CITY COUNCIL: Ordinance Amending the Mills Act Program in Historic Preservation Ordinance

Meeting Date: 6 April 2010
Prepared by: Sean Conroy, Plng & Bldg Services Manager

City Council
Agenda Item Summary

Name: Consideration of an Ordinance amending the Mills Act program found in the City’s Historic Preservation Ordinance. (First reading)

Description: This proposal would amend the application requirements of the Mills Act to eliminate some of the existing standards and to place an emphasis on rehabilitation as a basis for contract approval.

City Funds: N/A
Grant Funds: N/A

Staff Recommendation: Approve the Ordinance (First reading).

Important Considerations: The Mills Act was enacted by the State of California in 1972 as a way to encourage partnerships between local governments and property owners of historic resources. Local governments are not required to participate in the Mills Act.

For participating governments, a Mills Act contract may be offered to any property that contains an historic resource. The contract must be for at least 10 years and the property owner typically agrees to specific rehabilitation/restoration efforts. In turn, the property owner receives a reduced property tax assessment. The jurisdiction benefits by having
historic resources maintained and enhanced, while the property owner benefits by having a reduced tax burden.

Decision Record: N/A

Reviewed by:

__________________________ _____________________
Rich Guillen, City Administrator Date

CITY OF CARMEL-BY-THE-SEA
DEPARTMENT OF COMMUNITY PLANNING AND BUILDING
STAFF REPORT
TO: MAYOR MCCLOUD & COUNCIL MEMEBERS
FROM: SEAN CONROY, PLNG & BLDG SERVICES MANAGER
THROUGH: RICH GUILLEN, CITY ADMINISTRATOR
DATE: 6 APRIL 2010
SUBJECT: CONSIDERATION OF AN ORDINANCE AMENDING THE MILLS ACT PROGRAM FOUND IN THE CITY’S HISTORIC PRESERVATION ORDINANCE. (FIRST READING)

BACKGROUND & DESCRIPTION
The Mills Act was enacted by the State of California in 1972 as a way to encourage partnerships between local governments and property owners of historic resources. Local
governments are not required to participate in the Mills Act. For participating
governments, a Mills Act contract may be offered to any property that contains an
historic resource. The contract must be for at least 10 years and the property owner
typically agrees to specific rehabilitation/restoration efforts. In turn, the property owner
receives a reduced property tax assessment. The jurisdiction benefits by having historic
resources rehabilitated and maintained, while the property owner benefits by having a
reduced tax burden.
As part of the approval of the City’s Local Coastal Program (LCP) in 2004, the updated
Historic Preservation Ordinance offers Mills Act contracts as a potential benefit to
property owners of historic resources. CMC Section 17.32.100.B establishes criteria that
an applicant must meet in order to qualify for a contract. Some of the criteria have
proven to be problematic and have made qualifying for a contract difficult.
The proposed amendments (Exhibit “A”) would revise the criteria to eliminate some of
the more problematic standards and to favor projects that have a demonstrable
rehabilitation need. Staff has also attached a copy of the California Government Code
relating to the Mills Act for the Council’s reference (Exhibit “B”).
PROCESS
The proposed ordinance would amend the Zoning Ordinance/Local Coastal
Implementation Plan and requires review by the Historic Resources Board (HRB), Planning Commission (PC), City Council and the California Coastal Commission.

The HRB and Planning Commission unanimously recommended adoption of the attached ordinance on 25 January 2010 and 10 March 2010 respectively.

