SR 10-25-2016 3O
Ci ty Council
Report
City Council Meeting : October 25, 2016
Agenda Item: 3.O
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To: Mayor and City Council
From: David Martin, Director, Planning and Community Development , Planning &
Community Development, City Planning
Subject: Historic Property Preservation Agreement (Mills Act Contract) between the
City of Santa Monica and the P roperty Owners of Two Designated City
Landmarks located at 504 Pier Avenue and 305 Alta Avenue, and Six
Contributing Structures within the San Vicente Boulevard Courtyard
Apartments Historic District Located at 150 -156, 212, 234, 302 -312, 437 -441
and 614 -6 18 San Vicente Boulevard
Recommended Action
Staff recommends that the City Council adopt the resolutions authorizing the City
Manager to negotiate and execute the Historic Property Preservation Agreements (Mills
Act Contracts) between the City of Santa Mo nica and the property owners of two
designated City Landmarks located at 504 Pier Avenue and 305 Alta Avenue , and six
Contributing Structures within the San Vicente Boulevard Courtyard Apartments Historic
District Located at 150 -156, 212, 234, 302 -312, 437 -441 and 614 -618 San Vicente
Boulevard.
Executive Summary
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 f ew financial incentives available to owners of historic properties, and
is an important tool for implementing the City’s Historic Preservation Element goals: to
promote the designation and long -term preservation of historic resources through the
provision of incentives and technical assistance.
The City requires Mills Act Contract applicants to provide a report prepared by a
qualified architect describing the condition of the structure and its
rehabilitation/restoration and maintenance needs in order to en sure the resource’s
historic integrity and structural stability. These recommendations in the architect’s report
are reflected in the proposed ten -year rehabilitation/restoration and maintenance plan
which becomes an attachment to the Mills Act Contract en tered into between the City of
Santa Monica and a property owner. Staff verifies the information contained in the
report and may identify additional restoration and maintenance items as necessary.
Execution of the pending Mills Act Contract s (Attachment s Q through X ) will result in
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reduced property tax revenue to the City estimated at $34,745 for FY 2017 -2018 and a
similar amount annually thereafter. On average, the eight contract applicants are
estimated to experience an initial property tax savings eq ual to approximately 70.0
percent of their total tax obligation ; the highest being 89 percent and the lowest being
57.8 percent. Mills Act contracts are approved by Resolution of the City Council
(Attachments I through P )
Background
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 historic
properties eligible f or historic 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. In 2014,
the Council pas sed an Ordinance that revised the City’s Mills Act Program by narrowing
contract eligibility requirements and expanding applicant submittal requirements .
Once approved, a Mills Act contract requires the County Tax Assessor’s office to
determine the valu e 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 residential or commercial structures that are
rented, the net oper ating income is determined based on actual rents received. For
residential and commercial structures that are owner -occupied, the net operating
income is determined by the income the property would produce if rented. In exchange
for a property tax reducti on, 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, subsequ ent owners
may realize greater tax benefits, as the assessed property value typically increases
when the property is sold, resulting in an even greater difference between the property
taxes under the assessed valuation method versus the property tax calcul ation
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
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incentive because the property will be maintained. Similarly, the obligat ions and
property tax reduction benefits associated with the Mills Act contract are also binding
upon successive property owners during the contract term.
The initial Mills Act contract term is a minimum 10 -year period. Each year on the
anniversary of t he effective date of the agreement, also known as the renewal date, a
year is automatically added to the initial 10 -year term of the agreement. This effectively
makes the term of the contract at least 10 years, but possibly indefinite unless the
owner or C ity submits a notice of non -renewal. A notice of non -renewal could be
initiated by the City if the property owner is not fulfilling the obligations (i.e. scheduled
improvements or maintenance) specified within their contract with the City. If such a
notic e of non -renewal were submitted, the contract would remain in effect for the
balance of the term remaining, either from its original date of execution if within the
initial 10 -year term, or from the date of the last one -year renewal of the agreement.
