The property is at 26336 Scenic Road in the Single-Family Residential (R-1) District (Attachment 1, Exhibit A). The existing residence is known as the “Mrs. Clinton Walker House” and is also referred to as “Cabin on the Rocks.” The low, one-story, concrete, and Carmel stone building is situated on a granite outcropping projecting into Carmel Bay. The residence was designed by world-renowned architect Frank Lloyd Wright in 1948 and was constructed by Miles Bain and Walter Olds in 1951-1952 for the original owner, Mrs. Della Clinton Walker.
A Department of Parks and Recreation (DPR) Form 523 was completed for the “Mrs. Clinton Walker House” in 2001 by Richard N. Janick (Attachment 1, Exhibit B), and the property was added to the Carmel Historic Inventory on May 25, 2005. A Resolution Designating a Historic Resource for APN 009-423-001-000 was recorded with the Monterey County Recorder on January 4, 2007 (Document #2007001115).
In order to qualify for a Mills Act contract, a property must first be included on the Carmel Historic Inventory and then added to the Carmel Register of Historic Resources. As noted above, the property was added to the Carmel Inventory in 2005. The property was also listed on the National Register (reference #16000634) and the California Register on September 19, 2016. CMC Section 17.32.090.A.1 states, “Resources identified as significant at a State or national level in the inventory shall be automatically listed in the register.” The resource was automatically added to the Carmel Register on September 19, 2016.
On May 28, 2019, then-property owner Charles Henderson, et. al. submitted an application for a Mills Act Historical Property Contract. The Historic Resources Board recommended approval of the contract on June 17, 2019, and on December 8, 2020, the City Council voted to enter into a Mills Act Historical Property Contract with the property owner. However, before the contract was signed and recorded with the County of Monterey, the property owner withdrew the application.
The property was sold to Esperanza Carmel, LLC, on February 17, 2023. On April 20, 2023, Christopher Mitchell, Managing Director of Esperanza Carmel, LLC, submitted a Mills Act application (MA 23-116) on behalf of the current property owner. On August 21, 2023, the Historic Resources Board adopted Resolution 2023-011-HRB (Attachment 2), recommending that the City Council enter into a Mills Act Contract with Esperanza Carmel, LLC for the historic “Mrs. Clinton Walker House.”
On October 3, 2023, the City Council considered the Mills Act contract application and continued the item with direction to the applicant to provide additional information on the estimated property tax reduction. A Monterey County Assessor’s office staff member attended the meeting virtually to answer the Council's questions regarding Mills Act property values but could not provide a preliminary calculation of the tax reduction.
On December 5, 2023, the City Council again discussed the Mills Act contract application and whether the contract represents an equitable balance of public and private interests. For example, the prior ownership volunteered to make the home available for public tours 1-2 times per year, and under the new ownership, a public tour was not offered in 2023.
Another example was the impact a reduction in property taxes would have on local school revenue and whether this constituted a “substantial adverse financial impact on the City” since children in Carmel attend these schools. The Council considered whether direct payments from the property owner to the school district to offset the lost revenue was a viable option.
Finally, the Council discussed the potential tax savings to the property owner being higher than the amount estimated to be spent under the rehabilitation/restoration and maintenance plan.
Staff met with the applicant following the December City Council meeting and discussed the topic of required public tours, equalizing the cost of maintenance with the total tax reduction, and direct payments to the school district. The applicant stated that they are not interested in formalizing either of these requirements in a contract at this time. The applicant also expressed concerns about additional requirements being asked of them that have not been equally applied to other Mills Act contract applicants.
The Council discussed the estimated property taxes being $220,000 per year based on the property's $22 million sales value in February 2023. Staff notes that the property tax increased from $7,544 in 2021/2022 to $73,446 in 2023/2024 and has not yet been adjusted based on the recent sale of the property.
The Council assumed a 70% reduction in property taxes under the Mills Act contract, which would result in a savings of $154,000 annually to the property owner, or $1.54 million over ten years. The rehabilitation/restoration and maintenance plan includes an estimated $1.34 million in rehabilitation/restoration and maintenance work over a 10-year period between 2024 and 2034. The applicant notes that this does not include any costs associated with sea wall repairs to protect access to the residence from potential bluff failure.
According to the Office of Historic Preservation, applicants may realize substantial property tax savings between 40% and 60% of recently purchased properties. If the City assumed a 50% reduction in property taxes, the estimated 10-year savings would be $1.1 million.
