BILL ANALYSIS                                                                                                                                                                                                    




            SENATE REVENUE & TAXATION COMMITTEE

            Senator Lois Wolk, Chair

                                                AB 2136 - V.M. Perez

                                                Amended: June 16, 2010 

                                                                Urgency

            Hearing: June 23, 2010                          Fiscal: Yes




            SUMMARY: Adds to Disaster Provisions in the Personal Income  
                 Tax Law, Corporation Tax Law, and Property Tax for  
                 Imperial County, and taxpayers in Imperial County  
                 affected by the 2010 Earthquake; Requires the State to  
                 Pay 100% of the Non-Federal Costs for the Earthquake  
                 on April 4, 2010.

             

            INCOME AND CORPORATION TAXES  :

                 EXISTING STATE AND FEDERAL LAW allows taxpayers to  
            deduct disaster losses in the year the loss occurs or in  
            the preceding year by filing an amended return.  Disaster  
            losses result from fires, storms, floods or other natural  
            events proclaimed a disaster by the President or the  
            Governor.  Disaster losses are the amounts not compensated  
            for by insurance or other means.  

                 EXISTING FEDERAL LAW, which California conforms to,  
            only allows loss deductions for personal income taxes that  
            exceed $100 per taxpayer and 10% of their adjusted gross  
            income for the year. 

                 EXISTING STATE LAW limits disaster losses for  
            corporate taxpayers to the amounts set by state law for net  
            operating losses - 55% for 2000 and 2001, 60% for 2002 and  
            2003, and 100% for 2004 and thereafter - and the  
            carry-forward to five years. State law allows a limited  








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            percentage to be carried forward up to 10 years

                 Starting with the forest fires in 1985, and  
            approximately 45 times thereafter for various disasters,  
            the Legislature enacted measures that allow a 100%  
            carry-forward of excess disaster losses for up to five  
            years and a carry-forward of the excess disaster losses  
            under the above percentages for up to an additional 10  
            years.

                 THIS BILL enacts identical allowances for taxpayers  
            with excess disaster losses in Imperial County as a result  
            of the earthquake that occurred in April, 2010.

             

            PROPERTY TAXES  :

                 EXISTING LAW allows counties to adopt ordinances  
            allowing taxpayers to apply for a reassessment of property  
            destroyed or damaged by "a major misfortune or calamity" if  
            the Governor proclaims a disaster. Taxes that had  
            previously been paid are deemed "excess" as a result of a  
            downward reassessment and are refunded to the taxpayer.   
            County Assessors must defer the payment of property taxes  
            when they receive a timely filed application from an  
            affected taxpayer.

                 Beginning in 1990, the Legislature provided state  
            reimbursement of property tax revenue losses to local  
            governments resulting from the downward-reassessment of  
            damaged or destroyed properties for most disasters for one  
            year.

                 THIS BILL enacts identical provisions that require the  
            state to backfill first-year local revenue losses resulting  
            from the reassessment of property in Imperial County as a  
            result of the earthquake that occurred in April, 2010.

                 THIS BILL requires that Imperial County certify to the  
            Director of Finance an estimate of the amount of reduced  
            2009-10 property tax revenues resulting from reassessment  








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            by October 30, 2010.  The Director of Finance then verifies  
            and certifies the revenue loss estimate to the Controller  
            in 30 days, who then sends the certified amount to Imperial  
            County in 10 days.  Before October 30, 2011, the Imperial  
            County Auditor must remit to the Controller any  
            overestimated balance.  If the loss was underestimated, the  
            Controller must return the difference to the affected  
            county.  

             

            PROPERTY TAXES (HOMEOWNERS' EXEMPTION)  :

                 EXISTING LAW provides a homeowners' exemption from  
            property taxes equal to $7,000 in assessed value (at a one  
            percent property tax rate, the exemption reduces property  
            taxes by roughly $70) for owner-occupied homes.  Once  
            granted, homeowners' exemptions are generally permanent.   
            However, an Assessor may deny a homeowner's exemption if  
            the property becomes vacant or is under construction as of  
            the January 1st lien date.

