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City of Palo Alto
City Manager's Report
HONORABLE CITY COUNCIL
CITY MANAGER DEPARTMENT: ADMINISTRATIVE
SERVICES
AGE!\'DA DATE: SEPTEMBER 26; 1995 CMR:42S:95
SUBJECT:
REOIJI:ST
APPROVAL OF RESOWTION TO PROVIDE FOR A REBATE
PROGRAM FOR QUALIFIED LOW AND MODERATE
INCOME FIRST-TIME HOMEBUYERS RELATED TO THE
REAl" PROPERTY TRANSFER TAX ASSESSED BY THE CITY
OF PALO ALTO
In June., C¢unciI approved an exemption 10 the rea! property transfer tax (RPIT) b low and
moderate income first-time homebuyen. Staff requests Coon<:iI's approval of a resolution
(AtI$bment A), which provides for a rebate program u> qualified applicants.
RECOMMENDATION
Staff recommends !hat Council approve the attached resolution, which estabHshes a rebate
program related 10 Palo Al!o's RYIT fur qualified low and moderate income f> ... st-time
bomcl>uyeIS. 1be rebate would be lOt the buyer's share of the transfer tax, up 10 half of the
amount !hat Palo Alto would otherwise receive.
DISCI ISSJQN
BockfrODDd
During the 1992-93 budget process, the City instituted. rea! JlfO!l"rty transfer tax of S 1.65
per $500 of assessed value, in order 10 fill • reveDue shortfall Upon instituting the tax, the
City refll1Quished its share ($.275 per S5(0) oflhe Coontis document transfer tax. The tax
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generates re"enue' cf approximately SI.S million annually. On ."e"ge, • buyer of
residential propert)I in Palo Alto pay' ~ transfer tax of $68$.
In December 1994, StJIff completed. review of the City's rcal proper!) transfer tax, which
included an evaluation of potential exemptions io the tax (CMR533:94). Staff
recommended two exemptions to the tax foe transfers of rcwential propert)" I) an
exemption foe transfers where title is cbJ!l1ged merely 10 rem''''. an ""'nmhip interest of one
()[ more parties without monetary consideration; 2) an .xemption foe I<>w and moderate
income first-time homebuyers. Cooncil unanimously approved the first exemption.
AItbough Cooncil expressed support foe the secoad .xemption, there were cooceru. about
the way in which it was structured; and Cooncll requested staff to return with a modified
recommendation.
Staff reIllmed "itlt .. revi..<ed "",ommeodation, which C{)U!lCU approved on June S. A
resolution now needs 10 be passed 10 focmally ioc{)(jXlfllle a rebate program lOr qual; fied low
and moderate income, first-time bornebuyers.
QuHlifxin II !jx the Rebate
There are roue criteria lOr quali!'ying foe the rebate: first-time homebuyer status, an owner
occupied home, • household income cap, and I purchase price cap. Staff has drafted the
resolution witlt qualification criteria coosistcnt with the County's 'Mortgage Credit
Certificate Program" (MCC).
o 11K: rebate would apply 10 first-lime homebuy"". In order to be verifiable, the
orQ!ruIDCe contains MCC provisions that proof must be shown thaI the
applicant(s) have no! had an O\\nership interest in a prineipal residence within
the last !bree years.
o Only owner-occupied homes woold qualify.
o Per Council direction, the rebate would apply to low and mode",t. income
households. As reported in CMR:2J J :95 (Attachment B). staff proposes an
income level cap lOr this criteria, equal to }SO percent of the median income
for this area, as reported by the f.deral Department of Housing and Urban
Development (HUD). That would mean, foe example, tltat a three-persoo
household could earn up '" S86,670 and qualify fur the exemption. (That
income limit would be adjusted annually.)
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o The rebate would =ur if the purchase price of the home was below the price
caps recommended in CMR:23 I :95. These caps are included in Attachmem
3 of that staff report. which is attachcl. T" facilitate administering these cal"
with • minimum 0( interpretation, and 10 avoid amenatng the RPTI resolution
annually, the caps are defined nwnerkally in relation 10 the a!ready-deflned
income cap. For example, a family of three would qualify for an exemptioo
for a borne "ilb • value 0( up 10 :U I times (or 381 percent) of their income
threshold, as defined in the previous paragraph. Tha! would translate into •
price cap 0(5330,000 (HI x $86,670 inc<>me cap).
