The Mills Act and Historic Designation

Owners of older homes in University Heights may wonder if their property qualifies for a property tax reduction through the Mills Act. In order to qualify for the Mills Act, your property must be a designated historical resource listed on the City of San Diego Register. Eligible properties include structures that are individually designated, or part of an established historic district.

Historical designation is an in-depth process that requires extensive research, preparation of a Historical Resource Research Report, and submission of the report to the City of San Diego Historical Resources Board for a decision.

The following FAQ is reprinted in part from “The Mills Act, Historical Properties Information” courtesy of the County of San Diego Assessor/Recorder/Clerk, and “Mills Act Program for Historically Designated Properties” courtesy of the City of San Diego.

The Mills Act, named for San Diegan James Mills, a former State Senator, provides an important monetary incentive designed to encourage the preservation, maintenance, and restoration of designated historic properties.

What is the Mills Act?

The Mills Act provides that property that is subject to a historical property contract be valued using the rental income and what could be expected from that property rather than using comparable sales to establish the assessed value. This generally results in a much lower assessment if the property has been recently purchased.

What are the benefits of the Mills Act?

• Possible reduction in property taxes — an average of 20% to 70%

• No supplemental bills if under contract at the time of transfer or completion of new construction

• Transferable if the property is sold

What kind of savings can I expect on my property tax bill?

Typically, property owners can expect a 20% to 70% savings on their property taxes. Under State law, the lesser of 1) the current market value, 2) the Proposition 13 value, or 3) the restricted value based on the rents will be used to calculate your property taxes. It is possible that the Proposition 13 value may actually be lower than the restricted value, and the property would receive no property tax benefit.

What are the eligibility requirements for the Mills Act?

This property tax reduction is an incentive offered citywide to property owners of designated historical resources that are listed on the City of San Diego Register. Eligible properties include structures that are individually designated or part of an established historic district.

Once my property is listed on the historic register, are there any binding restrictions that will affect my property?

Yes, once that property is designated on a Federal, State, or local register, it is subject to the rules and regulations of the Office of Historic Preservation of the Department of Parks and Recreation, the U.S Secretary of the Interior’s Standards for Rehabilitation, and the Historic Building Code. In effect, the owner must protect, maintain, and rehabilitate the property into perpetuity.

What are the requirements of a Mills Act Agreement?

All Mills Act agreements require the historic building to be visible from the public right-of-way to afford the public enjoyment of viewing the exterior of the resource and require the property be maintained consistent with the U.S. Secretary of the Interior’s Standards, the nationally accepted standard for the treatment of historic properties.

Additionally, owners of designated historic properties are required to include a 10-year maintenance and rehabilitation/restoration work plan at the time of application for a Mills Act agreement. Ten years is the minimum contract length and an appropriate time frame for the completion of any necessary rehabilitation or restoration work. Maintenance of the character-defining features of the resource would be required to continue for the life of the contract.

How long is the contract and is it canceled if I sell the property?

The term of the contract is ten years; however, it is automatically extended unless the property owner cancels the contract. The new owner would receive the full benefit of the contract because the contract goes with the property.

Is the property owner required to open the property to the public?

No, the law was revised in 1985 when new legislation relaxed the rules to encourage the preservation of historic properties. Prior to that time, any property under contract had to be open to the public for tours and the like. After the revision in 1985, many additional properties have been placed under contract.

What is the Assessor’s role in the process?

Although the individual cities actually place the property under a historical contract, the Assessor’s Office must determine the actual assessed value based on a formula under State law, using the income that could be generated from the property.

Since I have owned my property for many years and already have a very low assessment, is it worthwhile to apply for the Mills Act?

Some owners who would receive no property tax benefit still apply for the Mills Act. It can be a selling point to a potential buyer because the property would not be reappraised at its full market value upon sale if the property were already under a historical contract.

What is the application deadline for a Mills Act Agreement?

Owners of historically designated properties located in the City of San Diego are required to submit an application for a Mills Act agreement to the city no later than March 31 to be considered that year. The property must have been designated prior to December 31st of the previous year to allow sufficient separation between the designation process and a subsequent Mills Act agreement.

What are the fees associated with a Mills Act Agreement?

This program includes the following fees, adopted by the City Council, effective December 15, 2008, to recover the costs of staff time devoted to the tasks specifically related to historic designation of individual properties and all components of the Mills Act Program.

• $1,185 for the historic designation process, due upon submittal of the nomination or in cases when there is a backlog of nominations, prior to staff review of the submittal

• $456 for the Mills Act Program agreement, due with the property owner’s application;

• $232 to be assessed for monitoring with the initial Mills Act Program agreement and every five years thereafter, due upon submittal of a signed and notarized Mills Act Program agreement; and

• $750 for enforcement of a Mills Act agreement when remedies for violations are sought and as part of an enforcement action by the City.

How do I apply for a Mills Act Agreement in the City of San Diego?

To apply for a Mills Act Agreement for your historically designated property, please visit https://www.sandiego.gov/department/mills-act-agreement or contact the City of San Diego Historical Resources Board at 619-235-5224.