SAN FRANCISCO PRESERVATION BULLETIN NO. 8 THE MILLS ACT THE MILLS ACT Enacted by the State of California in 1976 and amended in the San Francisco Administrative Code in 1996, the Mills Act is state-sponsored legislation that grants local governments the ability to directly participate in an historic preservation and economic incentive program. The Mills Act is designed to provide owners of both owner-occupied and income-producing property the opportunity to actively participate in the rehabilitation, restoration, preservation and maintenance of “qualified historical properties” while receiving property tax relief. The Mills Act is recognized as the single most important economic incentive program available in California for use by private property owners of qualified historic buildings. THE SAN FRANCISCO PROGRAM In May 1996, San Francisco Board of Supervisor Ordinance 191-96 amended the San Francisco Administrative Code by adding Chapter 71 to implement the California Mills Act. The San Francisco ordinance was written to offer an incentive to property owners of designated city landmarks pursuant to Article 10 of the Planning Code and/or to owners of property individually listed in the National Register of Historic Places. BENEFITS OF THE MILLS ACT The Mills Act provides for a potential 50 percent reduction in property taxes on “qualified historical properties” in exchange for the owner's agreement to maintain and preserve the resource in accordance with standards established by the Secretary of the Interior's Standards for the Treatment of Historic Properties. Qualified historical properties are identified as designated city landmarks pursuant to Article 10 of the San Francisco Planning Code and/or structures individually listed in the National Register of Historic Places -- the official federal list of buildings, structures, districts, sites or objects significant in American history, architecture, archeology, engineering and culture. The Mills Act offers a major preservation incentive to owners of cultural resources that may not be adequately maintained, may have structural deficiencies, or may be in need of rehabilitation. MILLS ACT PROCESS • Property owners or designated representatives submit to the Planning Department a completed Mills Act application packet. Applications consist of: • Mills Act application form. • Proposed restoration or rehabilitation plan.
2 • Proposed maintenance plan. • Historical property contract between the property owner and the City and County of San Francisco. Once a Mills Act application is received, the matter is referred to the Landmarks Preservation Advisory Board (Landmarks Board) for review and comment and recommendation to the Planning Commission. The Landmarks Board will review and comment on the restoration or rehabilitation plan, the maintenance plan, and may comment on the “value” of the property as an historic resource to determine whether the resource is “worth” the reduction of property taxes. Following the Landmarks Board's recommendations, the Planning Commission will hold a public hearing to review the Mills Act application and historical property contract. Upon approval by the Planning Commission, the application will be referred to the Board of Supervisors for its review and approval or disapproval. The Board of Supervisors shall conduct a public hearing to review the Planning Commission recommendation, information provided by the Assessor's Office, and any other information the Board requires in order to determine whether it is in the public interest to enter into a Mills Act historical property contract. Upon approval, the Board of Supervisors shall authorize the Director of Planning and the Assessor's Office to execute the historical property contract. HOW THE PROPERTY TAX SAVINGS IS CALCULATED The Mills Act historical property contract assessment reduces general levy property taxes by allowing the Tax Assessor to evaluate a property based on its ability to generate income. This methodology is commonly known as the Income Approach to value and is different from the regular method of assessment known as the Market Approach. In the Market Approach, the Assessor uses sales comparisons of similar properties that were appropriately adjusted for differences between comparable properties and the subject property. In the Income Approach, after a Mills Act historical property contract has been executed, the Assessor values the property according to the capitalization of income whereby the property's potential income is divided by a pre-determined capitalization rate to determine the new assessed property value. The Income Approach can potentially reduce the Market Approach assessment by as much as 50 percent. Mills Act contracts remain in force even when a property is sold. If a significant jump in assessed value results from the resale price, the property tax bill remains fixed for the life of the contract. This is based upon the Tax Assessor's determination of the assessed valuation of the property when the Mills Act contract is executed. THE TERMS OF THE MILLS ACT HISTORICAL PROPERTY CONTRACT