Finally, as approved by C<>uncil, the rebate would be applied Iowards the amount 0( the
transfer tax that the buyer paid, up 10 • ma..nnum of half of the IOtal transfer tax assessed,
excluOlllg the share of the tax that reverts 10 the County.
-Administrative IsSlles
This exemption will be implemOflted as a rebate program. All homebuyers would ccntinue
10 pay the transfer tax 10 the County, then would apply for a rebate through the City.
Applicants would be required 10 apply for • rebate .. ,thin 90 days of the date of close 0(
escrow 00 the home in question. City staff are Sl111 working 00 the detaIls of the contract
administration provisions wilb the Palo Alto Housing Corporation (P AHC), and expects 10
finalize a cootract in October 1995.
POJ.[CV IMPUCATlQNS
Enaction 0( this resolution is consistent with CoonciJ direction of June 5, 1995. Tbe
exemption would take effect on November I, 1995. It would therefore apply lowards
quaJify'dlg first-time homebuyers who assume legal ownership .n or aft.r that date.
f.NYIRONMENTAL ASSESSMENT
This does not constiMe a project under the Califurnia Environmental Quality. Act.
Therefore, DO enyironmentaJ assessment is needro.
FISCAI,IMPACI
Staff estimates that this oramance ,,~11 result in a loss of between $33,000 and $86,000 in
transfer tax revenues annually. The 1'195-% budget already includes an estimate for revenue
los. due 10 enactioo of this orcfmanc~.
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AlT,I,CHMENTS
A) Resolution
B) CMR:231:9S
PREPARED BY: lim Sleek, FiDooce Manager
DEPARlMENT HEADAPPROV AL:
CITY MANAGER APPROY AL:
CC: Board ofReaJtors
Jan C. Aarts, O>mlsh and Carey
b =VA .. """, (;) (] ~\
Melissa Cavallo
Acting Director,
Administrative Services
. Manager
Marlene Prendergast, Palo Alto Housing C<xporation
Eric Trailer, North American ntle Company
ClOU2S,JS
ATTAClKKT A
RESOLUTION !.'O.
RESOWTION OF THE rooNCIL OF THE CITY OF PALO ALTO
ESTABLISHING A tl8ATB PROORAM IN CONNECTION WITH
n;E REAL PROPSRTY TRANSFER TAX OF THE CITY OF PALO
ALTO, FOR QUALIFIED FIRST TIME !lOME BUYERS OF LOW
AND !o£lOERATE INCOME
WBHREAS, pursuant to Chapter :2.34.
"Muni<:ipal Code, a Real Property Transfer Tax
conve~e of real property within th~ City of
particularly described in Chapter 2.34; and
of the Palo ~to
is impoSed on the
Palo Alto, as more
WHEREAS, the C~ty Council desires to establish a rebate
program uDder vhich qualified first time home buyers of lew and
mOOerate in<:~ could obtain a rebate of a portion of the :Real
Property Transfer Tax. paid in purchasing their fir:St hOQ'1.e;
NOW, THEREFORE, the Council of the City of Palo Alto does
bereby RESOLVE as follows:
-Sf!C1'IDN 1. The Council hereby establishes a rebate program
in c~ection vith tbe xeal Prope~ty Transfer Tax of the City of
Palo Altol for -qualified first t.i!rte home buyers of low and moderate
income.
SECTION 2. The Coun~il hereby approves the MReal Pr~rty
Transfer Tax Rebate Program for Qualified First Time Home Buyers,·
attached to this resolution as Exhibit -A" and incorporated ~erein
by reference, and authorizes the Deputy City Manager,
Administrative Services ''"Deputy City Manager"). who perfoems the
function of the Director of Finan~e for purposes of Cha~er 2.34 of
the Palo Alto MUnicipal Code. or the designee of the Deputy City
Managez. to administer ~he p~ogram on behalf of the City of Palo
Alto.
S:ECTIQN 3. The program established by this resolution
shall include the requirement that an administrative fee, as set
for~h in ~he MUnicipal Fee Schedule. be payable by app1icants for
rebates under the program.
~. The C~ncil finds that this is n~ a project
under the California Bnvironmental Quality Act.
,S,lCTION 5. The program est,ablisbed by this resolution
shall apply to qualifl'iD9 transactions for which Real Property
Transfer Taxes are paId or! a!ld after November 1, 199.5.
