An examination of the California Mills Act Historical Property Contract Program - A Policy Analysis

Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

Preservation Policy Analysis – An examination of the Mills Act Historical Property Contract Program Introduction This report focuses on examining the Mills Act. The Mills Act is a California historic preservation program that is one of many public policies forming the nation-wide patchwork of federal, state and local laws designed to encourage the preservation of historic community resources. At the heart of this policy is a robust singular financial incentive in the form of a hefty reduction in property taxes in exchange for investment and maintenance of historic resource properties.

Part 1 of this report will focus on a review of the Mills Act history, the intended community benefits, the Act’s singular legal and tax code incentive, and illustrating steps on how it works, along with a case study showing two alternate property valuation scenarios under the Mills Act tax formulas.

Part 2 explores how the public policy concept behind the Mills Act has “fiscal impact” on a city.

This part includes two case studies. The first is a sampling comparison of strategies that cities deploy in administering the Mills Act that aims to balance the benefits of the public policy with burdened costs; the second case study looks at an anomaly condition where official fraud is alleged on a Mills Act designation at the hands of a local elected official.

Part 1 – The Mills Act The Mills Act legislation was enacted in 1972. It weaves a taut legal and financial framework that establishes parameters for assessing and quantifying a historic property’s value. The intent of these legal and tax mechanisms is to incentivize investment in historic preservation by home and 1

Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

commercial property owners to “revitalize historic neighborhoods and commercial districts.”1 The rules are prescribed and are governed by three key parameters: One, by state tax formulas customized for the Mills Act; two, by the county assessor’s valuation methodologies crafted exclusively for Mills Act historic properties; and three, by a local city’s legally binding contracts with adherence to historic rehabilitation standards published at the federal level by the Secretary of the Interior and by the state’s Office of Historic Preservation.

History of the Incentive California residents who benefit from the Mills Act have James Mills2 to thank. Mr. Mills held elected office as state Senator “from 1960 to 1982.”3 Without Senator Mills, the “single most important economic incentive program in California for the restoration and preservation of historic building by private property owners”4 would not have existed. He is “best known for his efforts at historic preservation.”5 The Senator’s “idea for creating a property tax break linked as an incentive for historic preservation was born in the city of San Diego in response to the plight of

Fig. 1 – State Senator James Mills, retired. (Source: Coronado Times, Photo Credit: Gloria Tierney, published 2/20/2015)

the historic Hotel Del Coronado”6 located in his Senate district. The original Mills Act legislation was tested in state courts and one year later, in 1973, was ruled as

1

Lopez, Vickie, “Mills Act, Historical Preservation Through Tax Incentives” Santa Clara County Office Assessor’s Office, 2017 Tierney, Gloria, “Senator Jim Mills leaves a legacy beyond the Mills Act”, Coronado Times, 2/20/2015 3 Howard, John, “Where are they now? Former state Senator Jim Mills”, Capitol Weekly, 1/19/2006 4 State Office of Historic Preservation, “Mills Act” 5 Tierney, Gloria, Coronado Times 6 Ibid 2

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

“unconstitutional.”7 Then in 1976, four years after first enacted, “voters approved a constitutional amendment”8 to fix some flaws, deficiencies, and crucially, gave more control to local cities to mitigate the Act’s fiscal impact. Since then, the Mills Act has been amended three more times, in 1985, 1993 and most recently in 2012.

The Incentive A combination of two linked state regulations, legal and tax, makes up the body of the Mills Act law. Each government code references the other thus bundling the technical, legal, procedural and tax requirements. The legal part of the Mills Act is technically listed as “Article 12, Section 50280-50290”9 of the California Government Code, The second part is defined in “Article 1.9, Section 439”10 of the California Revenue and Taxation Code. Following is a brief summary of the Government Code’s key sections.

Government Code sub-section “50280 – Restriction of Property Use”11 prescribes that the basis of the incentive must be documented as a “contract” between an owner/applicant of a “qualified historical property” and a city and/or county. This section also inextricably ties the legal and tax components of the Mills Act, establishing that “The contract shall meet the requirement of Sections 50281 and 50282” as well as “restrict the use of the property” that meets the “purposes” of the state’s Revenue and Taxation Code.

Section 50280.1, defines the term “Qualified historical property.”12 This section imposes two conditions: One, that it is a “privately owned property which is not exempt from the property taxation,” and that the property is either “Listed in the National Register of Historic Places” or is in Historic District; or two, is “Listed in any state, city, county, or city and county official register

7

Ibid Ibid 9 California Government Code, Article 12, Sections 50280-50290, Office of Historic Preservation, California State Parks, webpage (http://www.ohp.parks.ca/gov/pages/1074/files/CGC12.pdf) 10 Ibid 11 Ibid 12 California Government Code, Article 12, Sections 50280-50290, Office of Historic Preservation, California State Parks, webpage (http://www.ohp.parks.ca/gov/pages/1074/files/CGC12.pdf) 8

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

of historical or architecturally significant sites, places or landmarks.”13 This latter condition, allowing greater leeway in determining historic significance to a local community’s grassroots judgment, has the effect of encouraging a wider spectrum of participation by property owners, but has two consequences: a greater pool of potentially historic properties participating in the Mills equates to revenue loss; and potential abuse and conflict of interests by local officials may undermine the spirit, intent, and integrity of the public policy, as one case study will explore.

