BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 602|
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THIRD READING
Bill No: SB 602
Author: Monning (D)
Introduced:2/27/15
Vote: 21
SENATE INSURANCE COMMITTEE: 7-0, 4/8/15
AYES: Roth, Gaines, Berryhill, Hall, Liu, Mitchell, Wieckowski
NO VOTE RECORDED: Hernandez
SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 4/29/15
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Pavley
NO VOTE RECORDED: Moorlach
SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/26/15
AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen
SUBJECT: Seismic safety: California Earthquake Authority
SOURCE: Author
DIGEST: This bill adds the California Earthquake Authority
(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 loans for voluntary
homeowner-financed residential seismic strengthening
improvements.
ANALYSIS:
SB 602
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Existing law:
1) Establishes the Earthquake Loss Mitigation Fund (ELMF)
within the CEA to provide grants or loans to dwelling owners
who wish to retrofit their homes.
2) Allocates to the ELMF 5% of CEA's investment income, or $5
million, whichever is less, annually.
3) Allows local agencies to create assessment financing
districts for capital projects using liens imposed upon real
property.
4) Defines local agencies for this purpose as cities,
counties, cities and counties, and public corporations,
districts and agencies.
5) Allows the public agencies to enter into voluntary
contractual assessment financing available to property
owners for improvements in the public interest.
6) Declares the intent of the Legislature to utilize this
mechanism to finance voluntary individual efforts to improve
the seismic safety of homes and buildings, and make those
efforts more affordable.
7) Requires the legislative body of the public agency to make
specified findings, and adopt a resolution of intention
identifying the kinds of seismic strengthening improvements
that may be financed through contractual assessments.
8) Provides authority for the legislative body of any city or
municipality, as defined, to determine that bonds may be
issued to pay for specified works of improvement.
SB 602
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This bill:
1) 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 uniform statewide
earthquake mitigation assessment district funding
residential seismic strengthening improvements.
2) Exempts the CEA from specified requirements in the statute
applying to actions of the legislative bodies of a city or
county, as specified.
3) Provides the CEA may use its ELMF to fund seismic
improvements authorized in in #1, and acquire debt
obligations for that purpose.
Background
Currently, fewer than 11% 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 required to carry such coverage by their lenders.
The recent earthquake in Napa provided important data on the
importance of retrofitting. Although just a moderate M 6.0
quake, homes in Napa were thrown from their foundations, and
unreinforced masonry collapsed. Buildings that had not been
retrofitted or built to modern standards are now closed and are
unlikely to reopen without extensive repairs. Few had earthquake
insurance to cover the damages. Buildings that were retrofitted
performed well, however, and were able to reopen almost
immediately.
SB 602
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Homeowners can greatly reduce their exposure to earthquake
damage by taking relatively simple, low cost steps to 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.
Current statute allows cities and counties to create property
assessment districts for local public purposes, including
seismic mitigation. San Francisco, Berkeley and Oakland are in
the process of setting up districts for the purpose of financing
earthquake mitigation, largely focusing on commercial soft-story
and multiple family buildings.
In August 2011, the California Residential Mitigation Program
(CRMP) was established as a joint-exercise-of-powers entity by
the CEA and the Governor's Office of Emergency Services, 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. The CRMP's first program, launched
in 2013 is the "Earthquake Brace and Bolt" (EBB) program,
providing 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 have meet the criteria
of the EBB-1.2 million of those are in higher-hazard areas.
Those numbers do not include other, non-EBB types of homes that
would benefit from seismic retrofits.
Loans provided under the property secured mitigation program
(program) created by this bill could be used for projects
similar to the EBB as well as for retrofitting houses with soft
first-stories (e.g., living space over the garage), which can
cost $10,000 to $20,000. The program would be flexible, able to
finance both larger and smaller residential projects.
SB 602
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The program will not draw on CEA's capital or affect the CEA's
claim-paying capacity. Once the new program reaches appropriate
scale, the initial CEA-owned loan portfolio (and the
property-assessment liens that provide debt-service payments)
can be securitized through the CEA's issuance of revenue bonds.
CEA says it has recent, relevant experience with all of the
mechanisms involved in accessing the debt market and presently
has over $600 million in investment-grade debt outstanding. At
the point of bond issuance, the CEA will be repaid in full-and
the loan portfolio will be owned by the investors who purchased
the bonds. CEA will then continue to act as initial lender on
subsequent loans.
FISCAL EFFECT: Appropriation: Yes Fiscal
Com.:YesLocal: No
According to the Senate Appropriations Committee:
Minor, absorbable one-time costs to the Department of
Insurance (Special Fund)
The Department of Insurance indicates one-time costs of less
than $5,000 to review and evaluate the proposed financing
programs. All costs for the retrofitting program are paid from
non-state sources through the CEA.
SUPPORT: (Verified5/26/15)
Association of Bay Area Governments
California Department of Insurance
California Earthquake Authority
Personal Insurance Federation of California
OPPOSITION: (Verified5/26/15)
None received
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ARGUMENTS IN SUPPORT: According to the author, a major
earthquake will impact each and every Californian, even if they
do not live in a high risk earthquake zone. Seismic experts say
California is almost certain to experience a major earthquake in
the next 30 years, and they now estimate damage from a major
northern or southern California earthquake could total more than
$200 billion. Unfortunately, too many people continue to believe
that the federal government will somehow come in and save the
day and so do not take appropriate steps to protect themselves
from the physical and financial impact of such a disaster.
Earthquake retrofitting is a relatively low cost option that can
reduce the damage from the inevitable major earthquake, no
matter where it hits, before the fact, and also increase the
value of the home. This bill will provide a simple low cost way
for homeowners to do just that. The CEA is already a leader in
offering earthquake insurance and in developing earthquake
retrofitting engineering expertise. SB 602 will help the CEA
fulfill its intended goals of increasing mitigation, awareness,
and hopefully increased rates of insurance in preparation for
the next major earthquake.
The CEA helped develop this bill because the Loss Mitigation
Fund that provides grant subsidies for EBB projects is simply
unable to accumulate enough money to meet the full need that
exists. The program created by this bill could provide financing
options for (1) homes that meet current plan-set criteria, (2)
homes that will meet future requirements now under development,
and (3) homes retrofitted with individually engineered plans.
While CRMP's $3,000 grant is adequate to pay for or incentivize
certain retrofits (small to moderate brace/bolt projects),
larger houses and bigger projects (living space over garage,
hillside homes, etc.) will require richer, more flexible funding
options.
Prepared by:Erin Ryan / INS. / (916) 651-4110
5/26/15 16:22:33
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SB 602
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