Memorandum
To: Shasa Curl, Deputy City Manager
City of Richmond
From: John Bliss, P.E., President
SCI Consulting Group
Date: October 15, 2021
Subject: Vacant Property Tax Measure Planning Elements and Recommendations (Phase II)
INTRODUCTION
The City of Richmond (“City”) is considering proposing a Vacant Property Tax (“VPT”) measure to Richmond voters to generate revenue, address blight and code compliance, and encourage development of un-used properties. Accordingly, the City of Richmond (“City”) has engaged SCI Consulting Group to assist with “Phase I” feasibility analysis and recommendations, and “Phase II” implementation planning, stakeholder engagement, opinion survey, and tax ordinance development. SCI currently provides financial consulting services to the City and is the primary consultant implementing the City of Oakland’s VPT.
This Memorandum will provide information about the political and administrative process, general recommendations on substance and structure of the supporting tax ordinance, description of community engagement and outreach, projected potential revenue, projected impact on blight, blight abatement and code compliance, and post-election implementation and administration of the proposed tax.
Vacant Property Taxes
VPTs are taxes placed upon un-used and under-used properties. They are collected annually on property tax bills based upon the City-determined vacancy status of the property. The general annual collection process involves identifying potentially taxable parcels, communication with the owners of those parcels, and providing specific opportunities for these owners to petition the vacancy determination and/or apply for an exemption. Currently, VPTs are not common but have recently been successfully implemented in Vanc ouver and Oakland, (and a growing number of California cities are considering implementation.) In both Vancouver and Oakland, the VPT generates significant revenue, but it does requi res considerable parcel research and analysis, administrative resources, and community outreach.
Voter Approval Process
The implementation of a VPT follows the same process as other local special tax measures. First, the City would draft a ballot ordinance, including the detailed specifics of the tax such as rates, affected types of properties, types of exemptions, and duration. Then, upon Council approval of this resolution, City staff would work with County Elections Division to satisfy all requirements to have the tax put before City voters through the usual special tax election process. There are many decisions along this process, such as selecting the optimal election date or even the
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conducting of a special election. The VPT could be proposed to voters as a general tax requiring a 50%+1 approval (only if proposed at a General Election), or as a special tax, with the specific spending requirements, requiring a 2/3+1 approval.
A VPT ballot measure proposed to voters at the June 7, 2022 Primary Election is the soonest possible election that the City would have the opportunity to consolidate with the County Registrar of Voters. Per California Constitution Article XIII C, § 2 (b), the June 7 Primary Election would require a 2/3+1 approval
Public Opinion Survey and Community Engagement
The City is conducting a public opinion survey later this year to gauge the political viability of a potential Vacant Property Tax ballot measure and to better understand the preferences and priorities of the voters before finalizing the ballot ordinance.
As part of the recommended ballot measure implementation plan, this 7,000 “survey packages” be mailed to Registered Voters in Richmond using a scientific, stratified, and randomized mailed survey methodology with a likely margin of error of +/ - 3%. The survey package will include an explanatory informational item, a questionnaire and postage paid return envelope along with the opportunity to respond to the survey on line.
Upon the closing of the survey response period (+- 6 weeks), SCI will tabulate and analyze the results, and prepare a comprehensive report that summarizes the opinion research findings and makes recommendations regarding community priorities and the feasibility of moving forward with VPT measure. The report will also include profiles of likely supporters and opponents for a VPT measure, priorities, and funding support by type of use and key messaging elements and strategies. When the final report has been prepared, SCI will give a formal presentation of the survey results, findings, and recommendations to the City Council.
Also, over the last several months, the City and SCI has met with local stakeholders and the broader community to aid in the development of the ballot ordinance. Feedback has been received from stakeholders and the community including concerns regarding blight, opinions regarding vacant properties, potential exemptions, and services to be funded. Further community outreach and stakeholder of a similar nature is recommended to be conducted during the election period. At least one additional community meeting will be conducted in support of the ordinance development.
IMPORTANT CONSIDERATIONS
Determination of Tax Rates
The following use categories of parcels are recommended to be subject to a VPT:
1. Vacant parcels (undeveloped, raw ground)
2. Not-in-use developed parcels:
a. Single-family detached homes and multi-family
b. Nonresidential parcels (commercial, industrial)
3. Not-in-use condominium, duplex, and townhome units
4. Not-in-use ground floor commercial spaces
In addition, tax rates tiered by parcel size and various use categories are recommended in order to balance optimal revenue generation with political viability and fairness, as shown in the following table:
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Undeveloped vacant lots are distributed by parcel size throughout the City in the proportions shown below:
Smaller than 5,000sq.ft.: 47%
5,000 sq.ft. – 1 acre: 36%
Larger than 1 acre: 17%
Determination of Vacancy Method
The definition of vacancy of undeveloped and developed properties is critical to an effective VPT.
