Owners of historical buildings in Santa Barbara soon may get to put a portion of property taxes toward renovations.

The California Mills Tax Abatement Act was enacted in 1972, but must be implemented by local governments. At Tuesday’s meeting of the Santa Barbara Ordinance Committee, the draft was discussed and received approval to proceed to the Santa Barbara City Council for possible adoption. Santa Barbara has pursued adoption of the Mills Act since 2000.

The act would create contracts between the city and building owners to allow a 40 percent to 60 percent reduction in property tax. The money saved would be used for renovations, an idea met only with enthusiasm by members of the Ordinance Committee.

The city’s Finance Committee has recommended caps on both the contracts allowed by the city and total revenue loss, since each contract results in less property taxes to the city, as well as additional staff time.

“I’m sure some would feel in certain economic times, the city taking any hit whatsoever would be ill-advised,” Councilman Grant House said. “(However), honoring historic structures can really reveal itself in increased property values for the areas that are nearby and for the community at large, so there has to be some differential there.”

Some institutions that receive property taxes — including school districts, water districts and MTD — would receive fewer dollars if the Mills Act passes.

While specifics of the ordinance — such as contract caps, revenue loss caps and application fees — would be formed in a separate resolution later and are not set in stone, the Finance Committee recommended a contract cap of eight per year and a $300,000 cap on total revenue loss.

“It’s a relatively small amount of property tax lost when you think about the fact that these properties go back at a much higher value,” Finance Committee chairman Roger Horton, who strongly supports the Mills Act, said after the meeting.

Homeowners’ renovations would be monitored for accountability, according to a presentation by the Community Development Department’s Planning Division. The 10-year rehabilitation plans that owners submit would go through a selection process, with the possibility of an application or processing fee.

“I’m getting more and more into cost recovery, and we’re having a hard time with our budget,” Mayor Marty Blum said, in support of having an estimated fee of $450 for applicants.

“Given the size of the tax benefit to the homeowner, I think it’s reasonable for there to be (some cost recovery),” Councilman Dale Francisco said. “The higher-end fee you’re talking about makes sense.”

The plan would move slowly, as Francisco said, with eight recommended contracts a year. There are about 212 recognized buildings that could qualify, but should the City Council approve additional historical districts in the city, that number most likely would double.

The draft now will go to the City Council for any additional changes, discussion and adoption, and the Planning Division hopes to get the first contracts approved by Jan. 1, 2010.

Adoption of the Mills Act is supported by many city organizations, including government agencies and historical societies such as the Pearl Chase Society and residents of Brinkerhoff Avenue.

— Noozhawk staff writer Giana Magnoli can be reached at gmagnoli@noozhawk.com.