BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 428| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 428 Author: Nazarian (D) Amended: 8/31/15 in Senate Vote: 21 SENATE GOVERNANCE & FIN. COMMITTEE: 6-1, 7/1/15 AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Pavley NOES: Moorlach SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/27/15 AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen ASSEMBLY FLOOR: 78-0, 6/1/15 - See last page for vote SUBJECT: Income taxes: credit: seismic retrofits SOURCE: Author DIGEST: This bill allows a credit equal to 30% of a qualified taxpayer's qualified costs incurred for seismic retrofit construction. ANALYSIS: Existing law: 1)Allows various income tax credits, deductions, and sales and use tax exemptions to provide incentives to compensate taxpayers that incur certain expenses, such as child adoption, AB 428 Page 2 or to influence behavior, including business practices and decisions, such as research and development credits. 2)Requires the Department of Finance is required to annually publish a list of tax expenditures. 3)Requires the reassessment of property, based on the fair market value, upon a change in ownership, or on new construction. The determination of fair market value is known as the base year value and is adjusted annually for inflation, which may not exceed 2% per year. Newly constructed or new construction includes additions to the real property, or the alteration of the real property that amounts to a rehabilitation or conversion of the property to a different use since the preceding lien date. 4)Requires assessors to determine the added value of the new construction when completed and add that amount to the assessed value of the property. In general, if the new construction replaces existing improvements, the value attributable to the existing improvements is deducted from the base year value of the property. 5)Excludes from the definitions of newly constructed and new construction, the construction or reconstruction of seismic retrofitting components of an existing structure. This bill: 1)Allows a credit equal to 30% of a qualified taxpayer's qualified costs incurred for seismic retrofit construction. Allows a credit amount allowed of one-fifth of the credit amount for the taxable year in which the credit is allowed, and one-fifth of the credit amount for each of the subsequent four taxable years. For purposes of computing the credit, the qualified costs shall be reduced by any grant provided by a public entity for the seismic retrofit construction. 2)Caps the total credit amount available to $12 million per year, plus any carryover of unused funds from the prior year. 3)Requires a qualified taxpayer to obtain certification from the appropriate jurisdiction with authority for building code enforcement, upon a review of the building, that the completed AB 428 Page 3 construction satisfies the definition of seismic retrofit construction. The certification shall identify what part of the completed construction, if any, is not seismic retrofit construction. Each jurisdiction with authority for building code enforcement in which a qualified building is located must enter into an agreement with the state to provide certifications and to not seek reimbursement for any costs incurred in providing those certifications. A taxpayer must then request and be granted an allocation of the credit from the Franchise Tax Board (FTB). To request an allocation, the taxpayer must sign and submit to FTB an application to receive a credit for the retrofit construction, and provide a copy of the certification. Upon receipt of the application and certification, FTB shall notify the taxpayer of the amount of credit allocated. Upon request of FTB, the qualified taxpayer must provide a copy of the certification to FTB. 4)Defines a qualified taxpayer as an owner of a qualified building located in California. A taxpayer that owns a proportional share of a qualified building may claim the credit based on the taxpayer's share of the qualified costs. 5)Defines qualified costs are defined as costs paid or incurred by the qualified taxpayer for any completed seismic retrofit construction on a qualified building, including any engineering or architectural design work necessary to permit or complete the seismic retrofit construction. Qualified costs shall not include any of the following: Maintenance, including abatement of deferred or inadequate maintenance, and correction of violations unrelated to the seismic retrofit construction; Repair, including repair of earthquake damage; Seismic retrofit construction required by local building codes as a result of addition, repair, building relocation, change of use, or occupancy; Other work or improvement required by local building or planning codes as a result of the intended seismic retrofit construction; Rent reductions or other associated compensation, AB 428 Page 4 compliance actions, or other related coordination involving the qualified taxpayer and any other party, including a tenant, insurer, or lender; Replacement of existing building components, including equipment, except as needed to complete the seismic retrofit construction; Bracing or securing nonpermanent building contents; The offset of costs, reimbursements, or other costs transferred from the qualified taxpayers to others; or, Amounts paid to the jurisdiction with authority for building code enforcement for issuing the certification required by this bill. 1)Defines seismic retrofit construction as alteration of a qualified building or its components to substantially mitigate seismic damage. Seismic retrofit construction refers only to work performed voluntarily, and for which qualified costs were paid or incurred, on or after January 1, 2016. Seismic retrofit construction shall include the following: Anchoring the structure to the foundation; Bracing cripple walls; Bracing hot water heaters; Installing automatic gas shutoff valves; Repairing or reinforcing the foundation to improve the foundation's integrity against seismic damage; Anchoring fuel storage; and, Installing an earthquake-resistant bracing system for mobile homes registered with the California Department of Housing and Community Development. 