Mills Act Program: Overview
California’s and Los Angeles’s leading financial incentive program for historic preservation
-Applies to all property types: single-family, multi-family, commercial, industrial, and recreational
-Revolving 10-year contract between the City and property owner that allows for potential reduction in property taxes.
-Contract runs with the land in perpetuity and is transferred to a new owner when a property is sold.
Qualifying Properties
-City designated Historic Cultural Monuments (HCMs)
-Contributors to Historic Preservation Overlay Zones (HPOZs)
-Tax assessed value of $1,500,000 for single-family properties
-Tax assessed value of $3,000,000 for all other properties, including multi-family, commercial, and industrial properties
-Properties must meet a minimum of three out of five Priority Consideration Criteria: Necessity, Uniqueness, Investment, Affordability, and Employment
1330 Hillcrest Avenue, Pasadena sold on 12/22/2020 for $8,600,000 with a Mills Act status and transferred property taxes under $20,000 per year.
The Mills Act is an economic incentive program in California for the restoration and preservation of qualified historic buildings by property owners. Enacted in 1972, the Mills Act legislation grants participating cities and counties the authority to enter into contracts with owners of qualified historic properties who actively participate in the rehabilitation, restoration, preservation, and maintenance of their historic properties. The Mills Act permits property tax relief to offset these costs.
How does the property tax relief work? After a property owner enters into a contract, the local contracting government agency will notify the Assessor of the new contract. The county assessor will then annually determine the value of a Mills Act property based upon a prescribed capitalization rate, meaning the property taxes are based on the rental income potential rather than the most recent sales price. The potential yearly income minus expenses are multiplied with the tax component.
Mills Act contracts are for an initial term of 10 years. A contract automatically renews each year on its anniversary date and a new 10-year agreement becomes effective, creating a “rolling” contract term that is always equal to the initial contract term.
The Mills Act is a California state law that allows cities to enter into revolving 10 year contracts with the owners of historic structures. Such contracts allow a major reduction of property taxes in exchange for the continued preservation of the property. Contracts are transferred to new owners when the property is sold and owners can chose to terminate or renew the contract every decade. The program’s strength is that it incentivizes, through a property tax abatement, significant investment in historic preservation to retain and protect historic resources. In California, 90 cities have adopted the Mills Act with the most properties under contract in Los Angeles, at 948 homes, and Pasadena, having 380 homes under Mills contracts.
