A "qualified historical property" is privately owned property in Santa Cruz County jurisdiction that is not exempt from property taxation and listed in the Santa Cruz County Historic Inventory as either a National Register-1 (NR-1), NR-2, NR-3, or NR-4 property.  A property includes the qualified historical improvement and may also include any land on which it is situated. 

If the property is already a "qualified historical property",

1. The applicant submits a Mills Act application to the Planning Department. Mills Act Application
2. The application, including a plan for preservation, will be evaluated by the  County’s Historical Resources Planner whereupon findings will be made as to whether the property is a "qualified historical property" and whether the Mills Act can be justified.
3. If the Historical Resources Planner recommends approval to the Board of Supervisors (Board), a preservation contract will be prepared by the Office of the County Counsel which incorporates the standards and/or conditions stipulated by the Board and agreed upon by the property owner. Mills Act Contract Template
4. The recommendation of the Historical Resources Planner and the preservation contract will be presented to the Board for approval or denial.
5. If the Board confirms the findings of the Historical Resources Planner, the preservation contract will be approved and formally executed between the property owner and the County of Santa Cruz.
6. The Assessor's office will then make the appropriate changes to the assessment roll.

1. It must meet the eligibility criteria for listing on any official federal, state, county or city register.
2. The owner must complete the historic designation process prior to submitting a Mills Act application.  This can be a lengthy process, so it is advisable that a prospective Mills Act Program applicant commence a request for historic designation on a property at least six months prior to submitting a Mills Act Program application.  A Mills Act application is due no later than July 31 for a contract initiation date to occur the following year.  This period of time is necessary in order for the Historic Resource Planner to deem the application complete, review the application, write a staff report, and present to the Board. A reminder that as the Mills Act Program is currently configured, only NR-1 through NR-4 historic properties will qualify for the County program. Please see SCCC 16.42.050(D)

At a minimum the contract will include, but not be limited to, the following items:

• A 10-year term, automatically renewable each year unless the non-renewable procedures have been implemented.
• A plan for restoration, rehabilitation or preservation of the property to conform to the Secretary of the Interior’s Standards for the Treatment of Historic Properties and codes as required by the Mills Act. This plan is submitted with the initial application to implement the Mills Act.
• Requirement for periodic examination of the property by the Historic Resources Planner to assure compliance with the contract – in most cases, exterior building inspection is not required unless the maintenance contract identifies work needed in the interior in which case the interior would be inspected as well.
• Requirement that the contract will be recorded by the Assessor and will bind all future successors in interest for the duration of the contract.
• Requirement that the owner or agent shall provide written notice of the contract to the State Office of Historic Preservation within 6 months of entering into the contract.
• Use restrictions the Board deems reasonable to carry out the purpose of the contract.
• Non-renewable/cancellation provisions as provided by the Mills Act. (Note: The Board may cancel a contract after the prescribed process is followed if it determines that the owner has breached any of the conditions of the contract, allowed the property to deteriorate to the point that it no longer meets the standards for a "qualified historical property", or determines the owner has failed to restore, or rehabilitate the property in the manner specified in the contract.)
• The threshold value whereby a property with a value greater than $3,000,000 for residential and $5,000,000 for commercial would be excluded from participation in the Mills Act Property Program.

Property under a Mills Act preservation contract will be valued by the capitalization of income method. The modified property tax rate will vary from property to property based on each individual appraisal. The tax rate will be administered thru the County’s Auditor-Recorder’s office.

Upon notification that a property is enrolled in the mills act, the assessor’s office will annually review three different values:

1. Proposition 13 value - the baseline assessed value used to calculate property taxes.
2. Market value (decline in market) - used  primarily in declining markets to determine eligibility for temporary reductions.  values are typically determined by a comparable sales analysis or income approach
3. Mills act value – based on prescribed calculations - always determined using an income approach, even for owner-occupied properties.  Valuation method is prescribed by the state board of equalization.

Requires an income approach to value, even if the property is not being used for income purposes. The assessor’s office will enroll the lowest of the three values.

Key difference is the capitalization rate:  The primary distinction between the market value and mills act value is in the capitalization rate used.

• Market value capitalization rate is based on comparable sales and current market conditions
• The mills act capitalization rate contains four different elements:
  1. Interest component – determined by the state board of equalization
  2. Historical risk – set by the board of equalization as 4 percent for owner occupied residence and 2 percent for all others
  3. Amortization - the remaining life – is applied to historical structure only
  4. Tax rate

The higher the capitalization rate, the lower the assessed value.