BILL ANALYSIS Ó SB 1304 Page 1 Date of Hearing: June 20, 2016 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Sebastian Ridley-Thomas, Chair SB 1304 (Huff) - As Amended June 8, 2016 Urgency. 2/3 vote. Non-fiscal. SENATE VOTE: 36-0 SUBJECT: Property taxation: disaster relief: Porter Ranch methane gas leak SUMMARY: Revises the eligibility criteria for reassessment of property, which was damaged or destroyed by a major misfortune or calamity, and thereby retroactively authorizes property tax relief to property owners impacted by the Porter Ranch neighborhood methane gas leak. Specifically, this bill: 1)Authorizes a county board of supervisors to provide for reassessment of property destroyed or damaged by a major misfortune or calamity in an area or region subsequently proclaimed by the Governor to be in a state of emergency, in addition to a state of disaster. 2)Expands the definition of "damage" to include a diminution in the value of property as a result of environmental SB 1304 Page 2 contamination to the property caused by a major misfortune or calamity. 3)Specifies that this bill's provisions apply retroactively to the County of Los Angeles with respect to property located in the Porter Ranch neighborhood in the City of Los Angeles that was affected by the methane gas leak in that area in 2015 and 2016. 4)States that the application for reassessment, in the case of the Porter Ranch properties, may be filed within 12 months of the enactment of this bill or within the time specified in the county ordinance, whichever is later. 5)Declares that a special law is necessary and that a general law cannot be made applicable within the meaning of Section 16 of Article IV of the California Constitution because of the unique circumstances related to the methane gas leak that occurred in the Porter Ranch neighborhood of the City of Los Angeles in 2015 and 2016. 6)Makes technical, non-substantive changes. 7)Takes effect immediately as an urgency statute necessary for the immediate preservation of the public peach, health or safety within the meaning of Article IV of the California Constitution. EXISTING LAW: 1)Allows a county board of supervisors, by ordinance, to provide property tax relief to property owners following a "disaster" SB 1304 Page 3 if the property owner's property is damaged or destroyed, and the property owner is not at fault. (Article XIII, Section 15 of the California Constitution; Revenue and Taxation Code (R&TC) Section 170). 2)Provides that, in order to be eligible for reassessment, the damage or destruction to the property shall have been caused by any of the following: a) A major misfortune or calamity, in an area or region subsequently proclaimed by the Governor to be in a state of disaster. Defines "damage" to include a diminution in the value of property as a result of restricted access to the property where the restricted access was caused by the major misfortune or calamity; b) A misfortune or calamity; and, c) A misfortune or calamity that, with respect to a possessory interest in land owned by the state or federal government, has caused the permit or other right to enter upon the land to be suspended or restricted. 3)Allows the application of reassessment to be filed within the time specified in the ordinance or within 12 months of the misfortune or calamity, whichever is later, as specified. 4)Authorizes the Governor to proclaim a state of emergency under specified circumstances, as defined: a) "State of war emergency" is the condition which exists immediately, with or without a proclamation thereof by the SB 1304 Page 4 governor, whenever this state or nation is attacked by an enemy of the United States, or upon receipt by the state of a warning from the federal government indicating that such an enemy attack is probable or imminent. b) "State of emergency" is the duly proclaimed existence of conditions of disaster or of extreme peril to the safety of persons and property within the state. c) "Local emergency" is the duly proclaimed existence of conditions of disaster or of extreme peril to the safety of persons and property within the territorial limits of a county, city and county, or city. FISCAL EFFECT: According to the State Board of Equalization staff, the fiscal impact of this bill is insignificant. COMMENTS: 1)Author's Statement . The author has provided the following statement in support of this bill: "Residents of the Porter Ranch in the City of Los Angeles had been driven from their homes and neighborhood due to harmful gas that was released into the air from neighboring natural gas wells in Aliso Canyon in October of 2015. After being displaced for months, residents have struggled to manage the lasting impacts of the damage to both their health and property. This bill is an important step of financial assistance to residents of Porter Ranch during this time of healing and repairing." 2)Arguments in Support . The proponents state that this bill SB 1304 Page 5 would provide much-needed property tax relief to those affected by a disaster and would allow county assessors across the State much flexibility to conduct value reviews on properties located in areas declared by the Governor to be under "state of emergency." The proponents explain that current law excludes areas that "are merely considered to be 'in a state of emergency,' even though existing law allows county assessors to re-value property in areas where a "a misfortune or calamity has occurred and is subsequently proclaimed by the Governor to be in a 'state of disaster.' " They argue that this bill "will provide county assessors broader flexibility to respond to the needs of the public when facing unforeseen events and undefined disasters." 