BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNANCE AND FINANCE Senator Robert M. Hertzberg, Chair 2015 - 2016 Regular ------------------------------------------------------------------ |Bill No: |SB 1458 |Hearing |4/27/16 | | | |Date: | | |----------+---------------------------------+-----------+---------| |Author: |Bates |Tax Levy: |Yes | |----------+---------------------------------+-----------+---------| |Version: |4/6/16 |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant|Grinnell | |: | | ----------------------------------------------------------------- Property taxation: exemptions: disabled veterans Expands eligibility for the disabled veteran's exemption from property tax to other than dishonorable discharges, so long as the veteran is eligible for federal benefits. Background The California Constitution provides that all property is taxable unless explicitly exempted by the Constitution or federal law. The Constitution limits the maximum amount of any ad valorem tax on real property at 1% of full cash value, plus any locally-authorized bonded indebtedness. Assessors reappraise property whenever it is purchased, newly constructed, or when ownership changes. The Constitution allows the Legislature to partially or wholly exempt from property tax the value of a disabled veteran's principal place of residence if the veteran has lost one or more limbs, is totally blind, or is totally disabled, as a result of a service-connected injury. This is known as the "disabled veterans' exemption." The Constitution provides that disabled veteran taxpayers, or unmarried surviving spouses of persons who die while on active duty, must apply the exemption instead of, but not in combination with, other real property exemptions. Unlike the homeowners' exemption, the state does not backfill SB 1458 (Bates) 4/6/16 Page 2 of ? property tax revenue losses resulting from taxpayers applying the exemption. According to the Board of Equalization (BOE), the number of taxpayers claiming the exemption has increased from 8,483 to 37,653 between 1990 and 2015, an increase of 344%. San Diego (5,391), San Bernardino (3,732), and Sacramento (2,422) are the counties with the most taxpayers claiming the exemption. State law implementing the exemption doesn't fully exclude the property value, instead enacting a partial exemption of $100,000 for disabled veteran taxpayers with household income of more than $40,000, or $150,000 for income lower than that amount, with each threshold adjusted for inflation by the Department of Industrial Relations using the California Consumer Price Index for all items. The current inflation adjusted value is $127,410 for disabled veterans with income of more than $57,258, and $191,266 for those with less than that amount. Current law refers to the Constitutional definition of "veteran" to determine eligibility for the exemption, which includes a person who is serving in the United States Army, Navy, Air Force, Marines, Coast Guard, or Revenue Marine (Revenue Cutter) Service, or served in one of the listed services and was discharged under honorable conditions. Veterans who meet this definition, but died while on active duty as a result of a service-connected injury or disease, qualify their unmarried, surviving spouses for the exemption. The veteran must also have served in war; or in a time of peace as part of a campaign or expedition where Congress issued medals. The veteran must also live in the state on the lien date to be eligible for the exemption. Seeking to expand the application of the exemption, Board of Equalization Member George Runner wants to expand eligibility to veterans who receive benefits provided by the United States Department of Veterans' Affairs, but aren't currently eligible for the exemption because they were not honorably discharged. Proposed Law Senate Bill 1458 deletes the reference to the California Constitution's definition of veteran currently used to determine eligibility for the disabled veteran's exemption. The measure SB 1458 (Bates) 4/6/16 Page 3 of ? instead provides that to be eligible, a person must: Be serving in, or have served in, the United States Army, Navy, Air Force, Marine Corps, or Coast Guard, Be discharged under other than dishonorable conditions, Have served in war; or in a time of peace as part of a campaign or expedition where Congress issued medals, or because of a service-connected disability, and Have been determined by the USDVA to be eligible for federal veterans' health and medical benefits. The measure also makes technical and conforming changes. State Revenue Impact According to BOE, SB 1458 results in property tax revenue losses of $126,880 annually. Comments 1. Purpose of the bill . According to the author, "California has the nation's highest number of veterans. Representing Camp Pendleton in San Diego, I see many men and women serve their county with great honor. Often these brave service members don't make it back to their loved ones, whereas some return with significant disabilities. SB 1458 will make California's law consistent with federal law so that any veteran receiving service-connected disability benefits at 100% disabled will be eligible to receive the state's disabled veterans' property tax exemption on their home. When veterans leave active duty with a 100% disability rating (excluding those Dishonorably Discharged or Discharged for Bad Conduct), they should be eligible for California's disabled veteran's property tax exemption. The problem with current statute in California is that only veterans who receive an "honorable discharge" may qualify for the disabled veterans' property tax exemption, whereas federal statute allows these same veterans to receive benefits if they are discharged under "honorable," "general," or "other than honorable" conditions. SB 1458 fixes this problem and gives SB 1458 (Bates) 4/6/16 Page 4 of ? 100% disabled veterans access to a tax benefit they deserve. Additionally, this bill necessarily helps California veterans returning from war receive a merited property tax exemption, as long as they meet the appropriate discharge eligibility from the service." 2. What qualifies ? Unlike the general veterans' exemption, the Constitution allows the Legislature to establish eligibility for the disabled veterans' exemption as it sees fit, so long as the veteran lost one or more limbs, is totally blind, or is totally disabled, as a result of a service-connected injury. While the law currently applies only to veterans honorably discharged, many veterans who were discharged under conditions other than honorable, possibly due to conditions such as post-traumatic stress disorder, but served with sufficient distinction to be eligible for benefits, are unable to obtain the exemption. SB 1458 would provide a substantial tax benefit to these disabled veterans. However, the individuals affected by the bill are distinct from those eligible under current law because the military has some reason not to grant them honorable discharges, which is required for state veteran benefits (Military and Veterans Code §980). On the other hand, other state programs don't require honorable discharges, and recent amendments require that the veteran demonstrate to USDVA that the facts justifying the discharge aren't so bad as to deny them benefits. The Committee may wish to consider what forms of military discharges should qualify a disabled veteran for the exemption. 