BILL ANALYSIS SENATE REVENUE & TAXATION COMMITTEE Senator Lois Wolk, Chair AB 157 - Anderson Amended: May 20, 2009 Hearing: July 8, 2009 Tax Levy Fiscal: Yes SUMMARY: Property tax: Transfer of base year value - disaster relief EXISTING LAW (California Constitution) required the Legislature to allow taxpayers to transfer the base-year value of property that is substantially damaged or destroyed by a disaster, as declared by the Governor, to comparable property within the same county that is acquired or newly constructed as a replacement for the substantially damaged or destroyed property (Proposition 50, 1986). EXISTING LAW implements this constitutional requirement, but limits the transfer of base-year value to replacement property acquired or newly constructed within the same county to five years after the disaster (to the extent that the replacement property does not exceed 120% of the fair market value of the old property immediately prior to the disaster). In 2006, the Legislature extended the deadline from three to five years for disasters occurring on or after July 1, 2003 (AB 1890, Mountjoy). The deadline applies only when the taxpayer acquires a new property or rebuilds in a different location than the site of the disaster; taxpayers may retain the base-year transfer an unlimited amount of time to retaining the base-year value when rebuilding on the site of the disaster because the Constitution exempts real property that is reconstructed after a disaster from the definition of "new construction" requiring reassessment AB 157 - Anderson Page 2 EXISTING LAW (California Constitution) allows similar treatment for taxpayers seeking to transfer their base-year value to a replacement property acquired or newly constructed in a different county for three years. THIS BILL extends the deadline for taxpayers to transfer of base-year value to replacement property acquired or newly constructed within the same county from five years to seven years for disasters occurring on and after October 1, 2007. The measure similarly extends the deadline for taxpayers affected by the Cedar Fire in San Diego County in 2003. AB 157 also makes legislative findings and declarations. FISCAL EFFECT: According to the Board of Equalization (BOE), AB 157 results in annual property tax revenue losses of approximately $10,000. COMMENTS: A. Purpose of the Bill "Assembly Bill 157 is a disaster relief bill that would extend the timeframe for survivors of the devastating 2003 Cedar Fire to replace their fire-destroyed properties. Nothing will ever be the same again for survivors of these catastrophic fire events, but we can help. The time it takes to rebuild homes and lives cannot be underestimated, and for many, restoration is an ongoing challenge. Even now, property owners struggle to resolve the necessary but time-consuming issues surrounding the replacement of their [homes]. I introduced Assembly Bill 157 as a simple way to ensure a realistic timetable for addressing the losses that survivors have suffered." AB 157 - Anderson Page 2 B. Costs and Benefits California voters and the Legislature allowed base-year value transfers for taxpayers affected by disasters to prevent these taxpayers from facing higher property taxes when rebuilding or buying another property after a disaster. Without this treatment, a taxpayer with a base-year value of $100,000 from 1976 (and $1,000 in property taxes due at the one per cent rate), would instead pay 1% of the acquisition price of the new property, likely resulting in a significant property tax increase. Taxpayers also may apply for a reassessment of disaster-affected property to reflect its post-disaster value; the state even enacts legislation for every Governor declared disaster to reimburse local agencies for first-year revenue losses resulting from these reassessments as sure as the sun rises in the East. While AB 157 is a modest measure that likely will grant benefits for taxpayers who have not yet acquired a replacement property, is the measure really necessary? The Constitution allows the Legislature to provide whatever timeline it wishes, unlike for base-year transfers to different counties, and after starting at two years, has extended the time period three times: after the Oakland Hills Fire, after the Northridge Earthquake, and again following the Cedar Fire. BOE estimates that fewer than ten taxpayers per year will benefit from AB 157. With state and local agencies under intense fiscal stress, should the Legislature enact a measure that extends a tax benefit to such a small set of San Diego County taxpayers? Additionally, while the impact upon individuals and families of being displaced by a disaster destroying property is difficult to underestimate; why should the Legislature extend this benefit more than five years after a disaster? Support and Opposition AB 157 - Anderson Page 2 Support:Board of Equalization; California Association of Realtors; California Department of Insurance; Oppose:None received. --------------------------------- Consultant: Colin Grinnell