to as “PILOTs,” these agreements have historically been imposed by some local governments on owners of low income housing projects. These agreements obligate the owner to pay a fee to the local government if the property obtains a property tax exemption in order to compensate the local government for property tax revenues that would be lost by virtue of the welfare exemption.
- If a local government did impose a PILOT in the past, the existence of such an agreement no longer jeopardizes the welfare exemption. An owner of a property benefiting from a welfare exemption must annually certify that the property tax savings are being used to maintain the affordability of housing or reduce the rents for lower income households (the Certification Requirement). Some tax assessors have argued recently that making a payment on a PILOT does not benefit the lower income tenants, so the property owner should not benefit from a property tax exemption. The new law makes clear that the property owner still qualifies for the welfare exemption regardless of the PILOT.
- If an owner was charged with an escape or supplemental assessment or penalty due to the existence of a PILOT between Jan. 1, 2012, and Jan. 1, 2015, those amounts are no longer due and should be refunded to the owner if already paid.
The new law also imposes a new burden on owners of low income housing.
The amount of the exemption is determined based on a percentage equal to the number of units serving lower income households divided by the total number of residential units. The new law now makes clear that in order to qualify as a “unit serving lower income households,” the unit must both be occupied by a lower income household AND the rent charged to such household cannot exceed rent restrictions in Section 50053 of the Health and Safety Code (or if the property received financial assistance from a federal, state or local government which imposed rent restrictions in conflict with Section 50053, the owner must comply with the rent restrictions imposed by such financial assistance). So the Certification Requirement remains in place and to count a unit in the calculation for the exemption, the owner must (1) rent such unit to a lower income household and (2) charge restricted rents. Units that are temporarily vacant due to tenant turnover or repair still count as long as such units were in compliance before the vacancy.