HomeMy WebLinkAbout02-07-2012 AC dunsmore SS20 .
council mEmonanbu m
AGENDA
CORRE PONDENC EDate2/7 f2,Item#'552.
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a COUNCIL a CDD DIRa CI YMGR a FITDIR
a ASST CM a FIRE CHIEF
a ATTORNEY a PW D1R
a CLERKIORIG a POLICE CHIEFa FIB a PARKS &RECDIR
a TRIBUNE a UTILDIR
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a SILO CITYNEWS a COUNCIL
from Councirftgrarter
This Agenda Correspondence responds to the following question from Councilman Carter :
On page SS2-13 of your report for next Tuesday's Council meeting : Does the $18M in 2010/1 1
tax roll reduction include RR Square? Or will that impact not hit until the 2011/12 roll? If no t
until 2011/12, can you refresh my memory as to the anticipated roll reduction there ?
Page SS2-13 of the staff report is part of an attachment that outlines the Mills Act progra m
including an analysis of its overall fiscal impacts . There were two Mills Act contracts added t o
the City in 2011 ; 1) a residential property located at 1318 Pacific Street and 2)a commercia l
property located at 1880 Santa Barbara Street, the property is known as Railroad Square .
These properties are not included in the County assessor's estimate of $18,002,020 1 for the total
reduction in County assessed value . This is because the Mills Act benefits for these properties d o
not take effect until the 2011/2012 tax year and the assessor has yet to calculate the upcomin g
year's tax rates .
However, using a worksheet, an estimate of the approximate tax roll reduction for Railroa d
Square for a similar commercial property is found on the next page . The portion of Railroa d
Square eligible for the tax reduction has a floor space of approximately 23,000 square feet an d
the tax savings to the property owner is estimated to be approximately $10,000, which would b e
a net impact to the City of approximately $1,490 .
The tax rates and values in this worksheet change annually and therefore only a reasonabl e
estimate can be calculated at this time until the assessor's office completes the actua l
computation later this year .
1 As of 2011, the fiscal impact to City property tax revenue is approximately $26,000 annually o r
about $590 per Mills act contract (the City receives about 14.9% of the annual property tax).
RedFile 2-3-12 WA=
DATE :
TO :
VIA :
FROM :
February 3, 201 2
City Counci l
Katie Lichtig, City Manage r
Derek Johnson, Community Development Directo r
BY :Phil Dunsmore, Senior Planne r
SUBJECT :Historic Preservation Study Session ; A question
regarding the fiscal analysis of Mills Act contracts
COMMERCIAL PROPERTY EXAMPL E
An example of the formula for a 20,000 sq . ft commercial property is shown below :
Gross income — vacancy/collection loss = Effective Gross income :
Gross income (fair rent )
20,000 sq ft @ $1 .75/sf= $35,00 0
$35,000 x 12 months = $ 420,00 0
Less anticipated vacancy and collection los s
$420,000 x 5% _ $21,00 0
Effective gross income : $420,000- $21,000 $399,00 0
Effective gross income — maintenance costs = Net Operating Incom e
Maintenance Costs (includes operations, insurance, building maintenance etc .) = $137,50 0
Net Operating Income :
$399,000 - $137,500 =$261,50 0
Net operating income / restricted capitalization rate = Restricted Valu e
Restricted Capitalization Rate =.12 6
Rate components :
Interest Rate .08 0
Risk .02 0
Property Tax (basic tax plus any special taxes for district).01 1
Amortization Rate (50 year remaining life ; improvements .015
75% of total property value .02 x .75 )
Restricted Value : $261,500 /.126 =$2,075,39 6
For the example shown above, the following tax comparison could apply :
Current market value : $2,999,999 x .011 tax rate = $32,999 in annual property ta x
Restricted value : $2,075,396 x .011 tax rate = $22,829 in annual property ta x
Savings to the owner : $10,170