September 9, 2010

Taxation and Government Finance Committee
Housing Committee

The following is for study only and has NOT been approved by the Taxation and Government Finance Committee, Legislative or Executive Committees or the Board of Directors.

Issue:
Should C.A.R. support helping low income seniors postpone their property taxes?

Action:
Optional

Options:
1. If the Governor signs the legislation establishing the County Deferred Property Tax Program for Senior Citizens and Disabled Citizens, support legislation funding the program.
2. If the Governor vetoes the County Deferred Property Tax Program for Senior Citizens and Disabled Citizens, support legislation resurrecting the Senior Citizens and Disabled Citizens Property Tax Postponement Program.
3. Do nothing which continues C.A.R.'s existing policy of opposing the postponement of property taxes for seniors and disabled citizens.
4. Other

Status/Summary:
C.A.R. adopted an "oppose" position on the June 1976 proposition authorizing the Senior Citizens and Disabled Citizens Property Tax Postponement Program.  The C.A.R. analysis of the ballot propositions on the June 1976 ballot noted that the "Senior Citizens Property Tax Assistance Program already provides assistance to low income senior citizens."  However, as part of the effort to close last year's budget gap, funding for the program was eliminated.  In May, Assembly Member Bob Blumenfield authored legislation resurrecting the Senior Citizens and Disabled Citizens Property Tax Postponement Program.  However, in August, the measure was completely recast replacing the previous state funded property tax postponement program with a program that relies upon counties voluntarily electing to participate in, and fund, the program.  Given the budget difficulties local governments are experiencing, it is unlikely that any county will elect to participate in the program.  As such, it is probable that attempts will be made to fund the program in the next few years.  Or, if the Governor vetoes the measure, it is likely that legislation will be introduced to resurrect the former property tax postponement program for seniors.

Discussion:
The Senior Citizens and Disabled Citizens Property Tax Postponement Program was adopted with the passage of Proposition 13 on the June 1976 ballot.  (The more well-known "Proposition 13" limiting property taxes was approved two years later in 1978.)  The proposition amended the state constitution to authorize the Legislature to provide for a manner in which a person of low or moderate income who is 62 year of age or older can postpone payment of the property taxes on their principal residence.

C.A.R. adopted an "oppose" position on Proposition 13 (again, not THE "Proposition 13") authorizing the property tax postponement program.  The C.A.R. analysis of the ballot propositions on the June 1976 ballot noted that "Many senior citizens with fixed incomes find it increasingly difficult to remain in their homes because of increasing property taxes …"  However, the analysis also noted that the "Senior Citizens Property Tax Assistance Program already provides assistance to low income senior citizens."  Recall also that this measure was considered at the same time that it was believed that comprehensive property tax reform was needed - reform which would not come for another two years.

In 1977, the legislature approved Assembly Bill 1070 which served as the implementing legislation for Proposition 13 from 1976.  Initially, the bill limited participants’ income to $20,000 per year (that amount was adjusted annually according to the cost of living index).  A senior postponing paying their property taxes would have a judgment lien recorded against their home for the amount of the deferred property taxes plus interest. The legislation provided that the state would reimburse counties for the lost property tax revenue; in turn, when the property was sold or transferred, the state would be paid the amount owed.

However, as part of the effort to close last year's budget gap, legislation (SB 8, Third Extraordinary Session) was approved which eliminated funding for, and indefinitely suspended, the Senior Citizens and Disabled Citizens Property Tax Postponement Program.  The Senior Citizen Property Tax Assistance program has also been defunded and suspended.

In May, Assembly Member Bob Blumenfield took over another legislator's bill replacing the original contents of the measure with language resurrecting the Senior Citizens and Disabled Citizens Property Tax Postponement Program.  As amended, the bill required a continuous appropriation by the legislature in order to fund the program.  However, in August, the measure was completely recast to instead establish the County Deferred Property Tax Program for Senior Citizens and Disabled Citizens.  Essentially, the bill replaces the previous state funded property tax postponement program with a program that relies upon counties voluntarily electing to participate in, and fund, the program.

In addition, the measure increased the eligibility age to seniors old enough to claim full Social Security benefits (between 65 and 67 years of age depending on the year of birth).  Household income can be no more than $35,000 (which, again, would be adjusted annually for inflation).  Finally, the lien recorded would have super priority status as opposed to the judgment lien status of the prior program.  In case of default, judgment lien status requires payment based on the date the lien is recorded; liens with super priority status are, instead, paid first.

This last aspect of the new program elicited opposition from several organizations including the California Bankers Association, California Financial Services Association, California Taxpayers Association, California Land Title Association and the California Escrow Association.  These entities contend that super priority lien status will place program participants in violation of their mortgage contracts which require the borrower to discharge any lien that has priority over the mortgage.

The legislation establishing the County Deferred Property Tax Program for Senior Citizens and Disabled Citizens was sent to the Governor for his signature into law on the last day of the 2009-2010 Legislative Session.  (The Governor has until September 30 to act on the measure.)  As noted above, the program relies entirely on county funding.  Given the budget difficulties local governments are experiencing and the state funding cuts that have occurred in recent years, it is unlikely that any county will elect to participate in the program.  As such, it is probable that attempts will be made to fund the program in the next few years.  Or, if the Governor vetoes the bill that would establish this program, it is likely that legislation will be introduced to resurrect the former property tax postponement program for seniors.