BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           1690 (Chesbro)
          
          Hearing Date:  07/15/2010           Amended: As Introduced
          Consultant: Mark McKenzie       Policy Vote: Rev&Tax 3-0
          _________________________________________________________________ 
          ____
          BILL SUMMARY:  AB 1690, an urgency measure, would provide  
          disaster-related fiscal assistance and tax relief to affected  
          persons and jurisdictions for losses sustained as a result of  
          earthquake that occurred in Humboldt County on January 9, 2010.
          _________________________________________________________________ 
          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2010-11      2011-12       2012-13     Fund
           Property tax reimbursement        $125                  General*

          Homeowner's exemption  negligible revenue loss          General

          Disaster loss carry forward       $100 (FY 2009-10), offset in  
          future years           General
                                       (see staff comments)
          ____________
          *Special Fund For Economic Uncertainties (NOTE: existing law  
          continuously appropriates moneys from this fund for  
          disaster-related allocations, so adding an allocation for the  
          disaster specified in the bill constitutes an appropriation)
          _________________________________________________________________ 
          ____

          STAFF COMMENTS: This bill meets the criteria for referral to the  
          Suspense File.
          On January 12, 2010, Governor Arnold Schwarzenegger proclaimed a  
          state of emergency in Humboldt County, declaring a state  
          emergency due to a 6.5 magnitude earthquake that occurred on  
          January 9, 2010.  President Obama did not declare a federal  
          disaster related to this earthquake.

           Property Tax Reimbursement
           Current law provides for a downward reassessment of properties  
          affected by a disaster.  Taxpayers are entitled to a refund of  
          any "excess" property tax paid on the property.  Taxpayers whose  
          property is damaged are also allowed to defer payment of the  










          next installment of property taxes pending receipt of a  
          corrected tax bill for the reassessed property.  For some  
          previous disasters, the Legislature has acted to provide  
          one-year state reimbursement of property tax losses to local  
          governments resulting from reductions in assessed values of  
          damaged or destroyed properties.

          AB 1690 would provide for state reimbursement to backfill any  
          local government property tax revenue losses from assessment  
          reductions in Humboldt County as a result of the earthquake that  
          occurred on January 9, 2010.  The state would hold local  
          governments harmless for wildfire-related 2009-10 property tax  
          losses, based initially on an estimate of loss, followed by a  
          corrective adjustment based on the actual property tax loss.   
          Staff notes that based on about $12 million in total projected  
          reductions in assessed value reported by county officials, this  
          bill would result in state allocations of approximately $125,280  
          to local jurisdictions in Humboldt County.
          Page 2
          AB 1690 (Chesbro)

          Staff notes that any allocations from the Special Fund for  
          Economic Uncertainties have a direct impact on the budget  
          deficit, which is currently projected to be over $19 billion for  
          the budget year.

           Homeowners' Exemption
           Current law exempts from the property tax the first $7,000 of  
          the assessed value of an owner-occupied principal place of  
          residence.  However, properties that become vacant or are under  
          construction on the January 1 lien date are not eligible for  
          this homeowners' exemption for the upcoming tax year.  Local  
          jurisdictions are reimbursed by the state for property tax  
          losses due to the homeowners' exemption.

          AB 1690 would provide that any dwelling that qualified for the  
          exemption prior to the Governor's disaster proclamation that was  
          damaged or destroyed as a result of the January 2010 earthquake  
          in Humboldt County may not be denied the exemption solely on the  
          basis that the dwelling was temporarily damaged or destroyed or  
          was being reconstructed by the owner.  The Board of Equalization  
          notes that only one home was totally destroyed, resulting in a  
          continued subvention of about $70, and that a temporary absence  
          from a damaged home would not result in the homeowner's loss of  
          the exemption. 











           Carry Forward of Casualty Loss Deduction  
          Current law allows nonbusiness taxpayers to deduct uninsured  
          losses, less $100, to the extent the loss exceeds 10% of  
          adjusted gross income.  Business taxpayers may deduct losses  
          against income; a portion of losses may be carried forward to  
          offset future years' tax liabilities for up to 10 years.   
          Taxpayers may either claim the losses as an itemized deduction  
          in the year the loss occurs, or in the preceding year by filing  
          an amended return for the prior year.  For previous disasters,  
          legislation has allowed both business and non business taxpayers  
          to carry forward 100% of their excess losses for 5 years, and a  
          portion of losses for another 10 years.

          AB 1690 would apply the special disaster loss carry forward  
          treatment for losses sustained as a result of the January 2010  
          earthquake in Humboldt County.  The Franchise Tax Board (FTB)  
          estimates a total revenue loss of approximately $100,000 in  
          2009-10 due to losses sustained in that county.  To the extent  
          that these deductions would have been claimed in later years had  
          they not been taken on an amended tax returns for the previous  
          tax year, there is an equivalent revenue gain in those later  
          years.  Taxpayers that choose to file an amended return to  
          report the casualty loss immediately will have a higher tax  
          liability in subsequent tax years.