SR-406-002
PCD:SF:KG:AS:DJ:f:\plan\share\council\strpt\millsact.#6
Council Mtg: December 14, 1999 Santa Monica, California
TO: Mayor and City Council
FROM: City Staff
SUBJECT: Recommendation to Authorize the City Manager to Negotiate and Execute a
Mills Act Historical Property Contract between the City of Santa Monica and
the Property Owner of 2402 Fourth Street, #14, Located in Hollister Court, a
Designated City Landmark. Applicant: Sheila Hayman.
INTRODUCTION
This report recommends that the City Council adopt a resolution and authorize the City
Manager to negotiate and execute a Mills Act Historical Property Contract between the City
of Santa Monica and the property owner of 2402 Fourth Street, #14 located in Hollister
Court, a designated City Landmark. The Mills Act is a state law enabling local
governments to enter into contracts with owners of qualified historic properties to authorize
a property tax reduction in exchange for preservation of the historic structure. The
proposed resolution is contained in Attachment A and the Mills Act application is contained
in Attachment B.
BACKGROUND
In 1991, as part of a comprehensive revision to the Citys Landmarks Ordinance, the City
=
Council authorized designated structures of merit, landmarks, and contributing structures
located in designated historic districts to be considered qualified historical properties
A@
eligible for historical property contracts submitted pursuant to the provisions of California
- 1 -
Government Code Sections 50280-50290. As a result, property owners of such
designated historic properties may file a Mills Act Contract Application. The Mills Act
contract is executed between the City and property owner, and results in a ten year
agreement to lower property taxes. As a direct response to the tax savings, the property
owner agrees to protect, preserve, and maintain the historical and architectural character
of the property. A list of restoration or repair items to be accomplished over the contract
period are incorporated into the Mills Act Contract. These restoration tasks are financed
through savings generated by the lowered tax rate.
Once approved, a Mills Act contract requires the County Tax Assessors office to
=
determine the value of the historic property based upon its current net operating income,
rather than upon the traditional assessed valuation method, resulting in a property tax
reduction. For owner-occupied structures, the net operating income is determined by the
income the property would produce if rented. In exchange for the property tax reduction,
the owner agrees to protect, maintain and, if necessary, restore the historic property.
Under the traditional method of determining property taxes, properties are reassessed
when sold. However, since Mills Act contracts run with the property, subsequent owners
may realize greater tax benefits, as the assessed property value typically increases when
property is sold, resulting in an even greater difference between the property taxes under
the assessed valuation method versus the property tax calculation permitted by the Mills
Act contract. This can be a significant marketing feature for the property in terms of future
- 2 -
sales and is considered an important historic preservation incentive because the property
will be maintained.
The initial Mills Act contract term is ten years. However, each year on the anniversary of
the contracts effective date, an additional year is added to the contract term unless the
=
property owner or the City submits a notice of non-renewal to the other party in a timely
manner. Effectively, the actual term of the contract is at least ten years, but may be
indefinite, as it is automatically annually renewed.
This is the sixth Mills Act contract considered by the City. To date, five contracts have
been recorded with the Los Angeles County Recorder, and filed with the Los Angeles
County Assessor to complete the new tax assessment. The tax adjustment for this Mills
Act contracts will be reflected on the property owners October, 2000 tax bill
=
ANALYSIS
The property owner of 2402 Fourth Street, #14 has requested to enter into a Mills Act
contract to offset the cost of normal maintenance and repairs. The Mills Act contract
savings would be used for continued maintenance of building details which are integral
to the propertys historic integrity, including painting, roofing, chimney and window repairs,
=
landscaping (including new fencing), and a bathroom upgrade.
- 3 -
The maintenance plan for this property is included in the Mills Act application and will be
incorporated into the Mills Act contract. The maintenance plan provides a list of projects
to be completed by the property owner during the initial ten year contract term. In addition,
the application provides an estimate of the property owners tax savings as well as an
=
estimate of the Citys annual costs due to the property tax reduction. Since this estimate is
=
based on financial data submitted by the applicant, the County Assessor will verify the
calculation prior to the final tax assessment. By executing the contract, the City does not
corroborate the applicants submitted financial statement, but authorizes tax abatement for
=
the property.
LANDMARKS COMMISSION REVIEW
The Landmarks Commission reviewed this request earlier this year and directed Staff to
forward a recommendation to the Council supporting the application. The Mills Act is one
of the few financial incentives available to owners of historic properties and is an important
tool in the Commissions efforts to encourage the designation and long term preservation
=
of the Citys historic resources.
=
BUDGET/FISCAL IMPACT
Execution of this Mills Act contract would result in reduced property tax revenue to the
City. The actual amount of the tax reduction is determined by the Los Angeles County
Assessor, based on an evaluation of the worksheet provided with the application. The
- 4 -
current annual property taxes for this property are approximately $3,130. Although the
application states that the annual cost to the City in lost tax revenue would begin at
$165.00 and increase at a rate of less than 1% each year, the actual revenue loss is
subject to review and determination by the County Tax Assessor once the contract has
been executed and recorded with the County.
RECOMMENDATION
It is recommended that the City Council adopt the attached resolution and authorize the
City Manager to execute an Historical Property Preservation Agreement under the Mills
Act, between the City of Santa Monica, and the property owner of 2402 Fourth Street, #14,
located in Hollister Court, a designated City Landmark.
Prepared by: Suzanne Frick, Director
Jay Trevino, Planning Manager
Amanda Schachter, Acting Principal Planner
Donna Jerex, Associate Planner
City Planning Division
Planning and Community Development Department
Attachments: A. Mills Act Resolution
B. Mills Act Contract Application
F:\PLAN\SHARE\COUNCIL\STRPT\MILLSACT.#6.doc
- 5 -