This Technical Memorandum includes numerous recommendations pertaining to the definition of vacancy for specific use categories to provide for optimal revenue generation, political viability and an effective and fair ballot measure. The following elements are recommended for the definition of vacancy for specific use categories of parcels.
All undeveloped, “raw ground” parcels should be regarded as vacant (and subject to the tax) except:
Undeveloped parcels contiguous to an owner-occupied residential parcel (e.g., side yard parcels)
Undeveloped parcels serving as ingress and egress for persons or vehicles (e.g., driveways)
The recommended definition of vacancy defines a developed property as vacant (and subject to the tax) if it is “in use less than thirty (30) days during a calendar year.” (For reference, the City of Oakland’s VPT defines a developed property as vacant (and subject to the tax) if it is “in use less than fifty (50) days during a calendar year.”) Broader definitions of vacancy, which result in more parcels subject to the tax, will generate more revenue but may sacrifice political and community acceptance.
An expanded definition of “in-use ” should be included to capture the City’s Land Use Code, as it relates to the following parcel types:
Residential – lawfully occupied.
Non-residential or undeveloped parcel or ground floor commercial space – definition of “use” to capture the City’s Land Use Code.
To be clear, this Memorandum is recommending that improved and unimproved parcels may be considered in-use only if the activity occurring on the parcel is legal as the City’s Land Use Code defines those terms. The application of the City’s Planning Code as a standard is intended to
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avoid subjective determinations about what activities should and should not be taxed, and is the recommended approach.
This Memorandum also recommends the inclusion of a petition process to allow property owners to contest the determination of vacancy. For example, many owners of an undeveloped parcel contiguous to their developed residential parcel will likely actively petition for re-determination.
Exemptions
This Memorandum recommends allowing the following exemptions from the VPT. Very low income
Low income local senior
Hardship
Active development or active construction,
Not able to be developed due to physical circumstances such as geologic or soil conditions.
These exemptions should include clearly defined criteria so that they can be objectively read and applied, avoiding the need for subjective determinations about what qualifies for an exemption from the tax. An exemption process should be included to allow property owners to apply for an exemption from the tax. For example, owners wishing to be granted income-based exemptions would be required to submit income verification documents showing household income does not exceed certain Department of Housing and Urban Development limits for Contra Costa County, while owners seeking an exemption for properties under active development would be required to submit proof of active development entitlements, valid building permits or building permit applications to qualify for an exemption.
In order to ensure the effectiveness of the stated goals of the ordinance, this Memorandum recommends further research be done regarding an additional condition for approval of exemptions to include property code compliance so that properties considered blight or a nuisance do not qualify for exemption from the tax.
Identification of Potentially Taxable Parcels
As part of the implementation of the VPT, the City (or consultant) will perform parcel analysis to identify the subset of parcels likely subject to the tax. This analysis may include vacancy indicators such as parcel use data from the County Assessor’s Office (e.g., vacant), inconsistent situs and mailing addresses, City permit records, City code enforcement records, and low utility use. Therefore, the City should consider that there may be data-related limitations on the identification process when defining the type of parcel uses to be taxed and the definition of vacancy.
Timing
It is important to note that a tax on vacant property is typically a retroactive tax. This Technical Memorandum recommends that a proposed VPT be applied retroactively so that the calendar year in which a parcel is determined to be subject to tax precedes the imposition of the tax. A retroactive tax is recommended to facilitate the administrative work of identifying vacant properties due to the work of identifying those parcels requiring a data-driven review of indicators that are reflected in property and other records which only become available following the calendar year.
Notably, a retroactive tax will also facilitate the administrative work of processing property owner exemption applications while enhancing the usefulness of those exemptions. The documentation
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required to verify meritorious property owner exemptions should correspond with the calendar year under which a property is deemed to be vacant or not vacant. Therefore, this Memorandum recommends the City impose the potential tax on the secured property tax bill for a subject property for the fiscal year that begins July 1 fo llowing the end of the calendar year in which the parcel was vacant.
