Saving History and Taxes : A Little Known and Seldom Used State Law Seeks to Preserve Legacy of Heritage Homes but Some Cities Are Reluctant to Let Homeowners Use the Option

George Weise and Cynthia Yehle of La Verne went looking for a low-interest home-improvement loan to repair their leaky roof.

What they found, instead, was a way to cut their annual property tax bill by 50%. How they did it may be the best-kept secret in California.

Weise and Yehle took advantage of a virtually unknown and rarely used 1976 state law, the Mills Act, which was passed to encourage property owners to preserve California’s dwindling legacy of historic buildings in exchange for lower property taxes.

To get their tax break, Weise and Yehle signed a Mills Act contract with the city of La Verne, a foothill community of 32,000 located 28 miles east of Los Angeles, that requires them “to rehabilitate the property and its character-defining features, notably the general architectural form.”

The 10-year contract also specifies that they cannot make any exterior alterations or additions or demolish their home without city approval.

Throughout California, a total of 63,000 home and commercial buildings have been identified as historic and are listed in the National Register of Historic Places, in a state or county official register or have been inventoried through local community surveys, according to Gene Itogawa, historian for the State Office of Preservation.

While all 63,000 are possible candidates for tax relief through the Mills Act--provided the act is first endorsed by the city government where the property is located--only 25 properties in 10 cities in California have been signed up under the program.

Southland communities with Mills Act contracts are Colton, which has eight properties under contract; Rancho Cucamonga, with three; Escondido, two; San Diego, two, and La Verne, one. In northern California, Redwood City has three properties under Mills Act contract; Benicia and Sunnyvale with two, and Palo Alto, Los Altos and Berkeley, one property each.

Southern California cities that have endorsed use of the Mills Act but have not yet signed contracts with property owners are Glendale, Riverside, Whittier, Palm Springs and La Mesa; northern cities are Vallejo, Orinda and Danville.

Proponents of the Mills Act lament that the preservation incentive has been so little used and offer a variety of explanations as to why.

“When the program first hit in the ‘70s, it closely followed the launching of Proposition 13, and given the success of that statute in holding down property taxes, the initial impetus for the Mills Act may have simply waned,” said William Delvac, attorney and former president of the California Preservation Foundation.

And some cities have resisted the program for fear of losing tax revenue, Delvac suggested, while others have simply overlooked the act through lack of interest or knowledge. (In the city of Los Angeles, for example, phone calls to the Cultural Heritage Commission and the city attorney’s office failed to locate anyone familiar with the Mills Act.)

In Los Angeles County, only one property is under a Mills Act contract and that is the Weise-Yehle home.

*

Weise and Yehle and their three children live in a Spanish Colonial Revival house built in 1921 on a prominent corner of Lordsburg, one of the older neighborhoods of La Verne that today stands as a reminder of the way of life of the community’s early settlers at the beginning of the century.

“The house was featured on a tour sponsored by a citizens’ preservation group but when we bought it in 1986, there was plenty that needed fixing,” Yehle said. “My husband, who’s very handy, has been putting a lot of work into the house.

“We added central heating and remodeled the bathroom, but when we realized that the roof couldn’t possibly last another season we went looking for a low-interest improvement loan. We hoped we could find one for historic properties.”

No such loans were available, but the couple learned about another option from associate city planner Arlene Banks Andrew.

“After she explained the Mills Act program, the idea made a lot of sense to us,” Yehle said, “especially since it was our intention to restore the house and not to change it.”

The couple applied for a Mills Act contract last February, and Andrew helped them with the paperwork. Following a property inspection and approval by the City Council, the next step was to get a new property valuation from the Los Angeles County assessor’s office.

By November the family expects to see their tax bill drop from $1,600 to about half that amount. In anticipation of the tax cut, they have gone ahead with the repair of their roof and are planning future improvements.