EVALUATION
The primary focus of the HRB and PC’s review of the Mills Act was based on the
following policy question:
“Should Mills Act Contracts be offered primarily to properties with significant
rehabilitation needs or should they be offered to all historic properties?”
Response: The HRB and PC determined that the Mills Act program should be used
primarily as a tool to assist in the rehabilitation/restoration of degraded historic
properties. Properties that have a demonstrable rehabilitation need should be given
preference over properties with little or no rehabilitation needs. In that way, contracts
that the City approves would result in rehabilitated and restored historic properties.
Focusing on rehabilitation would benefit not only the property owner, but also the
surrounding neighborhood and the City as a whole. Offering contracts to properties with
little or no need for rehabilitation would have less of a benefit to the community and may
not justify the reduction in tax income to the City. The proposed amendments would
require an applicant to clearly demonstrate how the tax reductions are necessary to assist
in the rehabilitation of the property. Staff concurs with the recommendation of the HRB
and PC.
A Carmel resident has submitted several documents related to the Mills Act for the
Council’s review (see Exhibit “C”). It is this resident’s opinion that the City cannot
restrict contracts to only properties that require rehabilitation since the Government Code
allows for contracts for historic properties that may or may not require restoration and
rehabilitation.
Staff does not concur with this opinion. While it is true that the Government Code allows
the City to offer contracts to all historic properties, it is completely discretionary by the
City to determine what types of properties are approved for contracts.
Problematic Criteria: CMC 17.32.100 establishes findings that must be made in order
to approve a Mills Act contract. Several of these findings make qualifying for a contract
very difficult. Below is a list of some of the more problematic findings followed by a
response from staff.
iii. Alterations to the historic resource have been in the past, and will continue to be in
the future, limited to interior work and to exterior rehabilitation and alterations that:
(A) Comply with the Secretary’s Standards, and do not affect the basic form and
design of the original historic resource.

Response: Many historic properties have had additions. The Secretary’s Standards were
not developed until 1992 and the City has not always used them during the design review
process. It seems inappropriate to require past additions to be consistent with the
Secretary’s Standards when many of the additions occurred prior to development of the
standards, and/or prior to the City’s use of the standards. A caveat has been added to
finding “A” to indicate that it only applies to future alterations.
(B) Do not affect any primary elevation
Response: A strict reading of this finding could disqualify a property if only one window
were altered or removed on a primary elevation. This finding has been revised to be less
restrictive.
(C) Do not alter, damage or diminish any character-defining feature.
Response: This finding would be very difficult to make on any property that has had
even a small addition. Character-defining features could include rafter-tails, windows,
siding material, etc. Therefore, even if a small addition was added at the rear of a
structure, character-defining features most likely would be diminished or damaged. This
finding has been eliminated.
(F) Meet all zoning standards applicable to the location of the property.
Response: It seems inappropriate to require past alterations to conform to current zoning
standards when most alterations occurred prior to the development of the current zoning
standards. A large number of historic properties would not qualify under finding “F” as
most have at least some minor nonconformities (setbacks, height, parking, etc.). This
finding has been eliminated.
Budget Considerations: Based on the value of a property receiving a Mills Act
Contract, and the property’s current tax rates, staff estimates that the granting of a Mills
Act Contract would result in a decrease in tax revenue to the City of between $1,000 to
$3,000 dollars.
The proposed Mills Act requirements limit the number of historic properties that could
potentially qualify for a contract. However, if the Council is still concerned about
potential financial impacts, a cap could be established that limited the number of
contracts that could be approved during any given fiscal years. Many communities that
offer Mills Act Contracts have established similar caps.

RECOMMENDATION
Approve the Ordinance amending the Mills Act requirements on first reading.

CITY OF CARMEL-BY-THE-SEA
CITY COUNCIL
ORDINANCE 2010-
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEA AMENDING THE MILLS ACT PROGRAM FOUND IN THE CITY’S HISTORIC PRESERVATION ORDINANCE

WHEREAS, The City of Carmel-by-the-Sea is a unique community that prides itself in its historic character; and

WHEREAS, the City has adopted a General Plan and Municipal Code that strive to protect the village character through clear policies and regulations that guide historic preservation; and

WHEREAS, the Mills Act was adopted by the State of California in 1972; and

WHEREAS, jurisdictions are not required to implement the Mills Act; and

WHEREAS, participating jurisdictions may establish specific application requirements to suit local needs; and

WHEREAS, the City adopted the Mills Act as a potential benefit to property owners of historic resources as part of the Local Coastal Program; and

WHEREAS, the proposed ordinance revises section 17.32.100.B of the Zoning
Ordinance/Local Implementation Plan to focus Mills Act contracts on properties that have a demonstrable rehabilitation need; and

WHEREAS, the Historic Resources Board and the Planning Commission unanimously recommended adoption of the ordinance; and

WHEREAS, this ordinance will be carried out in a manner consistent with the California Coastal Act.