We’ll revisit this section in this report’s final section.

Section 50281 lists the “Required contract provisions” of a 10-year term.14 Most critically, this section also directs that the “contract” will “confirm” to the “rules and regulations of the Office of Historic Preservation” and of the “Secretary of the Interior’s Standards for Rehabilitation, and the State Historical Code.”15 Section 50281.1 is a feature meant more for the local city administrator’s benefit, allowing discretion to each city to charge a fee for administering the Mills Act. This section stipulates that the fee shall not “exceed” a “reasonable cost.” How cities apply this fee varies widely, as we’ll explore in Part 2.

Section 50282 defines contract “Renewal” terms. This provision prescribes that the contract shall automatically renew every year, essentially rendering the incentive as perpetually active, and thus can transfer to new property owners. It also stipulates that the owner may opt out of the contract by giving notice to the city administrator “at least 90 days prior to renewal date.”

Sections 50284 to 50286 outline rules in case an owner decides to cancel the contract before the 10-year term ends, stipulating that a property owner is obligated to pay a penalty of 12.5 % based on the “current fair market value, as determined by the County Assessor.”16

How the Incentive Works

13

Ibid Ibid 15 Ibid 16 California Government Code, Article 12, Sections 50280-50290, Office of Historic Preservation, California State Parks, webpage (http://www.ohp.parks.ca/gov/pages/1074/files/CGC12.pdf) 14

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

Activating the mechanism created by the Mills Act is a three-step process that loops together collective resources of local, state and federal levels for the single purpose of delivering a property tax incentive to private property owners who contractually commit to abide by the law’s requirements for a ten-year period. Though the state law delegates Mills Act authority to the local city (or county) as the prime agent, it relegates a passive role to the state’s Office of Historic Preservation as “advisor” to “local governments and property owners.”17 Initiating the process, an owner submits an application packet to the city which acts as gatekeeper of the Mills Act incentive. The city then exercises its authority in reviewing the application to determine the merits of eligibility as a “qualified historic property”. Some larger cities have staff with historic preservation expertise who manage this process; smaller cities with limited staff may hire a private consultant to review Mills Act eligibility. For example, the City of Los Angeles relies on in-house historic preservation professionals to manage the vetting of Mills Act applicants. One small city with no expertise on staff allowed a high school class assignment to serve as the basis for designating a home as “historic.”18 For Step 2, once a city validates the property’s Mills Act eligibility as a “qualified Historic” building, city officials execute a “contract” with the owner, which is quickly followed by city council action for approval of the contract. At this point, the city files city/owner contract with the County Recorder’s office, then sends proof of filing onto two parallel paths: it’s sent to the County Assessor for

17

Lauchner, Shannon, “Mills Act 101 – An Incentive for Preserving Your Community’s Past”, California Office of Historic Preservation, March 24, 2017 18 Newsletter, City of Huntington Park, Historic Preservation Commission, Spring 2010.

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

valuation and to the Office of Historic Preservation for tallying data of state-wide Mills Act activity. The contract carries a caveat rider: the city does not guarantee that the owner will receive a property tax benefit. At this point, despite having a Mills Act contract in place, neither the owner or the city yet know what the property tax benefit would be, and so wait for the assessor’s valuation.

In step 3, the Assessor assumes the leading role. While the city is custodian of the Mills Act contract through the term, it defers to the assessor’s legal mandate to calculate the property valuation at start-up and annually, aiming to set the property tax benefit amount as a net reduction in property taxes. The property valuation and tax formulas in this step are governed by “strict guidelines” set by the State Board of Equalization which are interpreted from the “Revenue and Taxation Code Section 439.2.” This 3-step cycle may take up to a year to process.

Applying the Incentive According to the state’s Office of Historic Preservation, typical Mills Act property tax savings incentives can range from “5% to 60%.”19 Driving the public policy engine of the Mills Act to achieve these results are complex tax equations. The assessor applies a property valuation methodology that is custom tailored by the Tax Code. This involves preparing 3 valuation calculations: a “Base Year Value”, a “Current Market Value”, and the “Mills Act Value.”20 According to the Getty Conservation Institute, “the Mills Act requires the assessor to apply the lowest value of the three appraisals.”21 Modifications to the state’s Revenue and Taxation Code accommodate the Mills Act by substituting the assessor’s key

19

Mills Act Program, Office of Historic Preservation, California State Parks, website (www.ohp.parks.ca.gov) Ibid 21 Ibid, Pg. 7 20

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

property valuation determinant for an alternate factor that is designed to yield a lower property value, termed the “Mills Act Value”. The city of Los Angeles’ Office of Historic Resources offers guidance on this step by clarifying that the valuations are “determined by an Income Approach to Value rather than by the standard Market approach.”22 This distinction seemingly aims to tag valuation to a lower-value benchmark.

The purpose of lowering a property’s valuation under the Mills Act has clear and singular intent.

