March 6, 2012
Pursuant to Elections Code Section 9005, we have reviewed the
proposed constitutional initiative concerning property tax exemptions
for severely disabled veterans (A.G. File No. 12‑0002).
Local Property Tax
The local property tax is a 1 percent tax levied on the assessed
value of real and personal property. County officials collect property
tax revenues and allocate them to local governments: cities, counties,
special districts, K-12 schools, and community colleges.
Real property includes land, buildings, and other structures affixed
to the land. Personal property includes boats, airplanes, business
equipment, and other property not affixed to real property. Household
items and personal effects, although personal property, generally are
exempt from taxation.
Most real property is assessed for tax purposes based on its
acquisition value—typically its purchase price—adjusted each year by up
to 2 percent to account for inflation. For personal property, assessed
value is based on the current market value of the property regardless of
its acquisition value.
Veterans With Service-Related Disabilities
Disability Ratings. The U.S. Department of
Veterans Affairs (VA) classifies all service-related injuries on a scale
of 0 percent to 100 percent disability. Disabled veterans may receive
cash benefits based on their disability rating. Under existing state
law, veterans with service-related 100 percent disability ratings are
eligible to receive the state’s partial property tax exemption.
Special Monthly Compensation. The VA grants
certain severely disabled veterans funds that are known as “special
monthly compensation.” Veterans receiving special monthly compensation
typically require benefits and assistance at a level greater than that
provided to veterans with a disability rating of 100 percent. In other
words, special monthly compensation recipients tend to be among the most
severely disabled veterans.
Veterans’ Property Tax Exemptions
The State Constitution currently allows the Legislature to exempt
some or all of the assessed value of residences owned by veterans,
including those with service-related disabilities. The current property
tax exemptions for veterans include:
- Standard Veterans’ Exemption. This is
a $4,000 exemption on the assessed value of real or personal
property owned by veterans that were honorably discharged. A
surviving spouse or parents may claim the exemption. The exemption,
however, is unavailable to veterans who own property valued at
$5,000 or more. Because of the property value limitation, few
veteran homeowners are eligible to claim the standard exemption.
- Disabled Veterans’ Exemption. This is
a $119,285 exemption from the assessed value of a disabled veteran’s
principal residence. In order to qualify for the exemption, a
veteran must have severe service-related injuries. Qualified
veterans include those with service-related (1) loss of vision in
both eyes, (2) loss of the use of two or more limbs, or
(3)100 percent disability rating by the VA. Unmarried surviving
spouses are eligible for this exemption.
- Low-Income Disabled Veterans’ Exemption.
This is an expanded exemption for low-income veterans that otherwise
qualify for the disabled veterans’ exemption discussed above.
Disabled veterans with household incomes below $53,566 are eligible
for a $178,929 exemption on the assessed value of their residence.
Unmarried surviving spouses also are eligible for this exemption,
provided they meet the income eligibility requirement.
Veterans’ Exemption Does Not Apply to Local Add-On
Property Taxes. Local governments are allowed—under
Proposition 13—to collect property taxes in addition to the 1 percent
cap in order to finance voter-approved indebtedness or to fund local
government services that directly benefit property owners. The veteran
exemptions discussed above do not provide assessed value exemptions from
these additional property tax levies.
Approximately 30,000 Veterans Claim Property Tax Relief.
In 2010‑11, property tax exemptions for veterans reduced
total assessed value by about $3 billion, thereby reducing veterans’
property tax payments by roughly $30 million. According to data compiled
by the State Board of Equalization, 28,980 veterans received property
tax exemptions in 2010‑11.
This measure would amend the Constitution to permit or require (1) a
property tax exemption for veterans who are eligible under an additional
severe disability category created by the measure and (2) add “brain
syndrome” as an eligible disability. While the manner in which this
measure would be interpreted is uncertain, it could be construed to
permit or require greater property tax relief than is available under
current law to some of the most severely disabled veterans.
Specifically, this measure may permit or require a total or partial
exemption from property taxes for the principal residences of additional
disabled veterans. These additional disabled veterans include those who
receive special monthly compensation from the VA and are blind, have
lost the use of two or more limbs, or have brain syndrome. (Federal
veteran disability standards appear to indicate that qualification for
special monthly compensation necessitates having traumatic brain injury
in conjunction with one or more other severe service-related
disabilities. Therefore, veterans with traumatic brain injury alone or
in conjunction with one or more minor disabilities may not be eligible
for additional property tax relief under this measure.)
Potential Minor Reduction in Property Tax Revenue for
Local Governments. The number of eligible veterans under
the measure is likely to be very small compared to the total number of
homeowners in the state. Accordingly, this measure may result in a small
decrease in property tax revenues for local governments because eligible
veterans would no longer be subject to the 1 percent countywide property
tax, in whole or in part.
Potential Minor Increase in State Spending for K-14
Education. Proposition 98 guarantees a minimum funding
level for K-12 education and community colleges. Local property tax
revenues are used, in part, to fund these education programs. In many
cases, the state must pay more to schools and community colleges when
local property taxes distributed to school districts decline.
Accordingly, under this measure, the state may be required to increase
its spending for K-14 education by a minor amount.
Summary of Fiscal Effects
This measure would have the following fiscal effects:
- Potential minor reduction in property tax revenues for local
governments as a result of increased property tax exemptions for
certain veterans with severe service-related disabilities.
- Potential minor increase in state spending on K-12 schools and
community colleges as a result of the small property tax decline.
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