BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           1766 (Gaines)
          
          Hearing Date:  07/15/2010           Amended: 05/04/2010
          Consultant: Mark McKenzie       Policy Vote: Rev&Tax 3-0
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          ____
          BILL SUMMARY:  AB 1766, an urgency measure, would provide  
          disaster-related fiscal assistance and tax relief to affected  
          persons and jurisdictions for losses sustained as a result of  
          wildfires that occurred in Placer County in 2009.
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          ____
                            Fiscal Impact (in thousands)

          Major Provisions         2010-11      2011-12       2012-13     Fund
           Property tax reimbursement        $140                  General*

          Homeowner's exemption  $3 annually until homes are  
          rebuiltGeneral

          Disaster loss carryover$8 (FY 2009-10)                  General
                                       (see staff comments)
          ____________
          *Special Fund For Economic Uncertainties (NOTE: this fund is  
          continuously appropriated, so requiring an allocation for this  
          purpose constitutes an appropriation)
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          ____

          STAFF COMMENTS: This bill meets the criteria for referral to the  
          Suspense File.
          
          On August 30, 2009, Governor Arnold Schwarzenegger proclaimed a  
          state of emergency declaring the wildfires that occurred in  
          Placer County (49 Fire) to be a state disaster.  President Obama  
          did not declare a federal disaster related to this wildfire.

           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 1766 would provide for state reimbursement to backfill any  
          local government property tax revenue losses from assessment  
          reductions in Placer County as a result of wildfire that  
          commenced on August 30, 2009.  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 total projected reductions in assessed  
          value reported by county officials, this bill would result in  
          state allocations of approximately $140,000 to local  
          jurisdictions in Placer County.

          Page 2
          AB 1766 (Gaines)

          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.  Staff suggests an amendment to condition  
          reimbursements to local governments for losses from assessment  
          reductions resulting from fire disasters that occur after  
          January 1, 2011 upon a county demonstrating the following: (1)  
          provision of adequate structural fire protection services in  
          state responsibility areas; (2) compliance with existing fire  
          prevention requirements in very high fire hazard severity zones;  
          and (3) the county has a fire risk reduction public education  
          program if it has land designated as a very high fire hazard  
          severity zone within its jurisdiction.  This provision would  
          only apply to future fire disasters, but Placer County may  
          already meet these requirements.

           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 1766 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 2009 wildfire in Placer  
          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 estimates  
          that this provision would likely result in a minor revenue loss  
          of approximately $3,000 ongoing, but this amount would decline  
          over time as homes are rebuilt and occupied. 

           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 1766 would apply the special disaster loss carryover  
          treatment for losses sustained as a result of the 2009 wildfire  
          in Placer County.  The Franchise Tax Board (FTB) estimates a  
          total revenue loss of approximately $8,000 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 a minor 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.