How the assessor does it is quite complex. Underlying the complex Mills Act tax formulas seems to be a simple algorithm concept: It is an inverse proportion formula that functions to suppress the property’s value, directly lowering the tax burden, which then correlates to delivering an attractive benefit: A lower valuation equals a higher tax incentive. Market factors entered into each of the 3 formulas may alter the order of which of the 3 mandated formulas yields the lowest valuation. In some cases, neither of the 3 methods may yield any tax benefit at all, according to the Office of Historic Preservation.

Sample Property Valuations Two Mills Act case studies published by the Getty Conservation Institute23 are here highlighted to demonstrate “the effects of the Mills Act on property taxes.”24 Each case study lists the three

22

Mills Act Historical Property Contract Program, Office of Historic Resources, City of LA, website (http://Preservation.lacity.org/mills-act)

23 24

Two Case Studies, Mills Act, Getty Conservation Institute, pg. 6 Ibid

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

mandated valuation formulas and the resulting higher benefit amount. The first study shows that the “Mills Act Valuation” formula delivers the lowest valuation, thus yielding the higher incentive amount.

The second case study reveals that the “Assessor’s Base Year” formula yields the lower property valuation, and not, surprisingly, the Mills Act formula.

Case Study #1   

Mills Act Assessor Valuations25 Valuation #1 - Assessor’s Base Year Value Valuation #2 - Current Market Value Valuation #3 - Mills Act Value

$ 239,291 $ 240,000 $ 116,100 – Selected.

Tax Savings Calculation  

Case Study #2   

Annual Property tax @ Market Value Annual property tax with Mills Act Annual property tax savings 10-year property tax savings

$ 2,393 ($239,291 x 1 % County) $ 1,161 ($116,100 x 1 %) $ 1,232 ($2,393 - $1,161) $ 12,320 ($1,232 x 10 yr. contract)

Mills Act Assessor Valuations26 Valuation #1 - Assessor’s Base Year Value Valuation #2 - Current Market Value Valuation #3 - Mills Act Value

$ 251,246 - Selected $1,300,000 $ 396,100

Tax Savings Calculation  

25 26

Annual Property tax base @ Market Value Annual property tax with Mills Act Annual property tax savings 10-year property tax savings

$ 13,000 ($1,300,000 x 1 %) $ 2,512 ($251,246 x 1 %) $ 10,488 ($13,000 - $2,512) $ 104,880 ($10,488 x 10 yr. term)

Ibid, Pg. 6 Ibid, Pg. 7

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

Part 2 – Analysis of the Incentive According to Shannon Lauchner, the Mills Act Coordinator in the state’s Office of Historic Preservation, “Seven counties and 77 incorporated cities have adopted the Mills Act.”27 While the Mills Act is clear in its intent and “spirit” of the law, comparing how local cities apply the “letter” of the law merits study.

The Mills Act mechanism converts a city’s property tax revenue into a private incentive benefit.

The incentive works much like a barter credit condition. The property owner gets a reduced tax bill, and the difference that the property owner takes in tax savings is the equivalent amount which the city forfeits in annual property tax revenue. In effect, the Mills Act has a “fiscal impact”28 on a city’s operating budget. To distill, each Mills Act incentive contract represents a city’s equivalent direct loss of revenue.

The premise of the Mills Act is that a direct tangible fiscal impact to a city is offset by multiple indirect intangible benefits to the community. The Mills Act deputizes each city with powers of control and authority in executing the public policy. With that power comes a cost burden. To help offset startup administrative costs, the Mills Act allows each city to charge a fee for processing the application.

The fee amount, however, is one-time only and does not match on a 1-to-1 basis with the cumulative amount which the city forfeits in lost revenue over a 10-year life of the contract.

27

Lauchner, Shannon, “Mills Act 101, Preservation Though Tax Incentives”, Power Point Presentation Mills Act Program for Historically Designated Properties, The City of San Diego, webpage (https://www.sandiego,gov/sites/default/files/legacy//planning/programs/historical/pdf/2015/millsacthandout201507.pdf 28

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

Given the Act’s tightly controlled parameters for channeling property tax incentives, cities large and small exercise different degrees of participation in the Mills Act, ranging from zero to “all-in”, as well as varying degrees of fiscal controls. This is evident in the variety of methods cities use to balance the trade-off between community benefits versus the revenue loss entailed by participation in the Mills Act program.

The Mills Act has exacting prescriptive requirements and tax formulas, but it does not prescribe minimum or maximum contract quantities, nor does it mandate that a city shall participate, a decision best left to each city, informed by its finite inventory of “qualifying” historic properties, and governed also by the city’s tolerance level for revenue loss. Cities have deployed the fluid-mechanics equivalent of pressure regulators to check revenue flow in an effort to minimize fiscal impact of the Mills Act. This next case study samples eight cities on how each customizes participation in the Mills Act. Though smaller cities may desire the intangible community benefits of the Mills Act, the prospects of concomitant revenue loss may prove untenable or unsustainable. Some smaller cities may have such limited and narrow revenue streams that any Mills Act activity has the potential to disrupt the annual operating budget. Participating cities have adopted a combination of strategies to manage both the upside of the public policy intent as wells as the downside of the fiscal impact. A common strategy deployed by Mills Act cities is to impose caps, thresholds or quotas on contracts. One popular cap type imposes an annual limit on executing Mills Act contracts. Another cap may limit the property valuation amount to qualify for the Mills Act (L.A. sets at $1.5 Million).29 A variant of the cap strategy is to

