TO: Honorable Mayor and Members of the City Council
FROM: Jarad Hildenbrand, City Manager
1. Subject
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Mills Act Program Review - Request for Additional Time and Temporary Deferral of Adopted Fee Increase (Continued from September 22, 2026)
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2. Summary
On September 22, 2026, the City Council considered proposed Mills Act Program Guidelines intended to improve program administration, establish clearer application and evaluation criteria, strengthen monitoring and compliance, and better align program workload with available resources.
Following the City Council's discussion, additional staff review, and stakeholder outreach, staff has concluded that the issues affecting the Mills Act Program are broader than can reasonably be addressed through limited revisions to the proposed guidelines.
The City currently administers approximately 414 active Mills Act contracts. The program has grown significantly over time while dedicated historic preservation staffing, administrative systems, and resources have not kept pace.
Staff recognizes that the Mills Act Program has already been paused and that requesting approximately six additional months is significant. The City should be further along in its administration of the program, its understanding of the existing contract portfolio, and its ability to answer many of the questions now before the City Council. Staff accepts responsibility for correcting those deficiencies.
The additional time will be used to conduct a contract-by-contract review of all existing agreements, establish an accurate program baseline, reconcile incomplete records, evaluate the status of required inspections, review fiscal and fee impacts, evaluate the appropriate size and structure of the program, address property transfers and nonrenewal, compare programs used by other jurisdictions, evaluate staffing and technology, and develop a transition plan for existing contracts.
The objective is not simply to revise the current guidelines. The objective is to develop the right Mills Act Program for Orange and establish the administrative structure necessary to operate it successfully.
Staff is also recommending that implementation of the previously adopted Mills Act Program fee increases be temporarily deferred until the comprehensive review is completed and the City Council considers a revised program and corresponding fee structure.
3. Recommended Action
recommendation
1. Continue consideration of the Mills Act Program to the April 13, 2027, City Council meeting.
2. Direct staff to conduct the comprehensive Mills Act Program review described in Attachment 3, including a contract-by-contract review of all existing Mills Act agreements and recommendations regarding program structure, eligibility, application procedures, program size and growth, contract duration, administration, inspections, compliance, existing-contract transition, property transfers, nonrenewal, cancellation, fiscal impacts, fees, staffing, technology, and implementation.
3. Adopt Resolution No. 11724. A Resolution of the City Council of the City of Orange amending Resolution No. 11665 to defer implementation of the Mills Act Program fee increases in the Master Schedule of Fees and Charges.
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4. Fiscal Impact
There is no immediate General Fund appropriation required as a result of continuing this item.
Temporarily maintaining the currently effective Mills Act fees may result in less fee revenue than would otherwise be generated by the previously adopted fee increases during the review period.
As part of the comprehensive review, staff will evaluate the fiscal impact of the existing Mills Act Program, the reasonable cost of administering program services, appropriate levels of cost recovery, and the staffing and technology necessary to operate the program.
Staff will also work with the Orange County Assessor and other appropriate agencies to better understand the property tax implications of the City's existing Mills Act contracts, including Mills Act valuation, property transfers, nonrenewal, and restoration of assessed value as contracts wind down.
Any recommendations requiring additional appropriations will be presented to the City Council as part of the comprehensive program review.
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
Mills Act Program
The Mills Act is a State-authorized historic preservation incentive that allows local governments to enter into contracts with owners of qualified historic properties. In exchange for commitments to preserve, rehabilitate, and maintain the property, participating properties may receive reduced property tax assessments.
The City of Orange established its Mills Act Program in 1998 and currently administers approximately 414 active contracts.
The City's original program was intended to encourage long-term preservation of historic resources, support rehabilitation and reinvestment in participating properties, protect neighborhood character, and consider the fiscal impact of the program on the City. The original framework also reflected an expectation that property tax savings would be reinvested into participating historic properties over time.
Those original objectives will be considered as part of the current review.
Mills Act contracts have a minimum ten-year term and automatically extend annually unless either party provides timely notice of nonrenewal. State law requires contracts to bind successor owners and requires the City to conduct interior and exterior inspections before entering into a new agreement and every five years thereafter.
Cancellation is legally distinct from nonrenewal and may be pursued when a property owner breaches the agreement or allows the property to deteriorate to the point that it no longer qualifies as a historical property.
