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The Mills Act was named after James Mills, a former state senator from San Diego. It was patterned after the California Land Conservation Act of 1965, better known as the Williamson Act. After World War II, as California’s cities grew, the property taxes on farmland surrounding the cities skyrocketed, forcing farmers to sell their land to pay the taxes. The Williamson Act provided that if a farmer signed an agreement to continue working his land for the next ten years, the property tax would be based on the income the farm generated.

During the 1970s, when sky-high property taxes were forcing people to sell their houses, Mills worked to come up with a similar state law to protect historic homes.

“This was before Proposition 13, which radically limited property taxes,” Mills says in a recent interview. “So at that time, if somebody was living in a historic house or a house that should be preserved, and it was in an area where the property values were increasing — let’s say, close to a downtown area would be a typical area — the property values would go so high that people couldn’t afford to live in the house anymore. They would have to sell it.

“The house would be sold and torn down, and something would be built on the site that would produce enough income to pay the property tax. So that’s where the bill came from originally. It said if people were willing to sign agreements that said they were willing to not alter the exterior of the property for ten years, the property tax, the assessed valuation, would be based on the value of the existing structure as an income-producing property. So if a house was in an area where the property values were going through the roof, the house would still be taxed on the basis of its value as an investment to produce the rent that could reasonably be expected on the house.”

The agreement is a ten-year contract, automatically renewed each year indefinitely. In the city of San Diego, the contract is granted by the Historical Resources Board, whose 11 members are appointed by the mayor and confirmed by the city council. Both the property owner and the City have the right to cancel the contract, but the property is locked into the contract for ten years following cancellation, and the building’s exterior cannot be altered during that time. According to Gary Kendrick of the Tax Assessor’s Office, if the City were to cancel a contract this year, the property tax benefit would be phased out over the next ten years, at which time the house would be assessed at the Prop 13 value. Because the Mills Act agreement stays with the house and not the owner, it’s one way homeowners can protect their home from being torn down after they die.

The main responsibilities of a homeowner with a Mills Act contract are to preserve the building, following the Secretary of the Interior’s Standards for the Treatment of Historic Properties, created by the U.S. Department of the Interior’s National Park Service.

The standards focus on four categories: preservation, rehabilitation, restoration, and reconstruction. The standards apply to the exterior only. Owners can upgrade the interior — remodel the kitchen or bathroom, install modern lighting — to make their home function for their family’s needs.

“Nobody wants to live in a museum,” Louise Torio says. “It’s all about living in a historic house with today’s needs.”

As for How the Tax Break Is Calculated

Kendrick says the Assessor’s Office bases its assessment of a Mills Act house on rents charged for houses in the surrounding area that are of similar size and have comparable attributes.

“It actually is pretty complicated,” Kendrick says, “and we let the computer do it for us. What it does is it values [the property] as if it were an income property. It comes up with an artificially low value. As rents go up, the Mills Act value goes up. If rents go down, the Mills Act value goes down.”

As a simple example, Kendrick says that if a home with a Prop 13 assessed value of $327,000 could be rented for $1500 a month, the reassessed value using the Mills Act formula might be $137,000. The homeowner’s property taxes would drop from $3270 to $1370, saving 58 percent a year.

In return for receiving the tax break, Kendrick says, the homeowner gives up a number of property rights.

“They’re giving up the right to tear down that house,” he says. “You may have to go to the particular jurisdiction for special permission whenever you’re going to make changes on the property. What’s in the contract varies from jurisdiction to jurisdiction. Some cities are stricter than others on what they allow you to do with a Mills Act property.”

San Diego adopted the Mills Act in 1995. The County, Chula Vista, Coronado, Encinitas, Escondido, La Mesa, National City, Oceanside, and San Marcos also issue Mills Act contracts to property owners.

“And if a person that has been granted the Mills Act breaks the contract,” Kendrick says, “there’s a penalty of 12.5 percent of the market value of the property — not the Prop 13 value, not the Mills Act value, but the market value of the property. So we have not had anyone break their contract in the county of San Diego.”

For example, if the owner of the $327,000 home broke the Mills Act contract and the home would fetch $600,000 if sold today, the owner would be fined $75,000.

To be eligible for the Mills Act program in San Diego, a house must first be designated by the Historical Resources Board as historically significant. Currently, the City requires that the property meet at least one of five criteria:

• The property exemplifies a historical, cultural, or engineering development.

