REPORT TO THE HISTORIC PRESERVATION COMMISSION June 24, 2024 FROM: JENNIFER CLARK, Director Planning and Development Department BY: LISHA CHEN, Historic Preservation Specialist Planning and Development Department SUBJECT ..Title Staff Update on 5-year Mills Act inspections 1. Next steps regarding compliance of contracts 2. Explanation of tax reduction ..Body EXECUTIVE SUMMARY The City of Fresno's Mills Act Program, established to incentivize the preservation of historic properties, offers property tax reductions to owners who rehabilitate and maintain their buildings according to specific standards. Since its adoption in 2016, the program has enrolled 32 properties, among which, 21 properties have reached the five-year inspection threshold. With inspections revealing varying degrees of compliance. Proposed actions include commendations for full compliance, formal notices and contract cancellations for non-compliance, and conditional renewals for partial compliance or ownership changes. Additionally, property owners' inquiries about tax reductions will be addressed by clarifying the valuation process, ensuring they understand the factors affecting their tax savings and providing contact information for further assistance. BACKGROUND The Mills Act Program, adopted by the City of Fresno, CA, is a critical preservation initiative aimed at incentivizing the maintenance and restoration of historic properties. Established under California state law, the program offers property tax reductions for owners of qualified historic buildings who agree to rehabilitate and maintain their properties according to specific preservation standards. This mutually beneficial agreement not only helps preserve Fresno's rich architectural heritage but also provides financial relief to property owners, making the upkeep of these significant structures more feasible. Through the Mills Act, Fresno continues to safeguard its cultural and historical assets while fostering community pride and historical awareness. Results of Compliance and Proposed Corresponding Actions According to Fresno Municipal Code (FMC) Section 12-1705, city officials are granted permission to inspect both the interior and exterior of properties before executing a new contract and every five years thereafter to ensure the owner's continued compliance with the contract terms. Since the adoption of the Mills Act program in 2016, there are 32 properties entered into the program, among which, 21 properties have reached the five-year inspection threshold. Fieldwork and inspections were conducted from April to June to assess compliance. During the five-year inspections, various situations were observed. In accordance with Government Code Section 50284 and FMC Sections 12-1710 and 12-1713, the City has the authority to cancel contracts due to these breaches or take legal action to enforce compliance. The following actions are proposed to address the compliance issues: 1. Fully compliant. The property owner has diligently followed through with all maintenance tasks as outlined in the contract. Action: Document the completed work, commend the property owner for their commitment, and recommend continued adherence to maintenance schedules. 2. Non-compliance. The property owner has failed to carry out any of the maintenance tasks. Action: Issue a formal notice of non-compliance, outlining the specific tasks that were neglected. Cancel the contract. 3. Partial compliance. The property owner has made some progress but has not completed all tasks listed under the five-year review cycle due to various challenges. (e.g., financial constraints, contractor issues, etc.) Action: Issue a formal notice to request modification of the timeline/tasks. Renew the contract conditionally, based on the owner's commitment to complete the proposed tasks. 4. Partial compliance and ownership change. The property was partially maintained, but the ownership has changed during the period. Action 1: Review the status of the completed work and inform the new owner of the outstanding tasks. Ensure the new owner understands the obligations under the Mills Act contract. Issue a formal notice to request modification of the timeline/tasks. Renew the contract conditionally, based on the owner's commitment to complete the proposed tasks. Action 2: Issue a formal notice of non-compliance to the previous owner and cancel the contract. Meanwhile, notify the current owner of the opportunities for the Mills Act, encourage the re-entrance of the contract. Tax Reduction Explanation and Proposed Corresponding Actions During the site visit inspections, commissioners and staff encounter property owners' inquiry regarding the amount of tax reductions. Some owners have reported seeing no or very limited amount reduction. California property taxes are based on the purchase price of the property. When someone purchases a home, the assessed value is equal to the purchase price. From there, the assessed value increases every year according to the rate of inflation, which is the change in the California Consumer Price Index (CPI). Additionally, there is a 2% cap on these increases. For homeowners who have been in their house for a long time, assessed value (factored base year value) is often lower than market value. Valuations of Mills Act properties, also known as restricted values, are determined by the Income Approach to Value rather than by the standard Market Approach to Value. The income approach, divided by a capitalization rate, determines the assessed value of the property. In general, the income of an owner-occupied property is based on comparable rents for similar properties in the area, while the income amount on a commercial property is based on actual rent received. Because rental values vary from area to area, actual property savings vary from county to county. In addition, as County Assessors are required to assess all properties annually, Mills Act properties may even realize slight increases in property taxes each year. Actions: Issue formal notice and update application brochures to inform property owners that Mills Act properties are assessed using the income approach, clarify that the amount of reduction will be influenced by the factors such as purchase price, the length of the ownership, comparable rents in the area, etc., and provide the contact information of the county assessor office to the property owners for seeking more detailed assessment. Duties and Powers of the Commission Based on Fresno Municipal Code SEC.12-1606: (14) Develop and recommend the adoption of historic preservation incentives including but not limited to conditional use permits allowing uses not otherwise permitted by the underlying zoning, Mills Act Contracts, and other programs utilized by other Certified Local Governments. (15) Review and make recommendations on any applications to participate in local historic preservation incentive programs established in order to effectuate the purposes of this article. Based on Fresno Municipal Code SEC.12-1715: The city and owners of qualified historical properties may consult with the Historic Preservation Commission for its advice and counsel on matters relevant to historical property contracts. (Added Ord. 2016-51, � 1, eff. 1-15-17). ENVIRONMENTAL ANALYSIS The 5-year Inspection and Proposed Corresponding Actions are not "project" for the purposes of the California Environmental Quality Act ("CEQA"), as it will not result in a direct or indirect change in the environment. CONCLUSIONS Staff recommends that the Commission consider and provide advice on the proposed actions to address the issues and questions encountered during the Mills Act 5-year inspections. ATTACHMENTS: Exhibit A - List of Mills Act Properties Exhibit B - FMC Article 17 - Mills Act Program Exhibit C - Mills Act Property Tax Abatement Program