The residence at 1807 Monterey: The estimated annual tax revenue reduction to the city is $8,700 with an estimated property tax savings to the owner of $15,000.
The City Council approved seven properties for Mills Act agreements at its October 7, 1014 meeting. The Mills Act agreements will provide the property owners with significant property tax relief. The savings in property taxes are intended to be used to preserve and maintain the properties, which had previously been designated as historic resources.
The properties approved are 1807 Monterey Avenue, 937 J Avenue, 1306 Sixth Street, 723 A Avenue, 754 B Avenue, 760 B Avenue, and 200 H Avenue. They were seven of the top eight properties on the city’s waiting list of properties seeking Mills Act agreements. The fourth property on the waiting list, 921 A Avenue, was not recommended to the City Council by the Historic Resources Commission. The commission concluded that the property, which was granted an Historic Alteration Permit in 2008, has been too modified to qualify for a Mills Act agreement as a result of the permitted modifications to the residence.
Right: The residence at 723 A Avenue: The estimated annual tax revenue reduction to the city is $6,800 with an estimated property tax savings to the owner of $11,600.
To date the city has entered into 68 Mills Act agreements. The seven approved at the meeting will increase the number of agreements to 75. The existing agreements will cost the city $565,995 in lost tax revenue in the current fiscal year. (To put this in perspective last year the city received a total of $22,800,000 in property tax revenue.) Including the current fiscal year, the agreements will have cost the city over $3 million in lost tax revenue since the beginning of the program. The seven additional properties will add another $24,900 per annum in lost tax revenue.
Approval of the seven properties and rejection of the application for 921 A Avenue leaves 20 properties on the waiting list for agreements. In addition, there are another nine properties for which applications for agreements were submitted in 2014. These applications have not been prioritized by the Historic Resources Commission.
Left: The residence at 754 B Avenue: The estimated annual tax revenue reduction to the city is $300 with an estimated property tax savings to the owner of $500.
In 2011 the City Council adopted a policy of approving seven new contracts in each of the following four years in order to eliminate the backlog of applications. This decision set aside the previously approved $15,000 fiscal cap in lost tax revenue and the limit that it would have imposed on the number of contracts awarded in each year. To this end in 2011, the City Council approved seven contracts with an annual cost of $41,471 in lost tax revenue to the city. Similarly, in both 2012 and 2013 seven contracts were approved with a loss of $79,527 and $24,367, respectively, in annual tax revenue to the city.
Right: The residence at 760 B Avenue: The estimated annual tax revenue reduction to the city is $4,100 with an estimated property tax savings to the owner of $7,000.
At the October 7 meeting the city staff sought guidance from the City Council on whether it should plan to continue to recommend seven contracts per year in the future or to recommend only the number of contracts that could be accommodated within the $15,000 cap. The staff presented two tables that indicated the impact of the two alternatives on the existing waiting list. Approving seven contracts a year would eliminate the existing backlog by 2017. Imposing the $15,000 cap would not eliminate the backlog until 2023. Mayor Casey Tanaka stated his desire to continue to approve seven contracts a year to avoid building up a backlog of applications. Council members Al Ovrum, Richard Bailey and Barbara Denny recommended not addressing the issue at this time but rather to defer it until the new council is seated after the November election. The council agreed to defer action on the issue.
Left: The residence at 1306 Sixth Street: The estimated annual tax revenue reduction to the city is $900 with an estimated property tax savings to the owner of $1,600.
In the discussion councilwoman Denny stated that in reality the city does not lose any tax revenue as a result of the Mills Act agreements. She stated that the preservation, restoration and maintenance of historically significant properties increases the value of the surrounding properties and therefore the increased taxes on these properties offset the tax reductions granted as the result of the Mills Act.
While the seven contracts approved by the City Council at its October 7 meeting will cost the city $24,900 in lost tax revenue per year, they will actually result in savings of $42,600 in annual taxes to the property owners. The difference between the $42,600 and $24,900 is the tax revenue that will be lost by other recipients of the property taxes collected in Coronado.
Below Right: The residence at 937 J Avenue: The estimated annual tax revenue reduction to the city is $1,500 with an estimated property tax savings to the owner of $2,500.
The reduction in property tax that results from a Mills Act contract is determined by the county tax assessor using a capitalization of income method of calculation. The first step in the determination is to estimate the annual potential rental income of the property and the associated rental expenses for management fees, maintenance, etc. The result is an estimated net operating income, i.e., income less expenses. The next step is to calculate a capitalization rate. The capitalization rate is defined as the percentage number used to determine the current value of a property based on estimated future operating income and includes factors for interest, risk, amortization, and property taxes. The net operating costs are then divided by the capitalization rate. The result is the estimated value of the property based on its potential net income. These calculations can result in tax savings of over 50 percent to the property owner. However, at its October 4, 2011 meeting the City Council adopted a resolution that sets the maximum savings that a property owner can receive through a Mills Act agreement at no more than 50 percent of the current property taxes. This new requirement applies to Mills Act applications received beginning January 1, 2012. Applications for all but two of the 20 remaining properties on the waiting list were submitted after January 1, 2012.
Below: The residence at 200 H Avenue: The estimated annual tax revenue reduction to the city is $2,600 with an estimated property tax savings to the owner of $4,400.
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John Tato
Staff Writer
eCoronado.com