Dl"n00UClID AND PASSED:
AYES:
NOBS:
AB$l!NT:
ABS'I'EN'I'IONS ,
ATTSST:
City Clerk
APPROVED AS TO FORM,
senior Asst. .. City Attorney
APPROVED:
Mayor
City Manager
Deputy City Manager l
Administrative Services
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EXHIBIT • A'
REAL PROPERTY TRANSFER TAX REBATE PROGRAM
fOR QUALIFIED fIRST TIME HOME BUYERS
Thi. Rebate Program ..... approved by the City Council of the City of Palo Aho
pursuant to Resolution No ---' adopted September ~ 1995" 11 "'aD "apply to quaflfYing
transactions fOr ..,hie •• Real Property Transfer ra. W1lS poid by the applicant in a""ordon<:< Mth
Cbapier 2"34 of the Palo Aha Municipal Code 00 and after the date 0( ____ _
A Eligibility, General
Only firs! time low and moderato income bome buyers woo qualiJY under this program are
eligible 10 apply fOr the rebate offered under this program
B" Tax Obngation"
1" AI! apl'ficants who may be entitled !O I rebate under this program "'aU pay tlle fuD
amount of the Real Propeny Transfer Tv. at tlle rate eSl.blished in Chapter 234 oftlle Palo Aho
Municipal Code prior 10 making LO Ipp1ica6oD fOr • rellat. under this progr.lIlL
2" Fu~ payment olthe tax sha.II be made 10 the C"uray Recorder of the Ccuray of SanJa
Clara at the time the deed. insIrumelll or writing effecting. transfer subject 10 the !AX is delivered
fOr recording"
1" Full payment of the t>Jl sbaD be made ~en if the transaction would be eligible fOr
• rebate under the terms aud cooditions olthis Re!late Program"
C Tune Limits"
lni ort!er to quaftfy fOr-the rebate, a compTete application for the rebate must be rued' in
&ccord= wiIl1 Section D olthis program wi'.hin ninety (90) daY' from the date 00 whieh tbe Rea!
Property Transfer Tax was paid in full
0" Procedure for Filing APp1icntiOD fOr Reba'e"
t APplication fOr a rebate sllaD be made in • form developed by the Deputy City
Manager, and sbaD. at • minimum contain:
(a) The propeny address and parcel number"
(II) The nome. address and te1ep1lon. number oftlle applicant(s).
(c) The name, address and telephone number of any 6tle company involve<l in
the transactloD and the name of a contact person at that title company
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(0') Tbe total amount 0( Real I'rcpert-j Transfer Tax paid on tile transaction
pursuant to Chapter 2.34 o(the Pal" Alto Municipal Code. and the .mount
of tax paid by the applicant.
(e) The la~ theW< ..... p";d.
(I) Sucb prO<>l .. the Deputy City Manager ml!)l require that tn. tax ...... paid
prior '" the application, and su<h verification .. the Deputy City Manage.
may require as '" the arnoonI of the IOta! tax whi<:h was paid by the appEcant
(g) SucI! proof as the Deputy City Manager may require that the appEcant meets
the eligibility crlleria set for1ll in Sectioo E. I'roo< ofi,'c{)rn. eEgibijity may
wclude inc",,", tax returns andi or pay stubs Proo< of purchase price cap
efigibility may include noI2..-ized escrow closing documents. deeds, bank
SlJltemeR!, and/or C<:>u!1ty records rroo< of tint time home buyer status may
include loan dIX-'"Uments,. tax returns,. and/or notarized declarations.
(h) Such other information 1.5 the Deputy City Manager deems n=ssary.
2. AD appEcations fur a rebate shal! be accompanied by • pr<>e .. sing fee in the am<>unt
set fOrth in the Municipal Fee Schedule. An appEcatioo shaI! no( be deemed compl.te until L~e lee
;. paid.
1. AprEcations fur • rebate shaI! be filed with the Deputy City Manager or such otller
perJOll .. indiC&!ed on the appEeation Rxm.
E. Criteria fur Delermining Efigibillty IOc Rebate.
I. Owner Occupied Home.
Ca) To qualify IOc the rebite, the app5cant(s) must Eve in the home IOc ",hie. the
rebate is sought.
(b) Fa< tile purpooes oflhis rebate. "home" is defined as a principal residence.
and shaI! include single family dwellings, condominiums and townhouses
It shaI! 00( include commercial 0< unimproved real property.
