REAL ESTATE TAX RELIEF (RETR) COUNTY BOARD BRIEFING. June 19, 2018

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1 REAL ESTATE TAX RELIEF (RETR) COUNTY BOARD BRIEFING June 19, 2018

2 OVERVIEW Background RETR Working Group Structure Community Outreach RETR Participant Snapshot Proposed Code Changes Deferral Considerations Home Value Considerations Questions and Discussion 2

3 BACKGROUND At FY 2017 budget adoption, the County Board requested the formation of a Working Group to study Arlington s current RETR program. The Working Group was charged with developing recommendations to strengthen the RETR program s structure and administration, while continuing to meet community needs. Between August 2016 and March 2017, the Working Group reviewed the current RETR program, researched regional trends, explored national best practices, and gathered community input. The Working Group s Final Program Recommendations Report was presented to the County Board at its July 6, 2017, Work Session. The implementation of Working Group recommendations related to the application timeline and program eligibility criteria requires changes to Chapter 43 of the Arlington County Code. In addition to amendments related to the application timeline and program eligibility criteria, the proposed Code changes also include updates to various definitions in order to align with recent changes to Virginia Code. Authorization to advertise a July 2018 public hearing on the proposed Code changes is being requested at the June 2018 County Board meeting. The proposed Code changes related to definitions would be effective immediately upon adoption. Changes impacting the application timeline and program eligibility criteria would be effective January 1, 2019, with fiscal impact experienced in FY

4 RETR WORKING GROUP STRUCTURE The RETR Working Group was a limited-term, Manager-appointed advisory body, with 12 members representing the following: Commission on Aging (COA) Disability Advisory Commission (DAC) Fiscal Affairs Advisory Commission (FAAC) Housing Commission (HC) Real Estate Tax Relief program participants Members-at-large Christian Dorsey and John Vihstadt were the County Board liaisons to the RETR Working Group. Paul Holland (FAAC) was the Chair, and Patricia Sullivan (COA) was the Vice-Chair. The Department of Human Services provided primary staff support, with additional assistance from the Department of Community Planning, Housing, and Development and the Treasurer s Office. The County contracted with Reingold, Inc. to conduct telephone surveys and focus groups involving Arlington s older homeowners and homeowners with disabilities. 4

5 COMMUNITY OUTREACH The RETR Working Group and staff utilized a variety of tools and methods to engage and communicate with the community, including: RETR Working Group and Study webpage Public/Open-door Working Group meetings Social Media Telephone Surveys Focus Groups Media releases Presentations to Civic Organizations and Commissions Mailings Community Meeting This initial public engagement cycle resulted in 269 comments received via mail, , telephone, online, and at public meetings. Working Group members reviewed and discussed feedback prior to finalizing their recommendations. A Press Release will be issued immediately upon County Board approval of the Request to Advertise. 5

6 RETR PARTICIPANT SNAPSHOT In Calendar Year 2017: 915 households approved for RETR Average Income: $46,644 Average Assets: $125,331 71% of households qualified for a full exemption 22% of households lived in a condominium Average Age: 79 years old Average Assessed Home Value: $526,965 30% of households lived in ZIP Code Years: Average length of participation in the program $4,524: Average amount of tax relief $4,139,872: Total foregone revenue ($3,744,588 exempted; $395,284 deferred) 6

7 PROPOSED CODE CHANGES APPLICATION TIMELINE & RETROACTIVITY Category Current Code Proposed Amended Code RETR Application Deadline The current application deadline is August 15, unless an extension is granted. The proposed amended Code changes the application deadline to November 15; an extension could still be granted beyond that date. RETR Application Extensions Currently, the RETR program has an administrative Extension Policy, which permits an extension to the application deadline through January 31 of the next calendar year if extreme circumstances beyond the control of an applicant prevent the filing of a timely application. Retroactive RETR - The proposed amended Code codifies the administrative Extension Policy. The proposed amended Code allows for retroactive RETR of up to two (2) years in extreme circumstances similar to those in which extensions may be granted, as well as in instances in which the owner is retroactively determined to be permanently and totally disabled. 7

8 PROPOSED CODE CHANGES ASSETS Category Current Code Proposed Amended Code Asset Limits Household Asset Calculation Currently, the asset limit for exemptions is $340,000. If homeowners have assets greater than $340,000 but no more than $540,000, they may qualify for a deferral, so long as their income is also within program limits. Currently, the assets for all owners and relatives living in the home are included in the household asset calculation. The proposed amended Code increases the asset limit for exemptions to $400,000, but the asset limit for deferrals remains unchanged at $540,000. The proposed amended Code includes only the assets of owners and owners spouses in the household asset calculation. In the event that an applicant exceeds the applicable asset limit, the proposed amended Code allows for the deduction of the following items from asset calculations: Asset Deductions - Asset Limits Annual Adjustment - Qualified medical and dental expenses not covered by insurance; Out-of-pocket emergency home repairs not covered by insurance exceeding $1,000 per repair; and/or Condominium Association special assessments exceeding $1,000 per assessment. The proposed amended Code adjusts the RETR asset limits annually using the Experimental Consumer Price Index for Americans 62 Years of Age and Older (CPI-E). 8