• The property is identified with a significant person or event.

• The property embodies distinctive characteristics of construction or craftsmanship.

• The property represents the work of a master builder, designer, or architect.

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Comments

Louise_Torio April 16, 2008 @ 4:56 p.m.

Great article, but one correction: my husband and I put in $80,000 into restoring the Crellin Cottage, not $8,000. This $80,000 better illustrates how a small Mills Act incentive produces an important, positive ripple effect of reinvestment in older neighborhoods. We hired local trades people and craftsmen. The local economy benefited. This reinvestment ripple to the City of San Diego has not been studied, but I guarantee you that the benefit to the City is vastly larger than the cost of the incentive.

As a Mills Act advocate who has spoken to historic homeowners around the state about the benefits of the Mills Act, I know that San Diego is viewed as a model of SUCCESS regarding use of the Mills Act to preserve and restore historic buildings, and thus restore older communities. How wrong for the City to view this success as a problem. If you are concerned, please join us on April 18 at 2:00 at 202 C Street for the mayor's "workshop" on the Mills Act. This is a "penny wise but pound foolish" attack on an incentive program that works well, at minimal cost to the City.

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Scoop April 16, 2008 @ 7:56 p.m.

Hooray for your article! San Diego needs to cherish and protect the limited historical homes still left in this sprawling and increasingly homogenous metropolis. Phoenix and LA have their charms and far too many blemishes to even want to compare. San Diego has many unique, historic urban neighborhoods that need to be preserved. Check out what is happening nationally with historic homes and neighborhoods. The National Trust for Historic Preservation is working to fight the "McMansionization" of historic neighborhoods in many communities, where historically significant homes are being torn down to make way for homes that are out of character for the neighborhoods. The measure of historicity should be broad enough to maintain the look and feel of older neighborhoods that began as working or middle-class enclaves as well. This should be broad enough to maintain the character of our older neighborhoods, from Mission Hills to Sherman Heights. This is where San Diego actually is doing the right thing, but maybe the city could be doing it better administratively. Improve the system, don't destroy the support and incentives to keep the small percentage of older San Diego homes and neighbhorhoods intact for future generations.

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Arkangel_007 April 17, 2008 @ 9:15 a.m.

Being a student of real estate and economics, I do not believe that the position of this article is truthful in asserting that the preservation of historic properties is in the best interest of the public in terms of tax revenues or stimulation of the local economy. The study presented from the University of San Diego in truth considers only comparable properties if it is to give any valid results whatsoever. In practice, bringing a property to its highest and best use in the face of changing conditions on the ground in the properties area will always bring 1.) the highest ammount in tax revenues for the city as the property will achieve its highest fair market value after achieving its highest and best use. 2.) the highest ammount of profit for a property owner and his or her contractors if after achieving this highest and best use the costs of converting the property does not out weight the net present value of the property given a certain holding period.

What does this mean in english? It means that you can't compare apples and oranges. If you redevelope a property and it costs 300,000 dollars to do that is more economic stimulus than 80,000 to renovate a standing structure. That probably also means that you will be paying more in property taxes because newer larger homes with modern amenities and updated construction mean a higher selling price which means more in tax revenue for the city.

In truth, historical preservation is a decision based on societal mores, norms and values. Arguments for historical preservation usually carry no weight in financial terms whatsoever.

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Erik April 17, 2008 @ 11:46 a.m.

Arkangel: as a "student" of economics you should defer to the professors of economics until you can present a more cogent paper than they do. You clearly didn't read or didn't understand the report. Nobody is saying that tearing down a single family house and building apartments or a huge spec won't make money for the owner and builder. What is being stated is that not doing so adds value to every property in the blocks nearby. Just as building a maximum sized new building will devalue all the properties nearby that wish to keep their properties as single family homes and not as accounts to cash out. Take a spin, for example, down 35th Street South of Adams. Would you want to live in one of the few remaining single family homes next to the "higher and better" ones? After more than one or two houses on a block are scraped and maxed-out the properties on the block will never be restored, ruining everybody's experience. As odd as it may sound to the capitalist in you, many people buy houses because they think its a nice place to live the rest of their lives and raise their children, perhaps passing the home down to the kids. Not every one does the math about what an empty lot will fetch, and those who do can't be allowed to do a "taking" of usage from those who don't. Ray Huffman is dead, get over it.

