Item 6-L

Council Mtg: May 12, 1998 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 2523 Third Street, a Designated Landmark. Applicant: Maureen Cassini.

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 2523 Third Street, 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. This is the third Mills Act contract considered by the City. 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 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 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 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 contract's 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.

ANALYSIS

The property owner of 2523 Third Street 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 property's historic integrity, including painting, roofing and electrical work, as well as repairs to gutters, doors, windows, porches and other architectural features.

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 owner's tax savings as well as an estimate of the City's 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 applicant's submitted financial statement, but authorizes tax abatement for the property.

LANDMARKS COMMISSION REVIEW

The Landmarks Commission reviewed this request at its April 13, 1998 meeting 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 Commission's efforts to encourage the designation and long term preservation of the City's 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 current annual property taxes for this property are approximately $7,436.00 Although the application states that the annual cost to the City in lost tax revenue would begin at $684.00 and increase at a rate just below 2% 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 2523 Third Street, a designated City Landmark.

Attachments:

A. Mills Act Resolution

B. Mills Act Contract Application

WHEREAS, Government Code Section 50280 et seq. authorizes a city to enter into a historical property contract with the owner of any qualified historical property to restrict the use of such property so that it retains its historically significant characteristics in return for which the property owner obtains property tax relief;

WHEREAS, Santa Monica Municipal Code Section 9.36.270(g) provides that Designated Structures of Merit, landmarks, and contributing structures located in historic districts that are privately owned shall be considered qualified historical properties eligible to enter into historical property contracts with the City upon resolution by the City Council;

WHEREAS, the property located at 2523 Third Street, Santa Monica, California is a designated City landmark and the owner of the property has filed an application to enter into a historical property contract with the City;

WHEREAS, the Landmarks Commission reviewed the owner's application at its April 1, 1998 meeting and directed City Staff to forward a recommendation to the City Council in support of the application;

WHEREAS, the City Council has determined that it is appropriate for the City to enter into a historical property contract with the owner of the property located at 2523 Third Street,

NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES HEREBY RESOLVE AS FOLLOWS:

SECTION 1. Pursuant to Santa Monica Municipal Code Section 9.36.270(g), the City Council authorizes the City Manager to enter into a historical property contract with the owner of the property located at 2523 Third Street, Santa Monica, California in accordance with Government Code Section 50280 et seq.

SECTION 2. The City Clerk shall certify to the adoption of this Resolution and thenceforth the same shall be in full force and effect.

APPROVED AS TO FORM:

________________________

MARSHA JONES MOUTRIE

City Attorney