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Monday, June 26, 2006 | Janet O’Dea said it’s not cheap to keep her beautiful 1,300-square-foot bungalow in Mission Hills looking picture-perfect. There are ancient trees to care for, a garden that constantly needs her attention, stucco that needs patching, walls that need painting.

Apart from keeping up appearances, O’Dea has a legal obligation to preserve her home. Five years ago, she and her husband signed what is known as a Mills Act agreement. The agreement gives the O’Deas a 30-percent discount on their property tax bills. In return, they must keep their home in superb condition and must meet requirements for preserving the historical character of the property.

When the O’Deas applied for such recognition, the process cost them $400 and a whole lot of elbow grease. They spent dozens of hours preparing reports and attending hearings with the goal of gaining the preservation agreement and the tax break that comes with it.

Recently, that $400 fee, which was established in 1995, has become the subject of a debate that is separating the historical preservation community.

City of San Diego officials responsible for overseeing historical designations say they are struggling to cope with the scores of applications and mountains of paperwork they handle each year. They also say that the program is sapping up precious general fund dollars, and that the only way to keep the program running is to increase the fee to $2,360 so the program can pay for itself.

But historical preservationists abhor the idea of charging such large fees upfront for applying for the Mills Act agreements. Doing so will discourage applicants like the O’Deas, they said, who will not be willing or able to make the initial investment in preserving their properties.

Some preservationists also argue that the city government has a paternal responsibility to preserve its historical assets, and charging people to preserve their homes is an ignoble concept that should be opposed on moral grounds.

“It would have a chilling effect on designation for people who can’t afford to lose that much money,” said Beth Montes, president of the Save Our Heritage Organization in San Diego.

The city first brought in an incentive-based Mills Act program in 1995. Based on state legislation passed in 1972, the program was created to encourage historical preservation by rewarding homeowners who apply for historical recognition with a discount on their property tax bills. In return, a homeowner promised to keep their property in repair and to maintain its historical character.

Fees for applying for the program were capped by the city manager at $400 in 1995, despite a council policy that allowed staff to charge $100 for every $100,000 the property being assessed was worth. Since 1995, the city has had a few financial problems, and in the City Council’s June 2005 budget hearings, the council directed the Planning Department to look into the establishment of a new fee system for the Mills Act program.

The planning department issued a report earlier this month that lays out its recommendations for a new fee schedule, as well as their reasons for wanting to charge homeowners more money to apply for the program. Homeowners must first apply for historical designation from the city and may then apply for the Mills Act program. The report suggests charging applicants a total of $2,360 for their historical designation and Mills Act applications, a figure the report says represents the average amount such applications cost them to process.

The report states that at least one full-time staff member is needed to oversee the program, which currently has a backlog of more than 50 homes with a wait-list time of about a year. City staffers also reported to the city’s Land Use and Housing committee last week and outlined what they see as a desperate need for increased fees to keep their program going.

At that meeting, Lloyd Schwartz, chairman of the Historical Resources Board – a 15-member volunteer body which grants historical designation to properties – outlined his support for the new fees.

“Our staff has become literally overwhelmed with work,” he said.

Schwartz said that many of the people that apply for Mills Act agreements end up reaping thousands of dollars every year in tax breaks. The property tax savings for Mills Act properties are estimated at between 25 and 75 percent, and sales tax is a major source of revenue for local municipalities.

Schwarz used the example of a $1 million home to illustrate his point.

The taxes on a $1 million home purchase are in the neighborhood of $12,000 annually, Schwarz said. Conservatively, if the home owner gets a Mills Act designation and a consequent 50-percent reduction in their taxes, they will save $6,000 annually – more than enough, Schwarz said, to justify charging them up front for the work that the city must do to process their application.

“The property owner, in my opinion, is ahead of the game in year one, and that’s just with a $1 million house,” he said.

That view was backed up by Laura Burnett, vice-chairwoman of the Historical Resources Board, who estimated that 80 percent of the homes that she considers while sitting on the board are expensive properties that are owned by wealthy individuals. However, she acknowledged that things get more complicated in those other 20 percent of cases.

“A lot of these houses are really nice, expensive, fancy houses in the fancy neighborhoods and, sure, those properties owners, they can pay for a little bit more. Of course, the hard part gets to be when it’s community groups that are submitting or a nice little property owner in an economically challenged neighborhood,” she said.

That means people like the O’Deas. Janet O’Dea said she’s no millionaire, and that she “wears her socks until they have holes in them.” She’s not so sure she would have been so keen to apply for the Mills Act designation with a $2,300 bill to pay on top of all the time and effort needed to put together a presentation for the Historical Resources Board.

“I would certainly have had to do more of a cost-benefit analysis,” she said.

In San Diego, anyone can apply for historical designation for any property, regardless of whether they own it or not. In practice, organizations like SOHO can apply to get a property designated if it is in danger of being torn down or altered out of all recognition.

A good example would be an historical property that sits on a lot a developer wants to build on. The owner may wish to sell the property so that the land can be developed, but preservationists may want to fight to save it, and can apply for historical designation for the building in order to protect it. It’s situations like this that have SOHO members worried, and they’ve come up with a compromise to the city’s fee request.

Montes said she supports charging the fees only after the entire designation process is completed. Once a property owner has historical designation, they can apply for a Mills Act agreement and are consequently assured that their investment in the process has been worthwhile financially. Once a Mills Act agreement is signed, an applicant can pay off their fees and the city recoups their costs, Montes said. Because only an estimated 10 percent of properties fail in their quest for historical designation, the city’s not likely to lose out on much money, she added.

Montes and others are also campaigning for a sliding scale for applicants. They argue that nonprofit groups like SOHO should be allowed to apply for the unselfish purpose of preserving other people’s historic buildings – for which they obviously receive no property tax benefit – without having expensive fees to contend with. She said the city needs to view any fees it charges as additional to the other benefits San Diego gets from having these buildings preserved for generations to come.

“We actually supported a fee to begin with, but we need it to not be an onerous fee, and we need it to be collected at a particular point in the process, and they really do need to view this as a partial cost recovery and not a full cost recovery,” she said.

The Land Use and Housing Committee voted Tuesday to send the matter up to the full council. They also directed staff to consider the possibility of charging lower fees for nonprofits and of charging the fees once a Mills Act agreement is in place rather than up-front at the beginning of the process. The committee gave no indication as to when the council will consider the fee increases, but the matter is likely to go directly to council rather than back to the committee for reconsideration.

Please contact Will Carless directly with your thoughts, ideas, personal stories or tips. Or send a letter to the editor.

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