3)Disaster Relief: Background . Existing law provides broad property tax relief to disaster victims, ranging from a reassessment of property to an authorization to rebuild or repair damaged property without incurring any increase in property tax liability. For example, the county assessor may reassess property that was damaged or destroyed in a disaster to recognize the diminution in the property's market value, provided the county in which the damaged property is located has adopted an ordinance authorizing such reassessment and the property owner is not at fault. As pointed out in the State Board of Equalization (BOE) analysis, the disaster relief applies to both a "major" event impacting a widespread area or region resulting in a Governor's proclamation, such as a wildfire, and a site-specific event, such as a single-home fire. In the case of a major event, property tax law uses the phrase "an area or region subsequently proclaimed by the Governor to be in a state of disaster." State law sets forth a very specific process for taxpayers to follow. The property value loss must be at least $10,000 and the taxpayer must file a written request with the assessor before the date specified in the ordinance or within 12 months SB 1304 Page 6 of the major misfortune or calamity, whichever is later. If relief is granted, the assessor will reduce the property's assessed value in proportion to the property's market value loss immediately after the event and will send a notice to the taxpayer. In turn, the county must refund any previously overpaid taxes. The reduced assessment will remain in place until the taxpayer restores, repairs, or reconstructs the property. 4)What Does this Bill Do ? This bill would expand eligibility for disaster reassessment. First, this bill would revise the circumstances under which property would qualify for the reassessment by specifying that a "state of emergency" is a qualifying event. Currently, the relevant provisions of the statute state that property is eligible for reassessment if the damage or destruction to the property was caused by a major misfortune or calamity ("a disaster") in an area or region subsequently proclaimed by the Governor to be in a "state of disaster." As aptly noted in the BOE analysis, "the governor does not proclaim a 'state of disaster;' the governor proclaims a 'state of emergency' " (as authorized by the Government Code Sections 8625 and 8558). The inconsistent terminology causes confusion. This bill would clarify existing law to state that an area or region must be proclaimed by the Governor to be in a "state of emergency or disaster." Thus, whenever the Governor proclaims a state of emergency or disaster, the county board of supervisors may allow taxpayers, by ordinance, to apply for reassessment property. Furthermore, this bill would revise the definition of "damage" to include market value loss caused by environmental contamination of the property due to a major misfortunate or calamity that has resulted in a Governor's state of emergency proclamation. Finally, the revised definition of "damage" would apply retroactively to properties located in the Porter Ranch neighborhood of the City and County of Los Angeles affected in 2015 and 2016 by the methane gas leak. SB 1304 Page 7 5)The Porter Ranch Gas Leak . On October 23, 2015, a massive natural gas leak was discovered in the Aliso Canyon Natural Gas Storage Facility in Los Angeles County, known today as the Aliso Canyon or Porter Ranch gas leak. The leak sickened and displaced residents, and may be one of the most harmful environmental events in the country's history according to news reports. The gas leak spewed an estimated 107,000 tons of methane over 16 weeks. The estimated cost of a massive gas well blowout that lasted nearly four months and uprooted 8,000 Los Angeles families has more than doubled to $665 million according to Sempra Energy. Currently, approximately 54% of relocated residents have returned and more are returning each week. However, according to the author's office, some 3,700 households remain in short- or long-term housing, many because of fears of returning until they are assured their homes are clean and safe. On January 6, 2016, the Governor issued a proclamation declaring the situation a "state of emergency." The proclamation, however, did not declare the situation a "disaster," as required by existing law in order for the board of supervisors to provide for reassessment of damaged properties. Consequently, the Los Angeles County Board of Supervisors could not enact an ordinance directing the assessor to revalue properties to reflect the gas leak's impact on property values. Furthermore, since the gas leak did not cause physical damage to property, it is unclear whether the Porter Ranch properties were "damaged" within the existing definition of "damage." 6)Retroactivity . This bill would retroactively apply to properties damaged by the Porter Ranch gas leak. The affected property owners would be eligible to file reassessment claims within 12 months of this bill's enactment. As such, residents affected by the gas leak can have their property values (and, therefore, the taxes due) reduced to reflect the restricted access and environmental contamination the gas leak caused. Generally, the Legislature does not apply changes in tax law SB 1304 Page 8 retroactively since it would create uncertainty for both taxpayers and tax enforcement agencies. However, taxpayers can usually obtain refunds when they are eligible for an exemption or transfer and did not claim it on time; the Legislature has enacted bills in the past that change tax law retroactively. 7)BOE Technical Amendments . This bill expressly provides that the term "damage" includes market value loss related to the property's environmental contamination caused by a misfortune or calamity. As noted by the BOE staff in its analysis of this bill, this provision is not limited in scope to the recent Porter Ranch gas leak. The original language of R&TC Section 170 was based on a "market" value system, but under existing law the property's assessed value is not based on a current market value. BOE staff also notes that it may take decades before contaminated property is "restored" and proposes certain technical amendments to clarify these issues relating to the revised definition of "damage." REGISTERED SUPPORT / OPPOSITION: Support California Apartment Association California Assessors' Association Jeffrey Prang, Los Angeles County Assessor SB 1304 Page 9 Member G. Runner, State Board of Equalization Opposition None on file Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916) 319-2098