TO:
Honorable Mayor and Members of the City Council
THROUGH:
Mark Danaj, City Manager
FROM:
Richard Thompson, Community Development Director
Laurie Jester, Planning Manager
Angelica Ochoa, Associate Planner
SUBJECT:Title
Presentation of Mills Act Pilot Program to Provide Incentives for Preserving Historical Resources and Sample Resolution (Community Development Director Thompson).
PROVIDE DIRECTION AND APPROPRIATE $50,000 FROM UNRESERVED FUNDS TO HIRE A HISTORIC PRESERVATION CONSULTANT
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Recommened Action
RECOMMENDATION:
Staff recommends that the City Council consider the information in this report, including the attached sample Resolution (Attachment 1) for a two-year Mills Act Pilot Program, and provide direction. If the Council is supportive then staff will initiate the public input process to obtain comments from community stakeholders, such as the School District, County, Library and residents, and initiate the Request for Proposal process to retain the services of a historic preservation consultant. Staff will then return at a future date with this information, and the Council can then determine the direction to take with the Mills Act, which could include: 1) continued services from the historic preservation consultant, 2) options for additional Planning staff support and funding, 3) a fee resolution to establish a Culturally Significant Landmark application fee and Mills Act application fee, and 4) amendments to the Culturally Significant Landmark Ordinance, Chapter 10.86 of the MBMC.
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FISCAL IMPLICATIONS:
Adoption of a Mills Act Pilot Program will require additional staff time and resources, as well as the services of a historic preservation consultant. We estimate that administration of the program will require one half-time Planner plus support staff, which is estimated to cost up to $60,000 annually. Additionally, the services of a qualified historic preservation consultant are projected to cost approximately $50,000 annually.
If the City Council provides direction to further pursue a Mills Act Pilot Program, staff will return at a future date with a number of items, including a Resolution establishing Landmark Designation and Mills Act application fees. Staff is requesting that the Council consider authorization of an appropriation of $50,000 from unreserved General Fund balances to retain the services of a historic preservation consultant with specialized knowledge to assist staff.
In addition to staff and consultant costs, the implementation of a Mills Act Program will result in a reduction in property tax revenue for the City, the School District, the County and a number of other agencies. Anticipated impacts to property tax revenue are discussed in further detail below.
BACKGROUND:
On June 17, 2014, staff provided the City Council with a report on the Mills Act. At that time, the City Council directed staff to research the feasibility of implementing a Mills Act program to provide tax incentives to property owners to preserve, maintain, and rehabilitate historic properties in the City (Attachment 2). The Council also requested that staff provide additional information on the fiscal impacts of establishing a Mills Act program. Finally, the City Council requested that staff coordinate with the Manhattan Beach Cultural Heritage Conservancy (MBCHC).
Since September 2006, the Culturally Significant Landmark ordinance has been in effect pursuant to Title10, Chapter 10.86 of the Manhattan Beach Municipal Code (Attachment 3). A local task force comprised of voluntary members from the community was formed in 2006 to increase public awareness and community appreciation of Manhattan Beach's unique heritage. The MBCHC is headed by Jan Dennis, a local historian. This group has been an invaluable resource, actively researching potential historic properties throughout the City to designate as Cultural Significant Landmarks, coordinating with the property owners and presenting these properties to the City Council for local designation. To date, the City has designated 18 properties as Landmarks through the efforts of the MBCHC. Of these 18 properties, two have been accepted by the State Historic Preservation Office to be listed in the California Register of Historical Resources.
In June 2011, the City Council reviewed amendments to the Landmark Ordinance to remove the need for a required public hearing for designating properties as culturally significant; a City Council public meeting is now all that is required. The current Ordinance is very limited and only acknowledges and designates properties of historical and/or cultural significance, but does not prevent the ability to alter or demolish a designated property. Properties may only be nominated by the property owner and the designation is voluntary in nature. The criteria for determining designation includes architectural significance, association with local significant events, association with a significant designer and unique locations which are associated with the City.