Staff notes the prior Mills Act contract applications were not evaluated based on a 1-1 ratio of tax savings to rehabilitation/restoration and maintenance but rather based on whether the proposed 10-year plan included maintenance and rehabilitation more significant than just routine maintenance that would be expected for any property.
Contract Value
The Monterey County Assessor’s Office is responsible for determining the value of a property with a Mills Act contract in accordance with Revenue and Taxation Code sections 439 through 439.4. Properties with a Mills Act contract are not valued based on sales data but by a prescribed income capitalization method (Attachment 3). After the local jurisdiction approves a contract, it is forwarded to the Monterey County Assessor, who determines the Mills Act value.
Contract Summary
A Mills Act contract under State law is an agreement between the City of Carmel and a property owner of a historic building listed on the Carmel Register. In exchange for reduced property taxes, the property owner is contractually obligated to perform restoration, rehabilitation, and necessary maintenance to preserve and protect the historic resource in accordance with an approved rehabilitation/restoration and maintenance plan prepared or reviewed by a qualified professional. The property owner benefits from a reduction in property taxes. The City and the public benefit from assurance, via contractual obligation, that the historic building is preserved with a portion of the property taxes that the city is giving up.
The primary purpose for offering Mills Act contracts to owners of historic properties in the City of Carmel-by-the-Sea is to incentivize the rehabilitation/restoration and long-term maintenance of historic resources. Historically designated properties may qualify for a Mills Act Contract if, the original historic size of the building has not been expanded by more than 15 percent, among other requirements. For example, the Duckworth Cottage, The Doll House (aka Hansel and Gretel), and the Alfonso Ramirez Cabin (refer to Attachment 4) would not qualify for a Mills Act contract because all have additions that exceed 15 percent of the historic building size.
All Mills Act contracts have a minimum term of 10 years, and one year is added to this term annually upon each anniversary date of the contract unless one or both parties (City and/or property owner) have taken action to terminate the contract. The City Administrator is authorized to initiate contract termination on behalf of the City based on recommendations of the Community Planning & Building Department.
The contract rights and obligations are binding upon all successive property owners during the life of the contract. This means the property retains the Mills Act Contract tax rate when sold.
To end a contract, either party may submit a notice of non-renewal to the other party. Such notices shall cause the contract to terminate at the end of the then-current 10-year contract period. Cancellation of a contract by the City due to non-compliance requires a public hearing and, if canceled, results in the immediate termination of the contract and a penalty equal to 12.5 percent of the assessed market value of the property.
The contract requires that the historical elements of the property are maintained in good condition. This includes a plan for rehabilitation/restoration and maintenance. All recipients of Mills Act contracts are required to implement a rehabilitation/restoration and maintenance plan prepared or reviewed by a qualified professional.
An annual report is submitted to the Community Planning & Building Department, itemizing all work that has been done to maintain and preserve the historic resource over the year in compliance with the approved rehabilitation/restoration and maintenance plan. All rehabilitation/restoration and maintenance work must be completed in conformance with the Secretary of Interior’s Standards for Rehabilitation, and all proposed projects are subject to a Design Study review prior to commencement of the work. Minor alterations, as defined in CMC section 17.32.150, may be approved by staff; however, major alterations, as defined in CMC section 17.32.160 would be reviewed by a qualified professional and approved by the Historic Resources Board.
The Historic Resources Board also evaluates all applications for a Mills Act contract and recommends that the City Council approve, approve with conditions, or deny the application.
The City Council considers the recommendations from the Historic Resources Board at a public hearing and approves, approves with conditions, or denies the contract. All applications for a Mills Act contract must be submitted no later than June 30th each year to ensure sufficient time to review contracts before December 31st.
STAFF ANALYSIS
Findings
Carmel Municipal Code Section 17.32.100.B.6(c) sets forth five findings that the Historic Resources Board and City Council shall make in order to grant approval of a Mills Act Contract. The required findings are listed below, followed by a staff response on how the application meets the requirements.
- The building is designated as a historic resource by the City and is listed on the Carmel Register.
Staff Response: A DPR 523 form was prepared by Richard N. Janick in 2001 (Attachment 1, Exhibit B), evaluating the property for historical significance and finding the property meets the criteria for listing as a local historic resource. The City added the property to the Carmel Inventory on May 25, 2005. A Resolution Designating a Historic Resource for APN 009-423-001-000 was recorded with the Monterey County Recorder on January 4, 2007 (Document #2007001115). The property was also listed on the National Register (reference #16000634) and the California Register on September 19, 2016. CMC Section 17.32.090.A.1 states, “Resources identified as significant at a State or national level in the inventory shall be automatically listed in the register.” The resource was, therefore, automatically added to the Carmel Register. The application meets finding no. 1.