Especially in the first year of implementation, the City should conduct significant outreach, so the property owners are fully aware that the in-use status of their parcel will affect their tax status to be collected at the end of the year.
Tax Relief or Mitigation
The City may consider with further research on the provision of an opportunity for owners of blighted property who complete an established, verified abatement process, to pursue partial relief of the tax imposed, and promote and encourage the reduction of blight and other stated goals of the tax.
Other Attributes
The City may consider with further research, other ideas and attributes such as special considerations for family-held investment properties; temporally graduated tax rates (ramping-up over time); incentivized development (with a waiver of City permit fees); development assistance (with an expedited permitting process), etc.
COMMUNITY ENGAGEMENT AND OUTREACH
This Memorandum recommends the City cont inue to engage the community and implement a robust and extensive public awareness campai gn concerning implementing a proposed vacant property tax. This campaign could include town-hall-style engagement sessions, written communications, and stakeholder interviews. To date, the City has conducted two public meetings, receiving feedback from stakeholders and the community including concerns regarding blight, opinions regarding vacant properties, potential exemptions, and services to be funded.
Further community outreach and stakeholder of a similar nature is recommended to be conducted during the election period. As a result of this outreach, local advocates could work to support the proposed VPT throughout the community.
This outreach and community engagement will serve the stated goals of the tax and provide property owners the opportunity to give constructive feedback, providing appropriate notice and information about the potential imposition of the tax so that properties can be put into use. This Memorandum recommends the City approach specific stakeholder constituencies including landlords, developers, real estate agents, neighborhood groups/HOAs, and the broader community. The following phases of outreach are recommended:
For Ordinance Development - gathering community input to draft the optimal ordinance During Election Process - providing unbiased information to community voters Post VPT Voter Approval - providing direction to affected property owners
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ESTIMATED POTENTIAL REVENUE
As shown in the figure on the following page, the City has approximately 32,891 legally defined parcels. In addition, the City has approximately 954 vacant “undeveloped, raw ground” parcels as determined by the County Assessor’s office. Note that only a portion of these vacant parcels would be subject to the VPT because many are contiguous to a residential parcel of the same owner or may be used as a driveway, or subject to another exemption. (For revenue modelling purpose, we have adjusted the number of taxable vacant lots from 980 down to a range of 192 – 283, based upon a cursory review and our experience with Oakland ‘s VPT.)
Citywide Property Statistics – All Parcels
Parcel Type Number of Parcels % of Total
Residential 28,618 87%
Non‐residential 2,609 8%
"Vacant" ‐ as defined by County Assessor 954 3%
Government‐owned 710 2%
Total 32,891 100%
Several revenue scenarios are shown below, applying the recommended tax rates tiered by acreage and use category to low, middle, and high-end scenarios modeled by the number of parcels taxed. Potential first-year revenue generation ranges from $3,000 to $8,000 per year per parcel and the corresponding total revenue estimates, ranging from $1,500,000 to $2,200,000.
The estimates are based on current City property statistics including the share of undeveloped parcels distributed within the acreage-tiered tax rates, expected vacancy rates for undeveloped and improved parcels, and expected approved property owner exemption applications, developed from SCI’s experience administering the City of Oakland’s VPT. Oakland’s VPT generated over $7 million based upon about four times as many parcels as Richmond in its first year.
Potential First-Year Revenue Scenarios
Vacant Parcel Uses Subject to VPT
Approximate
Number of
Units
Scenario 1:
3,000 - $8,000
Scenario 2:
$3,000 - $8,000
Scenario 3:
$3,000 - $8,000
Vacant Parcels (undeveloped, raw ground)
192 - 283
$ 879,000
$ 1,084,000 $ 1,290,000
Single Familiy / Multi-family - Not in use
110 - 160
$ 499,000
$ 615,000 $ 732,000
Condos - Not in use
40 - 60
$ 122,000
$ 150,000 $ 178,000
Non-Residenital - Not in use
TBD
Residential Ground Floor Retail -- Not in use TBD
Revenue Generated
$ 1,500,000 $ 1,849,000 $ 2,200,000
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IMPACT ON BLIGHT AND CODE COMPLIANCE
There is a growing school of thought amongst planners and municipal policy leaders that cities can use “vacant property taxes to nudge property owners of both retail and residential spaces to lease, develop or sell their properties before a short-term vacancy turns into what some cities see as blight.” Similarly, some cities have promoted VPTs to incentivize the highest and best use of a property as residential to address affordable housing shortages. However, the effectiveness and results of VPTs to address blight and code compliance are still inconclusive. An article that discusses this approach can be found at the following link. https://www.governing.com/archive/gov-cities-blight-taxes-lc.html
POST-ELECTION IMPLEMENTATION AND ADMINISTRATION
VPTs require considerable resources to administer each year, likely a combination of City staff with consultant support. Post-approval of the tax by voters, considerable resources should be used to communicate with potentially affected property owners. Examples include FAQs, mailings, and community meetings. The outreach should serve the following purposes:
Notify owners of property potentially subject to the tax of the adoption of the ordinance, Type of property uses that are subject to tax,
Opportunities for exemptions to the tax
Upcoming important dates for the administration of the tax, Next steps
The City may wish to consider delaying the imposition of the VPT by one year to allow property owners time to make any appropriate preparations and arrangements.
