Wednesday, January 21, 2009
3:30 p.m. – 5:15 p.m.

Presiding:
Cynthia Carley, Chair
Curt Cournale, Vice-Chair
Mark Peterson, Vice-Chair
Bill Jansen, Executive Committee Liaison
Jimmy La Peter, NAR Committee Representative

CAR Staff:
Christopher Carlisle, Legislative Advocate
Jeff Keller, Public Policy Analyst

I. Opening Comments

II. State Taxation Issues

A. Action Items:

1. Transfer of Property Tax Base Year Value: Notice to Senior Homeowners – The Property Tax Basis Portability Task Force was appointed with the charge to make recommendations as to what actions C.A.R. should take with regard to expanding property tax basis portability. Under existing law, senior homeowners are allowed to transfer the base year value of their original home to a replacement home so long as the replacement home has a value equal to, or less than, that of the original home and is located within the same county, or a different county if the receiving county has opted into the program. A survey conducted by the task force found that awareness of the ability to transfer property tax basis available under Propositions 60 and 90 is extremely low. As a result, the task force recommended that consideration be given to “informing homeowners via their property tax bill as to the tax benefit available under Propositions 60 and 90.” There is a precedent for counties informing senior homeowners of property tax assistance programs since current law already provides that when a county sends a tax bill to an individual that it be accompanied by a notice regarding the property tax assistance and postponement programs available under the Senior Citizens Property Tax Assistance Law and the Senior Citizens Property Tax Postponement Law.

2. Ballot Proposition: Property Tax; New Construction Exclusion; Seismic Retrofitting. Legislative Constitutional Amendment – This measure was placed on the ballot by the California State Legislature in 2008. Originally identified as SCA 4 (Ashburn), this proposition proposes to provide an exclusion from property tax reassessment for all seismic retrofitting components made to an existing structure, and deletes the 15-year time limit for exclusions under Proposition 23. Put simply, property owners would use the broader exclusion provided by Proposition 127, which was approved by the voters in 1990, instead of the more limited exclusion provided under Proposition 23, which was approved by the voters in 1984, for any new seismic safety improvements.

B. Discussion/Reporting Items:

1. Vote Thresholds:

a. SCA 5 (C. Calderon) Vote Threshold Increase for General Obligation Bonds – This measure would require that initiative measures authorizing the issuance of state general obligation bonds be approved by a 55 percent vote rather than the current majority vote threshold.

Position: Watch
Status: Introduced

b. SCA 6 (Simitian) Vote Threshold Reduction for Parcel Taxes – This measure would allow school districts to impose parcel taxes on real property by a 55% vote, rather than the current 2/3 vote threshold. C.A.R. opposes SCA 6 because parcel taxes are not limited to facility construction, can be imposed indefinitely, and are a “flat fee” per parcel that place an additional burden on homeowners.

Position: Oppose
Status: Senate Rules Committee

III. Federal Taxation Issues

A. Action Items:

1. Withdrawing From 401(k) Plan Without Penalty - As the housing market has continued to face a tough decline, there has been a rise in homeowners that are finding themselves struggling to pay their mortgages. These troubled mortgages are leading to an increase in loan modifications, foreclosures, and attempts to help people access cash to help save their homes. One option mentioned is allowing homeowners to withdrawal from their 401(k), without penalty, to help pay their troubled mortgage. (Please see IBP for further information)

B. Discussion/Reporting Items:

1. Homebuyer Tax Credit - In 2008 Congress passed H.R. 3221, which included a first time homebuyer tax credit. The tax credit was 10% of the purchase price, capped at $7,500 and did need to be repaid; therefore working more as an interest free loan than a true tax credit. The credit is repaid out of your taxes over 15-years. To use the credit the home must be purchased between April 8, 2008 and June 30, 2009 and be of an owner occupied primary residence.

While this credit is being used by many of those eligible, some in the housing industry want to see it expanded, in both size and scope. There are numerous proposals being put out by mortgage brokers, builders, and even NAR. NAR has proposed, as part of their 4-point plan, to extend the tax credit to all purchasers and extend the deadline for use as well as eliminating the repayment requirement. Some builder organizations have proposed increasing the tax credit up to $22,000 as well as expanding its availability. With all of these proposals, nobody has indicated how they would like to offset the expanding cost of the program. Additionally, Congress has given no indication that they plan on expanding the program.