- The proposed rehabilitation/restoration and maintenance plan is appropriate in scope and sufficient in detail to guide long-term rehabilitation/restoration and maintenance. Required maintenance and rehabilitation should be more significant than just routine maintenance that would be expected for any property.
Staff Response: The applicant submitted a rehabilitation/restoration and maintenance plan (Attachment 1, Exhibit C). The plan covers a period of 10 years from 2024-2033 and estimates $1,343,654 in work projects. The plan was prepared by Christopher Barlow, Architect (and qualified professional), on behalf of the applicant. The plan includes routine maintenance (such as exterior painting) as well as more substantial repairs, including replacing the roof, electrical and plumbing upgrades, window rehabilitation and replacement (if deteriorated beyond repair), and replacing the interior boiler. All rehabilitation/restoration and maintenance work will be performed in conformance with the Secretary of Interior’s Standards. All exterior work is subject to Design Study approval and a determination of consistency with the Secretary of the Interior's Standards. The application meets finding no. 2.
- Alterations to the historic resource have been in the past and will continue to be in the future, limited to interior work and to exterior rehabilitation and alterations that:
(A) Comply with the Secretary’s Standards (future additions only); and
(B) Do not significantly alter, damage, or diminish any primary elevation or character-defining feature; and
(C) Do not increase the floor area on the property by more than 15 percent beyond the amount established in the documented original or historic design of the resource; and
(D) Do not result in any second-story addition to a single-story historic resource.
Staff Response: Past exterior rehabilitation has not significantly altered, damaged, or diminished any primary elevation or character-defining feature or resulted in a second-story addition. An addition constructed in 1960-1961 by Sandy Walker, AIA, was based on a design by Frank Lloyd Wright and is considered part of the historic fabric of the resource. As noted above, planned rehabilitation/restoration and maintenance work will be performed in conformance with the Secretary of Interior’s Standards. Any future alterations are required to be consistent with conditions A-D above. Minor alterations, as defined in CMC section 17.32.150, may be approved by staff; however, major alterations, as defined in CMC section 17.32.160, would be evaluated by a qualified professional and reviewed by the Historic Resources Board. The application meets finding no. 3.
- The Mills Act contract will aid in offsetting the costs of rehabilitating and maintaining the historic resource.
Staff Response: Approval of the Mills Act contract would aid in offsetting the rehabilitation and maintenance costs of preserving the “Mrs. Clinton Walker House” by reducing the tax liability on the property, thereby freeing up funds for rehabilitation. Within the first few years of the contract, the applicant proposes to complete electrical and plumbing upgrades, boiler replacement, window repair (where possible) and in-kind replacement (where deteriorated beyond repair), and façade brickwork maintenance. The application meets finding no. 4.
- Approval of the Mills Act contract will represent an equitable balance of public and private interests and will not result in substantial adverse financial impact on the City.
Staff Response: Approval of the Mills Act Contract is consistent with Goal 1-5 and Objective 1-16 of the Land Use & Community Character Element of the General Plan which encourages providing incentives for property owners to preserve and rehabilitate historic resources. Although approving a Mills Act Contract will decrease property tax revenue to the City, the contract represents an equitable balance of public and private interests:
1) The City Council adopted Resolution 2016-068 on September 13, 2016, limiting the number of Mills Act contracts that can be approved to fifteen (15) in any three-year calendar period. During the three-year period of 2021-2023, six applications were approved. An additional three applications remain under review. No new applications are being accepted at this time.
2) Carmel currently has approximately 292 historic resources. Since adopting the Mills Act program in 2004, the City has entered into a total of fifteen Mills Act Contracts. Three Contracts have completed their ten-year maintenance plans and will be issued nonrenewal notices. A fourth contract will complete their ten-year plan at the end of 2024.
3) The City will continue to receive a portion of the property tax revenue (which has increased following the February 2023 sale of the property from approximately $7,500/year to $73,500/year). As of the writing of this report, the sale value of the property is not reflected in the most current tax bill.
4) The investment in rehabilitation/restoration and maintenance of the historic Cabin on the Rocks, a home designed by world-renowned architect Frank Lloyd Wright, supports local tourism, which benefits private and public interests.
5) The value of preserving a historic resource is a long-term investment that offsets a temporary loss in property tax revenue.