The Mills Act Program, which provides property tax relief to owners of qualifying historic buildings in exchange for putting money into the restoration and upkeep of their historic sites or structures, has been called by the Los Angeles Conservancy, “the single most important economic incentive program in California for the restoration and preservation of qualified historic buildings by private property owners.” According to the Conservancy, the program, which creates legal contracts between the city and historic property owners, saves participants more than $20 million a year in taxes, which can then be used for the preservation and maintenance of their properties.
But while the 25-year-old program has been very popular with historic property owners, there may be some significant changes coming, including the possible cancellation or non-renewal of existing Mills Act contracts, new caps on the number of both new and existing contracts allowed in the city, and more.
At the July 21 meeting of the city’s Cultural Heritage Commission, Ken Bernstein, Principal City Planner and Manager, Office of Historic Resources, explained that the quarter century mark seemed like a good time to take stock of the program, which has always been minimally funded and staffed by the city (with just two employees overseeing the administration and compliance of more than 900 individual Mills Act contracts). So during the pandemic, the city paused new Mills Act applications and hired an independent consulting group to analyze the program’s goals, staff, funding, benefits, strengths, and challenges…and to make recommendations for re-tooling the program to better align with the city’s goals for the future.
Bernstein, OHR staffer Melissa Jones, and Lambert Giessinger, Historic Preservation Architect for the OHR, presented highlights of the consultants’ report and recommendations at the July 21 CHC meeting, and will make a second public presentation about the report tonight, via Zoom. Everyone who is interested in the subject is invited to attend:
Monday, August 8, 6:00 p.m.
https://planning-lacity-org.zoom.us/j/86392356850
Meeting ID: 86392356850
Password: 083449
Phone number: (213) 338-8477
What is the Mills Act?
According to the July 21 presentation, the Mills Act is “California’s and Los Angeles’ leading financial incentive program for historic preservation.” It applies to all types of historic properties, including single-family residences, multi-family residential buildings, commercial and industrial properties, and even recreational facilities.
The program, signed into law at the state level by then-governor Ronald Reagan in 1972, with Los Angeles’ local version created in 1994, provides financial incentives, in the form of property tax relief, for “restoring, rehabilitating, and maintaining eligible properties.” To do this, Mills Act contracts calculate taxes for a specific property based on an “income approach to valuation” (i.e. how much a specific property would rent for), rather than its value at its most recent sale (as is currently used for valuation under California’s Proposition 13). Depending on when an owner purchased a property, that can create significant tax savings for owners. And the city has agreed to lose more than $2 million per year in its share of taxes, to enable the benefits of the historic preservation that money supports.
Currently, according to Jones, Los Angeles has 948 Mills Act contracts, broken down by type as follows:
- Single-Family Residences – 672
- Multi-Family/Mixed Use – 188
- Commercial – 49
- Condominium – 26
- Industrial – 10
- Recreational – 3 (all theaters)
Properties that are currently eligible for Mills Act contracts include city-designated Historic Cultural Monuments and buildings designated as contributors to Historic Preservation Overlay Zones. Properties must not be valued at more than $1,500,000 for single-family properties, or $3,000,000 for other kinds of buildings.
Jones said the stated goals for the program, when it was first created, included helping to retain older, affordable housing stock, retaining residential structures of “real” historic significance, and “incentivizing property owners to preserve historic dwelling structures.” In 2012, the state-level ordinance was amended to require inspections of Mills Act properties every five years.
Assessment Goals
According to the July 21 presentation, the major focus of the recent consultants’ evaluation was to assess the current Mills Act program’s fiscal sustainability, and how well it is doing at meeting the city’s larger goals for equity. This included looking at the program’s current revenue streams, contract enforcement, staffing requirements, and capacity…as well as how well it is serving residents with regard to the city’s Equity Index. [The Equity Index provides a graphic representation of “areas where residents experience less equity and opportunity” (the darker colors in the map below) versus those (in lighter colors) “with more equity and opportunity for Angelenos.”) Factors that go into the equity calculations include “rent burden, poverty level, home ownership, air quality, closeness to toxic releases, traffic density and education level; and access to internet, food and health insurance.”] Giessinger said the consultants’ assessment also looked at the number of current Mills Act contracts in areas with both low and high barriers to opportunity.
Assessment Findings and Recommendations
To keep the Mills Act program fiscally sustainable for the city, Jones said the consultants’ study recommended several key steps:
- Establish a system for collecting and tracking an annual $538 fee (adopted by the City Council in 2017) from Mills Act contract holders.
- Expand compliance enforcement, especially for the 20 percent of properties currently in either partial or non-compliance with the terms of their contracts, based on recent inspections.
- Expand program staffing from two to three full-time employees, and continue to rely on contractors for property inspections.
- Refine program capacity by limiting the total number of Mills Act contracts allowed, and limiting contracts to 20 years (10 years for the initial contract, and then a 10-year period during which property values would gradually re-set to Prop. 13 valuations), and not renewing contracts older than 10 years, rather than maintaining them in perpetuity.
- Eliminate the city’s cap on forgone property tax revenue, remove the current property valuation limits (which are very outdated in today’s real estate market), and expand eligibility to include properties listed on the state and national Historic Registries, Survey-LA listed properties, and properties identified in other kinds of area overlays.
- Expand data management and communications with contract holders by creating an easily accessible database to track individual contracts and compliance.
And to address current equity issues in the program, and make sure it’s actually serving those who most need its help, the consultants recommended two big changes:
- Prioritizing multi-family properties and those being redeveloped with affordable housing under the Adaptive Reuse Ordinance.
- Prioritizing outreach and new contracts in low-resource areas…and reducing barriers to program participation.
