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SR-406-002 (9) PCD:SF:JT:AS:KC:EB:F:\PLAN\SHARE\COUNCIL\Mills Act\MA 2003 CC rpt .doc Council Mtg: December 9, 2003 Santa Monica, California TO: Mayor and City Council FROM: City Staff SUBJECT: Mills Act Historical Property Agreements between the City of Santa Monica and the Property Owners of 2402 4th Street, #3 (Hollister Court), a Designated City Landmark; 317 Georgina Avenue (A. McFadden Residence), a Designated City Landmark; 555 Seventh Street (Fones Residence), a Designated City Landmark; 2607 Third Street, a Contributor to the Third Street Neighborhood Historic District; and 502 Raymond Avenue (Craftsman Bungalow), a Designated City Landmark. Applicants: Pamina Gorbach (2402 4th Street, #3) Jeffrey R. Beall and Lori Jean Swanson (317 Georgina Avenue) th Danna Meyer (555 7 Street) James Bianco & Lisa Mead (2607 Third Street) Gail Howell (502 Raymond Avenue) INTRODUCTION This report recommends that the City Council adopt resolutions authorizing the City Manager to negotiate and execute Mills Act Historic Property Preservation Agreements between the City of Santa Monica and the property owners of five residential properties – a designated contributor to the Third Street Neighborhood Historic District, and four individually designated Landmarks. BACKGROUND The Mills Act is a state law that enables local governments to enter into contracts with owners of qualified historic properties to authorize a property tax reduction. The Mills Act is one of the few financial incentives available to owners of historic properties and is an - 1 - important tool in the City’s efforts to encourage the designation and long-term preservation of the City’s historic resources. In 1991, as part of a comprehensive revision to the City’s 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 eligible for historical property contracts submitted pursuant to the provisions of California Government Code Sections 50280-50290. As a result, property owners of such designated historic properties may file a Mills Act Contract Application. Once approved, a Mills Act contract requires the County Tax Assessor’s 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 most cases in a property tax reduction. For structures that are owner-occupied, 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. To date, there have been 13 Mills Act Contracts approved in the City of Santa Monica. 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 sales and is considered an important historic preservation incentive because the property - 2 - will be maintained. The initial Mills Act Contract term is a ten-year period. The agreement is renewed automatically each year on the contract’s anniversary, and an additional year is added to the contract term. This effectively makes the actual term of the contract at least ten years but possibly indefinite unless the owner or City submits a notice of non-renewal. If such a notice on non-renewal were submitted, the contract would terminate at the end of the then current ten-year term. Alternatively, the owner may petition the City to initiate an immediate cancellation, which would result in a penalty equal to 12% of the property’s assessed market value. The City may also cancel the contract in the case of breach of the contract conditions. The rights and obligations to the contract are also binding upon successive property owners during the contract term. ANALYSIS 2402 4th Street, #3 2402 4th Street, #3 (Hollister Court) is a unit that is part of a property designated as a City Landmark on December 13, 1990. The property consists of two rows of Craftsman-style bungalows facing a central walk street. The one-story bungalow at 2402 Fourth Street, #3, is located in the center of the property on the north side of the central walk street. The structure is generally in good condition, with the most immediate repair needs focused on the front and rear decks where wood boards and bricks require maintenance and weatherproofing. Otherwise, proposed projects include general maintenance and smaller repairs. - 3 - 317 Georgina Avenue The Spanish Colonial Revival style single-family residence at 317 Georgina Avenue (known as the A. McFadden Residence) was built in 1923 and designated as a City Landmark on February 10, 2003. Prior to the property’s designation as a landmark, the current owners extensively restored and remodeled the structure (the front façade was not affected apart from installing French doors similar to the originals on the staircase landing). As part of this work, some new windows were installed that match original windows that had been removed and the atrium skylight (an original feature in the house) was sealed to stop the water damage that had been occurring. In addition, during the renovation structural defects of an earlier remodel were revealed, and additional supports were added. Currently, the structure is in very good repair. The proposed maintenance plan includes some work this year to repair and augment rain gutters that are inadequate or rotting. Other than this particular repair, general monitoring and maintenance are proposed. 2607 Third Street This multi-family property including a California bungalow-style main house at the front and a rear structure with two units is a contributor to the Third Street Neighborhood Historic District, designated on July 1, 1990. Both structures were built prior to 1915 and are considered to be contributing structures. The main house was extensively restored in 2001-2002, including structural reinforcement and foundation improvements. Recently, the - 4 - owner has also undertaken some repair to the rear structure containing two rental units, including installation of a new roof. Because both structures are in generally good repair at this time, the proposed maintenance plan includes general maintenance, interior and exterior painting in 2007, and roof replacement in 2010. All exterior work would require Landmarks Commission approval, through processes required for the Third Street Neighborhood Historic District [SMMC Chapter 9.40]. th 555 7 Street This single-family Craftsman bungalow, known as the Fones Residence, was constructed in 1914 and was designated on April 10, 2000, as a City Landmark. The structure is currently undergoing major renovation, which was approved by the Landmarks Commission through the Certificate of Appropriateness process. Prior to this work, the structure was in very poor repair with a great deal of rotted wood and outdated electrical and plumbing systems. Following completion of the current work, the house will be in very good condition, so the proposed tasks include normal maintenance and repair. 