SAN DIEGO -- San Diego leads the state in designating buildings as historic, resulting in a significant loss of property taxes, according to a grand jury report released Wednesday.

The Mills Act established a program that lowers property taxes 20-70 percent on historic homes to encourage owners to spend money to rehabilitate their properties.

According to the grand jury report, titled "History Hysteria: Historical Resources In The City of San Diego," there are 822 properties in the city under the Mills Act program, 27 percent of the total statewide.

That results in an annual loss of $607,571 to the city's general fund, and $1.5 million in unseen revenue for the San Diego Unified School District, according to Mayor Jerry Sanders.

San Diego annually designates more buildings as historic than any other California city, according to the grand jury.

The 17-page grand jury report stated that the local criteria and process for historical designations are "far too lax" in comparison to the other cities in California of similar size.

The grand jury called on the city to rein in the number of properties designated as historic through a temporary moratorium.

The panel also encouraged the city to reduce the number of properties granted Mills Act tax reassessment status and hire more staff to inspect those buildings that have already qualified.

In response, Sanders announced that he has proposed changes to the way the city handles the Mills Act program.

He called for imposing a limit on the number of Mills Act contracts awarded, making eligibility requirements more stringent, better monitoring of properties and increasing fees.

According to the mayor's office, the city's Historical Resource Board will host a series of public workshops on the reforms starting April 18.