ABSTRACT: Two noteworthy 4 May 2010 City Council Agenda Items, namely Receive presentation on the Carmel Beach canine education and enforcement program and an Ordinance amending the Mills Act program found in the Historic Preservation Ordinance and, are presented. Selected excerpts from the Agenda Item Summary and Staff Report are presented, as well as information submitted by historic residential property owner David D. Hutchings, including Hutchings’ Executive Summary.
AGENDA PACKET
Regular Meeting
Tuesday, May 4, 2010
4:30 p.m., Open Session
City Hall
East side of Monte Verde Street between Ocean and Seventh Avenues
Live and archived video streaming available
V. Announcements from Closed Session, from City Council Members and the City Administrator
D. Announcements from City Administrator
1. Receive presentation on the Carmel Beach canine education and enforcement program.
IX. Ordinances
A. Consideration of an Ordinance amending the Mills Act program found in the Historic Preservation Ordinance (First reading).
Description: This proposal would amend the application requirements of the Mills Act to eliminate some of the existing standards, place an emphasis on rehabilitation, and allow properties in any zoning district to apply.
Staff Recommendation: Approve the Ordinance (1st Reading).
Important Considerations: The Mills Act was enacted by the State of California in 1972 as a way to encourage partnerships between local governments and property owners of historic resources. Local governments are not required to participate in the Mills Act.
For those governments that do participate, a Mills Act contract may be offered to any property that contains an historic resource. The contract must be for at least 10 years and the property owner typically agrees to specific rehabilitation/restoration efforts. In turn, the property owner receives a reduced property tax assessment. The jurisdiction benefits by having historic resources maintained and enhanced; the property owner benefits by having a reduced tax burden.
Decision Record: The Council continued this item on 6 April 2010 with a request for additional financial analysis on the program.
STAFF REPORT
Exhibit “A” (attached) includes proposed changes to the existing ordinance to: 1) place an emphasis on rehabilitation; 2) revise the required findings; 3) open the program to commercial properties; and 4) allow the Council to establish by Resolution a limit on the number of contracts that could be approved.
Residential: There are approximately 210 residential properties listed on the City’s Historic Inventory. Properties that could potentially qualify for a Mills Act contract would be limited by the following considerations:
• Additions: The City’s ordinance does not allow contracts for properties with increased floor area by 15% or more from the original historic size. Without an analysis of every property on the inventory, it is impossible to know how many properties this requirement may disqualify. Staff estimates somewhere between 30% to 40%.
• Proposition 13: California’s Proposition 13 limits the maximum amount of
property taxes that can be assessed and prohibits reassessing a property’s value unless there is a change of ownership or new construction. Therefore, many owners of historic properties already enjoy low property tax rates and would not benefit by a Mills Act contract.
• Rehabilitation: If the Council adopts the proposed amendments, the number of potential candidates for Mills Act contracts will be further reduced based on the emphasis on rehabilitation.
Commercial: There are approximately 50 commercial properties listed on the City’s Historic Inventory. The City’s current Mills Act program does not include commercial properties, unless they provide affordable housing. The Council has expressed an interest in extending the program, particularly for historic motels.
The following motels are currently listed on the City’s Historic Inventory:
• Pine Inn (CC District)
• Cypress Inn (RC District)
• L’Auberge (RC District)
• Normandy Inn (RC District)
• La Playa (R-4 District)
• Sea View Inn (R-1 District)
• Colonial Terrace (R-1 District)
• Edgemere (R-1 District)
In general, Mills Act assessments are based on the Income Approach to Value rather than the standard Market Approach to Value. A key factor to this approach is what a property can produce in rent. Since rental rates are generally higher per square foot for commercial property, and particularly for motels, compared to residential property, commercial properties are generally not likely to see as significant property tax reductions from the Mills Act as would residential properties. Property tax reductions, however, could still be significant.
Economic Impact: Staff has assumed that the average market value of properties receiving a contract would be $1.5 million dollars. This would result in a net loss to the City of approximately $1,020 per contract (see Exhibit “B”). Staff also assumed that each 10-year contract would be renewed for an additional 10 years, as provided for in the Mills Act. Based on these assumptions, the following table demonstrates what the City could potentially lose in tax revenue (not including inflation) if two contracts were approved each year.
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10
$2040 $4080 $6120 $8160 $10,200 $12,240 $14280 $16,320 $18,360 $20,400
Yr 11 Yr 12 Yr 13 Yr 14 Yr 15 Yr 16 Yr 17 Yr 18 Yr 19 Yr 20
$22,440 $24,480 $26,520 $28,560 $30,600 $32,640 $34,680 $36720 $38760 $40,800
By Year 10 the City could experience a $20,400 reduction in property tax revenue in that year and have lost approximately $112,200 over a 10-year span. Staff points out, however, that based on the budget for fiscal year 2009/10, $20,400 would only be approximately .1% of the total budget.
Problematic Criteria: CMC 17.32.100 establishes findings that must be made in order to approve a Mills Act contract. Several of these findings make qualifying for a contract very difficult.
Summary: In summary, the Council should answer the following questions:
1) Should Mills Act contracts be offered primarily to properties with significant rehabilitation needs or should they be offered to all historic properties regardless of their current condition?
2) Should the existing problematic findings be amended as recommended?
3) Should the ordinance be amended to include historic commercial properties in the program?
4) Should the ordinance establish a cap on the number of contracts that can be approved during any given year? If a cap is established, should it exclude motels applications?
RECOMMENDATION
Approve the Ordinance amending the Mills Act requirements on first reading.