(c) for purpo<es of this rebate, "household" shaI! include and be defined as aI!
persons wIlo dwell in the home. At a minimum, 'he actual owner(s) 0(
record must livt in the home
2. FIfst Tune Home Buy.,..
(a) To quality IOc the rebate the applicant{s) must be • first time home buyer(s).
(b) For the pwposes of this reba'e. to quaflfy as a firS! time hom< buyer, no
member 0( the app5canCs boo sehold shan have had any o ... nership interest
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. in I principal residence wrthin the three yean immedi3teJy preceamg tI1e date
of purchase ofll>e bem< for which the rebate is being seug.","
,> tow ()( Moderate I!!come.
(I) The app!icant household must qualify as being of"low O£ modera:. income."
for purposes of thls rtbats "iow 01' moderate income" is defined IS an
ItlI1WI household v.:ome /rom all sources of 00 mo<e than ISO percent ofll>e
medion household income iO< the San Jose, Caflfornia PrimaIy Metropolitan
Statlstkol hea IS calculate<! by the Urlte<! States Department 0( Housing
and uroan D:velopment ("HUO").
lb) far me pwposes of this rebate, ~income";' defined and includes an sources
ofincome iO< all members <>fib. household ... ho are 18 years of age or older.
tnco~ includes, but is not 6.mited to', wages, tips,. roy<h~es> commissions,
interest,. c.apita1 gains. rcnts, bonuses.. lnvestmern income, and lncome trom
business.
In order 10 qualifj iO< !!lis rebate. the pur<1>ase prio< of the home for which til. rebate
is being sooght "'all not bave exccede<! the iOnowing percentages of"low 0< modente income," as
define<! in Sectlon E ] of this program:
Household Size
(number of usidents)
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2
3
4
F. Amount oC R<b.te
Maximum Quaflfiiing Pu,cl>ase Prke {shown as
I percenlaae of "Iow!rnod'erate inC-..lrne")
386 percent
383 percenJ
381 percent
380 percent
I. The amount oC the rebate sI>aII be DO more than the amoUnl oC Il>e Real Property
Transfer Tax paid by tile qualified b<Jyer, up 10 1 maximum of frlty percent (50'1,) oCme .obl Real
Property Transfer Tax usessed on tile purc~ oCtile b<Jy .... , Palo Aha borne, less tbat portion of
. the tax. Illat reverts to the Cooni)' oC S""" Clara punu.nt 10 Pan 6.7 (tile "Documentary Transfer
Tax Act") of Oivisioo 2 of the RevUlllC and T axr.x.. Code
2 No rebate shaJl be made b any p<>bOIl of !he IWoI Property T r.nsfer T ax that is paid
by tile .. ner oC I home to I q""lifi<d bvy ... under this program
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The Deputy City Manager is authorized 10 designale other persons 0< organizations 10
~ t!U t<bate p'0~ and I<l nlake the determin.tions of efigibility and timefines. de=1led
i:I ibis 60cumcnt
I. A1Iy appOCanl lOr • rebate against wllom I determination is made may petition f0r-
a reeoruidentioll of the determination by filing "it.~ the Deputy City Manager. ",rine. ootice
requeo1ins reconsideration Mthin len (I 0) days alIer service of the determination upon the
appliconl. If DO such DOIic< is filed .. ,thin the ten (10) doy period. Lire determination shall be final
II the cxpin60a of sue) period.
