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 _________________________________________________________________ ____ 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. _________________________________________________________________ ____ 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) _________________________________________________________________ ____ 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.