BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
2136 (V.M. Perez)
Hearing Date: 08/12/2010 Amended: 07/15/2010
Consultant: Mark McKenzie Policy Vote: Rev&Tax 3-0
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BILL SUMMARY: AB 2136, an urgency measure, would provide the
following relief related to the earthquake that occurred in
Imperial County on April 4, 2010:
Disaster-related fiscal assistance and tax relief to affected
persons and jurisdictions for losses sustained as a result of
the Imperial County earthquake, as specified.
State assumption of all local agency costs related to the
Imperial County earthquake under the California Disaster
Assistance Act (CDAA).
Acceleration of loan forgiveness terms for any loans issued
for the rehabilitation, reconstruction, or replacement of
lower income owner-occupied manufactured homes under the
CalHome program following the Imperial County earthquake.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Property tax reimbursement $78 General*
Homeowner's exemption negligible costs, if any General
Disaster loss carry forward $7 (FY 2009-10) General
(see staff comments)
CDAA: state assumption of up to $6,000 (see staff
comments) General
local share of disaster costs
CalHome loan forgiveness acceleration of up to $10
million in revenue Bond**
losses by ten years, beginning in 2015.
(see staff comments)
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*Special Fund For Economic Uncertainties (NOTE: existing law
continuously appropriates moneys from this fund for
disaster-related allocations, so adding an allocation for the
disasters specified in the bill constitutes an appropriation)
** Self-Help Housing Fund
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STAFF COMMENTS: SUSPENSE FILE.
On April 4, 2010, a magnitude 7.2 earthquake struck Baja
California, Mexico, approximately 40 miles south of the United
States border. The earthquake was widely felt in southern
California, particularly in Imperial County, and damaged or
destroyed numerous homes, businesses, schools, water treatment
and storage facilities, and other public facilities. On April
5, 2010, Governor Arnold Schwarzenegger proclaimed a state of
emergency in Imperial County. President Obama issued a major
disaster declaration
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related to the impact from the earthquake in Imperial County on
May 7, 2010. The federal declaration provides federal funding
on a cost-sharing basis for emergency work and the repair or
replacement of public facilities damaged by the earthquake, but
does not provide assistance for individuals.
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 2136 would provide for state reimbursement to backfill any
local government property tax revenue losses from assessment
reductions in Imperial County as a result of the April 4, 2010
earthquake. The state would hold local governments harmless for
disaster-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 $7 million in total projected reductions in assessed value
of commercial or residential property reported by county
officials, this bill would result in state allocations of
approximately $78,000 to local jurisdictions in Imperial County.
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 2136 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 April 2010 earthquake in
Imperial 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. According to the Imperial
County Assessor's Office, there were no residential properties
completely destroyed as a result of this earthquake. The Board
of Equalization notes that a temporary absence from a damaged
home would not result in the homeowner's loss of the exemption,
so there should be no revenue loss as a result of this
provision.
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
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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 2136 would apply the special disaster loss carryover
treatment for losses sustained as a result of the April 2010
earthquake in Imperial County. The Franchise Tax Board (FTB)
estimates a total revenue loss of approximately $7,000 in
2009-10 due to losses sustained in those counties. 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.
California Disaster Assistance Act (CDAA)
The California Disaster Assistance Act requires the state to pay
75 percent of the non federal share of costs for any state
declared emergency. AB 2140 (Hancock), Chapter 739 of 2006,
prohibits the state share for any eligible project from
exceeding 75 percent of total state eligible costs unless the
local agency is located within a city, county, or city and
county that has adopted a local hazard mitigation plan as part
of the safety element of its general plan. Where the local
agency has complied, the Legislature may provide for a state
share of local costs that exceed 75 percent of total state
eligible costs.
AB 2136 would require the state to cover up to 100% of the
non-federal share of costs associated with the earthquake that
occurred in Imperial County on April 4, 2010. Staff recommends
an amendment to specify that the state assume the non-federal
share of costs "specified in agreements between this state and
the United States for federal assistance." The current state
share of costs for the severe winter storms is approximately
$17.25 million. If Imperial County were to adopt a local hazard
mitigation plan, which is a condition in current law for state
assumption of local costs, the total state costs would increase
by $6 million. Staff notes that, according to the California
Emergency Management Agency (CalEMA), Imperial County has not
adopted a local hazard mitigation plan.
Payment of local shares of cost is made with a Budget Act
appropriation to CalEMA. Because the state attempts to
reimburse all claims received in the budget year, and does not
control when claims are submitted, the amount appropriated
rarely matches the amount ultimately required in any given year.
When claims exceed the budget appropriation, a supplemental
appropriation may be made.
CalHome Program
The CalHome Program is administered by the Department of Housing
and Community Development (HCD) and provides Proposition 1C
general obligation bond funds as forgivable loans to enable low
and very low income households to become or remain homeowners.
Existing law requires the loans to be repaid in 20 years, with
10 percent of the principal to be forgiven annually for each
additional year beyond the 10th year that
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the home is owned and continuously occupied by the borrower. On
May 6, 2010, HCD issued a notice of funding available (NOFA)
that makes $10 million in Proposition 1C bond funds available
from the CalHome Program for loans related to the rehabilitation
or reconstruction of lower-income owner-occupied homes (both
conventional and manufactured homes) damaged by the earthquake.
To date, HCD has awarded $1.5 million to Imperial County for
loans to 36 households, $1.32 million to the City of Calexico
for loans to 26 households, and $1.5 million to the City of El
Centro for 26 households. HCD indicates that all of the awards
to date would be used to assist owners of manufactured homes
that are currently uninhabitable due to damage from the
earthquake. Most of these manufactured homes are near the end
of their useful life.
AB 2136 would specify that any loans provided pursuant to the
CalHome Program Disaster Assistance for Imperial County for
rehabilitation, reconstruction, or replacement of lower income
owner-occupied manufactured homes would be repaid in 10 years,
with 20 percent of the principal forgiven annually for each year
beyond the 5th year the the home is owned and occupied by the
borrower. This provision would accelerate the revenue losses
associated with any loans provided for manufactured homes
damaged by the Imperial County earthquake and reduce the
owner-occupancy requirements by ten years. Staff notes that the
state General Fund will bear a 30-year repayment period for the
ten-year home ownership benefit provided by the bill.