Well-intended ‘granny flat’ bill leaves cities holding the bag

Apr 3, 2024

SB 1164 is one of several revenue measures to watch this year

By Ben Triffo, legislative affairs lobbyist

Cal Cities is opposing a measure that would exempt new accessory dwelling units (ADU) from property tax assessment for 15 years if the owner makes a “good faith effort” to ensure the unit will be used as residential housing. With the number of “granny flats” surging, this bill could have a significant negative impact on local government revenues.

According to the bill’s author, Sen. Josh Newman, the goal of SB 1164 is to incentivize ADU production. The author’s office argued in a February fact sheet that an increase in property tax is a “substantial disincentive” to the construction of new ADUs, but this does not seem to be backed up by the numbers.

Over the last few years, permits for ADUs have increased year over year. The same goes for completed units. In fact, demand for ADUs is high, with permitted projects more than double the number of units built.

Many cities use these taxes to deliver critical public services, such as police, fire protection, and education. Creating a new property tax assessment exemption will deprive cities of the revenues they need to provide and expand communitywide services.

While the measure is well-intended, cities cannot afford any erosion of local tax revenues. SB 1164 is one of a handful of revenue-related measures to watch this year. Other bills include:

  • AB 2564 (Boerner) Property Tax Postponement: Senior Citizens and Disabled Citizens Property Tax Postponement Fund

    Cal Cities Position: Support

  • AB 2854 (Irwin) Bradley-Burns Uniform Local Sales and Use Tax Law

    Cal Cities Position: Pending Board Action

  • SB 955 (Seyarto) Office of Planning and Research: Infrastructure Gap-Fund Program

    Cal Cities Position: Support

  • SB 1494 (Glazer) Local Agencies: Sales and Use Tax: Retailers
    Cal Cities Position: Oppose

Many of these bills are now winding their way through policy committees and to appropriations. Legislators in both houses have until April 26 to get any bills with notable fiscal impacts through appropriations.

Policy hearings are great opportunities for city officials to voice their support or opposition to a particular bill. Starting next week, Cal Cities will break down the biggest bills scheduled for hearings each week in its State Bills in Brief series.