NOW, THEREFORE, BE IT RESOLVED THAT THE CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEA does hereby resolve to:

Amend Municipal Code Section 17.32.100.B (Exhibit “A”) amending the Mills Act program in the City of Carmel-by-the-Sea.

Severability. If any part of this ordinance, even as small as a word or phrase, is found to be unenforceable such finding shall not affect the enforceability of any other part.

Effective Date. This ordinance shall become effective 30 days after final adoption by the City Council or the California Coastal Commission, whichever occurs last.

PASSED AND ADOPTED BY THE CITY COUNCIL OF THE CITY OF CARMEL-BY-THE-SEA this ___ day of ________ 2010 by the following roll call vote:

AYES: COUNCIL MEMBERS:
NOES: COUNCIL MEMBERS:
ABSENT: COUNCIL MEMBERS:

SIGNED,

________________________
SUE McCLOUD, MAYOR

ATTEST:

_________________________________
Heidi Burch, City Clerk

Exhibit “A”
City Mills Act Requirements (revisions shown in strikeout and underline)
B. Mills Act Historical Property Contracts. (CMC 17.32.10)
1. Purpose. A Mills Act contract under State law is an agreement between the City
of Carmel and a property owner of an historic building listed on the Carmel Register.
The property owner benefits from a reduction in property taxes, and the City is assured
that the historic building is rehabilitated, maintained and preserved. All Mills Act
contracts shall be established, processed and approved in conformance with California
law. The primary purpose for offering Mills Act contracts in the City of Carmel-bythe-
Sea is to assist in the rehabilitation and long-term maintenance of historic
resources.
2. Applicability. Properties in the R-1 district that have been, and will be, preserved
in their historic size, form and design without significant alterations or additions are
eligible for Mills Act contracts. Mills Act contracts for properties in the R-4 and
commercial districts shall be limited to those creating new low-, very low- or moderateincome
housing through conversion of existing floor space occupied by market-rate
housing or occupied by nonresidential uses. Properties that are not currently on the
register shall not be eligible for a Mills Act contracts with the City.
3. Term of Contract. All Mills Act contracts shall have a term of 10 years and one
year shall be added to this term annually upon each anniversary date of the contract
unless one or both parties have taken action to terminate the contract. The City
Administrator shall be authorized to initiate contract termination on behalf of the City
based on recommendations of the Department. The contract rights and obligations are
binding upon all successive owners of the property during the life of the contract. The
property retains the lower Mills Act tax rate when the property is sold. To end a contract,
either party may submit a notice of nonrenewal to the other party. Such notices shall
cause the contract to terminate at the end of the then-current 10-year contract period.
Cancellation of a contract by the City due to noncompliance requires a public hearing
and, if cancelled, results in the immediate termination of the contract and a penalty
equal to 12.5 percent of the assessed market value of the property.
4. Contract Requirements. The contract will require that the historic elements of the
property are maintained in good condition. This will include a plan for maintenance and
may include a program to restore deteriorated elements. All recipients of Mills Act
contracts are required to implement a maintenance plan prepared by a qualified
professional and to submit an annual report to the Department specifying all work that
has been done to maintain and preserve the historic resource over the year in
compliance with the approved maintenance plan. All maintenance work shall be
completed in conformance with the Secretary of Interior’s Standards for Rehabilitation.
All Mills Act contracts shall specify that the maintenance plan shall be updated at least
every 10 years by a qualified professional and approved by both parties.
5. Applications.
a. Staff shall make available appropriate Mills Act application materials.
Applications for contracts that will commence in the following calendar year shall be
submitted no later than June 30th of each year. This annual schedule provides sufficient
time from receipt of application materials for a recommendation by the Board, the City
Council to approve and the City Clerk to
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cause to be recorded approved contracts within the calendar year in which application
materials are received. The contract term would begin January 1st of the year following
the application.
b. The following materials are required for a complete application:
i. A completed application form and all filing fees as established by resolution of
the City Council.
ii. A full legal description of the property attached and labeled “Exhibit A.”
iii. A rehabilitation and maintenance plan for the historic resource prepared or
reviewed by a qualified professional together with a cost estimate of the work to be
done attached and labeled as “Exhibit B.”
iv. Photos of the exterior of the property attached as “- to assist in the
rehabilitation and maintenance of the property attached as “Exhibit D”.