Exhibit “D”
Submitted by Historic Residential Property Owner David Hutchings
Note: Bold Print highlighted by Hutchings
California Government Code, Article 12, Sections 50280 – 50290
50281. Required contract provision.
Any contract entered into under this article shall contain the following provisions:
(b) Where applicable, the contract shall provide the following:
(1) For the preservation of the qualified historical property and, when necessary, to restore and rehabilitate the property to conform to the rules and regulations of the Office of Historic Preservation of the Department of Parks and Recreation, the United States Secretary of the Interior's Standards for Rehabilitation, a nd the State Historical Building Code.
GUIDELINES FOR THE ASSESSMENT OF
ENFORCEABLY RESTRICTED HISTORICAL PROPERTY
HISTORY
Effective March 7, 1973, Chapter 1442 of the Statutes of 1972 (also known as the Mills Act) added sections 50280 through 50289 to the Government Code to allow an owner of qualified historical property to enter into a preservation contract with local government. When property is placed under such a contract, the owner agrees to restore the property if necessary, maintain its historic character, and use it in a manner compatible with its historic characteristics.
ENFORCEABLY RESTRICTED HISTORICAL PROPERTY
Under section 439, historical property is "enforceably restricted" if it meets the definition of a "qualified historical property" as defined in Government Code section 50280.1 and is subject to a historical property contract executed pursuant to Government Code section 50280 and following. A qualified historical property includes qualified historical improvements and the land on which the improvements are situated, as specified in the historical property contract. If the contract does not specify the land to be included, the qualified historical property includes only a land area of reasonable size to situate the improvements.
The historical property contract must have a minimum term of ten years, and, as applicable, must contain certain other elements, including the following:
• A provision relating to the preservation of the qualified historical property and, when necessary, the restoration and rehabilitation of the property in conformance with state historic preservation guidelines;
SUMMARY
The key points contained in these guidelines can be summarized as follows:
1. An owner of qualified historical property may enter into a preservation contract with local government. When property is placed under such a contract, the owner agrees to restore the property if necessary, maintain its historic character, and use it in a manner compatible with its historic characteristics. Such property receives the special valuation treatment prescribed under Revenue and Taxation Code sections 439 through 439.4.
Mills Act Property Tax Abatement Program
Technical Assistance Bulletin #12
CALIFORNIA OFFICE OF HISTORIC PRESERVATION
Department of Parks & Recreation
Benefits to Owners
Owners of historic buildings may qualify for property tax relief if they pledge to rehabilitate and maintain the historical and architectural character of their properties for at least a ten-year period. The Mills Act program is especially beneficial for recent buyers of historic properties and for current owners of historic buildings who have made major improvements to their properties.
Executive Summary
Supplement to Documents Previously Provided By David D. Hutchings
For April 6, 2010 Carmel City Council Meeting Pertaining to the Mills Act
Disagreement with Proposed Exhibit A
My disagreement with Exhibit A centers around the language stated as the “Primary Purpose” for offering the Mills Act”. It is my belief that the current proposed language is not in compliance with the California Code, the California Guidelines, and the Ca. OHP Tech. Bulletin #12.
Staff recommends that Exhibit A should read:
“The primary purpose for offering Mills Act contracts in the City of Carmel-by-the-Sea is to assist in the rehabilitation and long term-maintenance of historic resources”.
It is my belief that Exhibit A to be in compliance should read:
“The primary purpose for offering Mills Act contracts in the City of Carmel-by-the- Sea is to assist in the rehabilitation and / or long term maintenance of historic resources”.
Point / Authorities and Brief Discussion for My Belief:
1. Ca. Code 50281(b) (1) clearly states “For the preservation of the qualified historic property and when necessary to restore and rehabilitate the property”. Mandating rehabilitation rewrites the “when necessary” provision of the law. The Code only mandates long-term preservation / maintenance, not rehabilitation.
2. Ca. Guidelines state “When property is placed under such a contract, the owner agrees to restore the property if necessary, maintain its historic character, and use it in a manner compatible with its historic characteristics”. Ca. Guidelines requires restoration only if necessary, but mandates maintenance of the historic character of the property.
3. The Ca. OHP Mills Act Property Tax Abatement Program Technical Assistance Bulletin #12 states “The Mills Act program is especially beneficial for recent buyers of historic properties and for current owners of historic buildings who have made major improvements to their properties”. The Ca. OHP Bulletin #12 does not say “who will make major improvements to their properties but rather says who have made major improvements to their properties.
4. The City of Monterey (the nearest major city) in their criteria clearly state that “The Mills Act Contract will serve to offset the costs of rehabilitation and/or maintaining the cultural resource”.
City’s Discretion to Determine Approved Mills Act Contracts Would Not Change
Because approval of the Mills Act by the City is discretionary, the City’s discretion to determine which properties are approved if my proposed language was implemented would not change. The City could still only approve Mills Act contracts for historic properties requiring just
rehabilitation but would not exclude for consideration historic properties already fully restored requiring long term-maintenance to preserve historic character.
ADDENDUM:
Mills Act Property Tax Abatement Program
Technical Assistance Bulletin #12
CALIFORNIA OFFICE OF HISTORIC PRESERVATION
Department of Parks & Recreation
1416 9th Street Room 1442-7
Sacramento, CA 95814
PO Box 942896
Sacramento, CA 94296
916-653-6624
calshpo@ohp.parks.ca.gov
www.ohp.parks.ca.gov
California’s four largest cities (Los Angeles, San Diego, San Francisco, and San Jose) as well as more than 75 other city and county governments have instituted Mills Act programs.
Mills Act Contact List
Mills Act Staff Contact
Shannon Lauchner
Mills Act/CLG Coordinator
State Historian II
916-653-5649
slauchner@parks.ca.gov
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