Need for a Comprehensive Review
Staff recognizes that the City's administration of the Mills Act Program has not kept pace with the growth and complexity of the program.
Improvements are needed in contract tracking, annual reporting, required inspections, compliance monitoring, recordkeeping, enforcement procedures, staffing, technology, and overall program management.
The Mills Act Program has also been paused for an extended period. Staff understands the significance of asking prospective applicants and participating property owners to wait an additional six months.
However, reopening the program without first correcting its underlying administrative deficiencies would risk perpetuating many of the same issues that resulted in the current review.
Staff therefore intends to use the requested period to focus on the program comprehensively rather than return with another limited revision to the proposed guidelines.
The review will address not only how the program is administered, but also fundamental policy questions regarding who should be eligible, how applications should be prioritized, how many new contracts should be approved annually, whether there should be an overall limit on active contracts, whether there should be any policy regarding the duration of future participation, and how the City should administer existing contracts over time.
The goal is to establish a Mills Act Program that is legally defensible, administratively sustainable, financially transparent, fair to participating property owners, effective in preserving Orange's historic resources, and capable of being consistently administered over time.
Stakeholder Outreach
Following the September 22nd meeting, staff began additional outreach with stakeholders regarding the Mills Act Program.
On October 6, 2026, City representatives met with representatives of the Old Towne Preservation Association to discuss the City's existing program and potential reforms.
The discussion included the completeness of historical contract files, required inspections, existing compliance concerns, program fees, nonrenewal, property transfers, Proposition 13 and assessment issues, owner occupancy, investor-owned and commercial properties, application criteria, completed preservation work, and the need for a clear transition plan for the City's existing contracts.
The discussion also reinforced the importance of distinguishing among requirements imposed by State law, obligations contained in existing contracts, questions requiring information from the Orange County Assessor, and policy choices that remain within the City Council's discretion.
Staff will continue stakeholder outreach during the review period.
Contract-by-Contract Review
A central component of the review will be a contract-by-contract assessment of all approximately 414 existing Mills Act agreements.
The review will evaluate each agreement's approval history, ownership, rehabilitation and maintenance requirements, annual reporting, five-year inspection history, available evidence of completed work, outstanding obligations, and known or potential compliance issues.
Preliminary review indicates that the completeness of historical files varies. Some files contain substantial documentation, while others contain limited information.
Where records are incomplete or unavailable, staff will identify the missing information and determine what additional research, owner outreach, inspection, County records, or other reconstruction is necessary.
Every existing contract will be reviewed. Where an individual contract cannot be fully resolved because historical information is unavailable, that deficiency and the additional work necessary to resolve it will be documented.
Properties for which potential compliance concerns have previously been identified may be prioritized within the broader review; however, any compliance determination will be based upon the applicable contract, available records, required work, inspection history, and current conditions.
The review will clearly distinguish between deficiencies in the City's administration of the program and potential noncompliance by a property owner.
For example, if a required five-year inspection was not performed because of a City administrative failure, that will be identified as a City program-administration deficiency and will not, by itself, be attributed to the property owner as noncompliance.
Similarly, missing City records or undocumented City follow-up will not, by themselves, serve as a basis for enforcement against a property owner.
Required Inspections
State law requires the City to conduct an interior and exterior inspection before entering into a new Mills Act agreement and every five years thereafter.
As part of the contract-by-contract review, staff will determine whether required inspections are documented, whether records are insufficient to establish whether an inspection occurred, or whether an inspection was missed.
Staff will develop a plan to complete overdue inspections and place participating properties on a consistent inspection cycle.
Staff will also evaluate the appropriate professional qualifications and administrative structure for conducting future Mills Act inspections.
Existing Contract Transition Plan
The revised program must address not only future applicants, but also the approximately 414 contracts already in effect.
Staff will develop an existing-contract transition plan addressing incomplete records, overdue or undocumented inspections, previously completed rehabilitation work, outstanding obligations, compliance procedures, fees, revised administrative requirements, and communication with participating property owners.
The transition plan will distinguish between obligations contained in existing contracts and requirements proposed for future contracts.
It will also address properties that have substantially completed required rehabilitation or preservation work, including continuing obligations, administrative requirements, fees, and treatment during any future nonrenewal period.