29

City of Los Angeles, Mills Act Historical Property Contract Program, webpage (https://preservation.lacity.org/incentives/mills-act-historical-property-contract-program)

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

impose a threshold amount beyond which no further Mills Act contracts are executed, this is either annual (Santa Barbara allows a total of 8 contracts per year),30 or total program-wide (Long Beach taps out at $200,000 total program Mills Act commitment).31 Examples of other strategies include charging relatively high application fees, which is the single strategy specifically addressed by the California Code. Fiscal caps are not mentioned in the Mills Act. If cities are on fiscal shaky ground they may not enact Mills Act ordinances at all or may cancel Mills Act activity altogether (as the city of Long Beach did in 2005 during the beginning of the mortgage meltdown crisis).32 One city is so flush with revenue that it imposes no annual quotas on Mills Act applications, no program-wide fiscal cap, does not impose an annual quota, and does not charge a fee. This city has Disneyland to thank for its flush city coffers, making it the most generous and friendly Mills Act city in California. Such is the wisdom of the Mills Act that the law allows for a spectrum of management leeway (though in one case, such leeway proved susceptible to fraud).

Some larger cities engage in active community outreach efforts to inform the public on the Mills Act via dedicated websites that include detailed guidance on the Mills Act incentive and process.

One example is the city of Los Angeles, which takes extra pains to explain nuances of the Mills Act by hosting public workshops. Each website providing information on the Mills Act reflects that city’s level of enthusiasm. The simplest of websites are one-pagers and are cut-and-pasted from the state’s Office of Historic Preservation. A handful of cities have elaborate Mills Act websites that actually inform the

30

City of Santa Barbara, Mills Act Application, webpage (http://www.santabarbaraca.gov/services/community/historic/preservation/mills.asp) 31 City of Long Beach, Mills Act Property Tax Abatement Program, An Economic Tax Incentive Program for Historic Properties, webpage (www.lbds.info/millsact/) 32 Ibid

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

public with links to federal and state resources on historic preservation. The city of Los Angeles has a sophisticated Mills Act outreach program, including one staff member in the city’s Office of Historic Resources dedicated to managing the Mills Act, Lambert Geissinger,33 and posts web updates of “Frequently Asked Questions.”34 These “FAQ’s” attempt to clarify if a property is “qualified” for the Mills Act under a multitude of variant hypothetical conditions. One such FAQ lists an inquiry on whether adding solar panels would violate the Mills Act contract (Answer: “Not necessarily”).35 Some smaller cities without the resources (or inclination) are demure and provide the feeblest and bare minimum of public notice on the Mills Act, perhaps as a passive strategy to minimize the Act’s fiscal impact potential. One most curious case, in the city of Huntington Park, all Mills Act related public information has curiously vanished, but some lingering sub-folders show that all Mills Act activity has mysteriously frozen in time, stuck in 2010, without any explanation. Why did all the city’s Mills Act and Historic Restoration Commission activity freeze in 2010? The last case study of this report will explore likely reasons.

However, the most educational, valuable, and statistically useful Mills Act website is the city of Anaheim’s.36 It offers links to every Mills Act contract that Anaheim ever granted, complete with searchable and downloadable original application submission packets, along with a map and image of the historically designated property, hosted on an ARC-GIS platform accessible with one mouse click,

33

City of Los Angeles, Mills Act Historical Property Contract Program, webpage (https://preservation.lacity.org/incentives/mills-act-historical-property-contract-program) 34 City of Los Angeles, FAQ’s About the Mills Act Program, Office of Historic Resources, webpage (https://preservation.lacity.org/news/frequently-asked-about-mill-act-program) 35 Ibid 36 City of Anaheim, Mills Act Program, website (https://www.anaheim.net/DocumentCenter/view/537/Mills-Act-ProgramGuidelines)

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

and all subsidized by a gushing revenue stream made possible by a little rodent situation that Anaheim is known for.

Case Study –Mills Act Management Strategies 1. City of San Diego37 a. Interesting Facts: 1) Birthplace of the Mills Act 2) First Mills Act property: 1995 3) 901 total Mills Act Property contracts in 2007 4) Most active Mills Act program in the state. b. Mills Act Strategy 1) Caps annual fiscal threshold at $200,000 for net contract amounts.

2) Application Fees: $1,855 2. Santa Barbara38 a. Interesting Facts 1) Has a minimal website info sheet which cuts and pastes same info from State Office of Historic Preservation.

2) Website includes link to application packet. b. Mills Act Strategy 1) Accepts only 8 Mills Acts contracts per year.

2) Annual total valuation cap: $1 million.

39 3. Costa Mesa a. Interesting Facts 1) Website has no information other to contact city planner for information on the Mills Act program. b. Mills Act Strategy 1) Accepts only 20 Mills Acts contracts per year.

