State Mandate—Disclosure Requirements and Deferral of Property Taxation

Constitution Requires the State to Reimburse Local Governments for Mandated Activities. The California Constitution requires the state to reimburse local governments when (1) new state laws or regulations mandate that they implement a new program or higher level of service and (2) the local government does not have offsetting revenues available to fully cover the associated costs. State law tasks the Commission on State Mandates (Commission) with determining whether new state laws or regulations affecting local governments create state-reimbursable mandates. Typically, the process for determining whether a law or regulation is a state-reimbursable mandate takes several years. State law further requires our office to analyze any new mandates identified by the Commission as a part of our annual analysis of the state budget. In particular, state law directs our office to report on the annual state costs for new mandates and make recommendations to the Legislature as to whether the new mandates should be (1) repealed (permanently eliminating it or making it optional), (2) suspended (rendering it inoperative for one year), (3) modified, or (4) funded. Below, we discuss “Disclosure Requirements and Deferral of Property Taxation,” a newly identified mandate since enactment of the 2025-26 Budget Act.

Background

New Requirements for Los Angeles County. The California Constitution specifies that the property value used for determining property taxes is set at the property’s purchase price and then increased annually by 2 percent or less. However, Proposition 19 (2020) allows certain homeowners (such as people who are 55 years or older) to transfer their existing home value for property tax purposes to a new home anywhere in the state. Property owners seeking tax relief under Proposition 19 must file a claim with the county in which the new (replacement) residence is located. After Proposition 19 went into effect, a backlog of claims developed, and some tax bills were sent to property owners that had not been updated to reflect the lower amounts they were entitled to pay under the terms of Proposition 19. In response, the Legislature enacted Chapter 712 of 2022 (SB 989, Hertzberg). Chapter 712 required Los Angeles County to defer (pause) property owners’ property tax payments (without penalty or interest) while their claim was being processed. Chapter 712 required property owners to request a deferment from the county within one year of receiving their first tax bill for the property, but before January 1, 2024. Additionally, Chapter 712 required Los Angeles County to print a disclosure on tax bills that provides a “brief summary” of both the property tax relief under Proposition 19 and Chapter 712’s property tax deferment provisions. Unlike the deferment provision in Chapter 712, the county’s printing (disclosure) requirement contained no sunset date.

Commission Determined Requirements in Chapter 712 to Impose a State-Reimbursable Mandate. The Commission determined that Los Angeles County incurred reimbursable costs processing deferment requests and adding the required disclosure to property tax bills. The Commission determined that the county incurred a total amount of about $30,000 in back-year costs (incurred between 2022 and 2024), and about $8,000 in ongoing costs thereafter. The ongoing costs are for the printing of disclosures. (Since Chapter 712’s requirements only applied to Los Angeles County, the Commission determined that other counties were not eligible to submit claims for state reimbursement.)

Governor’s Proposal

Suspends Mandate. The Governor’s January budget proposes suspending the mandate, making the requirement inoperative in 2026-27, and does not provide funding for reimbursable costs incurred prior to 2026-27. In discussions with our office, the administration indicated proposing a suspension due to the state’s challenging budget situation. Under this proposal, Los Angeles County would not receive reimbursement for the required activities unless the mandate was funded (taken off suspension) in a future budget.

LAO Comments

Repeal Ongoing Aspect of Mandate by Eliminating Printing Requirement… We recommend the Legislature remove the disclosure requirement in Chapter 712, which would have the effect of repealing the mandate (and mandate costs) going forward. Printing a disclosure about Chapter 712’s deferment procedures is no longer relevant given that the option expired more than two years ago and is no longer available to property owners in the county. In addition, counties generally have a practice of informing property owners of relief absent of state requirements.

…But Reimburse County for Previously Incurred Costs. We recommend the state reimburse Los Angeles County for costs already incurred. This is because the county has already performed the state-required activities and, even given the current budget climate, the cost to the state (a total of about $30,000 one time) is minimal.