BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 2136 - V.M. Perez
Amended: June 16, 2010
Urgency
Hearing: June 23, 2010 Fiscal: Yes
SUMMARY: Adds to Disaster Provisions in the Personal Income
Tax Law, Corporation Tax Law, and Property Tax for
Imperial County, and taxpayers in Imperial County
affected by the 2010 Earthquake; Requires the State to
Pay 100% of the Non-Federal Costs for the Earthquake
on April 4, 2010.
INCOME AND CORPORATION TAXES :
EXISTING STATE AND FEDERAL LAW allows taxpayers to
deduct disaster losses in the year the loss occurs or in
the preceding year by filing an amended return. Disaster
losses result from fires, storms, floods or other natural
events proclaimed a disaster by the President or the
Governor. Disaster losses are the amounts not compensated
for by insurance or other means.
EXISTING FEDERAL LAW, which California conforms to,
only allows loss deductions for personal income taxes that
exceed $100 per taxpayer and 10% of their adjusted gross
income for the year.
EXISTING STATE LAW limits disaster losses for
corporate taxpayers to the amounts set by state law for net
operating losses - 55% for 2000 and 2001, 60% for 2002 and
2003, and 100% for 2004 and thereafter - and the
carry-forward to five years. State law allows a limited
AB 2136 - V.M. Perez
Page 5
percentage to be carried forward up to 10 years
Starting with the forest fires in 1985, and
approximately 45 times thereafter for various disasters,
the Legislature enacted measures that allow a 100%
carry-forward of excess disaster losses for up to five
years and a carry-forward of the excess disaster losses
under the above percentages for up to an additional 10
years.
THIS BILL enacts identical allowances for taxpayers
with excess disaster losses in Imperial County as a result
of the earthquake that occurred in April, 2010.
PROPERTY TAXES :
EXISTING LAW allows counties to adopt ordinances
allowing taxpayers to apply for a reassessment of property
destroyed or damaged by "a major misfortune or calamity" if
the Governor proclaims a disaster. Taxes that had
previously been paid are deemed "excess" as a result of a
downward reassessment and are refunded to the taxpayer.
County Assessors must defer the payment of property taxes
when they receive a timely filed application from an
affected taxpayer.
Beginning in 1990, the Legislature provided state
reimbursement of property tax revenue losses to local
governments resulting from the downward-reassessment of
damaged or destroyed properties for most disasters for one
year.
THIS BILL enacts identical provisions that require the
state to backfill first-year local revenue losses resulting
from the reassessment of property in Imperial County as a
result of the earthquake that occurred in April, 2010.
THIS BILL requires that Imperial County certify to the
Director of Finance an estimate of the amount of reduced
2009-10 property tax revenues resulting from reassessment
AB 2136 - V.M. Perez
Page 5
by October 30, 2010. The Director of Finance then verifies
and certifies the revenue loss estimate to the Controller
in 30 days, who then sends the certified amount to Imperial
County in 10 days. Before October 30, 2011, the Imperial
County Auditor must remit to the Controller any
overestimated balance. If the loss was underestimated, the
Controller must return the difference to the affected
county.
PROPERTY TAXES (HOMEOWNERS' EXEMPTION) :
EXISTING LAW provides a homeowners' exemption from
property taxes equal to $7,000 in assessed value (at a one
percent property tax rate, the exemption reduces property
taxes by roughly $70) for owner-occupied homes. Once
granted, homeowners' exemptions are generally permanent.
However, an Assessor may deny a homeowner's exemption if
the property becomes vacant or is under construction as of
the January 1st lien date.
THIS BILL provides that Assessors may not disqualify
an otherwise qualified residence for a homeowners'
exemption solely on the basis that the dwelling was
temporarily damaged, destroyed, under reconstruction by the
owner, or temporarily uninhabited as a result of restricted
access to the property in Imperial County as a result of
the earthquake that occurred in April, 2010.