Reactions so Far
City outreach about the study and its recommendations has been fairly limited so far, with just the July 21 presentation and tonight’s session on the calendar. According to Bernstein, the city’s 99 Neighborhood Councils have not yet been notified because there’s no formal draft ordinance yet, which would prompt an official review period…and our own Greater Wilshire Neighborhood Council has not yet discussed it, even though the area does contain many eligible structures and a number of existing Mills Act contracts.
But word has begun to spread, and some community groups have begun to consider the report and its recommendations. For example, both the United Neighborhoods Neighborhood Council (representing several neighborhoods in the larger historic West Adams area), and the West Adams Heritage Association, both of which represent areas with relatively low equity ratings but comparatively high numbers of existing Mills Act contracts and eligible historic buildings, have weighed in…and both groups have questioned the whether some of the proposed revisions to the program might actually hinder rather than help the city’s stated equity goals.
For example, the UNNC’s letter to the Office of Historic Resources says that if the city limits new contracts to 25 per year, as the consultants have also recommended, it could take more than 22 years to reach the new recommended cap of 1,500 Mills Act contracts, which doesn’t expand access very quickly, in any part of the city.
Also, contends the UNNC’s letter, the recommendation to cancel or not renew contracts more than 10 years old would financially harm longtime contract owners, especially those in the low and middle-income neighborhoods represented by the UNNC, and especially older owners who have had their contracts for 20 years or more and may now be retired with more limited incomes and resources. Those owners, the UNNC says, may not be able to maintain their homes any more without the benefits the program provides.
Currently, says the UNNC, the Mills Act is the only historic preservation incentive offered to single-family homeowners and owners of small multi-family buildings, and removing that incentive could increase the pace of destruction of historic buildings, and especially their interiors, which would be more at risk of extensive remodeling, and the gentrification and higher rents it brings, without Mills Act protections.
And none of this, serves the city’s stated equity goals, says the UNNC. Currently, it calculates, there are 102 Mills Act contracts in the historic and lower-resourced neighborhoods the Council represents, and 209 in the larger boundaries of City Council District 10, which is is almost entirely made up of low-resource neighborhoods. So cancelling or failing to renew those contracts, said the UNNC, would be disadvantaging the very areas the city said it would be trying to help with the proposed revisions to the program. “Of the 209 Mills Act contracts in CD 10,” says the UNNC’s letter to the city, “201 MA contracts are located within communities facing high and medium to high barriers to opportunity.” So “… It does not make sense to us to cancel the very contracts which make up 15% of the current program.”
Meanwhile, the West Adams Heritage Association, an active preservation advocacy group in the general West Adams area, held a meeting for its members and other interested parties on July 31. According to a letter sent to members this morning by WAHA’s Vice President for Communications, Laura Meyers, summarizing the July 31 meeting, “Much of the [city’s] report does not add up, either logically or mathematically.” For example, writes Myers, while West Adams has about 240 out of the 948 Mills Act contracts, “all of West Adams is either high barriers to opportunities OR medium-to-high barriers to opportunities on the City’s Equity Index Map,” so canceling or not renewing contracts in these areas would reduce instead of expand contracts and program access in these low-resource neighborhoods.
Also, writes Myers, Mills Act program access in these areas is already limited, because current program eligibility requires that a property need major structural and systems upgrades, “usually a minimum of several hundred thousand dollars of work,” which means the program favors applicants with higher incomes who can afford to undertake those kinds of projects. The new recommendations would not address this issue, and would even create an additional annual fee for the program, which would provide an additional financial barrier for low and moderate income applicants.
So instead of making the program more expensive for participants, Myers’ letter suggests the city instead make it easier and less expensive for the city to oversee the program…such as by allowing Mills Act contract holders to verify the work they’ve done on their properties with annual photos and receipts, to reduce the reliance on expensive inspections.
Myers said the city should also take into consideration the many benefits that historic preservation provides, including the preservation of many buildings that are used as filming locations, which helps to keep valuable production business here instead of moving to other cities or states.
In conclusion, Myers wrote, “The Mills Act is a preservation incentive. And whether or not it “loses money,” it creates a positive quality of life for the whole community. It is a benefit in many ways and not just the restoration for some pretty historic houses.”
Next Steps
According to Bernstein, the city is just at the very beginning of the process to refine the Mills Act program, and no decisions have been made yet. After tonight’s second presentation of the consultants’ findings, he said, the city will gather feedback, then develop a new draft ordinance amending the current Mills Act program, based on both the consultants’ recommendations and community feedback. After the ordinance has been drafted, neighborhood councils and other community groups will be formally notified and given 60 days to weigh in. And after that feedback has been collected and incorporated, Bernstein said the goal is to submit the new draft ordinance to the City Council for its review during the first quarter of 2023. And if it passes, the city will implement the program changes, and resume taking new Mills Act applications, in 2024.
Weighing In
If you would like to learn more about the current Mills Act program, see https://planning.lacity.org/preservation-design/historic-resources/incentives-resources/mills-act and/or https://www.laconservancy.org/node/1470. An FAQ document is also available here.
You can also view slides from the Office of Historic Resource’s July 21 presentation to the Cultural Heritage Commission, a list of questions and answers from that session…
…and slides from the West Adams Heritage Association’s July 31 “Evaluating the Evaluators” presentation here.
To provide input on the recommendations, you can use the city’s official feedback form for the program, contact Lambert Giessinger ([email protected], (213) 847-3648), Melissa Jones ([email protected], (213) 847-3679) at the Office of Historic Resources, the general Mills Act progress address at [email protected], and/or ask questions during at tonight’s Zoom meeting (see details above).
Full disclosure: the author of this article holds a Mills Act contract on her home in the Harvard Heights HPOZ area.