3 • Mills Act contracts must be made for a minimum of ten years during which time the owner is entitled to an annual reduction in property taxes. • Mills Act contracts may be extended annually on the anniversary date of the initial ten-year contract. • The City must monitor the provisions of the contract until its expiration. • The Planning Department in consultation with the Tax Assessor's office will perform yearly inspections of the historic resource to verify that the conditions of the Mills Act historical property contract are enforced. • The City may terminate the Mills Act contract at any time if it determines that the owner is not complying with the terms of the contract or the legislation. • Fees are charged for the City's costs to process and administer the Mills Act application and historical property contract, including a fee for inspecting the property and enforcing the contract. The fee is set forth in Planning Code Section 356(e). COMMUNITY BENEFITS • The Mills Act represents an important economic incentive for property owners of qualified historic properties. These resources contribute greatly to the enhancement of San Francisco's special architectural, historic and aesthetic character. • The Mills Act makes the designation of local landmarks and individual listings of properties in the National Register of Historic Places more attractive to owners and encourages the conservation of historical resources. • The Mills Act can help to prevent the deterioration of historic buildings through owner neglect. Lower property taxes make the sale of qualified historic properties more attractive. Because income-based valuation reflects the actual use of the property rather than the development potential of the land, it may make preservation of single-family houses in higher density districts more feasible. Other preservation incentives available to owners of historic properties are detailed in Preservation Bulletin No. 6, Preservation Incentives . For more information on the Mills Act program, contact the Planning Department at (415) 558-6377.
4 M I L L S ACT APPLICATION FORM General Instructions: The Mills Act authorizes local governments to enter into contracts with owners of private historical property who will rehabilitate, restore, preserve, and maintain a “qualified historical property.” For purposes of the Mills Act, a qualified historical property is a privately owned property that is not exempt from property taxation and which is one and/or both of the following: • Individually listed in the National Register of Historic Places • Designated as a San Francisco Landmark pursuant to Article 10 of the Planning Code. An owner, or an authorized agent of an owner of a qualified historical property may submit an application for a Mills Act historical property contract to the Planning Department on the form below and a fee as set forth in Planning Code Section 356(e). This fee covers the first four hours of Planning Department staff time. A time and materials fee may later be assessed as set forth in Planning Code Section 350(c). A. QUALIFIED HISTORICAL PROPERTY INFORMATION Property Name: Historic Name (if known): Address of Property: Cross Streets: Block and Lot of Property: Owner: (Phone #) B. EVIDENDCE THAT PROPERTY IS A QUALIFIED HISTORICAL PROPERTY Is property individually listed on the National Register of Historic Places? If so, please attach evidence of National Register of Historic Places listing and National Register Status Code assigned to the property. Evidence of National Register of Historic Places listing: (attached) Evidence of National Register of Historic Places rating: (attached) Is property a designated San Francisco Landmark? If so, please attach evidence of San Francisco Landmark
5 designation. San Francisco Landmark Name: (attached) San Francisco Landmark Number: (attached) C. PRESENT PHYSICAL CONDITION OF PROPERTY Please provide a description of the present physical condition of the property. What type of work is needed to ensure its long-term preservation and maintenance? Please attach photos or other evidence to convey present physical condition . D. REHABILITATION, RESTORATION AND PRESERVATION WORK TO BE PERFORMED Please provide an explanation of the nature and cost of rehabilitation, restoration and preservation work to be performed on the property. Please attach cost estimates, architectural drawings or other evidence to explain work to be performed . E. MAINTENANCE WORK TO BE PERFORMED
6 Please outline plans for the continued maintenance of the property. F. APPLICANT'S AFFIDAVIT Under penalty of perjury, I, the applicant, declare that I am the owner or authorized agent of the owner(s) of this property, and that the information presented is true and correct to the best of my knowledge. Signed: (Print Name of Applicant in Full) Date: Please return this form to: Preservation Coordinator San Francisco Planning Department 1660 Mission Street, 5 th Floor San Francisco, CA 94103