2 IfIIlOlke requesting reconsideration is filed within the leo (10) day period, the
o.p...ry Qy Mona&« shall reconsider the determination and, if the applicant has so requested in his
0< I>er wrirteI! !I06ce, s!WI gran! the .pplicanJ an oral hearing. and shaD give the applicant at;e..r
lea cia).> IIOIi<:t of the time and place of !he bearing The Deputy City Manager may designate one
cc ..,... cIeputia lOr the purpose of cooducting Ille bearing. wd may continue a bearing li'om time
10 time u l1li)' t.. neceosory. provided t!1at any person bearing I peli'.ioo lOr reconsideration shaD
DOlt.. the same persoa .mo made the determinatio. lOr ",hicl! reconsideration is being requested
), The decisioo of the Deputy City Manag.,-upo. I petitioo lOr reconsideratioD is final
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ATTENTION:
FROM:
ATTACIf£I!T S
City of Palo Alto
City Manager's Report
HONORABLE CITY COUNCIL
FL"IANCE COMMITTEE
CITY MANAGER DEPARTMENT:~CE
AGENDA DATE: MAY 2,1995 CMR!131:95
SUBJECT:
RW1JESI
APPROVAL OF PROPOSED REAL PROPERTY TRANSFER
TAX EXE-J,fi'TION FOR WW AND MODERATE INCOME
FIRST·TIME HOMEBUYERS AND ADOPTION OF
ORDINANCE GRANTING AN EXEMPTION FOR RELEASE
OF OWNERSHIP INTEREST HEW BY CO-BORROWERS
WITHOUT MONETARY CONSIDERATION
This report was prepared in response 10 Council Olrection fur • modified staff
recommendation fur an exemption 10 ~ City's real property transfer tax for low and
IIlOdmsIe incoo>e first-tim. homebuyers. It also includes proposed changes 10 \he Palo Alt.,
Munic;pal Code, neeessa.")' 10 enact the exemption for real property transfers involving a
release of ownership interest of 00' OC mare parties. where no monetary consideration is
involved.
JltCOMMENDATJON
Staff recommends thaI Council approve I modified exemption 10 the City's real property
transfer lax for low and moderate income first-time bome'buyen. Staff also recommc-nds
that \he exemption be administered 00 .·rebat. basis in coojunctioo with the Palo Ah.,
Housing Cap6ration (P ARC), and that • SSll processing fee per rebate request be instituted,
10 be adjusl<:d annually by the ConS1lmCf Price Index (CPI). Staff also =mends that
Council aclopl\he attached ordinance granting an exemption 10 the City's real property
transfer lax for all transactions involving • release of ownership interest held by co
borrowers, when monetary or other valuable consideration is not involved.
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POLICY IMPLICATIONS
This repod has been prepared.1<> aid in the enalysis of. first-time bomebuyer exemption to
the City's real property IIansfer tax foe transfers of residential property. The proposed
exemption targets low and moderate income buyers of property in Palo Aho.
EXECUTIVE SUMMARY
Baekgro1llld
During the 1992-93 IMldget process, the City instituted. real property IIansfer lax ofSI.65
per 5500 of assessed value. in OI"eIer 10 till • revenue shortfall Upon instituting the !aX, the
City relinquished its share (S.275 per $5(0) of the C<>untYs document transfer tax. The tax
generates r~enues of 8pP1"oximll!ety SI.5 milUon annually. OIl average, • buyer of
residenti21 property in Palo Aho pays • transfer tax of $68 5 (Attachment 2).
In December 1994, staff completed. review of the City's real property transfer tax, which
included an ~a!uation of potential exemptions 10 the tax (CMR:S33:94). Staff
recommended two exemptions 10 the laX foe transfers of residential pror.erty: 1) an
ex.emptiJO foe transfers where title is changed merely 10 remove an ownaship interest of ooe
or more parties without monetary coosideration; 2) an exemption foe low and moderate
income first-time bomcbuyers. CoonciI unanimously approved the first exClIlplioo.
Althougb C<>unciI expressed support foe the second ex"IIlptioo, there were CODCCI"IIS about
the way in which it was structured; and Council reqoested staff 10 return with • modified
recommendation.
FIrSt-Tim. Homebayer Enmplioa Oplioa.
Staff COIlSi<lered several options in structur'.ng the first-time homebuyer exemption
rerommended to Coonctl in December 1994_ The first op!icn was 10 offer the exemption
only 10 Mortgage Credit Certificate (MCC)-quaIified bomebuyers. The MCC prognun
provides quaIified low income first-time bomelMlyers with federal income tax credila. Since
the MCC qualificatioo. criteria are restrictive (e.g~ the cost of the bome must be less than
$250,000, the 10taI household income foe • Ihree oc more persoo household cannolexceed
S68,195.eIc.)'. very limited number of Palo Aho transactions would qualify bthis opIion.