Levy and Exemption Administration
In addition to property owner communication, the implementation phase post-voter approval of the tax should focus on administrative process and strategy. Successful implementation involves coordination across City departments and with consultants to develop the appropriate resources and data to execute a vacant property tax roll-out. Internal City discussions should be held to formulate and settle upon an effective implementation strategy.
These discussions should address the following issues:
Identification of Vacant Parcels. Properties subject to the VPT may be identified by property characteristics data and cross-checked against several other resources, depending on property type, available data, and unique conditions.
Property Vacancy Status Determination Administration . Acceptable documentation and verification methods should be considered for each parcel type subject to tax.
Exemption Administration. Acceptable documentation and verification methods should be considered for each allowable exemption type. Property owner submittal of verification information reviewed by City staff and/or consultant. Such information may be accepted by property owner declaration/self-certification and subject to audit,
Property Owner Noticing Period. This should include notice mailing dates, exemption application due dates, and administrative deadlines.
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Property Owner Communication and Instruction. Notices should be written with clarity and provide instruction for how to apply for an exemption or petition vacancy status.
Exemption applications should provide clear instructions so owners can gather and submit the appropriate verification information in a timely manner. Efforts to make applying and petitioning accessible – with an online portal for property owner submittals are encouraged.
Appeals and Hearings. Refunds, etc.
GENERAL RECOMMENDATIONS
A well-executed VPT could provide much-needed revenue as well as help address blight and code compliance. It is recommended that the Ci ty include the essential elements and attributes described in this Memorandum to facilitate the development of a well-crafted ballot measure, and tax ordinance informed by the community and stakeholders.
ROAD MAP FORWARD
A summary of this Technical Memorandum’s major recommendations for implementation includes a step sequential roadmap as summarized below:
1. Conduct community outreach regarding the VPT and its implementation. (Two outreach meetings have been conducted, and a third has been scheduled.)
2. Conduct a mailed public opinion survey to gauge the support level for a VPT and community attitudes about blight, and code compliance. (The survey will be conducted later this year.)
3. Present a Vacant Property Tax ballot measure and ordinance to the City Council for potential inclusion in the June 7, 2022 Primary Election.
If the City Council votes to proceed with a ballot measure:
4. Pass a Resolution of Intent to consolidate the ballot measure with the Registrar of Voters by March 11, 2022.
5. Conduct focused community outreach.
If approved by voters:
6. Conduct focused community outreach to owners of potentially vacant properties through either calendar year 2023.
7. Implement the Vacant Property Tax with the mailing of official notices in Spring 2024, allowing owners of vacant property the opportunity to petition the determination of vacancy or apply for an exemption.
8. Levy of the VPT on the County Secured Property Tax Roll for Fiscal Year 2024-2025.
NEXT STEPS
If the City decides to move forward with a VPT measure in Richmond, we suggest the following next steps:
Phase III: Special Tax Election. Phase III would be initiated if the City Council votes to accept the associated VPT Ordinance and move forward with a special tax election. This
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phase would generally include 1) coordination with the County Elections Division, 2) development of all election materials, 3) non-advocacy community information and stakeholder outreach.
Phase IV: VPT Levy and Exemption Administration. Phase IV would be initiated if the voters approve the VPT measure. This phase would generally include 1) development of implementation plan, 2) development of a list of potentially taxed parcels, 3) associated outreach, 4) noticing of properties subject to the VPT, 5) processing of in-use petitions and exemption applications, and 6) submittal of the VPT parcel tax to Contra County Auditor.