6. Review Process.
a. Upon submittal of a complete application, staff will prepare a staff report for
review by the Board. The Board shall consider each application for a Mills Act contract
and make recommendations to the City Council to approve, approve with conditions or
deny the application.
b. The City Council shall, in a public hearing, consider recommendations from the
Board and resolve to approve, approve with conditions, or deny the proposed contract
with sufficient time for action by the City Clerk so that recordation of approved contracts
occurs prior to December 31st of the year in which the application is received.
c. To grant approval of a Mills Act contract, the Board and City Council shall make
all of the following findings:
i. The building is designated as an historic resource by the City and is listed on the
Carmel Register.
ii. The proposed rehabilitation and maintenance plan is appropriate in scope and
sufficient in detail to guide long-term maintenance. Required maintenance and
rehabilitation should be more significant than just routine maintenance that
would be expected for any property.
iii. Alterations to the historic resource have been in the past, and will continue to be
in the future, limited to interior work and to exterior rehabilitation and alterations that:
(A) Comply with the Secretary’s Standards (future additions only), and do not
affect the basic form and design of the original historic resource , and
(B) Do not significantly alter affect any primary elevation, and
(C) Do not alter, damage or diminish any character-defining feature, and
-(D) Do not increase floor area on the property by more than 15 percent beyond
the amount established in the documented original or historic design of the resource,
and
(E) Do not result in any second-story addition to a single-story historic resource. ,
and
(F) Meet all zoning standards applicable to the location of the property.
iv. The Mills Act contract will aid in offsetting the costs of rehabilitating and/or
maintaining the historic resource. and/or will offset potential losses of income that might
otherwise be achieved on the property.
v. Approval of the Mills Act contract will represent an equitable balance of public
and private interests and will not result in substantial adverse financial impact on the
City.
d. Upon approval of a contract by the City Council, the City Clerk shall transmit the
contract, with the appropriate fee, to the County Recorder’s Office. The property owner
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is responsible for all filing fees. After recordation, the recorded contract shall be
transmitted to the County Assessor. The Assessor calculates the exact tax savings.
Property owners are required to report to the State Office of Historic Preservation that a
Mills Act contract has been completed.
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Attachment “B”
MILLS ACT
CALIFORNIA GOVERNMENT CODE
SECTION 50280-50290
50280. Upon the application of an owner or the agent of an owner of
any qualified historical property, as defined in Section 50280.1,
the legislative body of a city, county, or city and county may
contract with the owner or agent to restrict the use of the property
in a manner which the legislative body deems reasonable to carry out
the purposes of this article and of Article 1.9 (commencing with
Section 439) of Chapter 3 of Part 2 of Division 1 of the Revenue and
Taxation Code. The contract shall meet the requirements of Sections
50281 and 50282.
50280.1. "Qualified historical property" for purposes of this
article, means privately owned property which is not exempt from
property taxation and which meets either of the following:
(a) Listed in the National Register of Historic Places or located
in a registered historic district, as defined in Section 1.191-2(b)
of Title 26 of the Code of Federal Regulations.
(b) Listed in any state, city, county, or city and county official
register of historical or architecturally significant sites, places,
or landmarks.
50281. Any contract entered into under this article shall contain
the following provisions:
(a) The term of the contract shall be for a minimum period of 10
years.
(b) Where applicable, the contract shall provide the following:
(1) For the preservation of the qualified historical property and,
when necessary, to restore and rehabilitate the property to conform
to the rules and regulations of the Office of Historic Preservation
of the Department of Parks and Recreation, the United States
Secretary of the Interior's Standards for Rehabilitation, and the
State Historical Building Code.
(2) For the periodic examinations of the interior and exterior of
the premises by the assessor, the Department of Parks and Recreation,
and the State Board of Equalization as may be necessary to determine
the owner's compliance with the contract.
(3) For it to be binding upon, and inure to the benefit of, all
successors in interest of the owner. A successor in interest shall
have the same rights and obligations under the contract as the
original owner who entered into the contract.
(c) The owner or agent of an owner shall provide written notice of
the contract to the Office of Historic Preservation within six
months of entering into the contract.