2. Stimulus Package - The new Congress and Obama Administration have said that they want a stimulus package ready as early as January 20th. While this might be an overly hopeful goal as it would mean that no committees could hold hearings, there is nevertheless a bipartisan agreement that a stimulus package in needed quickly.

The size of this stimulus package has fluxuated and the final size is not yet known. There is a general agreement that the package will be between $700 billion and $1 trillion. This package should include tax breaks for the lower and middle class, funding for infrastructure, potentially money for cash-strapped states, and other projects that are believed to either stimulate the economy or create jobs.
There have also been discussions that any stimulus package would include some form of foreclosure mitigation and projects or incentives to help homeowners stay in their homes. There has been no discussions on just what programs will be included, but some ideas floated around are: Interest rate buy-downs, bankruptcy reform, new tax incentives, and loan modifications guidelines.

3. Tax Extenders - The extension of temporary tax provisions has become a perennial cat and mouse game in Congress. These extensions are popular among most members and include real estate provisions such as the 15-year leasehold improvement, Brownfield deduction, and state and local tax deductions. These tax provisions are seen as “must pass” issues, but they have lately been used by Congress in attempts to sweeten more contentious bills.

These extenders are likely to lay dormant until it gets closer to the end of the tax year and the need to pass them is truly against the clock.

4. Tax Reform and AMT - As it has been with recent Congresses, the issue of overall tax reform and the AMT will rise from the ashes. While the incoming Obama Administration has discussed certain changes to the tax code that would increase tax breaks for low and middle income taxpayers, they have also talked about allowing the Bush tax cuts to sunset as planned. Whether this will be the extent of the tax reform in the first years or whether fundamental tax reform will be addressed is still unknown. However, with the economy taking a downturn, it is likely that any fundamental tax reform will be put on a back burner.

Nonetheless, the issue of AMT reform will have to be addressed, whether in the form of another patch or in the form of elimination from the tax code. The distaste for the AMT, and the acknowledgement that it is trapping taxpayers not intended to be included in the AMT, is bipartisan. The debate becomes murky when the issue of how to offset the lost revenue of the elimination of the AMT is addressed. The figures are about a $1.3 trillion loss over 10-years. The question becomes how to either offset this loss of expected revenue or whether there should be no offsets.

With spending and deficits being increased through economic stimulus, there is a good chance that another patch will have to be passed in the first year of the 111th Congress instead of tackling the complete elimination.

5. Real Estate Related Taxes - With the economy falling and stimulus and bailout packages increasing deficits, there is going to be reviews of current tax provisions in order to find new sources of revenue or ways of eliminating one tax provision in order to fund the creation of another. Even with the housing market suffering, there are chances that certain real estate related tax provisions could be targeted, either as revenue raisers or in an effort to create a different housing tax credit, such as foreclosure mitigation. Therefore, while no specifics have been mentioned, it is important to note that certain real estate tax breaks may be targeted, including second home mortgage interest deduction and the deduction of interest on home equity lines of credit.

6. Private Transfer Taxes - C.A.R. Policy: C.A.R. will take a “wait and see” attitude with regard to sponsoring legislation to prevent or regulate the imposition of PTTs. Specifically, the sponsorship of any such legislation should occur if the makeup of the legislature changes significantly enough that it is politically feasible that the legislation will win approval.

At the November 2008 NAR meetings, NAR took the following policy:

“The National Association of REALTORS® opposes private real estate transfer fees. NAR believes such fees decrease housing affordability, serve no public purpose, and provide no benefit to property purchasers, or the community in which the property is located. Because private transfer fee deed restrictions are often difficult to discover, and therefore disclose, prior to a transaction, REALTORS® risk liability issues. In addition, deed restrictions imposing private real estate transfer fees will position affected properties at a disadvantage in the marketplace, and may well undermine economic stability.

Consequently, the National Association of REALTORS® is opposed to any initiative encouraging the recordation of any variety of deed restriction requiring the payment of a real estate transfer fee at closing to a third party entity, including, but not limited to, any individual, home owners' association, public or private for-profit or non-profit corporation, charity, or trust, or any division, department or agency of local or state government. Further, NAR encourages the enactment of statutes, ordinances, or regulations which would prohibit the use of any such deed restriction for the purpose of imposing private transfer fees.”

Further, in communities where private transfer fees currently exist, the National Association of REALTORS® urges their repeal and opposition to any increases.

IV. Other Business

V. Adjournment