                 THIS BILL provides that Assessors may not disqualify  
            an otherwise qualified residence for a homeowners'  
            exemption solely on the basis that the dwelling was  
            temporarily damaged, destroyed, under reconstruction by the  
            owner, or temporarily uninhabited as a result of restricted  
            access to the property in Imperial County as a result of  
            the earthquake that occurred in April, 2010.



             NATURAL DISASTER ASSISTANCE ACT  :

                 EXISTING LAW (Natural Disaster Assistance Act)  
            provides that the state must pay 75% of the non-federal  
            share of eligible costs for any state-declared emergency.  
            If the President declares it to be a disaster, then FEMA  
            covers 75% of costs, and the state covers 75% of the  
            remaining 25% balance.  For some statutorily specified  
            disasters the state is required to pay 100% of the  
            non-federal cost.  








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                 THIS BILL would require the state to pay 100% of the  
            non-federal cost of the earthquake that occurred in  
            Imperial County on April 4, 2010, as specified in  
            agreements between this state and the United States for  
            federal financial assistance.



             CalHOME Program  :

                 EXISTING LAW authorizes the CalHOME program,  
            administered by the Department of Housing and Community  
            Development (HCD), which provides grants to local agencies  
            or nonprofits to assist individual households and assist  
            multiple home ownership units, including single family  
            subdivisions.  Generally, HCD provides these moneys as  
            loans payable after 20 years, but HCD may convert loans  
            into grants after the homeowner has occupied the home for  
            more than 10 years, with 10% of the original principal  
            reduced for each year until fully converted into a grant.

                 THIS BILL provides that loans funded by the CalHOME  
            Program Disaster Assistance for Imperial County used for  
            owner-occupied manufactured homes shall instead be due and  
            payable in 10 years, with 20% of the original principal to  
            be forgiven annually for each year beyond the fifth year  
            that the homeowner continuously occupies the home.


            FISCAL EFFECT: 

                 According to FTB, AB 2136 results in revenue losses of  
            $7,000 in 2009-10, and gains of $4,000 in 2010-11, and  
            $3,000 in 2011-12.  BOE estimates one-time property tax  
            revenue losses of $78,000.




            COMMENTS:









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            A.   Purpose of the Bill

                 The author provided the following statement:

                 AB 2136 is a tax relief bill intended to assist the  
                 people of Imperial County in the wake of the Sierra El  
                 Mayor earthquake.  AB 2136 supplements a number of  
                 existing provisions in state tax law that can be  
                 helpful both to local jurisdictions and to individuals  
                 after a natural disaster.  The provisions of the bill  
                 would:

                 a.        Backfill local government for the temporary  
                 loss of property taxes due to

                           any property reassessments claimed by local  
                 property owners;
                 b.        Ensure that property owners still qualify  
                 for the homeowner's property tax

                           exemption, even if their principal residence  
                 was temporarily damaged or
                           destroyed by the quake;
                 c.        Enable taxpayers to carry forward their  
                 losses due to the disaster for five 

                           years, not just in the year of loss.  This  
                 provision would apply as well to 
                           small business owners related to carry  
                 forward net operating losses; and
                 d.        Remove the 25% local government match  
                 requirement for recovering 

                           federal assistance in covering certain  
                 public infrastructure costs.
                 By allowing special tax treatment for losses sustained  
                 as a result of the Sierra El Mayor earthquake, AB 2136  
                 will help to ease some of the burden on Imperial  
                 County residents.











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            B.   A Better Way

                 Through last year, the Legislature has amended Revenue  
            and Taxation Code 218 25 times for separate disasters to  
            ensure that Assessors may not deny homeowners' exemptions  
            for disaster-related reasons, added 45 code sections to  
            allow for excess disaster losses for both the Personal  
            Income Tax Law and the Corporation Tax Law, and enacted  
            more than 100 sections providing for the first year  
            backfill of local property tax losses and procedures  
            therein resulting from disaster reassessments.  The  
            Legislature always litters the code with these provisions  
            when disaster strikes, so why not enact a statute which  
            triggers these tax benefits whenever the Governor declares  
            a disaster?

