Quick Take
Preservationists say Santa Cruz County's adoption of a tax relief program for historic properties could help spur interest in saving buildings such as the Bayview Hotel in Aptos and Redman-Hirahara House in Watsonville. Some critics argue such laws mainly serve as a windfall for wealthy homeowners.
A new law that gives property tax relief to owners of historic landmarks in Santa Cruz County could help reverse the fortunes of Aptos’ struggling Bayview Hotel and save other heritage properties from falling into disrepair like Watsonville’s Redman-Hirahara House, local preservationists say.
However, critics warn that the state legislation used to craft the local rules amounts to little more than a handout to wealthy homeowners that entrenches inequality and winnows the tax base.
The law is called the Mills Act. It was passed in California back in 1972 but has to be voluntarily adopted by individual cities and counties.
The Santa Cruz Board of Supervisors adopted the act on May 20, after it sat dormant in the county’s General Plan since 1994. The rules create a tax break specifically meant to offer relief to new owners of historic buildings in unincorporated parts of the county if they “rehabilitate and maintain the historical and architectural character” and “have made major improvements to their properties.”
The law could give a financial boost to the Bayview Hotel in Aptos, which has been struggling to find a purchaser since a prospective buyer backed out because of the costly renovations needed to the property. The 150-year-old hotel could see its annual property taxes slashed by $20,445 under the Mills Act if it is assessed at its market value, according to an estimate done by the county assessor, Sheri Thomas.
Jurisdictions in California can choose how much property tax relief to give their stewards of history through the Mills Act, with reductions as high as 50% in San Francisco and 75% in San Diego. The county’s May 20 staff report to the board of supervisors did not list a proposed tax reduction but estimated the act could cost Santa Cruz County government up to $65,520 in lost tax revenue per year. Eligible historic properties in the county would, on average, receive between $2,000 and $12,000 in tax savings annually.
County officials crafted a restricted version of the Mills Act because they were worried about the loss of tax revenues and overburdening the county assessor’s office. Out of 58 historically designated buildings in the unincorporated county, only 37 properties are eligible for tax relief under the law because they are not publicly owned. And out of those, only the first 20 to apply will be accepted when the program launches in summer 2026. No other municipalities in Santa Cruz County currently have the Mills Act.
There is also a cap on the value of properties eligible for tax relief, further restricting the law’s scope. Residential properties valued at more than $3 million and commercial properties valued at more than $5 million dollars will not qualify.
“We’re restricted by how big that incentive is and it probably won’t pay for all the repairs— [but] it’s something,” Supervisor Manu Koenig said on May 20. “A few thousand bucks a year is better than a poke in the eye.”
To receive the tax benefits, the property owner will have to sign a 10-year contract with the county agreeing to track every repair on the property, like replacing rotted wood or adding new gutters, which the county will check for compliance after five years, according to Matthew Sundt, senior planner at Community Development and Infrastructure.
Sundt predicts a slow rollout over many years to reach the 20 Mills Act properties. For comparison, San Francisco has had 47 Mills Act properties since 1996 at the same $3 million and $5 million thresholds, according to Anne Yalon, public relations at San Francisco Planning.
This is in part because the subtleties of how the Mills Act operates are such that those who have owned their properties for 10 years or more, whose taxes are paid at the lower assessed value at which they bought the house, would not receive a large tax reduction under the Mills Act, according to the Santa Cruz County staff report. The higher assessment when the property is sold incentivizes recent buyers of landmark buildings to use the Mills Act.
Critics of the act argue it impedes development and lowers property taxes paid by wealthier homeowners. In San Diego, where the Mills Act was first developed to save the famed Hotel del Coronado, some have called for the city to scrap the Mills Act entirely to help close a budget deficit.
Ricardo Flores, director of a nonprofit in San Diego, said that the city loses an estimated $20 million a year from 1,800 homes covered by the Mills Act in some of San Diego’s wealthiest neighborhoods. San Diego has the most Mills Act properties in the state, with one home receiving $186,000 in tax relief.
“If your city is in a deficit, if your city is in a housing crisis, the Mills Act is only going to exacerbate both,” Flores told Lookout based on his experience in San Diego. He said it might also be harder to sell a Mills Act property because the new owner is locked into the contract.
In response to criticism, San Diego decided to end automatic historic review once a building turns 45 years old and is looking into a maximum valuation limit to cap the savings, like Santa Cruz County, so the super wealthy don’t take advantage.
Members of the Santa Cruz County historical community say they are hopeful the act can be financially meaningful without damaging county finances.
Kevin Newhouse, a county historic resource commissioner, said that for the Bayview Hotel, the expected gain in sales tax from reopening the hotel would offset any lost property tax.
“If the Mills Act had been implemented [locally] 10, 20 years ago, there is a really good chance that the Redmond-Hirahara House would have been saved,” he said. “Now we’re also hoping that the Mills Act is going to incentivize the potential new owner of the Bayview Hotel to follow through with purchasing the building.”
The hope is that the Mills Act can convince a “special person” who has the money and who loves the history of the Bayview Hotel to come forward.
Real estate agent Datta Khalsa, who is selling the Bayview, thinks the Mills Act will be “absolutely helpful” in selling the 10,000-square-foot hotel. Multiple buyers who nearly locked in $3.9 million sales prices have slipped away. Now the sellers are making a renewed push, clearing out old stuff and showing the property again to a San Francisco hospitality group.
A buyer will need to be “somebody for whom cost is not an object,” to absorb extensive remodeling, stripping down past remodels and years of neglect that amount to $2 to $3 million dollars in cost for the next owner, according to Khalsa. Included in that amount are Americans with Disabilities Act fixes, such as an elevator, that are necessary to reopen it as a hotel.
For derelict historic landmarks like the Redman-Hirahara House, headed to the board of supervisors Aug. 5 for delisting from the National Register of Historic Places, it is a similar problem. If the money and will to rebuild it exists in the community, it is still possible to save the building, in a new location.
Before demolishing the home, owner Elite Development, will have to offer it to the “general public for removal or dismantling for salvage” with information on when and how to move the structure published in local publications, according to a county staff report.
Newhouse thinks the Mills Act comes too late to save the Redman-Hirahara House, even if it could help preserve other historic landmarks in the community.
“If someone hits the lottery and wants to dump in $50 million to save it, they can talk to the current owner and see,” Newhouse said of the Redman-Hirahara House. “I would love to see it happen, but the chances of it happening at this point are pretty slim.”
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