BILL ANALYSIS Ó
AB 2392
Page 1
Date of Hearing: May 25, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2392 (Nazarian) - As Amended May 16, 2016
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|Policy | Revenue and Taxation |Vote:| 9 - 0 |
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill allows a tax credit, for taxable years beginning on or
after January 1, 2017, and before January 1, 2022, equal to 30%
of a qualified taxpayer's costs incurred for seismic retrofit
construction. Specifically, this bill:
1)Establishes that the total amount of credit that may be
allocated for any given year is $12 million, and the credit
will be allocated on a first-come-first-served basis.
2)Allows one-fifth of the credit for amount for the taxable year
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in which the credit is allocated, and one-fifth of the credit
amount for each of the subsequent four taxable years.
3)Allows any excess credit to be carried over to the following
taxable years until the credit has been exhausted.
4)Defines "qualified taxpayer," "qualified costs," "qualified
building," and "seismic retrofit construction" for the
purposes of this bill.
5)Establishes the goals, purposes, and objectives of the credit
and the performance indicators and data collection
requirements for determining whether the credits meet these
goals, purposes, and objectives.
FISCAL EFFECT:
1)Estimated GF revenue decreases of $800,000, $2.7 million, and
$4.7 million in 2016-17, 2017-18, and 2018-19, respectively.
2)Additional ongoing annual GF costs in the hundreds of
thousands of dollars for the Franchise Tax Board (FTB) to
administer the changes to forms and systems.
COMMENTS:
1)Purpose. According to the author, this measure will improve
California's preparedness for earthquakes, saving taxpayers
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money that would otherwise be required for disaster relief.
According to the USGS, California has a 99.7% chance of having
a magnitude 6.7 or larger earthquake during the next 30 years.
Proponents of the bill argue the cost of retrofitting
buildings can be very expensive, and this bill will encourage
owners of older properties to upgrade safety features,
protecting both owners and tenants from future earthquakes.
2)Opposition. The California Tax Reform Association (CTRA)
notes that property owners are already strongly incentivized
to retrofit their buildings in order to preserve the value of
their investment. CTRA argues that since an earthquake would
likely cause a total loss to property owner, there is no need
for an additional tax credit. Such credit would only reward
activity that would otherwise have been undertaken.
3)Who Benefits? If current retrofit construction trends
continue, AB 2392's annual cap of $12 million will be reached
in calendar year 2017, the first year of implementation
(though credits are provided to taxpayers in one-fifth
segments over a five year period). This raises the question of
whether this new proposed tax expenditure would result in any
new retrofit construction or simply reward behavior that would
have happened anyway. While retrofit construction is costly,
there's little guarantee that this credit will help speed up
the pace of seismic retrofitting in California.
4)Similar legislation vetoed. This bill is substantially similar
to AB 428 (Nazarian) of 2015, which was vetoed by the Governor
along with a number of other tax expenditure bills, with the
following veto message:
"Each of these bills creates a new tax credit or expands an
existing tax credit.
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Despite strong revenue performance over the past few years,
the state's budget has remained precariously balanced due
to unexpected costs and the provision of new services. Now,
without the extension of the managed care organization tax
that I called for in special session, next year's budget
faces the prospect of over $1 billion in cuts.
Given these financial uncertainties, I cannot support
providing additional tax credits that will make balancing
the state's budget even more difficult. Tax credits, like
new spending on programs, need to be considered
comprehensively as part of the budget deliberations."
Analysis Prepared by:Luke Reidenbach / APPR. / (916) 319-2081