Senate rejects bill to cap multifamily property valuations at 40% after lengthy debate

Senators voted down legislation on the state—s property tax treatment for multifamily housing on a 16-23 roll call after extended debate over potential impacts on taxpayers, investors and local government budgets.

Senate majority floor leader Peter Wirth framed Senate Bill 186 as a measure to unblock stalled multifamily development by preventing a sudden property-tax "shock" when older apartment properties that have been taxed at low rates are brought up to market value. "This bill ensures that counties continue to see growing valuations through new development and new transactions, but it makes sure that those multifamily valuations that have been tremendously undervalued, don't get brought current and correct all the way up to the top," Wirth said on the floor.

Wirth and other supporters described two main features: a cap that would set a 40 percent assessed-value threshold for certain multifamily properties now assessed at much lower percentages, and a mechanism for newly constructed multifamily housing to use either a current-and-correct valuation or an affidavit of construction cost when first assessed. Wirth said the measure was intended to encourage renovation and new building by stabilizing what he called "tax lightning" that can happen when properties jump immediately to 100 percent valuation at sale.

Opponents raised multiple concerns. Senator Jacob Cervantes, an investor and developer who identified a potential personal financial conflict during debate, said the bill—s original form could have allowed property owners to reduce their taxable value dramatically. After a floor amendment he and others supported clarified that properties currently at "current and correct" valuation would not be reduced, Cervantes said he could probably vote for the amended measure but cautioned about optics and ethics when members own affected property.

Senator Celia Figueroa and others argued the bill would not require any agreement that tax savings be passed to tenants or that any units be preserved as affordable. "There is no requirement in this bill to tie this property tax exemption to affordable housing or to even future building of more housing or even to hold rents the same or lower them to pass this savings on to current renters," Figueroa said. Several members said local governments ultimately adjust mill rates, and that revenue shifts could fall on other taxpayers.

A floor amendment sponsored by Wirth, added during debate, clarified that multifamily properties already at current-and-correct valuations would not be lowered and limited the top threshold the bill would set for undervalued properties; the amendment was adopted by voice vote. Still, members remained divided on whether the bill would help produce more housing or simply create winners and losers among property owners and taxpayers.

After debate closed, a motion recorded on the floor was put to a roll-call vote; the motion failed and the bill did not pass. The clerk announced the result: "By a vote of 16 affirmative, 23 in the negative, Senate Bill 186, twice amended, has failed to pass the Senate."