Staff ~dered making the exemption .vanable 10 • greater number of first-time
bomebuyers by basing the exemption solely on income levels. This option concerned ~
because the verification of income poses administrative difficulties. As a result, staff
selected the option of basing the Qualificatioo. for the fHSt-time lMlyer exemption 00 the
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. purchase price of the home. Specifically, \0 qualify fur this option, staff recommended the
purchase price of !he home be kss than 80 percent of the average sales price of. Palo Aho
resi&nc<:. In calculating the average sales price, staff combined single family homes and
condominiwnsllownhomes, which resulted in • qualifying home soles price of up to •
maximum of $332,000. Staff sekclcd lhis op6oo because it was easy 10 administer, since
it eliminated the need 10 \'erify income k\,.1s; and under this option, • majorily of the fusl
time bomebuyen in Palo Alto wool<! qualify.
AI!boogh, in general, Council expressed support for. low .. 1<1 moderate income fust-time
homebuyer ."emption, there were SC\'era/ c.oocems about the option selec!ed by staff.
Council was roncemed that staff had !lOt defined or limited the income level required 10
quafifj fur the exemption. Since the average sales price included both
coodominiums/townh<>mes and singie famiJy homes, Cooneil was coocerned about the
potential that • first-time burnebuyer v.ith substantial income would purchase a high-end
condominium fur $332,000 and quali1Y fur tho exemption. Councll recognized, however,
that the cost of administering an exemp60n based 00 income verifiGation could be
substantial
To address Council coocems, staflhas lIIOIfdied !he rccommendatioo 10 define the maximum
income level that a bomebuyer may have in order 10 quaflfy fur !he exet!lJ'!lon. AI the same
time, st&ff has limitro the administntive effort and costs involved in implementing this
exemption.
Modified RecommendatioD
Staff ICCOOlIIlends modifying the op6oo recommended in D<=mbet 1994 by incorpo<ating
an income level cap. The City would qualify first-time buyers based 00 • combination of
income level and the purchase price of the burne. By lOcusing the exemption 00 income
level, staffwould ensure that • first-time buyer with substantial inccme would no( qualify
fur the exemption. At the same lime, by including. purchase price cap, staff would ensure
tha! • first-time homebU)'eI purchasing • higher priced home would net qualilY fur the
exemption. The Palo Alto HousingCapcra600 (PAHC) has agreed 10 perform the income
"erificatiOil for the City with the same process they use 10 qualify bU)'ers fur the City's
Below Market Rale (BMR) program. This will allow staff 10 include this qualification
criteria witlJoGt the administrative coocerns expressed previously.
Sraff recommends structuring the low and moderate first-time buyer exemption as fulJov. .. :
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I) Stalfproposes an btcomt level CIlJl of ISO percent of!he median income fur this area.
IlS reported by HUD. or $86,670 for • three-p.-'!'SOIl household (Attachment 3).
Although various income level choices are displayed in Attachment 3, this income
I<:>'el was selected ~, based 00 • survey cooducled by !he Board of Realtors for
first-time home purchases, it was the income that would DO<'!I1aily be required 10
q "alilY for • first-time home purcbase in P Ii<> Aho, Utilizing this income criteria,
moo: than balf of the first-time buyers in Palo Aho would qualify.
2) The proposed purclllJj'~ price Clip for a three-person household would be 5330,000
(Auachment 3). Altboagh the Iv""'ge PRIo Alto home price is $414,958 (Attacbment
2), the av""'ge price of. single family residence is approximately $448,000 and the
average price of • coodominiumIIownbome is 5284,000, Consequently. for
5330,000. !he first-time buyer would be purchasing property altho higher-middle
range of the condominium'Iown.'Iomelllllrl<et and the bottom 25 percent of the single
famiJy residence market (Attachment 4).
3) The intent of the low and moderate income first-time buyer exemption is 10 benefit
the buyer who, with the high cost of rea! estate in Palo Alto, is struggling 10 come up
with !he ash down payment needed to purchase a fJr'Sl home. Since the tradition is
thM the buyer and seller split the tax wilh each party paying 50 pereent, staff
recommends I cop 00 the exemption of 50 percent of the IOIal tax due for each
IransacIion. This would ensure 1hBt only the buyer would benefit from the exemption.
Since !he income ceiling would jJR'VenI a coodominiwnllownbome buyer wi!h substantial
income from '!lJal"dYIDg for this exc:mptioo, staff did DOt define ~ qualification cri1eria
for single family residenees and eoociooliniu!Dsl'l"wnbomes, In eddition. the P ABC bas
advised stafflbs! most of the fiunilies in !he City's BMR Program purcbase condominiums
0< lawnbomes when buying their first home in Palo Alia, However, if Council prefers 10
eliminate or define c:oodominiums1!ownbomes separately. staff wi/! revise the first-time
exemption '" refloc! Council direction.