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historymatters April 17, 2008 @ 1:53 p.m.

Arkangel, I assume that you are from the same line of thinking that thought the subprime mortgage idea was a good one. Your thinking is an epidemic that has created the current economic mess and continues to be self destructive. It is thinking that is VERY short-sighted, that only considers immediate economic gains and doesnt examine the long term economic impact or the quality of life impact that you are having on those around you. Do you think San Francisco would be in better financial shape if they had allowed developers to scrape all their victorians and build the lackluster 4-packs that litter our neighborhoods, how about Portland Oregon, or New York City. In fact why dont we let them scrape Balboa Park so we can enjoy the economic benefits. Look, Ark, you have alot more reading to do. Hit the books!

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onamission April 17, 2008 @ 11:40 p.m.

Preservationist thinkers are an extremist few who base their philosophy on the emotional rhetoric of days gone by. The concept of proving private owners with a monetary incentive to preserve the original integrity of their property is borderline insane. As soon as you improve any property is starts to deteriorate. There is no way to keep anything unchanged. We should be mature enough to accept these changes for the better. Nor should we try to stop or hold back technological or social improvements. New developments in construction, energy, utilization of space and safety will undoubtedly require the removal and construction of better and smatter properties. Private properties need to be larger than the old 900 square feet cottages being designated as historical. Communities today shouldn’t have to move to the suburbs to raise a family. We can plan and zone better to ensure development is not detrimental to our economic or social growth. Redevelopment can be great if it is done in phases based on the current and future needs of our society. Preserving the historical facades of private properties has no merit in the true economic and social values of our future. People should realize that properties as young as 35 years are being considered historical. Don’t be fooled, this article is a slanderous attack against the city’s attempt to improve its tax revenues at the cost of our most affluent citizens, who have found a loophole like the mills act to avoid paying property taxes. If this was a fair and equitable designation process we would have less affluent areas with the same amount of designated historical properties. In fact, most historically registered properties are in affluent areas. Mission Hills and Hillcrest have over 35 registered craftsman homes as historically designated, in addition to other types of designated properties. City Heights on the other hand, with its many craftsman homes has none and there is less than a handful in Logan. This article also fails to state that the city’s historical board could force private properties into permanent historical designation, rendering it un-approvable for mayor renovations. Once a property is historical it can never be undesignated or moved from its original site. The city has finally realized that its designation process is flawed and the old guard is trying to use this media to keep their job by influencing you. If organizations such as SOHO or other preservationist want to force private properties to look like something out of the 20’s, they should be offering to pay for it out of their organization’s checkbooks. And they should look into low income areas to help first. What ever happened to the property rights this country was formed on? If you don’t like this country’s capitalistic principles, I suggest you move to Cuba, there’s no problem with preserving history there. You could even drive around in a classic car.

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onamission April 17, 2008 @ 11:43 p.m.

Preservationist thinkers are an extremist few who base their philosophy on the emotional rhetoric of days gone by. The concept of providing private owners with a monetary incentive to preserve the original integrity of their property is borderline insane. As soon as you improve any property is starts to deteriorate. There is no way to keep anything unchanged. We should be mature enough to accept these changes for the better. Nor should we try to stop or hold back technological or social improvements. New developments in construction, energy, utilization of space and safety will undoubtedly require the removal and construction of better and smatter properties. Private properties need to be larger than the old 900 square feet cottages being designated as historical. Communities today shouldn’t have to move to the suburbs to raise a family. We can plan and zone better to ensure development is not detrimental to our economic or social growth. Redevelopment can be great if it is done in phases based on the current and future needs of our society. Preserving the historical facades of private properties has no merit in the true economic and social values of our future. People should realize that properties as young as 35 years are being considered historical. Don’t be fooled, this article is a slanderous attack against the city’s attempt to improve its tax revenues at the cost of our most affluent citizens, who have found a loophole like the mills act to avoid paying property taxes. If this was a fair and equitable designation process we would have less affluent areas with the same amount of designated historical properties. In fact, most historically registered properties are in affluent areas. Mission Hills and Hillcrest have over 35 registered craftsman homes as historically designated, in addition to other types of designated properties. City Heights on the other hand, with its many craftsman homes has none and there is less than a handful in Logan. This article also fails to state that the city’s historical board could force private properties into permanent historical designation, rendering it un-approvable for mayor renovations. Once a property is historical it can never be undesignated or moved from its original site. The city has finally realized that its designation process is flawed and the old guard is trying to use this media to keep their job by influencing you. If organizations such as SOHO or other preservationist want to force private properties to look like something out of the 20’s, they should be offering to pay for it out of their organization’s checkbooks. And they should look into low income areas to help first. What ever happened to the property rights this country was formed on? If you don’t like this country’s capitalistic principles, I suggest you move to Cuba, there’s no problem with preserving history there. You could even drive around in a classic car.