Alt ernatively, the owner may petition the City to initiate an immediate cancellation, which
would result in payment of a penalty equal to 12.5% of the property’s assessed current
fair market value, as determined by the County Assessor as though the property w ere
free of the contractual restriction. The City may also cancel the contract in the event of a
breach of contract conditions, whereby the property owner would be subject to pay the
same 12.5% penalty.
The terms of the contract also state that the agre ement may be amended, in whole or in
part, if both the owner and the City agree to execute a recorded document to
memorialize the contract amendment.
Mills Act contracts are time -sensitive and must be recorded by the end of the 2016
calendar year in order to take effect the following year. The County Assessor will make
a final determination of the taxes due when the approved Contract is submitted and
recorded, and will continue to conduct property tax assessments on an annual basis.
Property owners are r equired to obtain all applicable entitlements such as a Certificate
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of Appropriateness, and all associated building permits, for work proposed in the 10 -
year restoration/maintenance plan. Furthermore, all work proposed in the 10 -year
restoration/maintenanc e plan must comply with “The Secretary of the Interior’s
Standards for the Treatment of Historic Properties with Guidelines for Preserving,
Rehabilitating, Restoring & Reconstructing Historic Buildings” (Weeks & Grimmer,
1995).
Property owners are also required to submit a report to the City on a biennial basis to
demonstrate compliance with contract terms. In 2016, staff initiated a contract
monitoring effort for 62 of the City’s existing contracts, to ensure that contractual terms
and obligations are b eing fulfilled and the properties are appropriately maintained. Staff
reviews the reports received and may conduct site inspections to confirm the completion
of work tasks as part of its assessment.
Discussion
There are eight applications for considerati on in 2016; two single -family residences
located at 504 Pier Avenue and 305 Alta Avenue that reflect the early development of
their respective neighborhoods; and, six Contributors within the recently established
San Vicente Boulevard Courtyard Apartments H istoric District, all of which are located
along the namesake San Vicente Boulevard. An additional contract application was
presented to the Landmarks Commission for the Landmark Santa Monica Bay
Telephone Company building located at 3355 Barnard Way , how ever, the applicant has
since withdrawn this request. In accordance with SMMC 9.56.270(G), all application s
are eligible for consideration as there are no confirmed or outstanding code violations;
the properties are current in property tax payments; and, all work that had been
previously conducted was done in a manner that is consistent with the Secretary of the
Interior’s Standards. The specific details of each property are discussed below.
504 Pier Avenue (Plate 1)
The two -story, E.J. Vawter house is a rare hybrid example of Queen Anne and the
American Foursquare styles, and was designated a City Landmark on September 8,
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2014 based on its unique architecture, association with the locally prominent Vawter
family, and as a representative example of the sh ift from rural to urban culture in Ocean
Park during the early 20th century.
Plate 1: E.J. Vawter House, an 1890 rare architectural hybrid of the Queen Anne and American Foursquare styles.
An architect’s report was prepared by Kaplan Chen Kaplan. The r eport assesses the
condition of the primary residence and identifies repair, restoration/rehabilitation and
maintenance needs (Attachment A) along with a general schedule for completion of
work. As noted, the exterior of the residence and some of the more prominent features
are described as being in good condition and repair. The kitchen flooring is damaged
and should be repaired . Plumbing connections should be evaluated and changed as
needed. Otherwise, the majority of work proposed is maintenance related .
The applicant has submitted a 10 -year Maintenance Plan and Restoration and
Rehabilitation Plan d escribing tasks that will be undertaken to address the identified
concerns and ensure on -going maintenance. These tasks are estimated to have an
annual cos ts of approximately $2,850 for maintenance and $35,900 for the r epair
activities efforts that are scheduled within the initial 10 -year contract period.
Staff estimates that the new contract will result in a property tax reduction equating to
approximate ly 77.9 percent.
305 Alta Avenue (Plate 2)