9 PROPOSED CODE CHANGES EXEMPTION LEVELS & INCOME Category Current Code Proposed Amended Code Number of Exemption Levels Income Limits Currently, the Arlington County RETR program has three exemption levels: 100% or full exemption; 50% exemption; and 25% exemption. Currently, the Arlington County RETR income limits are: 100%, or full exemption 1-2 people: $0-$55,953 3 people: $0-$62,667 4 people: $0-$69,560 50% exemption 1-2 people: $55, $68,387 3 people: $62, $76,593 4 people: $69, $85,018 25% exemption 1-2 people: $68, $99,472 3 people: $76, $99,472 4 people: $85, $99,472 Homeowners assets must also be within program limits. Income Exclusions - Income Limits Annual Adjustment - The proposed amended Code establishes an additional exemption level: 100% or full exemption; 75% exemption; 50% exemption; and 25% exemption. The proposed amended RETR income limits are: 100%, or full exemption All household sizes: $0-$45,000 75% exemption All household sizes: $45, $55,000 50% exemption All household sizes: $55, $65,000 25% exemption All household sizes: $65, $80,000 Deferral only All household sizes: $80, $99,472 Homeowners assets must also be within program limits. The proposed amended Code excludes the following from the household income calculation: All disability income for owners and/or owners spouses from the household income calculation; and Up to $10,000 of income for each non-owner/non-spouse relative living in the home. The proposed amended Code adjusts the RETR income limits annually using Median Family Income (MFI), more commonly known as Area Median Income (AMI). 9

10 DEFERRAL CONSIDERATIONS In Arlington, deferrals allow homeowners to postpone payment of some or all of their real estate taxes, which are then repaid without interest or penalties when the property changes ownership. Deferrals can offer real estate tax relief to qualified homeowners in the present, while also ensuring revenue collection in the future. Utilizing deferrals to deliver real estate tax relief to mortgaged homeowners also presents unique challenges. Lenders may refuse to accept real estate tax deferrals for properties with an outstanding mortgage balance, as some may argue that deferring real estate taxes violates the Deed of Trust s requirement to keep all taxes current. It is also likely that lenders view a deferral as a threat to their first lien rights to, as well as their equity in, the mortgaged property. Federal regulations prohibit any homeowner participating in the U.S. Department of Housing and Urban Development s reverse mortgage program from participating in a deferral program if the deferral is not subordinate to the insured mortgage (see 24 CFR Part 206, (B)(3)). These issues have been documented across the Commonwealth of Virginia and throughout the country, and firsthand accounts suggest that at least some mortgage lenders servicing homeowners in Arlington have denied real estate tax deferrals. Beginning in 2018, questions were included on the RETR application asking whether an applicant has a mortgage or reverse mortgage. As of April 23, 2018, 660 RETR applications had been received, of which 28% (n=184) reported having a mortgage; none reported having a reverse mortgage. 10

11 HOME VALUE CONSIDERATIONS The Working Group had significant discussion related to limiting the amount of home value that is eligible for an exemption, but did not include a recommendation on the subject in its Final Report. Some Working Group members believed that older Arlington homeowners with significant equity in their homes should utilize this equity for large expenses such as real estate taxes rather than receiving real estate tax relief, while other members posited that these same homeowners may be planning to tap into this equity later in retirement for expenses such as long-term care. The average assessed home value for RETR participants in Calendar Year (CY) 2017 was $526,965. The distribution of assessed home values in CY 2017 can be seen below: Assessed Value of Home Households Percentage $0 - $200, % $200,001 - $400, % $400,001 - $600, % $600,001 - $800, % $800,001 - $1,000, % $1,000, % 11

12 HOME VALUE CONSIDERATIONS # of Households w/homes Assessed > $1 million Total Taxes Due Total Foregone Taxes Total Taxes Deferred Total Taxes Exempted Total Taxes Exempted on Home Values > $1 Million CY $57, $30, $30, $3, CY $42, $25, $7, $18, $2, CY $41, $41, $14, $26, $2, CY $56, $46, $10, $36, $4, CY $94, $76, $21, $55, $9, CY $51, $26, $26, $4, CY $79, $69, $17, $52, $5, CY $86, $68, $14, $54, $6, CY $108, $98, $31, $66, $6, CY $120, $110, $23, $86, $9, Total 22 (unduplicated) $738, $595, $140, $454, $55, Year % Change 66.7% 108.4% 260.1% 226.3% 183.7% 190.9% If RETR households with homes valued over $1 million were limited to a deferral only option, known program trends indicate that approximately one-third of households that did not previously take a deferral would choose to continue to participate in the RETR program. 12

13 QUESTIONS AND DISCUSSION Background RETR Working Group Structure Community Outreach RETR Participant Snapshot Proposed Code Changes Deferral Considerations Home Value Considerations Questions and Discussion 13