Also benefiting from tax relief through a Mills Act contract are Suzan and Bruce Carr, who moved to Colton from New York two years ago.

They purchased a 1,382-square-foot home and guest house on La Cadena Drive, Colton’s major thoroughfare, which dates back to the industrial boom of the early 1900s. In those days, Colton, located between San Bernardino and Riverside in the Inland Empire, was the crossroads of the Southland’s railway system.

“We were set against buying a cookie-cutter house,” said Suzan Carr. “The one we found was just perfect for us. It was custom-built for a water company executive in 1929 in a charming Spanish Revival style with a gated courtyard and fountain. . . . The house had been neglected but we began restoring it the day after we moved in.”

Carr learned about the Mills Act while working as a volunteer on a survey of Colton’s “historically significant” homes built more than 55 years ago.

“I was thrilled when the survey showed that our house was one of the 85 ‘significant’ properties among the 850 commercial and residential properties that were considered for historic designation,” she said.

The Carrs signed a Mills Act agreement with Colton in 1991 and, today, instead of an annual property tax bill of $1,400, they pay $425, a saving of almost 70%.

“It’s like a wonderful gift,” Carr said, “and all I have to do to hold on to this gift is to keep on doing what I’d been doing all along. . . .”

In agreeing to enhance their property over the next 10 years, the Carrs listed in their contract certain improvements they plan to carry out, including restoration of the brick and concrete driveway, restoration of the bathroom and renovation of the 600-square-foot guest house.

Colton has eight homes under Mills Act contracts, according to Hani Gabriel, principal planner for the city and a preservation activist. “I’m proud that our community, with a population of 42,000 . . . has more contracts than any other city in California.

“It’s really catching on here,” he said. “It’s the kind of program that benefits everyone in the long run. Our city has 23 different architectural styles represented in its older structures and there’s a great deal of encouragement from the historic commission and the City Council to preserve this special character of our community.”

The Mills Act was passed by the Legislature in 1976 and named for its sponsor, then Senate President Pro Tem James R. Mills (D-San Diego). It was modeled after the Williamson Act, which had been widely used to preserve open space and agricultural land.

In earlier years, even fewer Mills Act contracts were signed, in part because a property owner had to commit to a 20-year contract obligation and make the property available for public tours. Amendments to the law in 1985 deleted all access requirements and reduced the contract term to a minimum of 10 years.

The Mills Act is automatically renewed each year for an additional year, with a periodic inspection of the property required to assure compliance with the contract terms.

An important element of the act also allows the reduced tax valuation to be passed on to the new owner if the house is sold.

The amount of tax relief for the property owner is based on several factors and is determined by the county’s tax assessor’s office, said Adolfo Porras, San Bernardino County’s assistant assessor.

“On a home that was purchased recently for $250,000 and where annual taxes would normally be set at $2,500, a Mills Act contract could offer a substantial tax reduction of . . . 50% or more.”

However, there would be little saving with a single-family home built in 1900 that has met all the criteria for the Mills Act but has a Proposition 13 value on it. “In such a case, the valuation would already be low and there would be little advantage to a Mills Act contract,” Porras said.

If the owner breaks the contract, a penalty of 12 1/2% of the market value of the property is assessed as a cancellation fee, Porras explained.

Arlene Banks Andrew of La Verne’s planning department first researched the Mills Act for the city of Rancho Cucamonga, where she served as the city’s first historic preservation planner.

*

“For me, one of the greatest attractions of the Mills Act is that it is available . . . to owner-occupied homes,” said Andrew, also a board member of the California Preservation Foundation.

“Tax benefits, as a rule, go to owners of commercial properties on the National Register or to major adaptive reuse income-producing projects, and not usually to the average person who owns a simple Victorian farm cottage or a ‘30s Art Deco bungalow,” she said.

Andrew warned, however, that the adoption and implementation of the Mills Act takes time.