37

City of San Diego, Mills Act Program for Historically Designated Properties, webpage (https://www.sandiego.gov/sites/default/files/legacy/planning/programs/historical/pdf/millsactdocs/millsacthandout1207 06) 38 City of Santa Barbara, Mills Act Application, webpage (http://www.santabarbaraca.gov/services/community/historic/preservation/mills.asp) 39 City of Costa Mesa, Costa Mesa Mills Act Program, webpage (https://www.costamesaca.gov/city-hall/commissions-andcommittees/historical-preservation-committee/costa-mesa-s-mills-act-program)

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

4. City of Orange40 a. Interesting Facts 1) Previously had cap of 10 Mills Act contracts per year 2) In 2016 removed yearly cap 3) Informs on website that annual property savings is meant for spending on maintenance on the historic property.

4) Informs that average annual property tax savings is trending at $2,970.

5) 16% of eligible historic property inventory is on Mills Act contracts.

6) Website is well designed with detailed information b. Mills Act Strategy 1) In 2016 removed annual cap 2) Fees: $1,000 plus $30 annual inspection.

5. Long Beach41 a. Interesting Facts 1) Stopped accepting Mills Act applications in 2006 2) Mills Act was on hold from 2006 to 2015 3) Early focus was on historic residential properties; now expanded to include commercial historic properties.

4) Website notes that annual fiscal impact is between $145,000 to $200,000. b. Mills Act Strategy 1) Caps at 12 new contracts per year.

42 6. Escondido a. Interesting facts 1) City website on Mills act is full of disclaimers a. Mills Act is not worth it due to already low Prop 13 valuations b. Mills Act may not yield any benefit at all 43 7. Whittier a. Interesting Facts: 1) Application has not deadline 2) Simple application packet b. Mills Act Strategy 40

City of Orange, Mills Act Program, webpage (https://www.cityoforange.org/267/Mills-Act-program) City of Long Beach, Mills Act Property Tax Abatement Program, An Economic Tax Incentive Program for Historic Properties, webpage (www.lbds.info/millsact/) 42 City of Escondido 43 City of Whittier 41

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

1) 8.

Professor: Meredith Drake Reitan

Fee: $4,849

Anaheim44 a. Interesting Facts: 1) Disneyland and tourism infrastructure is a reliable and diversified revenue stream.

2) Mills Act ordinance enacted in 2001 3) 300 Mills Act contracts 4) 1,400 properties are eligible 5) Third largest Mills Act program in California quantity of contracts. b. Mills Act Facts: 1) No Fee charged.

2) No annual contract quota 3) No annual cap

Case Study - Mills Act Malfeasance Mills Act enforcement tools are robust with provisions for a city to remedy an owner’s noncompliance with the contract. However, the Mills Act does not contemplate the possibility of a conflict of interest and/or outright fraud committed by a city official directly related to a Mills Act application.

There are no explicit Mills Act Government Code provisions for preventing or invalidating a contract under such conditions. This seems to expose a legal blind spot. Public records and a front-page L.A. Times cover story reveal one instance of Mills Act malfeasance elaborately orchestrated by an elected official of a small city located just beyond the shadows of L.A.’s Historic Core District. This politico with criminal proclivities was a little-league mayor with big-city ambitions who controlled the political

44

City of Anaheim, Mills Act Program, website (https://www.anaheim.net/DocumentCenter/view/537/Mills-Act-ProgramGuidelines)

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

ecosystem in Huntington Park, a city of 62,000 residents, mostly Latino immigrants, and which borders the city of Bell (made infamous with the $1,000,000 city manager’s salary).

On Wednesday, October 17, 2012, a small sun-splashed Spanish-Revival style bungalow in Huntington Park made a cameo appearance as a backdrop in a picture published in an L.A. Times front-page news story.45 The bungalow is a quaint 1930s one-story single-family home with white stucco, accent red clay roof tiles, a chimney, and a faux arch over the driveway. In the picture’s foreground,

Fig. 2– John Noguez Arrested. In background is his Spanish-Revival style home (Source: Wall Street Journal, Photo Credit: LA Times/Associated Press, 10/18/12)

the dynamic focus of the image, we see police officers escorting a man away from the whitewashed stucco red-tiled roof bungalow with his hands behind his back in handcuffs. The headline reads “Assessor John Noguez arrested in corruption probe.”46 That bungalow was his home in the city of Huntington Park. In 2010, just two years prior to John Noguez’s arrest, that little Spanish-style bungalow would play a leading role in a Mills Act drama led by the same protagonist now being arrested.

2010 was an inauspicious year for this bungalow located at 3247 Olive Street in Huntington Park. before being elected as L.A. County Assessor, John Noguez was the city’s mayor. In the spring of 2010, the city of Huntington Park’s Historic Preservation Commission featured a picture of Mayor John

45 46

Vives, Ruben, “Assessor John Noguez arrested in corruption probe”, L.A. Times, 10/17/2010.

