Agenda ReportFullerton City Council
Agenda Report
Fullerton City Council
MEETING DATE: DECEMBER 20, 2022
TO: CITY COUNCIL / SUCCESSOR AGENCY
SUBMITTED BY: SUNAYANA THOMAS, INTERIM DIRECTOR OF COMMUNITY AND ECONOMIC DEVELOPMENT PREPARED BY: CHRIS SCHAEFER, PLANNING MANAGER
ANDREW KUSCH, ASSOCIATE PLANNER
SUBJECT: MILLS ACT CONTRACT BETWEEN CITY OF FULLERTON AND PROPERTY OWNER OF HISTORIC PROPERTY AT 330 WEST WHITING AVENUE
SUMMARY
Consideration of a Mills Act Contract for property located at 330 West Whiting Avenue for the preservation, rehabilitation and maintenance of the historic property.
RECOMMENDATION
Adopt Resolution No. 2022-XXX.
RESOLUTION NO. 2022-XXX – A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF FULLERTON, CALIFORNIA, APPROVING A MILLS ACT CONTRACT BETWEEN THE CITY AND THE OWNER OF HISTORIC PROPERTY LOCATED AT 330 WEST WHITING AVENUE IN THE FORM OF AN HISTORIC PROPERTY PRESERVATION AGREEMENT Authorize Director of Community and Economic Development to review subsequent updated schedules of improvements and maintenance items provided by the property owner pursuant to the Historic Property Preservation Agreement (Agreement) prior to the tenth anniversary of the Agreement and every tenth anniversary thereafter and make minor modifications to requirements in keeping with the intent of the contract.
CITY MANAGER REMARKS
The City Manager concurs in recommending approval.
PRIORITY POLICY STATEMENT
This item matches the following Priority Policy Statements:
Infrastructure and City Assets
Fiscal and Organizational Stability.
FISCAL IMPACT
The fiscal impact of the Mills Act Program results in a 15.64% reduction to the City’s general tax levy portion for each property with a Mills Act Agreement. The general levy property tax component does not include additional taxes such as special assessment charges and is not affected by Mills Act Contracts.
With approval of this Mills Act Contract, the City will receive approximately $587.34 less per year in property taxes ($5,873.40 after ten years). The estimated tax reduction to all taxing entities totals $24,132.50 over the initial ten-year term. The proposed rehabilitation budget for the same period totals $60,500.
The City will impose a penalty of 12.5% of the property’s assessed fair market value should the City find a property owner in breach of the contract or the property owner petitions for immediate cancellation of the contract.
DISCUSSION
The Fullerton City Council adopted Resolution No. 2020-38 on April 21, 2020, establishing a Mills Act Program (Program) and associated Mills Act Program Guidelines authorizing the local use of the Mills Act of 1972, as amended and codified in California Government Code Sections 50280 through 50290 and Revenue Taxation Code Section 439. The Mills Act allows owners of historic properties to voluntarily enter into individual contracts with the City in order to receive a property tax reduction in exchange for the restoration and maintenance of their historic property.
Mills Act Contracts run for a ten-year term and automatically renew each year on the anniversary of City Council contract approval. The contract is always ten years away from termination, unless the property owner or the City submits a notice of non- renewal at which point the contract will terminate at the end of the current ten-year term.
Under the Mills Act Contract, the Orange County Assessor’s Office reassesses the historic property to determine the “Historical Property Value.” The Historical Property Value is based on the property’s income-producing potential and used to determine property taxes under the Mills Act Contract. The amount of property tax reduction varies based on each property’s income-producing potential and current assessed value.
The Fullerton General Plan (The Fullerton Plan) included an Historic Preservation Chapter to guide the preservation, protection, restoration and rehabilitation of historical resources to reaffirm their continuing value as a resource contributing to the vitality and diversity of the present. The Fullerton Plan’s Short-Term Action Plan supports the City’s efforts to preserve historic resources and identifies the development and implementation of a Mills Act Program to provide financial incentives to restore and preserve historic resources.
Eligible Properties
Revenue and Taxation Code Section 439 defines a “qualified historical property” as a privately owned property not exempt from property taxation and listed on any national, state or local historic register. The Fullerton Plan contains several historic designations based on the level of significance, including:
National Register
Local Landmark
Significant Property
Potential / Possible Significant Property
Historic Districts / Preservation Zones.
Additional Eligibility Criteria identified by the City’s Program include:
Property must be privately owned
Property must be subject to property taxation
Property must have an assessed valuation of less than $800,000 Property must be residential in nature/use.
Property Background
Property owner Jennifer Harris submitted an application on August 16, 2022 requesting approval of a Mills Act Contract for her property located at 330 West Whiting Avenue. The property is located on the south side of Whiting Avenue between Highland Avenue to the east and Ford Avenue to the west (see Figure 1). The property was built in 1920 and represents a “Bungalow Style” architectural style popular from 1905 to 1925. 330 West Whiting Avenue is a privately owned residence located in the R-2P Zoning Designation categorized as a “Residential Preservation Zone.” The property qualifies for consideration for a Mills Act Contract given that the property falls under a qualified historic designation and meets additional Eligibility Criteria including having an assessed valuation of less than $800,000.