Program Size, Growth, and Contract Duration
The City Council has raised questions regarding the appropriate long-term size, growth, and structure of the Mills Act Program.
Staff will evaluate a range of options, including whether to establish an annual limit on new contracts, a maximum number of active contracts citywide, limits on the number of contracts held by a single owner or ownership entity, and methods for prioritizing applications when demand exceeds available program capacity.
The review will consider preservation priorities, fiscal impacts, staffing and administrative capacity, the existing number of contracts, and practices used by other jurisdictions. The review will also consider whether any numerical limits are appropriate at all and, if so, how they should be structured and applied.
Staff will also evaluate whether the City should establish any policy regarding the duration of future Mills Act participation within the requirements of State law.
State law requires an initial contract term of at least ten years and provides for automatic one-year extensions unless timely notice of nonrenewal is given. As part of the review, staff and the City Attorney will evaluate whether the City should continue the existing rolling contract structure without a predetermined maximum participation period or consider alternatives under which the City would initiate nonrenewal after a defined number of annual extensions.
Potential participation periods, including approximately 15- or 20-year models, may be evaluated as examples of possible approaches. These examples are not proposed program requirements and are intended only to inform the policy analysis.
The review will evaluate these and other approaches, including whether a maximum participation period is appropriate at all, legal implementation, preservation benefits, fiscal impacts, administrative implications, fairness to participating property owners, treatment of existing versus future contracts, and practices in other jurisdictions.
Eligibility and Future Applications
Staff will evaluate the appropriate eligibility and prioritization criteria for future applications.
Issues will include owner-occupied residential properties, rental and investor-owned properties, commercial properties, entity ownership, limits on multiple contracts held by a single owner, historic significance, preservation need, proposed investment, public benefit, and the relationship between anticipated tax savings and preservation expenditures.
Staff will evaluate an objective weighted scoring system to prioritize applications when more eligible applications are received than the City intends to approve.
Staff will also evaluate how documented owner-performed labor should be considered when measuring preservation investment.
The review will consider phased application models, including whether an initial eligibility or preliminary review should occur before an applicant incurs the greater cost associated with a complete Mills Act application and contract.
Property Transfers and Nonrenewal
Questions were raised during the City Council's discussion regarding the treatment of Mills Act contracts when a participating property is sold or transferred.
Under State law, Mills Act contracts are required to remain with the property and bind successive owners. Accordingly, the sale or transfer of a property does not terminate an existing Mills Act agreement, and the new owner assumes the rights and obligations of the contract. This requirement is established by State law and is not a discretionary provision of the City's current program.
As part of the comprehensive review, staff and the City Attorney will evaluate how the City should administer existing Mills Act contracts when ownership changes, including appropriate transfer notification, acknowledgement of contractual obligations by the new owner, verification of outstanding rehabilitation or maintenance requirements, and compliance review where appropriate.
The review will also establish clear procedures for nonrenewal. Nonrenewal may be initiated by either the property owner or the City and is distinct from cancellation. Nonrenewal stops future automatic extensions of the contract but does not immediately terminate the agreement. The contract remains in effect for the balance of its remaining term.
Staff will evaluate owner-initiated and City-initiated nonrenewal, required notices and protest procedures, appropriate criteria for City-initiated nonrenewal, administration during the remaining contract term, continuing preservation and inspection obligations, property transfers during the wind-down period, property tax implications, and the appropriate fee structure during that period.
Cancellation and Enforcement
Cancellation is legally distinct from nonrenewal.
Under State law, cancellation may be pursued when the City Council determines that a property owner has breached the contract or allowed the property to deteriorate to the point that it no longer qualifies as a historical property.
Cancellation requires notice and a public hearing before the City Council and, if the contract is canceled, State law imposes a cancellation fee based upon the property's current fair market value.
Staff will develop a standardized process for identification of potential deficiencies, notice to owners, corrective action where appropriate, follow-up inspection, legal review, enforcement, and referral to the City Council when cancellation proceedings are warranted.
A sale or transfer of a property, by itself, is not grounds for cancellation under the current statutory framework.
Program Fees
The City's Mills Act fees are scheduled to increase pursuant to a previously adopted fee schedule.
Staff recognizes that increasing fees under the current administrative structure will not, by itself, address the program's underlying deficiencies.