Administration
The City wculd administer !he first-time homebuyer exemption utiUzing a rebate program.
With such a program. !he County Recorder would collect the run payment of the tax at the
time the deed or other instrumenleffecting a transfer is recorded. The taxpayer would !hen
submit. rebale request to !he AdministratiYe Services Department. In order 10 YeriJY !he
purchase price of !he borne, staff would require specific closing statements from !he
homebuyer. P ABC would perlOnn the income levela!ld first-time buyer status \'Crification.
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This VerlflC8tion process would pro,ide the City with J>~ction against fraudulent
applicatioos. FoIl""'ing review and approval of the rebate Iequest, the tax would be refunded
to the taxpayer. Staff anticipates anJl'i>ere from 60 to 188 first-time bomebuyer refund
req1I<S!S annually. The P ABC estimates that. lOr each rebate Iequest, veri1ication of income
and certification ofbuyer status would tale from one to two hours. P ABC would charge the
City lOr the ac!l!al time spent <Xi each veritkatioo. Utt1izing P ABC. standard boutly rates.
it is estimated thai charges to the City would range from $3,000 to $ 11,200 annnally.
depending 00 the time spent 011 each verifi<:ation and on the number of rebate request
verl&atioos prooessed. The staffwoddoad represented by the anticipated ,'olume would be
approximat::ly S percent of. full-time equivalent employee and could be absorbed by the
Ac!ministrative Service< Depa!1menl Staff recommends cbarging I processing fee of 550
(a<ljusted anJ1ually by CPl) when the rebate request is submitted 10 recover the costs of
administering lbe program.
If Council approves the modified \ow and m-oderate in<:ome first-time hom.buyer exemption,
staff will return with proposed changes 10 the Palo Aho Municipal Code. Municipal Fee
Schedule, and the 1995-96 Budget
f1SCAl.IMlACI
The exerr.ption lOr low and modera!e income first-time bomebuyers would resuit in an
estimated annual revenue reduction ranging from $33,000 \<) $86.000 (assuming the 50
percent cap is in place). The exemption lOr • release of ownership interest held by co
b4:im>wer.; wouldresuh in an estimated annual revenue reduction ofapproximlaely $10,000.
StalFs intent was to establish the processing fee ot a kvel sufficient to ree"ver P AHC costs
lOr the first-time homebuyer verili<:ation. How ... ·er. since payments 10 the P ABC could be
as much as $11,200. 1here is the potential that the City would need 10 absorb an annual
expenditure of $1.800 lOr the first-time homebl.]'er exemption.
ENVIRONMENTAL AS9'&'5MENT
This does" not corutitute a project under the Califurnia Environmental Quality Act.
T'terefure, no environmcntalassessment is needed.
AUACHMENIS
I) Release of Ownership Interest Onfmaoce
2) Average Residezrtiol Tnmsfer Tax Payment
3) Income Level and Purchase Price Limits
4) Single Family and CooWfownhome Market
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PREPARED BY: Melissa Cavallo, Assistant Finance Director
DEPARIMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
CC: Boa.-d ofR.calton
Ian C. Aarts, Cornish &: Carey
Marlene Prendergast, PA Housing Co<poration
Eric T. Trailer, Ncrth American rltle Company
CMR:l31 :!IS
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A TTACIKIIT 1
ORDINANCE NO.
ORPINANCB OF 'l'KB COUNCIL OF THl! CITY OF PALO ALTO
AMENDING CKAPTER 2. H OF TITLB 2 OF THl! PALO ALTO
MUNICIPAL CODB BY ADDING S&C'i'IOIi 2.31.095 TO
EXEMPT TRANSFERS EFFBCTED BY THE RELEASB OF AN
OWNERSHIP INTEREST IN REAL PROPBRTY BY A CO· OWN:E:R
WITHOUT CONSIDBRATION
The Council of the City of Palo Alto does O~AIN as
follOWS:
~. Chapter 2.34 of Title 2 of the Palo .Al.to
MUnicipal COde is bereby amended by adding a new section 2.34.095
to. read as f("JJ.lows:
2.34: .. 095 Conveyances not aub:iec:t t.o tax--I.ele&se of
owneriJ.h!p inl.ereat by • co-ovne.:r
Any tax imposed pursuant to this -chapter shall not apply
to the malting, delivery,. or filing of an instrument by which a co
owner or the co-owners of real property releases his or ber or
their ownership interest to the other co-owner or co-owners of the
real property vitbout receiving.. directly or indirect.ly, any
monetary or otber valuable -consideration .. wbere the co-owners are
-co-borrowers under a loan to finance or refinance the acquisition
of or the construction of improvements upon the real property.
