BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON GOVERNANCE AND FINANCE
                         Senator Robert M. Hertzberg, Chair
                                2015 - 2016  Regular 

                              
          
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          |Bill No:  |SB 1458                          |Hearing    |4/27/16  |
          |          |                                 |Date:      |         |
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          |Author:   |Bates                            |Tax Levy:  |Yes      |
          |----------+---------------------------------+-----------+---------|
          |Version:  |4/6/16                           |Fiscal:    |Yes      |
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          |Consultant|Grinnell                                              |
          |:         |                                                      |
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                  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  







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          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  








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          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  








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          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:








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                 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  








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               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  








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          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.



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