1)Defines a qualified building as a building that has been certified as an at-risk property by the local building code enforcement for the area within which the building is located. AB 428 Page 5 A qualified building specifically includes a mobile home registered by the Department of Housing and Community Development. 2)Defines an at-risk property as a building deemed hazardous and in danger of collapse in the event of a catastrophic earthquake, including soft story buildings, non-ductile concrete residential buildings, and pre-1994 concrete residential buildings. 3)Takes effect immediately, and applies to taxable years beginning on or after January 1, 2017, and before January 1, 2022. Comments 1)Author's statement. According to the author, "AB 428 accomplishes three goals; it saves lives, protects property, and creates jobs. The recent earthquakes, which shook Southern California cities in 2014, remind us that an earthquake can strike at any given moment and it is imperative that we ensure our structures are suitable to withstand a catastrophic earthquake. According to the Southern California Earthquake Center, California has a 99.7% chance of having a magnitude 6.7 or larger earthquake during the next 30 years, and the likelihood of an even more powerful quake of magnitude 7.5 or greater in the next 30 years is 46%. It is imperative that we take every precaution to make sure that human life and property is saved in the event of a catastrophic earthquake. This measure will improve California's resilience against earthquakes, saving the public money that would otherwise have been required for disaster relief." 2)Lifesaver. According to the United States Geological Survey, there is a 99.7% chance that a major earthquake of 6.7 in scale will strike California in the next 30 years. This bill's tax credit is designed to lower the overall cost for property owners to improve the seismic safety of their buildings. Improving the seismic safety of homes and apartment buildings could save countless lives in the event of a catastrophic earthquake, and would reduce the demand for state and local emergency services by hopefully minimizing structural damage. Older concrete structures are particularly vulnerable to earthquake damage; last year, the author noted AB 428 Page 6 that recent research has identified 1,500 concrete buildings that are seismically vulnerable in the Los Angeles area alone. Prior Legislation AB 1510 (Nazarin), of the 2013-14 Regular Session, would have allowed a credit equal to 30% of a "qualified taxpayer's" "qualified costs" incurred for "seismic retrofit construction". AB 1510 was held on the Assembly Appropriations Committee's Suspense File. AB 1756 (Scott), of the 1999-2000 Regular Session, would have allowed a credit equal to 55% of the amount incurred for seismic retrofit construction on residential dwellings built prior to 1979. AB 1756 was held on the Assembly Appropriations Committee's Suspense File. SB 677 (McPherson), of the 2001-02 Regular Session, would have allowed a credit equal to an unspecified percentage of the final cost of seismic retrofitting, as specified. SB 677 was never heard by the Senate Committee on Revenue and Taxation. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No According to the Senate Appropriations Committee: 1)The Franchise Tax Board (FTB) estimates that the bill would result in General Fund revenue losses of $700,000 in 2016-17, $2.7 million in 2017-18, and $4.6 million in 2018-19. 2)FTB staff estimate that the bill would result in increased costs of $255,000 in 2015-16 and $128,000 annually thereafter (General Fund), resulting from new administration and information technology workload. The Senate Appropriations Committee amendments require the bill to state the specific goals and objectives of the tax credit. AB 428 Page 7 SUPPORT: (Verified8/28/15) Apartment Association of Greater Los Angeles Apartment Association of Orange County Building Owners and Management Association of Los Angeles California Apartment Association California League of Cities California Southern Cities Apartment Association City of Berkeley City of Burbank City of Long Beach City of Los Angeles City of Martinez City of West Hollywood Coalition for Economic Survival East Bay Rental Housing Association Los Angeles Business Council Institute League of California Cities Mayor of Berkeley Mayor of Los Angeles Mayor of Oakland Mayor of San Francisco Mayor of Santa Monica Nor Cal Rental Property Association North Valley Property Owners Association Rent Stabilization Board of the City of Berkeley San Diego Apartment Association Santa Barbara Rental Property Association Sonoma County Board of Supervisors State Farm Insurance Structural Engineers Association of California Western Center on Law & Poverty Western Manufacturing Housing Communities Association OPPOSITION: (Verified8/28/15) None received ARGUMENTS IN SUPPORT: The supporters of this bill argue that this bill will help alleviate the difficulty of making AB 428 Page 8 seismic improvements to buildings by defraying the cost. Making seismic improvements to buildings will help save countless lives when the next earthquake hits California. ASSEMBLY FLOOR: 78-0, 6/1/15 AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins NO VOTE RECORDED: Gonzalez, Obernolte Prepared by:Myriam Bouaziz / GOV. & F. / (916) 651-4119 8/31/15 15:41:56 **** END ****