DISCUSSION:
The intent of this report and discussion is for the Council and the community to understand the implications of a Mills Act program. The Program provides the unique opportunity to preserve our community's local history, and encourage investment in the continued upgrade of those resources that enhance our environment. There are many complexities involved with the adoption of a Program and staff is requesting further direction on a number of items as discussed within this report.
Mills Act Program
The Mills Act, enacted by the State of California in 1972, grants participating local governments the authority to enter into contracts with owners of qualified historical properties to receive property tax relief. In exchange, property owners must actively participate in the preservation, maintenance, and rehabilitation of their historical properties. In order to qualify, the privately owned property must be listed in the National Register of Historic Places, located in a national historic district, or listed in a State or city register of historical or architecturally significant sites, places, or landmarks. In short, property owners enjoy financial benefits under the Mills Act, while the community enjoys the preservation and maintenance of historic resources.
Under the Mills Act, contracts are entered into by the local government and the property owners for a minimum of 10 years. The contracts renew automatically every year, so the contract is always a 10-year contract, unless the property owner or City decides not to renew. There are penalties to the property owner for early termination of the contract, as well as for failing to maintain the property. Each local government establishes its own contracts and determines how many contracts are allowed in the particular jurisdiction, and the details of the contract.
Staff met with two members of the MBCHC to discuss the potential adoption of a Mills Act program and its relationship to the City's Landmark Ordinance. The MBCHC reviewed the City of Beverly Hills Landmark regulations (Attachment 4) and suggested that City of Manhattan Beach adopt their criteria with the revisions described below.
§ Age threshold incorporation: Establish a local landmark age eligibility requirement of 45 years. Properties less than 45 years may still be considered if they are found to have exceptional historical significance which shall be determined at the discretion of the advisory body/consultant and City Council.
§ Creation of potential historic district: A geographic area may be designated a historic district if the proposed district is found to meet certain criteria.
§ Hold period for certain permits: This process would protect potential future historically/culturally significant properties that may be threatened with alteration or demolition by allowing the City to hold off the issuance of permits in order to examine the structure and consider if the property is a potential candidate for landmark designation.
Staff also reviewed the Redondo Beach and Brea regulations (Attachments 5 and 6). If the City Council provides direction to pursue the Mills Act further, staff will work with the historic preservation consultant and the MBCHC, taking the best and most applicable elements of these and other ordinances and provide customized future amendments to the Manhattan Beach Landmark ordinance. Amendments to the Landmark ordinance would then be considered by the City Council at a future date.
Surrounding Cities
Many cities in Southern California have established Mills Act programs, including the cities of Beverly Hills and Redondo Beach. Staff contacted these cities to obtain information regarding program implementation, required staff time, fiscal impacts, and general management of their Mills Act programs.
Beverly Hills
Beverly Hills originally adopted a Mills Act Pilot Program in 2011. Earlier this year, the City extended the program until 2016. In order to minimize the fiscal impact of the program, the City of Beverly Hills limited the annual revenue loss from property tax revenues to $50,000 each year, and limited the program to three contracts during the first year. As part of the program extension earlier this year, Beverly Hills increased the annual revenue loss to $100,000, while continuing to limit contracts to a maximum of three per year. The City's Architectural Commission serves as an advisory body to the City Council, making recommendations on Mills Act applications.
To date, Beverly Hills has entered into a total of two agreements and staff is currently processing two additional requests. The City has an Urban Designer, an Associate Planner, and a historic preservation consultant who work on the Mills Act program. Approximately one-half of the Urban Designer's time is devoted to historic preservation and Mills Act activities, while the entirety of the Associate Planner's time is currently devoted to the Mills Act program. The cost for the historic preservation consultant's services is approximately $25,000 annually.