Ibid

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

Noguez’s home in an official newsletter.47 He wanted official recognition of his home as being “historic”48 because another former mayor lived there too, back in the 1980s. His home was now up for consideration as a Mills Act candidate in what seems to be a grassroots community effort (which we later learn was not the case at all, but the urgent single-minded effort of the mayor himself). Mayor Noguez touted expertise in historic preservation. After all, at this earlier date in 2010 before his arrest on 18 charges of criminal activity in the L.A. County Assessor’s office, Noguez’s day job was as a deputy assessor in charge of valuations for all of the Downtown L.A. Historic Core District. He was Huntington Park’s mayor since 2002, but it wasn’t until 2006 that he directed city staff to start the city’s first Historic Preservation Commission. In late 2009 when mayor Noguez directed Huntington Park’s volunteer Historic Preservation Commission (community members he handpicked) to designate his home as having historic value, no one questioned his judgment, his professional expertise, nor the potential conflict of interest, least of all the legality of it. More critically, Huntington Park’s city attorney assured the Commission members that historic designation met Government Code Section 50280.1 for “Qualified Historic Property.” This was taking advantage of the second part of the Government Code which allowed a historic designation if a property was listed in a city’s “Historic Registry.”49 To meet this requirement, Noguez pulled more levers and ordered city officials to create a “Historic Registry” to make it all appear legitimate.

47

Newsletter, Historic Preservation Commission, City of Huntington Park, Spring 2010 Brian Hews, “Noguez Home Given Historical Designation While in Foreclosure”, Los Cerritos News 49 California Government Code, Article 12, Sections 50280-50290, Office of Historic Preservation, California State Parks, webpage (http://www.ohp.parks.ca/gov/pages/1074/files/CGC12.pdf) 48

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

The only reference material presented in early 2010 to the city’s Historic Commission to justify “qualification” of Noguez’s’ home for historic designation was the work product of a John F. Kennedy High School class assignment sponsored by the LA Conservancy’s Youth Outreach Initiative,50 an effort with John Noguez ostensibly encouraged under the auspices of his dual roles as mayor of Huntington Park, and as deputy assessor of the Downtown Historic District. “The students”, notes the spring 2010 city newsletter, “conducted background research and documented exterior and interior photographs of the property to find historical significance.”51 The newsletter also includes a picture of the high school team and their proud teacher. The high school report concluded that that mayor Noguez’s home had historic value. It was curious that John Noguez would invite a high school located in the northern reaches of the San Fernando Valley, 30 miles north of Huntington Park, and would not tap Huntington Park’s two local high schools. If Noguez was intending to fan an interest in local grassroots historic preservation, what better start than with local grassroots high school students in his own community, not 30 miles away.

Huntington Park’s Historic Preservation Commission was created in 2006 at Noguez’s behest.

Huntington Park’s Mills Act and Historic Preservation website were created in late 2009, as reflected in the Commission’s meeting minutes52 of August 18, 2009, which also stated that “the City Attorney has reviewed and approved the City’s Mills Act applications and agreement.”53 The same August 2009 minutes also recorded one staff action item, which was to submit to become a “Certified Local

50

Newsletter, Historic Preservation Commission, City of Huntington Park, Spring 2010 Newsletter, Historic Preservation Commission, City of Huntington Park, Spring 2010 52 Historic Preservation Commission, City of Huntington Park, Aug. 18, 2009 web page (https://www.hpca.gov/ArchiveCenter/ViewFile/Item/1852) 53 Ibid 51

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

Government (CLG)” to administer the Mills Act program. The city’s Mills Act and Historic Preservation webpages were active and visible during 2010, but have now disappeared from public view (though minute minutes are still posted up to 2011). However, a search of sub-folders reveals a cached webpage linking to the city’s official “Mills Act Application Packet.”54 It is dated ”2010”. A Google search for “Huntington Park Historic Preservation” leads to a city webpage with a single sentence: “We’re sorry, but there is not a web page matching your entry”, but the sidebar menu lists 14 properties designated “Historic”, one of them is John Noguez’s property but is off by one digit, listed as “3447 Olive”, instead of “3247 Olive.” On Sept. 15, 2009, a new business item in the minutes states that “Two properties, 7030 Marconi and 3247 Olive Street, will be presented at the next meeting as a designated historical resource.”55 On October 20, 2009, the Commission’s minutes do show that a resolution was submitted to city council (“Case No. 09-HRD”)56 “recommending designation of 3247 Olive Street (APN: 6213-019-018) as a historic Resource for Placement on the Huntington Park Historic Register.”57 I did find the city’s “Historic Preservation Design Review Guidelines”, but had to get it from web link posted on the L.A. Conservancy’s website.58 This document is also vintage, dated “October 18, 2010”. This date is significant: 2 weeks later, on November 2, 2010, John Noguez was elected as the

54

City of Huntington Park, city webpage (http://www.hpca.gov/DocumentCenter/View/516/Mills-Act-Application?bidId=) Historic Preservation Commission, City of Huntington Park, Sept. 15, 2009 webpage (https://www.hpca.gov/ArchiveCenter/ViewFile/Item/1991) 56 Ibid, Item B, Oct. 20, 2009 57 Ibid 58 L.A. Conservancy, “Historic Preservation Design Review Guidelines – City of Huntington Park”, Oct. 18, 2010 55

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

L.A. County Assessor, vacating his elected office in Huntington Park. Inexplicably, all historic preservation activity in the city of Huntington Park froze after October 18, 2010.

