OC assessor demands rent tax from developers of workforce housing

Orange Assessor Claude Parrish has launched a battle over taxes with developers of workforce housing, which risks killing subsidized rents for the “missing middle.”

Parrish contends developers, known as “project administrators” in housing regulations, should be taxed under an 85-year-old state “possessory interest” law he claims requires administrators of workforce housing pay taxes because they’re getting a private benefit from public property, the Orange County Register reported. One developer has sued to rescind the assessments.

The assessor in San Diego County also is charging the tax, while assessors across the state are keeping a close eye on the OC dispute.

Parrish has fired off possessory interest bills to the administrators of 10 workforce apartment complexes in Orange County.

Five of them are administered by Newport Beach-based Waterford Property, whose total tax assessment amounts to $22 million for the past three years, and $5 million a year. 

The county’s “workforce” housing program aims to provide reduced rents to residents who earn too much to qualify for low-income subsidies, but not enough to pay market rates. They’re known in housing policy circles as the “missing middle.”

At the 400-unit Paramount Platinum Triangle apartment complex run by Waterford in Anaheim, one couple pays $2,121 a month for a one-bedroom unit under a workforce housing program. At market rate, a similar apartment would rent for $2,854, according to the Register. 

Parrish contends Waterford and others are making big bucks by catering to an economic class that isn’t recognized for property exemptions. There is no government-recognized “missing middle,” he says.

“You’re either low-income or you’re not,” Parrish told the Register. “The worst thing is they tug on people’s heart strings.”

“They’re giving (some renters) a piddling break and they offset it by raising the rent on other tenants,” he added. “They created this out of thin air and are pocketing lots of money.”

Parrish, a former executive with the Los Angeles County Republican Party, was elected Assessor of Orange County a decade ago. Prior to taking office in January 2015, he served as chairman of the State Board of Equalization and a member of the Franchise Tax Board.

Waterford is suing the county, seeking a court order that would force Parrish to rescind the assessments.

Company co-founder Sean Rawson contends Waterford has no possessory interest in the properties. He says the company doesn’t own the buildings. And it only acted as a financial consultant to the projects, which make up 1,370 apartments in Orange and Anaheim.

The apartment complexes are owned by the California Statewide Communities Development Authority, a joint powers authority founded in 1988. Waterford administers more than half of the 2,500 workforce units in OC.

“I’ll concede we’re making money, but where do you get possessory interest? We don’t possess anything,” Rawson told the Register. “There’s no way to pay what he’s coming after. I would just quit.”

He said if Parrish’s assessments are allowed to stand, the properties would have to charge market rates, erasing the benefit to middle-class renters. And if it had to pay taxes, the properties’ administrator would run a deficit of $3.8 million a year.

“He would destroy the rent subsidies and displace all these tenants who could no longer afford to live there,” Rawson said. “He wants to destroy middle-income subsidized housing.”

Waterford reports that it made $9 million in one-time brokerage fees when the OC properties were acquired. It also collects $2.2 million a year on supplemental bonds for the projects, while earning another $970,000 a year in asset management fees.

At the same time, the company also risked $17 million in deposits, bond fees and other charges to buy the properties.

Over the life of the bonds, OC governments defer $172 million in property taxes from Waterford projects, but gain $809 million in saved rent, according to figures provided by Waterford. That doesn’t include $1.4 billion in projected equity after the properties are turned over to the cities and taxes are paid.

“We make money, yes, but we also provide (a) public good,” Rawson told the Register. “The public benefit far outweighs what we’re making.”

— Dana Bartholomew

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