3. Types of discharges . SB 1458 would change the eligibility for the disabled veterans' exemption to include veterans who were discharged under "other than honorable conditions." According to the Senate Committee on Veterans Affairs, the military separates its personnel from active service by formally discharging them, either administratively or punitively. Each of the five different discharge statuses is determined by the characterization of an individual's service, which slides along a scale with "honorable" at the high end and "dishonorable" at the low end. Punitive discharges are reserved for the most negative cases and imposed only by special and general courts martial. Administrative separations cannot be awarded by a court-martial and are not punitive in nature. Enlisted personnel may be administratively separated with a characterization of service or a description of separation. Administrative discharges include: SB 1458 (Bates) 4/6/16 Page 5 of ? Honorable. This is the most common discharge status. It presumes creditable service and good behavior. All service members will earn an Honorable Discharge unless they experience significant problems and receive a lower type of discharge, General (under honorable conditions). Sometimes referred to as a "General Discharge," it is granted if an individual's commander determines that the service has been generally honest and faithful, even if the person ran into some trouble. General Discharges are given for a variety of reasons, including failure to progress in training; failure to maintain military standards in appearance, weight, or fitness; or for disciplinary infractions, including drug or alcohol abuse. Other than Honorable. An "OTH" discharge usually is given when an individual's service represents a broader pattern of departure from the conduct and performance expected of all military members. It can result from notable drug or alcohol problems, but also can be based on other misconduct, such as abuse of authority, fraternization, or a pattern of continued misconduct. OTH discharges bar the individual from reenlisting into any component of the Armed Forces, including the federal reserves and National Guard. Punitive discharges are authorized punishments of courts-martial and can only be imposed as an approved court-martial sentence following an individual's conviction for violating the Uniform Code of Military Justice. There are two types of punitive discharges: Bad Conduct Discharge. This can be imposed by both special and general courts-martial. This discharge is usually given for convictions of crimes such as absent without leave, drunk on duty, driving while under the influence, adultery, writing bad checks, and disorderly conduct. Dishonorable Discharge. This is the worst type of military discharge a service member can receive, and can be imposed only by a general court-martial. In most cases, a SB 1458 (Bates) 4/6/16 Page 6 of ? Dishonorable Discharge also involves being sentenced to serve time in a military prison. SB 1458 would make veterans who received OTH and Bad Conduct discharges eligible for the disabled veterans' exemption, so long as they met the other legal criteria, including receiving USDVA benefits. 4. Discharge Requirements for Veterans Benefits . SB 1458 would require that the veteran receive USDVA benefits to be eligible for the exemption. According to the Senate Committee on Veterans' Affairs, basic eligibility for federal veterans' benefits depends upon the type of military service performed, duration of service, and character of discharge or separation. The discharging military branch makes those determinations; the USDVA reviews the military's description of the "character of discharge" to determine whether a person meets the basic eligibility requirements for receipt of VA benefits under Title 38 of the United States Code. A discharge characterized by a military service as "under honorable conditions" is binding on the USDVA, and requires it to provide benefits if other eligibility requirements are met. A Dishonorable Discharge explicitly bars the USDVA from providing benefits. The OTH and Bad Conduct discharges bar an individual from presumptive eligibility for federal benefits. In these cases, however, the USDVA, as administering agency of benefits, may be asked to make an independent assessment of the character of service. The USDVA reviews facts and circumstances surrounding the incident(s) that led to the discharge, as reported by the military, as well as any supporting evidence from the claimant or third parties. On a case-by-case basis, USDVA determines whether the incidents that led to the OTH or Bad Conduct discharge may be found to have been "under conditions other than dishonorable," and thus whether basic eligibility for USDVA benefits can be established. 5. Related legislation . At its April 27th hearing, the Committee will also hear SB 1183 (Bates), which expands the current partial exemption to a full one. SB 1104 (Stone) which disconnects inflation adjustments for veterans over 65 while also expanding the current partial exemption to a full one is set for the Committee's May 11th hearing. 6. Technical . BOE and Committee staff recommends an amendment SB 1458 (Bates) 4/6/16 Page 7 of ? to specify that the bill takes effect for lien dates for the 2017-18 fiscal year. 7. Incoming ! On April 12th, the Committee on Veteran's Affairs approved SB 1458 by a vote of 4 to 0. The Committee on Governance and Finance is hearing the measure as the committee of second referral. Support and Opposition (4/21/16) Support : BOE Member George Runner, Board of Equalization; Disabled Veterans of America, Cal-Diego Chapter (Sponsor); American G.I. Forum of California; Paralyzed Veterans of America, Cal-Diego Chapter; The American Legion - Department of California; The AMVETS - Department of California; The California Association of County Veterans Service Officers; The California State Commanders Veterans Council; The Military Officers Association of America, California Council of Chapters; The VFW - Department of California; The Vietnam Veterans of America - California State Council Opposition : Unknown. -- END -- SB 1458 (Bates) 4/6/16 Page 8 of ?