TO: Honorable Mayor and Members of the City Council
THRU: Jarad Hildenbrand, City Manager
FROM: Russell Bunim, Community Development Director
1. Subject
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Proposed Mills Act Program Guidelines
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2. Summary
Staff is proposing updated Mills Act Program Guidelines to improve program administration, establish clear application and evaluation criteria, strengthen monitoring and compliance, align program workload with available resources, and better manage the fiscal impacts associated with Mills Act contracts while continuing to support preservation of the City’s historic resources.
3. Recommended Action
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1. Adopt Resolution No. 11720, a Resolution of the City Council of the City of Orange approving Mills Act Program Guidelines.
2. Provide direction regarding whether the City Council would like staff to return with additional policy options concerning existing and future Mills Act contracts.
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4. Fiscal Impact
Adoption of the proposed Mills Act Program Guidelines does not require an immediate General Fund appropriation. Mills Act contracts can result in reduced property tax revenue to the City as a result of the special property tax valuation provided under State law. The amount of the reduction varies by property and is determined through valuation by the Orange County Assessor.
The proposed annual limit on new contracts is intended to better manage the long-term fiscal impact of the program as well as the staff and consultant resources required for application review, inspections, monitoring, and contract administration.
5. Strategic Plan Goals
Goal 3: Enhance Quality of Life Through City Services
Objective 3.1: Mills Act Audit
Goal 6: Ensure the Preservation of Historic Resources
6. Discussion and Background
The Mills Act is a State-authorized historic preservation incentive that allows a local government to enter into a contract with the owner of a qualified historic property. In exchange for the property owner’s commitment to preserve, rehabilitate, and maintain the historic property in accordance with applicable preservation standards, the property becomes eligible for a special method of property tax valuation administered by the County Assessor that may result in reduced property taxes.
Enacted by the California Legislature in 1972, the Mills Act allows cities and counties to establish programs tailored to local historic preservation priorities. The City of Orange established its Mills Act Program in 1998.
Mills Act contracts have an initial ten-year term and automatically extend by one year annually unless either the property owner or the City provides timely notice of nonrenewal. Following nonrenewal, the contract remains in effect for the balance of its remaining term.
Cancellation is distinct from nonrenewal. State law allows a local agency to cancel a contract based upon specified findings of noncompliance, including breach of contract, deterioration of the historic property, or failure to complete required rehabilitation. Cancellation requires notice and a public hearing and results in a cancellation fee established by State law.
Mills Act contracts also require ongoing monitoring of participating properties, including regular reporting and periodic inspections to evaluate compliance with the terms of the contract and progress on required rehabilitation and maintenance work.
City of Orange Mills Act Program
There are presently 419 properties with active Mills Act contracts in Orange. Under the City’s current program, there is no annual limit on the number of new contracts. Under the existing program, a property may be eligible for a Mills Act contract if it is:
• A contributor to the Old Towne Orange National Register Historic District;
• A contributor to the Old Towne Orange or Orange Eichler Local Historic Districts;
• Separately listed or eligible for the National Register of Historic Places or the California Register of Historical Resources; or
• An individually surveyed historic property outside of a historic district.
Each Mills Act contract includes a Rehabilitation and Maintenance Plan identifying work necessary to support the long-term preservation of the property. Proposed work must comply with applicable City historic preservation standards and the Secretary of the Interior’s Standards for the Treatment of Historic Properties.
Applications are reviewed by staff to evaluate property eligibility, existing conditions, proposed rehabilitation work, and consistency with historic preservation standards. Staff and/or the City’s historic preservation consultant conducts a site inspection and works with the applicant to refine the Rehabilitation and Maintenance Plan as appropriate. Following execution of a contract, participating properties are subject to ongoing reporting requirements and periodic inspections to evaluate compliance.
Mills Act Program Reform
Over the past decade, changes to the Mills Act Program, growth in the number of participating properties, and reductions in dedicated historic preservation staffing have created challenges for effective program administration.
In 2018, the City removed its previous annual limit of 20 contracts in conjunction with the establishment of the Orange Eichler Historic Districts. Program participation increased significantly thereafter. The City subsequently experienced the loss of dedicated full-time historic preservation planning staff, while the number of contracts requiring ongoing monitoring and administration continued to increase.
The City Council has also requested additional information regarding the fiscal impact of the program, staff resources devoted to program administration, and compliance by existing contract holders. In November 2024, the City Council temporarily suspended acceptance of new Mills Act applications while the program was under review. The suspension provided an opportunity to evaluate the existing program, identify administrative and compliance challenges, and develop recommended reforms for Council consideration.
The proposed program reforms are intended to establish a sustainable administrative structure that balances the City's historic preservation objectives with available staff resources, appropriate oversight of existing contracts, and consideration of the fiscal impact associated with new contracts.
Proposed Mills Act Program Procedures
The Historic Preservation and Cultural Resources Ordinance being considered separately by the City Council on September 22, 2026, would establish a Heritage Commission and authorize the Commission to review Mills Act applications and make recommendations to the City Council.
The proposed Mills Act Program Guidelines establish additional evaluation criteria addressing:
• Relationship between anticipated property tax savings and proposed preservation investment;
• Preservation need; and
• Public benefit.
The Guidelines also propose limiting the number of new Mills Act contracts approved each year to eight. The proposed limit reflects the staff and consultant resources necessary to evaluate applications, inspect properties, administer contracts, review annual reporting, and perform ongoing inspections throughout the life of each contract.
The Guidelines also establish procedures addressing application processing and scheduling, treatment of previously completed work, eligible interior improvements, reporting requirements, compliance monitoring, and contract nonrenewal.
Future Policy Considerations
The proposed Guidelines are intended to provide a more sustainable framework for administering new and existing Mills Act contracts. Enhanced monitoring will also provide the City with better information regarding compliance and allow the City to pursue remedies available under individual contracts and State law when warranted.
Several broader policy issues concerning the Mills Act Program have also been raised during previous City Council discussions. These issues are not necessary to implement the proposed Guidelines but could be evaluated separately if directed by the City Council. They include:
• Establishing an overall limit on the number of active Mills Act contracts;
• Developing a policy regarding City-initiated nonrenewal of existing contracts;
• Establishing an owner-occupancy requirement for future residential Mills Act contracts;
• Limiting the number of properties for which a single owner may receive Mills Act contracts; and
• Establishing additional eligibility standards for properties owned by limited liability companies or other entities.
Because some of these options may affect existing contractual rights or raise legal, administrative, and fiscal considerations, staff recommends that any additional changes affecting existing contracts be evaluated separately in consultation with the City Attorney.
If directed by the City Council, staff can return with policy alternatives and an analysis of the legal, fiscal, and administrative implications of these additional measures.
7. ATTACHMENT
• Resolution No. 11720