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Erik April 18, 2008 @ 9:14 a.m.

"New developments in construction, energy, utilization of space and safety will undoubtedly require the removal and construction of better and smatter (sic) properties."

A "green" building takes 65 years on average to mitigate the energy spent in the original construction of the building and the demo debris. And we know how you feel about 65 year old buildings.

"Private properties need to be larger than the old 900 square feet cottages being designated as historical."

Make up your mind, is it 900 sq.ft. cottages or the mansions of the rich that are being designated?

"Communities today shouldn’t have to move to the suburbs to raise a family"

What does this mean? You can't raise a family in, say Mission Hills?

"Preserving the historical facades of private properties has no merit in the true economic and social values of our future."

Just because you don't value it does not make it so. You could also make the argument that picking up litter is not use.

"People should realize that properties as young as 35 years are being considered historical"

Please name one here in town. I can hardly wait.

"most historically registered properties are in affluent areas"

That's because it costs 4 or 5K to have a report written and printed up. Poor poeple have other things to do, like work to eat. Besides (as if you didn't know this) poor people here tend to live in rental properties owned by wealthier people. Perhaps the city should subsidize historical reports.

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Erik April 18, 2008 @ 9:17 a.m.

"City Heights on the other hand, with its many craftsman homes has none and there is less than a handful in Logan."

If you have a property there you would like to have designated, I will support you all I can. My guess is you have no interest in having this done.

"Once a property is historical it can never be undesignated or moved from its original site."

This is an absolutly uniformed bit of nonsense. Please refrain from talking about things you know nothing about. We have (unfortunately) demolished or moved many designated properties. Even ones on the National Register. Ever been to Heritage Park in Old Town?

"If organizations such as SOHO or other preservationist want to force private properties to look like something out of the 20’s, they should be offering to pay for it out of their organization’s checkbooks."

It will happen.

"And they should look into low income areas to help first."

How do you know what SOHO looks into? Do you read their board minutes. Or is it just because you don't read about it in the La Jolla-owned U-T? The huge majority of historic designations are done with no preliminary input from SOHO.

"What ever happened to the property rights this country was formed on? If you don’t like this country’s capitalistic principles, I suggest you move to Cuba"

You need to get your story straight. Are you against poor people or rich ones? You are coming from both directions at once. Its beyond your primitive understanding that there are both poor and rich people in town that are preservationists. I'm guessing you have some sort of job that you vaguely think historic preservation will harm, because of your inability to adapt to the lack of open land to build on, and you are spinning in circles trying to appeal to both Ayn Rand and Bario Logan at the same time.

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onamission April 19, 2008 @ 6:50 p.m.

“A "green" building takes 65 years on average to mitigate the energy spent in the original construction of the building and the demo debris. And we know how you feel about 65 year old buildings.”

Its small minded to think of only the economic impacts of green building without looking into the impact of future generations. That’s right preservationist can see past 1920. And like everything on this article, you and the writer can’t do simple arithmetic.

“Make up your mind, is it 900 sq.ft. cottages or the mansions of the rich that are being designated?” I don’t mind designating a home if the owners choose to accept this designation. However no property, whatever size, should be subsides by not paying taxes. Get rid of the Mills Act, I’m sure your organization and its wealthy donors can afford to pay for property improvements.

“Just because you don't value it does not make it so. You could also make the argument that picking up litter is not use.” Just because a few prefer a select type of architectural styles, doesn’t mean they should have the right to impose others to build or keep it. If you like an architectural design, build it yourself on your own dime.

“That's because it costs 4 or 5K to have a report written and printed up. Poor poeple have other things to do, like work to eat. Besides (as if you didn't know this) poor people here tend to live in rental properties owned by wealthier people. Perhaps the city should subsidize historical reports.”

I’ve paid for these reports and they don’t cost half of what you mentioned. I suggest you go back to high school and learn math. You might learn to spell at the same time.

