BILL ANALYSIS AB 1690 Page 1 Date of Hearing: May 10, 2010 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Anthony J. Portantino, Chair AB 1690 (Chesbro) - As Introduced: January 27, 2010 2/3 vote. Urgency. Fiscal committee. SUBJECT : Disaster relief: County of Humboldt earthquake. SUMMARY : Adds the earthquake that occurred in Humboldt County on January 9, 2010 (2010 Earthquake) to the list of disasters eligible for full state reimbursement of local property tax losses, beneficial homeowners' property tax exemption treatment, and special "carry forward" treatment of excess disaster losses. Specifically, this bill : 1)Provides a mechanism for reimbursing Humboldt County for property tax losses resulting from the reassessment of properties damaged by the 2010 Earthquake. 2)Provides that any dwelling that qualified for a homeowners' property tax exemption before January 9, 2010, that was damaged or destroyed by the 2010 Earthquake, and that has not changed ownership since January 9, 2010, shall not be denied a homeowners' exemption solely because that dwelling was temporarily damaged or destroyed, or was being reconstructed by the owner, or was temporarily uninhabited as a result of restricted access. 3)Provides that any taxpayer's excess disaster loss resulting from the 2010 Earthquake shall be carried forward to each of the five taxable years following the taxable year for which the loss is claimed. However, if there is any excess disaster loss remaining after this five-year period, then the applicable percentage of that excess disaster loss shall be carried forward to each of the next 10 taxable years. 4)Specifies that, if the Commission on State Mandates determines that this bill contains costs mandated by the state, local agencies and school districts will be reimbursed for those costs. 5)Takes immediate effect as an urgency measure. AB 1690 Page 2 EXISTING LAW : 1)Property Tax Reassessment : Allows each county, by ordinance, to provide for the reassessment of properties damaged by a calamity, disaster, or misfortune. Taxpayers owning damaged property must apply for a reassessment within the time period specified in the applicable county's ordinance or within 12 months of the misfortune or calamity, whichever is later. The application for reassessment must show the condition and value of the property after the damage and the dollar value of the damage. Once the property is reassessed, the taxpayer is entitled to a refund of any excess property tax paid on the property. If the affected property is subsequently repaired, its value is subject to an upward reassessment by the county. 2)Homeowners' Exemption : a) Exempts the first $7,000 of the full value of a dwelling from property tax, when the dwelling is occupied by an owner as his/her principal residence. However, if a property is no longer owner-occupied or is vacant on the lien date (January 1), the property is not eligible for the exemption for the succeeding tax year. b) Provides certain disaster-related exceptions to the general rule that a property must be owner-occupied on the lien date to receive the homeowners' exemption. Under these exceptions, properties that were eligible for the homeowners' exemption immediately before the disaster, do not change ownership after the disaster, and are vacant solely because of damage incurred during the disaster, continue to be eligible for the homeowners' exemption. 3)Income Tax Losses : a) Allows non-business taxpayers with casualty losses that are not reimbursed by insurance and that exceed $100 plus 10% of the taxpayer's adjusted gross income (AGI) to claim these losses as itemized deductions on their tax return. Taxpayers may carry forward 100% of any remaining losses for up to 10 years. Corporate taxpayers with casualty losses that are not reimbursed by insurance are not subject to the $100 plus 10% of AGI threshold, but are subject to the same carry forward rules that apply to individual AB 1690 Page 3 taxpayers. b) Allows both individual and corporate taxpayers who experience losses as a result of certain named disasters to claim these losses either in the year in which the loss occurred or in the preceding year. FISCAL EFFECT : 1)Property Tax Reassessment : The State Board of Equalization (BOE) estimates that the cost of reimbursing Humboldt County's property tax losses would be $405,072. 2)Homeowners' Exemption : BOE estimates that extending the homeowners' exemption to homes that are uninhabitable on the lien date will result in revenue losses of less than $12,000. 3)Income Tax Losses : The revenue losses related to the disaster loss treatment provisions of this bill are currently unknown. Specifically, the Franchise Tax Board analysis notes, "The revenue impact has not been determined at this time, but will be developed as the bill moves through the legislative process." COMMENTS : 1)The author states: AB 1690 would allow special tax treatment, called disaster loss treatment, for losses sustained as a result of the January 9, 2010 earthquake in Humboldt County. The purpose of this bill is to provide immediate tax relief to individuals and businesses affected by the earthquake. Traditionally, when a disaster has occurred in California, the state has enacted legislation to keep counties whole with respect to any loss of property tax revenue they experience from reduced property values resulting from the disaster. This bill follows a longstanding policy of backfilling county losses resulting from reduced property values. 2)The County of Humboldt notes: The Humboldt County Board of Supervisors is authorized to AB 1690 Page 4 reassess property that was damaged or destroyed by the earthquake. This reassessment would have a significant adverse impact on the County's property tax revenues if not reimbursed by the state. This bill would amend existing law that already provided similar relief to other counties on over twenty previous occasions, by including this incident in Humboldt County among the disasters eligible for reimbursement. 3)Committee Staff Comments: a) The 2010 Earthquake : On Saturday, January 9, 2010, a 6.5 magnitude earthquake struck the northern coast of California, disrupting utilities and damaging at least 175 structures. On January 12, 2010, Governor Schwarzenegger proclaimed a state of emergency in Humboldt County due to the earthquake. b) Double Referral : This bill was double-referred with the Committee on Local Government, and passed out of that committee by a vote of 8-0 on April 14, 2010. c) Related Bills : i) AB 1662 (Portantino), of the current Legislative Session, would provide similar disaster relief in connection with certain wildfires that occurred in Los Angeles and Monterey Counties. AB 1662 is currently pending in the Assembly Appropriations Committee. ii) AB 1766 (Gaines), of the currently Legislative Session, would provide similar disaster relief in connection with the 49 Fire that began in Placer County in August 2009. AB 1766 is scheduled to be heard by this Committee along with this bill. iii) Should these bills all continue to progress through the Legislature, appropriate amendments should be taken to prevent chaptering out issues. REGISTERED SUPPORT / OPPOSITION : Support County of Humboldt AB 1690 Page 5 Regional Council of Rural Counties Opposition None on file Analysis Prepared by : M. David Ruff / REV. & TAX. / (916) 319-2098