SRCUPN 2.. The City Council bereby finds that the passage
of tbis ordinance does not c.oostltute a project under the
california Envlroamental Quality Act.
SR!j'TON 3. Pursuan·t to Section 2.04.350 of tbe Palo A1 to
Municipal Code.. this ordinance shall become effective upon its
adoption.
nITilOOOCED AND PASSED:
AYES:
NOBS:
ABSEN"!':
ABS'1'EN"!'IONS :
ATTEST: APPilOVEO:
City Clerk Mayor
City Manager Director of Finance
1
Senior ASst. City Attorney
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Alta c""""nt 2
Average Raskfenlia' Trans'er Tn PaY'nent
A~erage Palo .0.:'0 Home Ptice (I)
Palo Mo Transfer Tax (S 1.65 per $5(0)
Sanfa Clara Transfer Tax (.56 per $5(0)
Tolal Tax
Paymen!
$414,958
SI,369
$456
Paymenl wilh
5Gl50 Split {oJ
~ Sellfo!
$414,958 $414,958
$685 $684
$0 $456
ttcq.[t~ffi( rij:pa~ _C : ~-;.= .;. _ -.~: K~§L_-:_~ ::"ms--Z-ft®
.... erage Fnt-r."., Buyer PA Home Price (b)
Palo Mo Tran.fee Tax ($1.6S per $5CO)
Sanla Clara Transfee Tax (.56 per $500)
$335,250
$1,106
$369
$335.250 $335,250
a-Base<! on average pIice of BIngle family residences and condomjniumsllownho • .-.es in 19931114.
b-This average is based on • sample of firsl-Iime buyer purcl1ases of single family
residences an<! eoncIomill~ i> 1994.
c-The buyer and se!1eI' lra<flliooalfy sp!iI!he City lransfer lax. will1 each paying 50 percent;
. !he Coun!)' transfer lax is Irdortionalfy paid by !he sener.
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2
3
4
5
100% of
I-«JO Median PurcI1....,
L1COtTl!I (~ .. ~ 1 jmJ (l>l
$44,950 $170,000
51,360 195.000
57,780 m,ooo
64,200 245,000
69,336 265,000
Al1aclunent 3
Income and Purdla .. Price Limits
125% of ' -j50% or
I-«JO Median Purchase Ji!lOM~ f'ur<:Ilase
!ocome_~ ,~ pooe!)nl
$56.188 1215,000 $67,~25 ~,qpo
64,200 245,000 n.Q4Q 295,900
1
72,225 275,000 88,670 330.000
80.250 il6.3OC!
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305,000 ~·gp9f .' . ,"; :
88,670 330,000 1~,004 395,000
.. tfJO _ based on FebNao) 195:> HUO daIa lor h San Jose Primary Me1rnpoIitan Slafisticall\tea,
or wI1ich Palo Mo is • pari.
b-Equal k> !he maximum home pri<:e • buyer would quaflly lor (pmcipa1, merest. taxes and insurance equal \0
~ of ilcome) asouming • 10 pe<cenI down payment Inlerest is caTculaled using :he FNMA <le1ill8lY rala
pOOfisl1ed in !he Wallsfreel Journal plus .5 percenl and would be a<t"sled bi-annu.ny.
175'16 of
HUOMedian Purchase
!ooome f'I!ce Uml
$78,883 $300,000
89,880 ~,ooo.
101.115 385,000
'12,350 425,000
121,336 460,000
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Single Family and ConcIo{Towl'!homa Mark.t
Purc:Ilase _ Single CornIo or
prjce famib' Rt:sjdence Martel Tpwn1lorne Market -------
S220.000 BoIIom 5 percent of martet low-.nd of martel
$275,000 BolIom 10 percent of mat1<el Middle range of market
$330,000 BolIom 25 percent of martel ffigher-middle range of marf<el
$385,000 lower-middle range of market ffigh-end of marllel
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