Redondo Beach
Redondo Beach has had a Mills Act program since 1992. Redondo Beach does not limit revenue loss from reduced property taxes, nor does it limit the allowable number of annual Mills Act contracts. Like in Beverly Hills, the City has an Architectural Commission that serves as an advisory body to the City Council. Since 1992, Redondo Beach has entered into a total of 93 agreements and staff is currently processing two additional requests. Given the longevity of the program, the City does not need to devote significant staff time to administering the program. As such, the City has one Associate Planner who spends approximately half of his time processing Mills Act requests.
Anticipated Impact on Property Tax Revenue
Mills Act contracts generally result in a reduction of property taxes for each assessed property. The impact of the Mills Act on a property's assessment will vary depending on how recently the property was purchased and the purchase price. In general, more recently purchased properties that tend to have higher assessed values, would receive greater reductions, and properties that have been held by the same owner for many years may potentially receive no reduction.
A property's value under the Mills Act is not the same as market value. The Mills Act requires the County Tax Assessor to re-evaluate the property using a capitalization method rather than being based on market value. Accordingly, the Assessor determines the value of the historic property based upon its current potential net operating income, rather than the traditional assessed valuation method. The Assessor determines the assumed rental income and deducts expenses and capitalization rates as shown in the estimates prepared by staff in the attached examples (Attachment 8). The result is a substantial reduction in property taxes. In exchange for the reduction in property tax payments, property owners must maintain, and if necessary restore and rehabilitate the property to conform to the rules and regulations of the California Office of Historic Preservation, the U.S. Department of Interior's Standards for Rehabilitation, and the California Historical Building Code (Attachment 7). Essentially, the property owners must provide for long-term maintenance, restoration, and preservation of the qualified historical property.
Based on the example in Attachment 8, it is estimated that for a property with an assessed value of $2 million dollars ($5,000/month rent assumption), participation in the Mills Act program could reduce the owner's total property tax from $20,000 to approximately $3,500 annually. Without the Mills Act contract, the City's share of the total property tax revenue, at approximately 15 percent of the total property tax collected, would be approximately $3,000 annually. With a Mills Act contract in place, the City's share would be reduced to approximately $600 annually. Based on the same estimation, loss in revenue to the Manhattan Beach Unified School District could be approximately $6,400, or 39 percent (MBUSD 16 percent and Educational Augmentation Funds 23 percent). This would be an annual revenue loss, initially for 10 years and would continue on a yearly basis, unless the City or property owner canceled the contract. The County would have about a 31 percent reduction and the balance of the reduction, 15 percent, would be spread across other agencies, such as the County Library, Beach Cities Health District, Vector Control, etc. The City receives about $24 million in property tax revenue annually, which accounts for about 40 percent of the General Fund budget.
For a property with the same assessed value of $2 million and a $10,000 per month rent assumption, it is estimated that participation in the Mills Act program could reduce the total property tax from $20,000 to approximately $7,467. The City's revenue share would be reduced from $3,000 to approximately $1,200.
The City has the option of limiting the annual revenue loss from property tax revenues each year, as well as limiting the maximum number of agreements approved per year, similar to Beverly Hills. The number of contracts allowed on a yearly basis will have a direct impact on staffing and resources.
Staffing and Resources
Adoption of the Mills Act Program will require additional staff time and resources. Administration of the ordinance would involve the following: identifying eligible properties, processing of applications including Commission and/or Consultant review, then City Council action, preparing and enforcing each contract with each property owner, reviewing and approving any proposed alterations to the eligible properties during the term of the contract, and monitoring the property and the completion of the preservation plan to assure that the property is maintained to the standards of the contract and State requirements (Attachment 7).
Mills Act Process
Mills Act agreement requests involve a two-step approval process. First, the property must be listed on one of the requisite registers or be located in a nationally registered historic district. If the property is not listed on the California or federal registers, the first step would be to obtain the local culturally significant landmark designation. An advisory body (Landmark Commission and/or historic preservation consultant) would review the project and provide comments and a recommendation, and the City Council would take action on the application. In either case, it is anticipated that the MBCHC would provide review and comments throughout the process. All properties interested in entering into the Mills Act program would be required to obtain the Landmark designation either prior to submitting for the Mills Act program or concurrently. The historic preservation consultant would assist staff in reviewing the current 18 local Landmark properties to determine if they would qualify for the Mills Act. The two properties with State designation would be eligible for Mills Act property tax reduction if a Program is approved.
