BILL ANALYSIS Ó
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: AB 1429 Hearing Date: June 24,
2015
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|Author: |Chiu |
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|Version: |April 20, 2015 Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Erin Ryan |
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Subject: Earthquake loss mitigation: grant programs.
SUMMARY Recognizes the California Residential Mitigation Program
(CRMP), a joint powers authority (JPA) created in 2012 by the
California Earthquake Authority (CEA) and the Office of
Emergency Services (OES) to provide grants to residential
homeowners for the purpose of defraying the cost of seismic
retrofitting, among other purposes and requires, if the
legislature appropriates funds, the CRMP to implement a grant
program and, on or after July 1, 2017, make grants that assist a
qualifying owner of a multiunit residential structure defray the
owner's cost of seismic retrofitting of the structure, as
specified.
DIGEST
Existing law
1) Provides that no policy of property insurance may be issued or
delivered in this state unless the insurer has been offered
earthquake insurance (mandatory offer).
2) Defines a residential property for purposes of the mandatory
offer as individually owned residential structure of not more
than 4 dwelling units.
3) Establishes the CEA, a privately financed, publicly managed
entity to provide residential earthquake insurance.
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4) Defines residential earthquake insurance as a policy insuring
individually owned residential structures with no more than four
dwelling units.
5) Establishes the Earthquake Loss Mitigation Fund (ELMF) within
the CEA to provide grants or loans to dwelling owners who wish
to retrofit their homes. (Insurance Code § 10089.37 et seq.)
6) Allocates to the ELMF five percent of CEA's investment income,
or $5 million, whichever is less, annually.
7) Requires the OES to carry out a variety of duties with respect
to emergency preparedness, mitigation, and response activities
in the state, including earthquake education and preparedness
activities.
This bill
1)Makes legislative findings regarding the impact recent
earthquakes have had on increasing interest in mitigating the
damage to residential homes from earthquakes, the Earthquake
Brace + Bolt (Brace + Bolt) program operated jointly by the
CEA and the OES, the low take-up rate for earthquake
insurance, and the need to create and fund a program to assist
California homeowners with earthquake mitigation repairs.
2)Recognizes the CRMP, a JPA created in 2012 by the CEA and OES
to provide grants to residential homeowners for the purpose of
defraying the cost of seismic retrofitting, among other
purposes.
3)Requires, if the legislature appropriates funds, the CRMP to
implement a grant program and, on or after July 1, 2017, make
grants that assist a qualifying owner of a multiunit
residential structure defray the owner's cost of seismic
retrofitting of the structure.
4)Requires an applicant for a grant to meet specified
conditions, including:
a. The applicant is the owner of record, and has
secured the written consent of all other owners of the
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structure to make a grant application;
b. The structure is a residential building with 5 to 10
dwelling units;
c. The occupants of the dwelling units qualify as "low
income", as specified; and
d. The structure meets eligibility requirements
established by the JPA.
5)Requires the CRMP governing board to adopt policies and
procedures necessary to implement this program, including
developing seismic structural requirements for residential
buildings of 5 to 10 units, provide notice and opportunity for
public review and comment, and publish the policies and
procedures on the CRMP Website.
COMMENTS
1. Purpose of the bill To expand on Brace + Bolt by creating
a statewide earthquake retrofit program to cover the tens of
thousands of small multi-family residential structures that
need retrofitting.
2. Background Currently, fewer than 12% of California
homeowners purchase earthquake insurance, despite
predictions that the state will experience a major
earthquake sometime in the next 30 years. The low frequency
of earthquake disasters, compared to other natural
catastrophes, tends to shape the perception that earthquake
risk is much lower than it actually is, even in places where
there have been very deadly and damaging events like
California. In addition, earthquake insurance policies can
be expensive and carry large deductibles, making them
unattractive to homeowners who are not mandated to carry
such coverage by their lenders.
No policy of residential property insurance can be issued in
this state unless the person purchasing the policy has also
been offered earthquake insurance. This "mandatory offer"
requirement does not apply to the small commercial apartment
properties covered by this bill.
Building owners and homeowners can greatly reduce their
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exposure to earthquake damage by taking relatively simple,
low cost steps to strengthen their structures to better
withstand earthquakes. An additional benefit of seismic
retrofitting is the availability of discounts on earthquake
insurance premiums as a result of the lower risk of damage
to the building.
The magnitude 6.7 Northridge Earthquake in 1994 was the
costliest natural disaster in the history of California,
with more than $25 billion in property damage, and $49
billion in economic losses to the region and state.