502 Raymond Avenue This two-unit residential property includes a Craftsman-style bungalow in the front constructed in 1913 and designated on April 14, 2003, as a City Landmark. Prior to designation, this property underwent a major restoration that restored its original character, through repair and retention of the Craftsman features including uncovering the original brick columns on the patio. During that construction, the front structure received a new foundation, as well as upgraded electrical and plumbing systems. The property is, - 5 - therefore, in very good repair at this time and ordinary maintenance is proposed along with installation of screens in the first few years of the contract. DISCUSSION/ANALYSIS The five attachments contain information for each property, including a proposed resolution, a draft contract (Historic Property Preservation Agreement), a Mills Act Contract application with financial analysis for the property and a proposed restorative/rehabilitation plan. The City requires Mills Act Contract applicants to provide a report prepared by a qualified architect regarding the condition of the structure and the need to rehabilitate in order to ensure the resource’s historic integrity and structural stability. The recommendations in the report are reflected in the proposed 10-year plan. Financial data is also requested in order to roughly calculate the tax reduction and provide guidance to the Landmarks Commission and Council in making a decision on this request. The County Assessor will make a final determination of the taxes due when the approved contract is submitted and recorded. County Assessor data shows that property tax assessments of the 13 Santa Monica historic properties with Mills Acts Contracts have been reduced by amounts between 14% and 75%, with the median at 47%, when compared to their “Proposition 13 Values.” From these assessments, correspondingly lower taxes have been levied at these properties. Properties purchased fairly recently at higher sales prices have generally realized a greater reduction in their assessments, as would be expected. This is particularly - 6 - illustrated by two assessments of similar Hollister Court units, at which reduction from the current property assessment differed by 37% even though the assessments only differed by about $5,000. LANDMARKS COMMISSION REVIEW The Landmarks Commission reviewed these five requests at its October 13, 2003, meeting and directed staff to forward recommendations to the Council in support of all five applications. BUDGET/FISCAL IMPACT Execution of these Mills Act contracts will result in reduced property tax revenues to the City estimated at $7,200. However, the amount of revenue loss is not significant in terms of total property tax revenues. RECOMMENDATION The Mills Act applications for all five of these properties have been properly submitted, contain appropriate maintenance/restoration plans and will assist the property owners to preserve these City Landmarks. It is recommended that the City Council adopt the five attached resolutions and authorize the City Manager to execute Historical Property Preservation Agreements under the Mills Act, between the City of Santa Monica and each of the property owners of 2402 Fourth Street #3, 317 Georgina Avenue, 2607 Third Street, th 555 7 Street and 502 Raymond Avenue. Prepared by: Suzanne Frick, Director - 7 - Amanda Schachter, Principal Planner Kimberly Christensen, AICP, Senior Planner Elizabeth Bar-El, AICP, Associate Planner City Planning Division Planning and Community Development Department SEE CITY CLERK’S OFFICE FOR THE FOLLOWING ATTACHMENTS TO THIS STAFF REPORT. ASK FOR THE CONTRACT AND OR RESOLUTION NUMBERS AS INDICATED BELOW: Attachments: A. 2402 Fourth Street, #3: Supporting Documentation (including the draft Mills Act Resolution and draft Historic Property Preservation Agreement). The Mills Act Contract Application, Architect’s Report, Financial Analysis, and photographs are attachments which are not SEE CONTRACT NO. 8299 (CCS) available electronically. SEE RESOLUTION #9910 (CCS) B. 317 Georgina Avenue: Supporting Documentation (including the draft Mills Act Resolution and draft Historic Property Preservation Agreement). The Mills Act Contract Application, Architect’s Report, Financial Analysis, and photographs are attachments which are not SEE CONTRACT NO. 8300 (CCS) available electronically. SEE RESOLUTION #9911 (CCS) C. 2607 Third Street: Supporting Documentation (including the draft Mills Act Resolution and draft Historic Property Preservation Agreement). The Mills Act Contract Application, Architect’s Report, Financial Analysis, and photographs are attachments which are not SEE CONTRACT NO. 8301(CCS) available electronically. SEE RESOLUTION #9912 (CCS) D. 555 7th Street: Supporting Documentation (including the draft Mills Act Resolution and draft Historic Property Preservation Agreement). The Mills Act Contract Application, Architect’s Report, Financial Analysis, and photographs are attachments which are not available SEE CONTRACT NO. 8302 (CCS) electronically. SEE RESOLUTION #9913 (CCS) E. 502 Raymond Avenue: Supporting Documentation (including the draft Mills Act Resolution and draft Historic Property Preservation Agreement). The Mills Act Contract Application, Financial Analysis, and photographs are attachments which are not available - 8 - SEE CONTRACT NO. 8303 (CCS), electronically. SEE RESOLUTION #9914 (CCS) F:\PLAN\SHARE\COUNCIL\Mills Act\MA 2003 CC rpt .doc - 9 -