Just two days before the arrest of Assessor John Noguez in front of house, out comes a report published by the Los Cerritos News,59 suggesting that the city’s designation of Noguez’s house as “historic” and placing it on the city’s newly minted “Historic Register” was utilizing the levers of government and public policy for his personal benefit. The headline read “Noguez Home Given Historical Designation While in Foreclosure”,60 noting that “the bank canceled proceedings”61 to foreclose just one week after Huntington Park’s Historic Preservation Commission designated his house as “historic” and nominating it for the freshly created “Historic Registry” back in the “spring of 2010.62 In 2010, while he was a candidate for county-wide office for County Assessor, the public was not aware that Noguez was in foreclosure proceedings on $15,000 arrears in his mortgage for his Spanish-Revival home. It was quite a common occurrence due to the economic crisis at the time. The difference between this case and thousands of other properties in foreclosure during the mortgage crises is that Noguez leveraged his Assessor’s knowledge and official position as mayor of the city to orchestrate an elaborate ruse to label his home as “Historic” and contract as a Mills Act property, then claiming to the bank that they could not foreclose due to the bungalow’s designation as “historic” under the Mills Act.

59

Brian Hews, “Noguez Home Given Historical Designation While in Foreclosure”, Los Cerritos News Ibid 61 Ibid 62 Newsletter, Historic Preservation Commission, City of Huntington Park, Spring 2010 60

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

The Los Cerritos Newspaper report quoted the former mayor who previously lived in the same Spanish-Revival home: “John is a big supporter of a Historic Preservation Commission in the first place, so it was no surprise when he came forward to express his interest in having his own house placed on the city’s historical registry.”63 A commission member stated that “John pushed this through personally, he wanted his house to be recognized in a formal manner.”64 A long-time Huntington Park resident, Pedro Paramo, is also quoted as follows: “Justification for making John Noguez’s home a historical designation was a written report by a group of high school students. Typically, the criteria are set high for designating any structure as architecturally or historically significant. The vetting is done by accredited historians with years of experience who specialize in the field, not high school kids. it is curious that Mr. Noguez did not pursue benefits of the Mills Act, which would have given owners of historically significant properties a 15% reduction in property taxes; there must have been another reason for Mr. Noguez’s efforts at pursuing a historical designation for his property. Typically, when a property is in foreclosure, any efforts with historical designation underway may be reason to cease foreclosure proceedings. If that was Mr. Noguez’s goal, it raises red flags including manipulating city ordinances and resources for his own benefit may be considered fraud and misuse of public funds,” said Paramo.”65 A staff member in the state’s Office of Historic Preservation was quoted in the same Los Cerritos New report, commenting on the validity of Huntington Park’s historic designation of the mayor Noguez’s home: “Jay Correia, with the California Department of Historical Preservation said he was not aware of how homes and properties in Los Angeles County, and specifically Huntington Park consider properties to be part of a formal designation. But he did say that to earn a “historical

63

Brian Hews, “Noguez Home Given Historical Designation While in Foreclosure”, Los Cerritos News Ibid 65 Ibid 64

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

designation” by the state of California the structure “must be intact” and that it has be at least 50 years old, and that the home must be “significant” at the local level. A comprehensive review of records from the Office of California Historical Preservation confirmed that there are no properties from Huntington Park on the California Historical Preservation Site list.”66 The Mills Act theatre in Huntington Park is now memorialized in hidden city webpages, all dated “2010”, the year John Noguez used the Mills Act to save his home from foreclosure. 2010 is the same year he graduated from little-league small-time petty corruption to big-league wholesale malfeasance in the Assessor’s office.

Summary – Mills Act Remedies James Mills is retired but is still active in the city of Coronado,67 where the Mills Act got started.

Senator Mills’ legacy legislation has survived a court challenge, and he has witnessed three amendments to the Mills Act, the last one in 2012. The collective results of the Mills Act public policy can be characterized as a success still in progress given the collective effort of participating cities to enact this historic preservation incentive program. There have not been additional challenges to the Mills Act, or amendments, perhaps due to successful strategies which cities have implemented in an effort to balance both the fiscal impact and the public benefit the Act is intended to deliver. The final case study of this report suggests that perhaps one more amendment to the Mills Act may be needed in order to prevent the perverse manipulation of the Mills Act by local city officials which has the effect of undermining the spirit, intent, and integrity of the public policy.

66 67

Brian Hews, “Noguez Home Given Historical Designation While in Foreclosure”, Los Cerritos News Howard, John, “Where are they now? Former state Senator Jim Mills”, Capitol Weekly, 1/19/2006

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

A correction to the Mills Act may need to address three distinct remedies. The first recommendation is to add a new sub-section to the Government Code to address conflict of interest by city staff or elected officials; for example, the code can simply and explicitly prescribe that no city elected official may submit their property for historic or Mills Act consideration, this is a pre-emptive measure. The second recommendation is to address a legal remedy in case a Mills Act contract is already in place and is the result of fraud and/or conflict of interest committed by a city official.

The final recommendation is to strengthen Government Code 50280.1. This section recognizes the value of a community’s grassroots judgment by accommodating local “historic” designation, even allowing a local city to create its own “Historic Registry.”68 Senator James Mills intended for this effect to encourage wider community participation and awareness of historic preservation efforts. A high school classroom assigned to explore the community history is one such laudable intended result.

