City Council Meeting: July 22, 2008

Agenda Item: 9-A

To: Mayor and City Council

From: Andy Agle, Director, Housing and Economic Development

Subject: Appendix to Supplemental Property Based Assessment District Staff Report

At the Council’s July 9th meeting Council members asked that certain issues be clarified prior to the adoption of a resolution forming the Downtown Santa Monica Property Based Assessment District. This appendix to the supplement report seeks to address the outstanding issues in the following question and answer format.

Q1. Can Council exempt some nonprofits (for example, low income senior housing) while including others?

A: The City Attorney has advised that particular non-profits may not be exempted from the assessment.

Q2. Can Council exempt all parcels owned by non profits or assess a nominal rate?

In order for a property to be exempted a determination must be made that no benefit will be received from the activities and services funded by the proposed district. Unless otherwise exempted due to a no benefit determination, every parcel must pay their proportional share including properties owned by government and tax-exempt organizations. Under the Streets and Highway Code that establishes these districts the assessment formula for properties should be designed to be fair, balanced, and commensurate with benefits received.

While developing the assessment methodology in conjunction with the Downtown Santa Monica working group, the Assessment Engineer identified three benefit zones in which properties in those zones would gain a direct, although, proportionate degree of benefit based on their location, respective parcel/building square footage and type of use (categories include commercial, residential, governmental and tax exempt).

It was recognized that certain property types should pay a lesser rate based on the benefits received. It was determined that the assessments on parcels owned by tax exempt (non-profit) organizations should be at the lowest rate in each zone — approximately one half of the government/residential rate which is approximately one half of the commercial rate. The rational for the lower assessment for non-profits is that they do not benefit from some activities however they will still receive benefits from others and should pay an assessment based on those benefits received.

The Engineer’s Report states:

“properties that are exempt from property tax, including churches, non-profit service organizations and income-assisted housing owned by non-profit entities, will not benefit to the same degree as commercially developed parcels. The intent of tax exempt properties is to provide a civic service to the community at large and to not encourage increased revenues or future investment dollars, as with commercially developed parcels.”

The working group in consultation with the Assessment Engineer determined that relative benefit received for tax exempt properties is one-half of the rate for Maintenance and Ambassador services paid by other properties in their respective zones. In addition, non profits are not assessed for Marketing, Homeless Outreach or Special Projects.

Q3. Will or could the cost of the assessment be passed on to residents of affordable housing developments such as HUD Section 202 projects or will project owners be required to absorb those costs?

Rent paid by tenants is based upon a percent of the tenant’s income. HUD provides project rental assistance funds to cover the difference between the HUD approved operating costs of the project and the tenant’s contribution to rent. Operational expense increases such as those due to the PBAD assessment would be included in the annual budget cycle and not passed on to tenants. Depending on available funds HUD may or may not approve the operational budget in its entirety.

Q4.  What is the formula for commercial office space and what is the basis for assessment formula?

The assessment formula treats all commercial properties the same. The Assessment Engineer concluded and the working group concurred that all commercial uses (office, retail, hotel etc.) will derive an equal benefit from the PBAD’s proposed Maintenance programs, Ambassadors, Homeless Outreach, Marketing and Special Projects. The commercial rate within the three benefit zones recognizes the different frequencies of services anticipated within each zone within the downtown business district.

Prepared by:

Elana Buegoff, Sr. Administrative Analyst