The City should first establish the program it intends to operate, determine the services and staffing necessary to administer it, calculate the reasonable cost of providing those services, and then establish a corresponding fee structure.
Accordingly, staff recommends temporarily deferring implementation of the previously adopted fee increases.
The review will distinguish among the City's ongoing administrative responsibilities and discrete services provided to individual Mills Act participants for which a separate fee may be legally authorized and appropriate.
Staff will evaluate the cost and legal basis associated with preliminary eligibility review, complete application and contract processing, ongoing administration, reporting, required inspections, property transfers, nonrenewal administration, and compliance or enforcement activities.
Particular attention will be given to whether the same fee structure is appropriate for contracts that continue to renew annually and contracts that have entered the statutory nonrenewal period.
Any revised fee structure will identify the service provided, the reasonable cost associated with that service, and the proposed level of cost recovery.
Staffing, Technology, and Automation
Staff will evaluate the staffing and professional expertise necessary to properly administer the program.
The review will distinguish between responsibilities requiring qualified historic preservation expertise, administrative and analytical functions, and activities that can reasonably be automated.
Staff will first evaluate whether existing City software can be configured to administer the program more effectively. Where existing systems cannot reasonably meet program needs, staff will evaluate available software solutions and recommend procurement if appropriate.
Potential automated functions include electronic contract records, annual reporting, inspection scheduling, deadline reminders, ownership changes, compliance tracking, application workflow, fee tracking, document retention, and management reporting.
The objective is to establish a reliable and auditable administrative system while reducing dependence on paper files, spreadsheets, manual deadline tracking, and individual staff knowledge.
April 2027 Return
Staff anticipates returning to the City Council in April 2027 with:
• A verified inventory and contract-by-contract review of all approximately 414 existing agreements;
• Identification of City administrative deficiencies and potential property-owner compliance issues;
• Status of required five-year inspections and a plan for addressing overdue inspections;
• An existing-contract transition plan;
• Comparison of Mills Act programs used by other California jurisdictions;
• Analysis of current program participation and the estimated universe of potentially eligible properties;
• Options regarding annual new-contract limits, a maximum number of active contracts, and limits per owner or ownership entity;
• Options regarding the duration of future Mills Act participation, including continuation of the existing rolling structure and potential maximum participation periods implemented through nonrenewal;
• Policy options regarding owner occupancy, rental and investor ownership, commercial properties, entity ownership, application scoring, and application prioritization;
• Fiscal and property tax information developed in coordination with the Orange County Assessor;
• Administrative options regarding property transfers;
• Procedures for nonrenewal, compliance, enforcement, and cancellation;
• A cost-of-service analysis and recommended fee structure;
• Recommended staffing and professional expertise;
• Recommended technology and automation strategy; and
• A proposed implementation plan for reopening the Mills Act Program.
Where an individual contract cannot be fully evaluated because historical records are missing or incomplete, the April report will identify the deficiency and the specific additional action necessary to resolve it.
Requested Additional Time
Staff recognizes that the Mills Act Program has already been paused and that requesting approximately six additional months is a significant request.
The City should be further along in its administration of the program, its understanding of the existing contract portfolio, and its ability to answer many of the questions now before the City Council. The requested review is intended to address those deficiencies comprehensively.
At this point, staff does not believe the appropriate response is to reopen the program quickly or return with another limited revision to the proposed guidelines.
The requested period will allow staff to review every existing contract, reconcile incomplete records, address overdue or undocumented administrative requirements, understand the fiscal and property tax implications of the program, evaluate the appropriate size and structure of the program, establish clear and legally supportable policies, develop a transition plan for existing contracts, determine appropriate staffing and fees, modernize and automate program administration, and create an implementation structure that can be sustained over time.
The goal is not simply to develop a Mills Act Program. The goal is to develop the right Mills Act Program for Orange.
Staff therefore recommends that the City Council continue this matter to April 13, 2027, adopt Resolution No. xxxxxx temporarily deferring implementation of the previously adopted fee increases, and direct staff to complete the comprehensive review described in Attachment 3.
7. ATTACHMENTS
• Attachment 1 - September 22, 2026, Mills Act Program Staff Report
• Attachment 2 - Resolution No. 11720
• Attachment 3 - Mills Act Comprehensive Review Work Plan
• Attachment 4 - Resolution No. 11724