However, Government Code 50280.1 should include a provision for vetting of that judgment, to prevent a high school class report from being submitted by an elected official as expert analysis on historic value, which is then used as an instrument to manipulate a private transaction with a financial institution.

There was conflict of interest layered upon conflict of interest in John Noguez’s case, both in his capacity as mayor and compounded by his concurrent position as a county deputy assessor. This should have raised red flags along many points, and on many levels, but didn’t.

68

California Government Code, Article 12, Sections 50280-50290, Office of Historic Preservation, California State Parks, webpage (http://www.ohp.parks.ca/gov/pages/1074/files/CGC12.pdf)

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

Two historical facts in the John Noguez case serve as compelling exhibits in an argument for amending the Mills Act. This case study reveals that all public historic preservation and Mills Act activity swirling around in a flourish of official acts 2010 in the city of Huntington Park coincided with a private foreclosure notice served on Mayor John Noguez’s white stucco Spanish-Revival bungalow.

Then all historic preservation and Mills Act activity inexplicably vanished from the city’s website the moment he cleared foreclosure, with the last official historic preservation document frozen with a date-stamp of October 18, 2010, two weeks before Noguez was elected County Assessor. The public record evidence clearly suggests that he used the tools and levers of government to carry out official action with the use of public funds and city resources in order to save his bungalow from foreclosure.

The second historical fact is that two years later, in 2012, John Noguez, as County Assessor, was arrested on public corruption charges. The L.A. County District Attorney’s office alleges that John Noguez committed crimes in his official role as deputy assessor of the Downtown’s Historic District going back to 2005, while he was still mayor of Huntington Park, and later while serving as the duly elected County Assessor, from 2010 to the day of his arrest.

These facts attest to the farce and mockery John Noguez made of the good intentions of the Mills Act laws and serves as compelling reasons to consider amending the Mills Act to remedy the blind spot.

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Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

Works Cited 1. Hews, Brian, “Noguez Home Given Historical Designation While in Foreclosure”, Los Cerritos News, Oct 2. Howard, John, “Where are they now? Former state Senator Jim Mills”, Capitol Weekly, 1/19/2006 3. Lauchner, Shannon, “Mills Act 101 – An Incentive for Preserving Your Community’s Past”, California Office of Historic Preservation, March 24, 2017 4. Lopez, Vickie, “Mills Act, Historical Preservation Through Tax Incentives” Santa Clara County Office Assessor’s Office, 2017 5. Tierney, Gloria, “Senator Jim Mills leaves a legacy beyond the Mills Act”, Coronado Times, 2/20/2015 6. Times Editorial Board, “Jeff Prang for L.A. County Assessor”, LA Times, 5/1/2018.

7. Vives, Ruben, “Assessor John Noguez arrested in corruption probe”, L.A. Times, 10/17/2010.

8. Anaheim, Mills Act Program, website (https://www.anaheim.net/DocumentCenter/view/537/MillsAct-Program-Guidelines) 9. California Office of Historic Preservation, Mills Act Program, California State Parks, website (www.ohp.parks.ca.gov) 10. California Office of Historic Preservation, Government Code, Article 12, Sections 50280-50290, California State Parks, webpage (http://www.ohp.parks.ca/gov/pages/1074/files/CGC12.pdf) 11. Costa Mesa, Costa Mesa Mills Act Program, webpage (https://www.costamesaca.gov/cityhall/commissions-and-committees/historical-preservation-committee/costa-mesa-s-mills-actprogram) 12. Escondido, Mills Act Webpage 13. Getty Conservation Institute, “Two Case Studies”, Mills Act, Pg. 6 14. Huntington Park, Newsletter, Historic Preservation Commission, Spring 2010 15. Huntington Park, city webpage (http://www.hpca.gov/DocumentCenter/View/516/Mills-ActApplication?bidId=) 16. Orange, Mills Act Program, webpage (https://www.cityoforange.org/267/Mills-Act-program) 25

Ramon Hernandez Arch 550 – Heritage Conservation Policy & Planning Report #2 – Preservation Policy Analysis February 28, 2019

Professor: Meredith Drake Reitan

17. LA Conservancy, “Historic Preservation Design Review Guidelines – City of Huntington Park”, Oct. 18, 2010 18. Long Beach, Mills Act Property Tax Abatement Program, An Economic Tax Incentive Program for Historic Properties, webpage (www.lbds.info/millsact/) 19. Los Angeles, Mills Act Historical Property Contract Program, Office of Historic Resources, website (http://Preservation.lacity.org/mills-act) 20. Los Angeles, FAQ’s About the Mills Act Program, Office of Historic Resources, webpage (https://preservation.lacity.org/news/frequently-asked-about-mill-act-program) 21. San Diego, Mills Act Program for Historically Designated Properties, The City of San Diego, webpage (https://www.sandiego,gov/sites/default/files/legacy//planning/programs/historical/pdf/2015/mills acthandout201507.pdf 22. Santa Barbara, Mills Act Application, webpage (http://www.santabarbaraca.gov/services/community/historic/preservation/mills.asp) 23. Whittier, Mills Act Webpage

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