“If you have a property there you would like to have designated, I will support you all I can. My guess is you have no interest in having this done.”

If elitist white people like yourself weren’t scared of walking in these neighborhoods, you could ask someone if they would like $80,000 to fix their property. You might have some takers. I suggest you do your walk at night. You’ll find more folks home from work.

“You need to get your story straight. Are you against poor people or rich ones? You are coming from both directions at once. Its beyond your primitive understanding that there are both poor and rich people in town that are preservationists. I'm guessing you have some sort of job that you vaguely think historic preservation will harm, because of your inability to adapt to the lack of open land to build on, and you are spinning in circles trying to appeal to both Ayn Rand and Bario Logan at the same time.”

Unlike you, I have no special interest in this whatsoever. I’m not completely against anything or anyone unless it is immoral or physically harmful. You on the other hand, hate progress. If you tried to be more tolerant of different tastes, cultures and lifestyles, you might be mature enough to see different points of view.

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taxcollector April 19, 2008 @ 7:37 p.m.

I can't wait for the IRS to audit SOHO. As a 501 (c)3 they are not suppose to lobby government agencies, not even indirectly. This article was so one sided it can only be construed as such. Good luck trying to convince uncle same to keep your non profit status. In the future hire a real PR firm to do your dirty work.

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Sombadi April 21, 2008 @ 4:27 p.m.

In my neighborhood (Mission Hills) it is mainly people who have bought homes in the past few years who are interested in historical designation. If you think about the taxes you can understand why. It is a big deal if you bought a house for $1 million and you can drop your property tax from $12k to $3k. That's what people are doing.

People who have lived in the neighborhood for 10+ years already pay low property taxes thanks to Prop 13. They have little interest in historical designation.

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Erik April 21, 2008 @ 6 p.m.

Taxcollector: I'm not sure what any of this has to do with SOHO, most of the people quoted in the article are not speaking for SOHO, and are not on their staff or board. I think Bruce Coons is the only one. YES, a 501(c)3 group IS allowed to lobby a legislator. They are not allowed to support a candidate or subsidize them in any way. Non profits ARE allowed to support ballot propositions. Why you think that hiring a PR/Lobby firm would be any different from doing it in person is beyond me.

For example, I've never been to a City Council meeting without seeing Father Joe Carrol from St. Vincent de Paul there. The Building Industry Association (a nonprofit) is in mayor Sander's office frequently. The council and mayor receive visits from Senior Adult Services, the Zoo, The Old Globe, college presidents, The Nature Conservancy, etc.

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Erik April 21, 2008 @ 6:37 p.m.

"You on the other hand, hate progress. If you tried to be more tolerant of different tastes, cultures and lifestyles, you might be mature enough to see different points of view.

By onamission 6:50 p.m., Apr 19, 2008"

You don't know a thing about me, and your comments are both wildly speculative and dead wrong. If you know anyone else who was the only White man at an Indian sweat lodge and drove a 20 year old car to the antiquarian bookfair in LA the same weekend, just speak up. I'm happy to live in a diverse block, with a lesbian cardiologist on one side and a straight part-time pest control man on the other. I'm on a first name basis with homeless men and guys who own high rises downtown. I don't need you telling me about diverse cultures. And, yes I do walk at night in 92102. The fact is that EVERY historic building I've seen demolished has been replaced by something worse, and I challenge you to name one that has not. That's the biggest reason that I'm a preservationist. I'm in full support of good new work, and I'm friends with several architects who are doing it.

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Erik April 21, 2008 @ 8:04 p.m.

And also to Onamission: If "That’s right preservationist can see past 1920" is your idea of a complete sentence, if you spell "smarter" as "smatter" and if you can't control posting the same message twice, then please don't talk about who should "go back to high school."

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Arkangel_007 Aug. 16, 2008 @ 1:42 p.m.

A city block full of newer and greener homes provide...

1.)More in tax revenues 2.)A reduction in negative effects to the environment.

in comparison to a block of older homes tax sheltered by the mills act. Just some simple logic to consider.

By the way, there is a commercial development in downtown chula vista that is really nice. It used to be a bunch of dirty apartments and single family homes. I was glad to see that development. It brought new jobs and more revenues to the city of chula vista. This is progress and that is a good thing. Designated properties should be few and far between to highlight their uniqueness and exemplary nature of this country's past.

This is how I feel about this subject.

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