Second, the property owners must apply to have the City Council approve a Mills Act contract. Overall, staff anticipates that requests to participate in the Mills Act program would include the following steps:
1. Pre-Application Meeting: Prior to the submittal of the application, the property owner would have a pre-application review meeting with City staff and a historic preservation consultant. The purpose of the pre-application review meeting is to confirm that the property qualifies for the program and to ensure that the application submittal requirements, and the mandatory terms of the Mills Act Contract, are understood. The Pre-Application Meeting would include a site visit.
2. Application Submittal: The application would include information on the proposed Rehabilitation, Restoration, and Maintenance Plan; drawings; samples; cost estimates; photographs; and any other materials or studies needed.
3. Application Review: City staff and the historic preservation consultant would review the submitted materials and determine if the application is complete and may schedule a meeting with the applicant to discuss details of the proposal. The application would be scheduled for review before the advisory body or the historical preservation consultant.
4. Commission or Historical Consultant Recommendation: The Mills Act Application would be considered by the advisory body or the historic preservation consultant, which would make a recommendation to the City Council.
5. City Council Action: The City Council would make the final decision on the application.
6. Contract Execution and Recordation: If approved by the City Council, the City would execute the contract and forward it to the County Recorder's office for recordation. The recorded copy will be returned to the City for submission to the County Tax Assessor's office for implementation. The Los Angeles County Assessor is responsible for calculating property tax reductions. The County Assessor reassesses Mills Act properties once a year.
The City has the option of limiting the annual revenue loss from property tax revenues each year as well as limiting the maximum number of agreements approved per year similar to Beverly Hills. The number of contracts allowed on a yearly basis will also have a direct impact on staffing and resources.
CONCLUSION:
Next Steps
The intent of this report and discussion is for the Council and the community to understand the implications of a Mills Act program. The Program provides the opportunity to preserve our community's local history, and encourage investment in the continued upgrade of those resources that enhance our environment. If the City Council would like to further pursue a Mills Act Pilot Program, direct staff to proceed with the next steps as follows:
§ Initiate public input process in order to obtain comments from community stakeholders, such as the School District, County, Library and residents.
§ Prepare and issue Request for Proposals to retain the services of a historic preservation consultant to prepare Code Amendments, initially administer the program and provide training to City staff.
Staff will bring this public input, and the Request for Proposals to the City Council then proceed further with the Mills Act Program, as directed by Council as follows:
§ Provide options for additional Planning staff support and funding.
§ Prepare for Council consideration a fee resolution to establish a Culturally Significant Landmark application fee and Mills Act application fee.
§ Prepare amendments to the Culturally Significant Landmark Ordinance, Chapter 10.86 of the MBMC, per the MBCHC's recommendations.
If the City Council adopts the Resolution establishing the Mills Act Pilot Program, it would not become effective until staff and the historic preservation consultant finalize the specifics of the program guidelines, application materials, and review criteria and procedures, Landmark Code Amendments, fees, the associated outreach materials, and any other required information. Throughout the duration of the Pilot Program, staff will assess the effectiveness and efficiency of the Mills Act application process, reviewing procedures and criteria, and the overall viability of the program. Staff would also provide periodic updates on the Pilot Program to the City Council.
ATTACHMENTS
1- Sample Resolution Establishing a Mills Act Pilot Program
2- City Council report and minutes-June 17, 2014
3- Chapter 10.86- Culturally Significant Landmarks
4- City of Beverly Hills - Municipal Code Article 32- Historic Preservation with MBCHC comments and recommendations)
5- City of Redondo Beach Historic Preservation regulations
6- City of Brea Historic Preservation regulations
7- Office of Historic Preservation website information
8- Examples of Property Tax Calculations under the Mills Act- ESTIMATES ONLY