                 Efforts to mandate consistency have stalled.  In  
            2005-06, AB 3039 (Houston) and SB 1607 (Machado) attempted  
            to change this statute to provide statewide protection,  
            thereby ensuring that future disaster-specific measures  
            were not necessary.  The Assembly Revenue and Taxation  
            Committee held AB 3039, and deleted the relevant provision  
            from SB 1607, which was subsequently enacted.   
            Additionally, the Governor directed the Office of Emergency  
            Services and the Office of Planning and Research to work  
            with the Legislature to enact standard purpose legislation  
            when he signed a disaster-specific bill (AB 18, La Malfa,  
            2005).   The Legislature has previously enacted statewide  
            legislation in response to a flurry of local  
            jurisdiction-specific bills, notably in the areas of  
            transaction and use taxes (SB 566, Scott, 2003), and  
            disputes over property tax allocation errors (AB 169,  
            Wiggins, 2001).  However, SB 1494 (Committee on Revenue and  
            Taxation) would automatically enact the preclusion of  
            assessors revoking a homeowners' exemption for  
            disaster-affected property, hopefully bringing some sanity  
            to these annual rituals.



            C.   The CalHOME Program









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                 Traditionally, disaster relief bills only include the  
            three tax provisions, and sometimes the Natural Disaster  
            Assistance Act provisions.  However, AB 2136 shortens the  
            timeline for owner-occupied mobilehomes that receive  
            CalHOME loans to covert to grants by half.  HCD provides  
            the following information on this proposal:

                 "The CalHome program is an HCD-administered Prop 1C  
            bond-funded program that provides grants to local public  
            agencies and nonprofit developers to assist individual  
            households through deferred-payment loans.  In response to  
            the earthquake that damaged homes in Imperial County in  
            April, HCD issued a $10 million over-the-counter (first  
            come/first served until funds are depleted) Notice of  
            Funding Availability (NOFA) on May 6.  The funds made  
            available through the NOFA are to be used for lower-income  
            owner-occupied rehabilitation or reconstruction of  
            conventional and manufactured homes damaged in the April 4  
            earthquake in Imperial County.  HCD does not make direct  
            assistance to homeowners in the CalHome program, rather  
            local jurisdictions apply to HCD and then make grants and  
            loans to the homeowners.  

                 To date, HCD has awarded $1.5 million to the County of  
            Imperial for its CalHome Program Disaster Assistance for  
            Imperial County Grant for 36 households and $1,320,000 to  
            the City of Calexico for 26 households.

                 The maximum subsidy amount to each homeowner is  
            $60,000.  The NOFA specifies that financial assistance  
            provided to an individual household to rehabilitate or  
            repair, or replace manufactured housing located in a  
            mobilehome park and not permanently affixed to a foundation  
            shall be in the form of a conditional grant due and payable  
            in 20 years, with 10 percent of the original principle to  
            be forgiven annually for each additional year beyond the  
            tenth year that the manufactured home is owned and  
            continuously occupied by the borrower.  

                 The proposed amendments to AB 2136 (V. Perez) alter  
            the terms of the grant to due and payable in 10 years, with  
            20 percent of the original principal to be forgiven  








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            annually for each additional year beyond the fifth year  
            that the manufactured home is owned and continuously  
            occupied by the borrower.

                 HCD has made the awards to the jurisdictions noted  
            above but has not executed the Standard Agreement  
            (contract).  In recognition of the proposed amendments, HCD  
            would provide for terms that could be altered by later  
            enacted statute."



            D.   When Disaster Strikes

                 The Committee will also hear AB 1662 (Portantino), AB  
            1690 (Chesbro), and AB 1766 (Gaines) at its June 23, 2010  
            hearing, which enacts disaster tax relief provisions for  
            wildfires for other natural disasters.




            Support and Opposition

                 Support:Regional Council of Rural Counties; California  
            State Legislature Rural Caucus; Board of Supervisors of the  
            County of Imperial; California State Association of  
            Counties; Regional Council of Southern California  
            Association of Governments; City of El Centro



                 Oppose:None received.



            ---------------------------------

            Consultant: Colin Grinnell
            >










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