“You first need people in the community who want this type of incentive . . . you need a city council that favors preservation, and you need trained staff with a basic understanding of what the program is about and who are able to translate it into plain English to applicants,” she said.

Andrew said she is concerned that cutbacks in state funds to local governments and the recession may result in fewer staff workers to deal with Mills Act requests.

A more optimistic view was expressed by planner Jerry Wasser of the city of Glendale.

“The city adopted the Mills Act program last April to supplement the volunteer approach to historic preservation and created a special full-time position in its planning division to deal specifically with matters of historic preservation,” said Wasser, who was hired for the new position last year.

“We’re very much interested in letting people know about the program, though at present our first order of business is to determine what properties may become eligible under the Mills Act,” Wasser said. Glendale has 33 officially designated historic structures but the list has not been updated since 1977.

In Escondido, in San Diego County, Bob and Joanne Conley will be able to parlay their tax savings through their Mills Act contract into additional improvements to their home, an 1891 Queen Anne Victorian that they have lived in for the past 11 years. Their plans include redoing the ceiling, repainting and reroofing, adding a screened porch and deck and landscaping. “By November our property tax bill will be reduced from $1,567 to $375 and those improvements will be well within our reach,” said Bob Conley, who has served as a volunteer on the policy commission working with Escondido’s planning department to help develop historic preservation incentives for property owners.

“I think the Mills Act is a wonderful incentive . . . it’s an opportunity to take some extra money and plow it back into the property,” Bob Conley said. “It’s also a great sales tool if you later want to sell the house. The tax benefit is passed on to the new owner.”

A recent survey by the city of Escondido identified 960 homes in a variety of architectural styles, built between 1888 and 1940, that meet the criteria for historic designation. “It’s encouraging to see a growing awareness of preservation in our community,” Conley said. “In the past, we’ve seen too many good residential and commercial buildings come before the wrecking ball. . . . The Mills Act is one more step to help keep a nice balance between the old and the new.”

Still, some cities remain resistant to adopting the tax relief measure.

One of them is Pasadena, where preservation programs are already well established involving historic buildings surveys, demolition requests and design reviews of proposed alterations to buildings that are 50 years old or older, according to Mary Jo Winder, senior planner for the city and a member of its urban conservation staff.

“The Mills Act is a worthwhile program, but Pasadena has so many historic properties that the City Council would be unlikely to approve a program with the potential of significantly reducing tax revenues, without further study,” Winder said.

She said that a survey is planned to identify individually significant historic buildings and potential historic districts. It is targeted for completion by October, 1993. “This should precede any adoption of the Mills Act,” she said.

But Pasadena is moving too slowly, the owner of a historic house there believes.

In the fall of 1991, David Mark La Salle, a real estate attorney and owner of the historic Greene & Greene Bentz house, asked the city to consider a Mills Act contract for his property. In October of that year, the city’s Cultural Heritage Commission voted to support the program and requested the City Council to authorize its implementation, La Salle said.

“In the interests of expediency and because the city was ‘short staffed,’ Ms. Winder prevailed upon me to prepare a draft resolution, Mills Act contract and Mills Act application form for the city’s consideration and further study. I was happy to do so,” he said.

Now, a year later, with the process at a standstill, La Salle is frustrated and appealed to Pasadena Mayor Rick Cole.

In his reply to La Salle, Cole said, “There is still much groundwork to be done before we can move ahead on adopting the program. Since the city would be affected by this property tax abatement, it needs to know an approximate total cost of the incentive.

“A concentrated effort will be made within the next two to three years to study an equitable and applicable Mills Act in Pasadena,” Cole wrote.

“It’s not difficult to understand why cities with large numbers of significant properties might hesitate to pursue the (Mills Act),” said John F. Merritt, the executive director of the California Preservation Foundation. “They still tend to look at the Mills Act as an unknown factor that signals a tax loss.

“Cities need to know that the Mills Act can benefit city governments as well as property owners.”