50281.1. The legislative body entering into a contract described in
this article may require that the property owner, as a condition to
entering into the contract, pay a fee not to exceed the reasonable
cost of administering this program.
50282. (a) Each contract shall provide that on the anniversary date
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of the contract or such other annual date as is specified in the
contract, a year shall be added automatically to the initial term of
the contract unless notice of nonrenewal is given as provided in this
section. If the property owner or the legislative body desires in
any year not to renew the contract, that party shall serve written
notice of nonrenewal of the contract on the other party in advance of
the annual renewal date of the contract. Unless the notice is served
by the owner at least 90 days prior to the renewal date or by the
legislative body at least 60 days prior to the renewal date, one year
shall automatically be added to the term of the contract.
(b) Upon receipt by the owner of a notice from the legislative
body of nonrenewal, the owner may make a written protest of the
notice of nonrenewal. The legislative body may, at any time prior to
the renewal date, withdraw the notice of nonrenewal.
(c) If the legislative body or the owner serves notice of intent
in any year not to renew the contract, the existing contract shall
remain in effect for the balance of the period remaining since the
original execution or the last renewal of the contract, as the case
may be.
(d) The owner shall furnish the legislative body with any
information the legislative body shall require in order to enable it
to determine the eligibility of the property involved.
(e) No later than 20 days after a city or county enters into a
contract with an owner pursuant to this article, the clerk of the
legislative body shall record with the county recorder a copy of the
contract, which shall describe the property subject thereto. From and
after the time of the recordation, this contract shall impart a
notice thereof to all persons as is afforded by the recording laws of
this state.
50284. The legislative body may cancel a contract if it determines
that the owner has breached any of the conditions of the contract
provided for in this article or has allowed the property to
deteriorate to the point that it no longer meets the standards for a
qualified historical property. The legislative body may also cancel a
contract if it determines that the owner has failed to restore or
rehabilitate the property in the manner specified in the contract.
50285. No contract shall be canceled under Section 50284 until
after the legislative body has given notice of, and has held, a
public hearing on the matter. Notice of the hearing shall be mailed
to the last known address of each owner of property within the
historic zone and shall be published pursuant to Section 6061.
50286. (a) If a contract is canceled under Section 50284, the owner
shall pay a cancellation fee equal to 12 1/2 percent of the current
fair market value of the property , as determined by the county
assessor as though the property were free of the contractual
restriction.
(b) The cancellation fee shall be paid to the county auditor, at
the time and in the manner that the county auditor shall prescribe,
and shall be allocated by the county auditor to each jurisdiction in
the tax rate area in which the property is located in the same manner
as the auditor allocates the annual tax increment in that tax rate
area in that fiscal year.
(c) Notwithstanding any other provision of law, revenue received
by a school district pursuant to this section shall be considered
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property tax revenue for the purposes of Section 42238 of the
Education Code, and revenue received by a county superintendent of
schools pursuant to this section shall be considered property tax
revenue for the purposes of Article 3 (commencing with Section 2550)
of C
Code.
hapter 12 of Part 2 of Division 1 of Title 1 of the Education
50287. As an alternative to cancellation of the contract for breach
of any condition, the county, city, or any landowner may bring any
action in court necessary to enforce a contract including, but not
limited to, an action to enforce the contract by specific performance
or injunction.
50288. In the event that property subject to contract under this
article is acquired in whole or in part by eminent domain or other
acquisition by any entity authorized to exercise the power of eminent
domain, and the acquisition is determined by the legislative body to
frustrate the purpose of the contract, such contract shall be
canceled and no fee shall be imposed under Section 50286. Such
contract shall be deemed null and void for all purposes of
determining the value of the property so acquired.
50289. In the event that property restricted by a contract with a
county under this article is annexed to a city, the city shall
succeed to all rights, duties, and powers of the county under such
contract.

50290. Local agencies and owners of qualified historical properties
may consult with the State Historical Resources Commission for its
advice and counsel on matters relevant to historical property
contracts.