Figure 1
The detached single-family dwelling incorporates design elements commonly seen in Bungalow-Style homes. The key defining features representative of this architectural style can be seen in the property’s wide gable roof facing the street with a second gable roof over a partial-width porch supported by tapered wooden posts on the front elevation. The features include exposed roof rafters, attic venting in gable ends, wood lap siding and fixed casement and hung wood windows throughout the façade.
Existing Conditions
The current property owner recently repaired the foundation of the dwelling. The submitted Rehabilitation / Maintenance Plan outlines a list of items completed to date. The property owner completed updates to the plumbing, fencing and front yard landscaping according to the Rehabilitation / Maintenance Plan.
Staff visited the property on October 5, 2022 to conduct a pre-approval inspection and determine improvements that may require completion prior to execution of the contract. Staff took into consideration areas that may appear to have lost its historic integrity and unsightly or unkempt areas. These included:
Inappropriate landscaping
Incompatible fencing in front or side yards
Architectural features that were not historic features of the residence Mechanical equipment.
A thorough walk-through of the exterior and interior of the property revealed that the property is generally in good standing with proper maintenance of its historic integrity. The property maintains exterior landscaping and incorporates the standard turf grass, shrubs and brick walkway that are not uncommon of the Bungalow architectural style, as demonstrated in Figure 2.
Figure 2
Areas noticeably out of historical context included no detached garage. Staff recommends the ten-year Rehabilitation / Maintenance Plan include construction of the garage.
The pre-approval inspection found the property continues to maintain its architectural integrity, according to state and local standards and remains a qualified historical property appropriate for consideration of a Mills Act Contract.
Mills Act Contract
The Mills Act Contract does not require properties to return a building to its appearance during a specific historic period. However, work completed on the property should support the long-term preservation of the building and shall conform with the Secretary of Interior’s Standards for Rehabilitation. All work must relate to the exterior or building systems.
The City requires Mills Act Contract applicants to submit a description of work, timeline and cost estimates for the rehabilitation of the property during the first ten-year term of the contract. The Rehabilitation / Maintenance Plan (Attachment 4) provides a three-year work plan. The Mills Act Contract between the property owner and the City of Fullerton includes the Rehabilitation / Maintenance Plan as an attachment and becomes binding on all future property owners. The proposed Rehabilitation / Maintenance Plan identifies qualifying exterior improvements.
The owner would need to submit a report to the City each year after the execution of the Mills Act contract to demonstrate the progress of the Rehabilitation / Maintenance Plan and demonstrate compliance with the terms of the contract. The owner must obtain any necessary building permits required for the on-going rehabilitation work and for any long-term maintenance work.
Mills Act Property Tax Reduction Impacts
The City of Fullerton receives $0.1564 of every $1 of property taxes, with the remaining portion going to the County, School Districts and Special Districts. The fiscal impact of the Mills Act Program results in a 15.64% reduction to the City’s general tax levy portion for each property with a Mills Act Agreement. The general levy property tax component does not include additional taxes such as special assessment charges and is not affected by Mills Act Contracts.
The Orange County Assessor’s Office calculates Mills Act property tax savings annually. The formula used to calculate the tax savings to the property owner involves determining the property’s annual net operating income by subtracting the projected rental income from the property’s operating expenses (typically 30%). The annual net operating income is then divided by the State’s capitalization percentage rate, resulting in the new assessed value, otherwise known as the Restricted Value. The amount of annual property tax revenue loss to the City depends on the assessed valuation of the property once the subject property has entered into a Mills Act contract. The Orange County Assessor’s Office conducts assessment values on January first of every year, therefore a property must enter into a Mills Act contract by December 31 of the previous year to receive tax savings on the property.
The City may process no more than ten Mills Act Contracts per calendar year pursuant to the adopted Mills Act Program Guidelines. Additionally, City Council must adopt a resolution reauthorizing the program when the total number of Mills Act Contracts approved reaches 50 and specify how many additional Mills Act Contracts it will consider. The City has received one Mills Act application in the 2022 calendar year for the 330 West Whiting Avenue property, making this the second property in the City requesting a Contract.
The City will impose a penalty of 12.5% of the property’s assessed fair market value should the City find a property owner in breach of the contract or the property owner petitions for immediate cancellation of the contract.
Property Tax Revenue Impacts
Staff has analyzed the reduction in property taxes as a result of this Mills Act Contract. Based on the Tax Assessment Worksheet shown in Attachment 5, and using the income method described in the Mills Act Program Guidelines, the following provides an estimate of the reduction of property taxes the City will receive from this property, if City Council approves the contract:
Fullerton’s Share of the
Property Tax Estimated from this Property
Before Mills Act (Estimate)
After Mills Act (Estimate)
330 West Whiting Avenue
$964.77
$377.43
The City will receive approximately $587.34 less per year in property taxes ($5,873.40 after ten years) as a result of this contract, using the Assessor’s estimate, The estimated tax reduction to all taxing entities totals $24,132.50 over the initial ten-year term. The proposed rehabilitation budget for the same period totals $60,500.
Attachments:
Attachment 1 – PowerPoint Presentation
Attachment 2 – Draft Resolution No. 2022-XX
Attachment 4 – Rehabilitation / Maintenance Plan
Attachment 5 – Tax Assessment Worksheet
cc: City Manager Eric J. Levitt
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