REACTIVATE THE MILLS ACT NOW!

Two Years Behind Schedule and the Path Forward is Clear

The Mills Act Historical Property Contract program is the leading financial incentive for historic preservation within the city and the state. The program consists of a contractual agreement between the City of Los Angeles and the owner of a historic building. The contract provides the owner a potential reduction in property taxes in exchange for costs incurred with the restoration and rehabilitation of the building. The contracts are established for a minimum term of 10 years, are automatically renewed annually, and are transferable to new owners if a property is sold.

CURRENT PROGRAM STATUS

Since 2020, the City of Los Angeles has accepted no new contracts while an assessment of the program is underway. A draft assessment report was issued in June 2022 followed by the solicitation of public comment. The assessment report called for capping the total number of active contracts based on limiting the loss of tax revenue to the city and staff availability.

The public response to the report was mostly negative. The public did not support limiting contract terms to 20 years and did not support the non-renewal of existing contracts. The public did support the collection of contract fees to fund staffing, an increase in enforcement, and the termination of non-compliant contracts. In effect, the public wants and supports a well thought out and self-sustaining program, not one ham-strung by preconceived and self-imposed limitations.

THE REVISED ASSESSMENT REPORT

Now, more than two years after releasing the findings of public comment, a revised assessment report has been released for public review and consideration by the Cultural Heritage Commission (CHC). The public has until 23 May 2025 to provide comments to City Planning via online submission. Comments may also be provided during the CHC review meeting to be held at 10 am on 24 April 2025 and at an evening workshop starting at 6 pm to be held via Zoom on 28 April 2025.

In my view, the revised report is an improvement over the draft report in that it drops some of the self-imposed limitations that limited the program. Gone is the fixed cap on the total number of contracts. Also gone is the imposed limitation on lost tax revenue. Per the revised report, City Planning proposes the following administrative changes and amendments to the Mills Act Ordinance:

• Establish a mechanism to collect the approved contract maintenance fee and track fee revenues

• Manage contract data more effectively and provide greater transparency about the program to the public

• Implement stronger contract compliance and enforcement-related provisions

• Encourage participation from geographically underserved communities through outreach and the prioritization of applications for new contracts for properties located in lower resource areas

• Create more capacity in the program through the non-renewal of existing contracts based on geographic equity considerations or length of time a contract has been in effect

• Reassess the program on a regular basis and communicate annually with contract holders to confirm contact information

• Eliminate the program-wide annual threshold of the City’s unrealized property tax revenue

• Amend the existing program fee structure and recover administrative costs for processing noncompliant and contract cancellation cases

• Expand participation in the program by broadening eligibility requirements to achieve a more geographically equitable distribution of benefits

• Refine and refocus existing eligibility criteria and priorities for new contract applications.

Overall, I agree with the proposed program amendments except for the creation of capacity via contract non-renewal. The concept of “capacity” is a throwback to the self-imposed limitation of available staff. If the program has a reasonable fee structure to support staffing, and the fees are collected, then the number of hired staff should rise and fall to match the required workload.

I also contend that if the value of the contract diminishes over time (as stated in the assessment report), and if the contact holder must pay a non-trivial annual fee to maintain the contract, then the contract holders will voluntarily opt out as the cost of maintaining the contract exceeds benefit. There is no need for the City to force contract holders out via the non-renewal process.

In addition, the assessment report may very well be wrong in assuming that long-held contracts have no value. A Mills Act contract can have a large value to a future owner. Assessment data lists 108 properties, with a total enrolled value of $650 million, that derive no tax benefit. The current market value of these buildings is conservatively estimated to be $1.63 billion¹.

The annual property tax on $1.63 billion in market value is $16.3 million and the existing Mills Act contracts could yield a savings of 65 percent based on the average of “high” and “very high” savings shown in the report data. Thus, future savings amount to $10.6 million per year or $98,000 per building. While the current owner may not derive benefit with regards to property tax, a Mills Act contract is a tangible asset with value to a future owner. Thus, I would expect a contract holder to take legal action against the City should the City issue a non-renewal notice without just cause.

BENEFIT TO THE PUBLIC

The public derives much benefit from the Mills Act program, benefit that is not addressed in the assessment report. The draft report only focused on the lost tax revenue to the city. The study did not address the economic multiplier effect and other less tangible benefits.

Data from the LA Conservancy report “Preservation Positive” reports that $11.7 million per year is spent in the City of Los Angeles on historic preservation. For a $2.2 million dollar investment in the form of foregone tax revenue, each foregone tax dollar generates $5.30 in local spending that goes directly towards labor, materials, permit fees, taxes, etc. The actual level of owner spending is much greater than $11.7 million since this estimate only includes permitted projects. General building maintenance is not included.

If you include general maintenance, the total amount spent per year increases to $37.4 million per year. My estimate of $25.7 million per year for general maintenance is based on the assessed value of all buildings with contracts, a building adjustment factor by property type to exclude land value, and a maintenance cost factor of 1 percent for buildings in good condition. For buildings in poor condition, the maintenance cost factor could be as high as 4 percent.

Taken together, property owners spend more than $37.4 million per year on building maintenance and preservation. This amount of spending is 17 times more than the amount of tax revenue the city foregoes. Benefits include a safer and well-maintained home for tenants, increased employment for workers with skills related to historic preservation, and the purchase and use of higher-grade materials. The Mills Act is a very cost-effective way to promote public safety, skilled job creation, and infrastructure investment.

While some people might discount the inclusion of general maintenance, all building maintenance is important when it comes to historic buildings. A leaking roof can result in structural damage which can lead to degradation of historic and character-defining features.

The Mills Act is a contract that mandates preservation and maintenance. A contract holder cannot defer or put off maintenance. The Mills Act ensures that owners keep their buildings in good condition. There can be no demolition by neglect. If an owner defers maintenance to save money, that act is a breach of contract. Failure to maintain the building allows the City to cancel the contract with cause and hit the owner with a steep penalty of 12.5 percent of building market value.

WHAT CAN YOU DO?

Read up and speak up! You should read the revised assessment report and review the program Fact Sheet to get familiar with the program changes. I support the program revisions except for the non-renewal of existing contracts. You might disagree with me or take exception to the ways in which the program seeks to improve equity (something I did not address in this post).

Disagreement is fine, but the one universal point we should all make is that City Planning should not continue to drag out this process. The Mills Act Update presented to the CHC in Dec 2022 expected the second phase of outreach (where we are now) to occur in March 2023 with program reactivation by Jan 2024. The schedule is more than 2 years behind, and we should not have to wait another 2 years while the consultants simply repackage public comments.

You can provide your comments directly to City Planning via their online portal up to 23 May 2025. On 24 April 2025, City Planning will present the revised program to the Cultural Heritage Commission at their 10 am meeting. You may attend the meeting and provide comments in person or online via Zoom. City Planning will also hold a 6 pm workshop for the public via Zoom to be held on 28 April 2025.

1. Based on an adjustment factor of 2.5 per the Green Sheet Commercial Property Price Index for Jan 2000 and Jan 2020 (20 years). For property held for more than 20 years, say 40 years, a factor of 5.0 to 7.5 is possible.