Mills Act: The Key to Multifamily Preservation?

The Mills Act is a state tax incentive that allows a locality to reduce the local tax obligation incurred by a designated historic property in exchange for a 10-year contractual commitment to restore and rehabilitate the resource. Today the Beverly Hills Mills Act program counts six local historic register properties under contract including one multifamily rental property (on South Rexford). City Council indicated some interest to expand the program to more multifamily properties. Will the program help us retain the properties that give our neighborhoods character?

What is the Mills Act?

The Mills Act is California’s leading financial incentive program for historic preservation. It was adopted in 1972 to allow for a contract between a locality and a property owner that commits the owner to undertake the restoration and rehabilitation of the property (inclusive of exterior, landscaping and character-contributing interior features) in exchange for a local property tax reduction. The emphasis is on active restoration; it’s not a giveaway tax break. The locality and the owner must agree to a preservation plan.

Some things to know about the program:

  • The Mills Act program applies only to a “qualified historical property.” That can include any number of national or state registers or designations. In Beverly Hills that means the property is listed on our local register. Currently only two multifamily properties are designated. But the bar for designation is not particularly high: a property need meet only a few criteria. Once our Cultural Heritage Commission and City Council agree it is listed.*
  • A Mills Act contract property is by definition exceptional. Not only must it be designated as an historic resource, but the fiscal obligation behind the tax incentive recommends some discretion in how contracts are entered into. City Council has to
  • The Mills Act contract requires owner performance. The owner is on the hook to follow the historic restoration plan. He can’t pocket some of the tax relief and then decide he has other plans. In this sense the a Mills Act contract property is said to be “enforceably restricted.” The owner can do with the property for the duration of the contract. The contracts runs for a minimum of ten years and also obligates any future owner through the duration of the contract.
  • The Mills Act program implicates the loss of local tax revenue. Property tax relief comes at the expense of the coffers of both the city and our school district. (In fact every Mills Act contract must be approved by the Tax Assessor too.) The school district is a consideration if the program would be expanded, for example, to accommodate the listing of multifamily properties in any appreciable number.
  • The Mills Act applies to all types of real property but the focus in Beverly Hills has been on single-family. Again, local designation has been voluntary and with the exception of two of multifamily owners, only single-family owners have stepped up for designation. Practically speaking, since local listing is a precondition for a Mills Act contract the pool of multifamily Mills Act candidates is limited.
  • The Mills Act tax relief formula is tied not to purchase price or assessed value but to market rent. That could prove increasingly attractive for owners in an era of rising rents. On the other hand, pegging relief to rents also means that it costs our city more to provide the incentive to multifamily property.
  • The city’s Mills Act program is limited in scope and expenditure. To protect against a loss in income from Mills Act contracts, our city has put an annual limit on the program: just three contracts per year; a maximum of $7.5M valuation for program purposes; and an out-of-pocket revenue loss limited to $100,000 per year for the city.
  • School district revenue loss under the program is limited to $80,000 per year. The district has a voice in the renewal or expansion of the program because the district budget is affected. Expanding the program will have some fiscal impact on the district.
  • The Mills Act allows each locality to define and administer the program. That allows for the tailoring of the program to local preservation objectives; it also allows for the scope of the program to be limited — or alternately expanded. City Council has expressed an interest in expanding the program to embrace additional multifamily rental properties and may move in that direction this year.
  • Window air conditioners are a deal-breaker! Because this is a tax program to rehabilitate historic properties, all work must meet the Secretary of the Interior standards for preservation and that does not include window units!

What’s Next for the Mills Act Program?

Incoming Mayor John Mirisch has expressed interest to use an expanded Mills Act program to offer preservation incentives to owners of small and medium-sized multifamily rental properties. The objective is to conserve the relatively-affordable rental housing we have. City Council has indicated interest too with a keen eye on how program expansion will affect the bottom line (and the school district).

The issue is likely to come to the Cultural Heritage Commission for discussion early in the new mayor’s term. If supported by the commission we could see City Council discussing a Mills Act expansion as part of the program’s permanent status in late 2019.

Today only two multifamily rental buildings are listed on our local historic register: the Beverly Gardens Apartments on the northeast corner of Olympic and Canon; and the Salkin Apartment Building (No. 2) on the 300 block of South Rexford drive. The latter has entered a Mills Act contract.

Will we see more multifamily rental owners look to Mills Act to preserve similar properties? Will the Mills Act have the incoming mayor’s desired effect on keeping the “missing middle” rental housing we see lost to development in surrounding areas? Today’s limit to three properties and a cap on tax relief makes the Mills Act a surgical tool for preservation rather than a blunt instrument that would afford our character-contributing districts protection from the bulldozer (at least for the duration of the Mills Act contract).

We will know more as the program expansion discussion takes shape. It could be that the Mills Act is one of numerous tools in the city toolbox to ensure that we keep and rehabilitate the rental units we need.

  • Note: one criterion is crucial for designating a property as a local historic landmark: the owner must agree. It is a voluntary designation. Likewise, our city allows for the designation of multifamily historic districts — and several have been identified as potential districts already — all owners in that district must agree to district designation. That is a high bar!