BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                        AB 428|
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                                   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,  








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            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  







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            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,  







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               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.  







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             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  







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            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.











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          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  







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          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


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