BILL ANALYSIS Ó
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: AB 1440 Hearing Date: June 24,
2015
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|Author: |Nazarian |
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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 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
single-family residential structure that 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 single-family
residential structure that 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 lives in
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the structure to be retrofitted;
b. The structure is a single-family, detached,
residential building of not more than 4 dwelling units;
c. The structure and work to be done meet eligibility
requirements established by the JPA.
5)Specifies the grant cannot exceed the lesser 75% of the
qualifying retrofit, or $3,000.
6)Requires the CRMP governing board to adopt policies and
procedures necessary to implement this program.
COMMENTS
1. Purpose of the bill According to the author, only 12%
California homeowners have earthquake insurance, but there
are between 1.2 to 1.6 million pre-1940s homes with so
called "cripple walls," and homes on hillsides, and those
with living space over garages that are at serious risk in
even a minor quake, let alone a major one. California has
an existing seismic mitigation incentive program called
Brace + Bolt, which is administered by the CRMP, but is
limited to only 650 homes in the Bay Area, LA County and
Napa. The goal of this legislation is to expand on Brace +
Bolt and create a statewide earthquake retrofit program to
cover tens of thousands of more homes.
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.
Homeowners can greatly reduce their exposure to earthquake
damage by taking relatively simple, low cost steps to
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strengthen their structures to better withstand earthquakes.
An additional benefit to homeowners of seismic retrofitting
is the availability of discounts on earthquake insurance
premiums as a result of the lower risk of damage to their
home.
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. 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.
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 eligible homes that would benefit from
seismic retrofits.
Without any appropriation in the budget, this bill simply
codifies the existing CRMP. It is committee staff's
understanding that language that mirrors this bill and AB
1429, 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 1440
will expand on Brace + Bolt and scale it into a statewide,
sustainable earthquake retrofit incentive program. United
Policyholders supports AB 1440 because they encourage people
who live in earthquake country to protect their investment
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in their home by retrofitting, buying earthquake insurance,
and by setting aside funds to pay for repairs below the
deductible. They believe that providing incentives to
homeowners to retrofit in the form of monetary grants is
good public policy.
4. Opposition None received.
5. Questions Without any appropriation, this bill simply
codifies the existing CRMP, already operating under existing
authorities. Language that mirrors this bill and AB 1429,
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. Is
this legislation necessary?
6. Related Legislation
AB 1429 (Chiu) would require the CRMP to implement a grant
program, on or after July 1, 2017, for qualifying owners of
multiunit residential structures that defrays 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) would allow, 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
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Support
California Department of Insurance (sponsor)
California Association of Realtors
City of West Hollywood
United Policyholders
Oppose
None received
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