Modelling by risk experts has shown that a major earthquake
in the San Francisco Bay Area or in southern California
could have an even greater impact on homeowners, businesses,
employees, and payrolls in the area than Hurricane Katrina
had in Louisiana and Mississippi. These disasters show that
if communities are inadequately prepared, disasters of
similar severity, paired with our low level of insured risk,
could cripple California's economy.
In August 2011, the CRMP was established as a JPA entity by
the CEA and OES to carry out mitigation programs to assist
California homeowners who wish to seismically retrofit their
houses. CRMP's goal is to provide grants and other types of
assistance and incentives for these mitigation efforts.
Brace + Bolt, the CRMP's first program launched in 2013,
provides grants of up to $3,000 for homeowners who have
qualifying homes and meet specified building code
requirements. According to the CEA, 16 homes have qualified
and completed retrofits under the program, and 650 retrofits
are planned in 2015. CEA estimates that there are
approximately 1.6 million owner-occupied houses in
California that meet the criteria of Brace + Bolt -1.2
million of those are in higher-hazard areas. Those numbers
do not include other, non- Brace + Bolt types of homes that
would benefit from seismic retrofits. Currently that program
is limited to single family homes.
The cost of Brace + Bolt retrofits is coming in between
$3,000 and $6,000 for the single-family dwellings presently
eligible-the cost seems to be lower in Southern California
than in the Bay Area. But the more complicated the retrofit
(e.g., for "soft-story" and hillside houses), the more
expensive the project will be. Retrofitting houses and
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small apartment buildings with soft first-stories (e.g.,
living space over the garage), can cost $10,000 to $20,000
or more.
It is committee staff's understanding that language
mirroring this bill and AB 1440, also before this committee
today, has been included in a budget trailer bill, along
with an appropriation to increase funding for CRMP to award
earthquake mitigation grants.
3. Support According to the Insurance Commissioner, AB 1429
will expand on Brace + Bolt and scale it into a statewide,
sustainable earthquake retrofit incentive program. Once
funds are appropriated by the legislature, it will provide
monetary grants that assist a qualified owner of multi-unit
apartment buildings with 5 to 10 residential units, whose
tenants cannot afford a rent increase, by defraying the
owner's cost of seismic retrofitting of the structure. The
California Apartment Association supports AB 1429 because
most all residential rental property owners who own small
buildings struggle to pay for the cost of seismic retrofit
for their buildings. United Policyholders supports AB 1429
because it protects low-income residents from becoming
homeless after a catastrophic earthquake. Low-income tenants
may not be able to afford a rent increase to finance the
retrofit expenses passed on by the owner, and they may also
not be able to afford renters insurance and earthquake
insurance. This leaves them vulnerable and without a
necessary safety net. This bill will also provide
retrofitting standards that can be passed along to all
apartment building owners.
4. Opposition None received.
5. Questions This bill expands the CRMP and Brace + Bolt
program to include small commercial apartment properties,
but unlike the existing program, would rely on legislatively
appropriated funds. The current grant program is limited in
the number of grants it can provide by its reliance on the
existing ELMF. The grants provided by this bill are
contingent upon an appropriation by the legislature. Will
this be sufficient to both expand the single family home
program and to provide grants to retrofit smaller commercial
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apartment properties? AB 1440 limits grants to single family
homes to the lesser of 75% of the qualifying retrofit, or
$3,000. Should there be a mandatory cost-sharing requirement
for property owners under this bill?
6. Related Legislation
AB 1440 (Nazarian) would require the CRMP to implement a
grant program, on or after July 1, 2017, that assists
qualifying owners of single-family residential structures to
defray the owner's cost of seismic retrofitting of the
structure if the legislature appropriates money for that
purpose.
SB 602 (Monning) adds the CEA to the list of public entities
authorized to utilize property assessment districts, impose
liens and issue bonds for the purpose of creating a
statewide earthquake mitigation assessment district to fund
voluntary residential seismic strengthening improvements.
AB 428 (Nazarian) allows, for taxable years beginning on or
after January 1, 2016, and before January 1, 2021, a tax
credit under the Personal Income Tax Law and the Corporation
Tax Law in an amount equal to 30% of the qualified costs
paid or incurred by a qualified taxpayer for any seismic
retrofit construction on a qualified building, as defined.
POSITIONS
Support
California Department of Insurance (sponsor)
California Apartment Association
California Association of Realtors
City and County of San Francisco
City of Los Angeles
City of West Hollywood
United Policyholders
Oppose
None received
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