Cities pause a ’70s-era program that gives tax breaks to historic building owners.

It seemed like a good idea in 1972 when the California Legislature passed the Mills Act, a voluntary program designed to save crumbling historic buildings from ruin by allowing cities and counties to give tax breaks to property owners with the premise owners would use savings for restoration. It was considered an equitable trade-off at the time but now, after nearly 52 years and skyrocketing housing prices, it’s feeling far less equitable to some cities.

“In the ’70s I don’t think anyone anticipated the property values in California that we have today,” says Brandon Swanson, community planning and development director for Carmel. In a town where the median price of a home last month was $2.25 million, a reduction in property taxes can add up, especially in the case of historic homes that can be valued in the tens of millions. In a report to the Carmel City Council on Nov. 7, Swanson said that for the 2022-2023 year, the city experienced a property tax loss of just over $9,100 on 14 Mills Act properties. The Carmel Unified School District saw a loss of $91,200.

Property owners pay 1 percent of assessed value in taxes, which is then divided between agencies with percentages varying from city to city. In Carmel’s case, the city receives 6 percent, the school district 60 percent, and the county, special districts and others receive 1-15 percent. When the city enters into a Mills Act contract with a property owner, the Monterey County Tax Assessor’s Office uses a complex formula to reduce the valuation of a property. In Carmel’s case it has resulted in taxes being lowered from 50-85 percent per qualified property, according to Swanson.

With several new Mills Act applications submitted in 2023, the council took a closer look at the program. They voted 5-0 on Dec. 5 in favor of a moratorium to give staff time to review the policy. The council may decide to limit how many contracts to consider in a year, the length of contracts and whether to put a cap on valuation, thereby reducing revenue losses, as other cities have done.

The Monterey City Council also passed a temporary moratorium on all Mills Act applications on Nov. 7 by a vote of 4-1. On Dec. 5, councilmembers voted to extend it by 10-and-a-half months to give staff time to review the ordinance. (Councilmember Alan Haffa voted no both times.)

When Monterey implemented the Mills Act in 1999, some properties accepted into the program were close to being demolished. Today the properties are in good shape and an asset to the city, which prides itself on its historic resources.

The motivation to pause the program now comes partly from seeing an increase in groups purchasing historic homes for a quick investment, says Kim Cole, Monterey’s community development director. The homes are advertised as having low property taxes. Buyers make minor improvements, then sell at a profit.

Cole says she’ll investigate how Mills Act homes are being monetized, but there’s also a question of fairness to the community. “When you look at it on an equity basis for a waiver of taxes, what’s fair?” she asks.

In Carmel, the council delayed voting on an application by Esperanza Carmel on Dec. 5 for the Clinton Walker house, a Frank Lloyd Wright design, citing equity concerns. It was purchased in March for $22 million.