NATURAL DISASTER ASSISTANCE ACT :
EXISTING LAW (Natural Disaster Assistance Act)
provides that the state must pay 75% of the non-federal
share of eligible costs for any state-declared emergency.
If the President declares it to be a disaster, then FEMA
covers 75% of costs, and the state covers 75% of the
remaining 25% balance. For some statutorily specified
disasters the state is required to pay 100% of the
non-federal cost.
AB 2136 - V.M. Perez
Page 5
THIS BILL would require the state to pay 100% of the
non-federal cost of the earthquake that occurred in
Imperial County on April 4, 2010, as specified in
agreements between this state and the United States for
federal financial assistance.
CalHOME Program :
EXISTING LAW authorizes the CalHOME program,
administered by the Department of Housing and Community
Development (HCD), which provides grants to local agencies
or nonprofits to assist individual households and assist
multiple home ownership units, including single family
subdivisions. Generally, HCD provides these moneys as
loans payable after 20 years, but HCD may convert loans
into grants after the homeowner has occupied the home for
more than 10 years, with 10% of the original principal
reduced for each year until fully converted into a grant.
THIS BILL provides that loans funded by the CalHOME
Program Disaster Assistance for Imperial County used for
owner-occupied manufactured homes shall instead be due and
payable in 10 years, with 20% of the original principal to
be forgiven annually for each year beyond the fifth year
that the homeowner continuously occupies the home.
FISCAL EFFECT:
According to FTB, AB 2136 results in revenue losses of
$7,000 in 2009-10, and gains of $4,000 in 2010-11, and
$3,000 in 2011-12. BOE estimates one-time property tax
revenue losses of $78,000.
COMMENTS:
AB 2136 - V.M. Perez
Page 5
A. Purpose of the Bill
The author provided the following statement:
AB 2136 is a tax relief bill intended to assist the
people of Imperial County in the wake of the Sierra El
Mayor earthquake. AB 2136 supplements a number of
existing provisions in state tax law that can be
helpful both to local jurisdictions and to individuals
after a natural disaster. The provisions of the bill
would:
a. Backfill local government for the temporary
loss of property taxes due to
any property reassessments claimed by local
property owners;
b. Ensure that property owners still qualify
for the homeowner's property tax
exemption, even if their principal residence
was temporarily damaged or
destroyed by the quake;
c. Enable taxpayers to carry forward their
losses due to the disaster for five
years, not just in the year of loss. This
provision would apply as well to
small business owners related to carry
forward net operating losses; and
d. Remove the 25% local government match
requirement for recovering
federal assistance in covering certain
public infrastructure costs.
By allowing special tax treatment for losses sustained
as a result of the Sierra El Mayor earthquake, AB 2136
will help to ease some of the burden on Imperial
County residents.
AB 2136 - V.M. Perez
Page 5
B. A Better Way
Through last year, the Legislature has amended Revenue
and Taxation Code 218 25 times for separate disasters to
ensure that Assessors may not deny homeowners' exemptions
for disaster-related reasons, added 45 code sections to
allow for excess disaster losses for both the Personal
Income Tax Law and the Corporation Tax Law, and enacted
more than 100 sections providing for the first year
backfill of local property tax losses and procedures
therein resulting from disaster reassessments. The
Legislature always litters the code with these provisions
when disaster strikes, so why not enact a statute which
triggers these tax benefits whenever the Governor declares
a disaster?
Efforts to mandate consistency have stalled. In
2005-06, AB 3039 (Houston) and SB 1607 (Machado) attempted
to change this statute to provide statewide protection,
thereby ensuring that future disaster-specific measures
were not necessary. The Assembly Revenue and Taxation
Committee held AB 3039, and deleted the relevant provision
from SB 1607, which was subsequently enacted.
Additionally, the Governor directed the Office of Emergency
Services and the Office of Planning and Research to work
with the Legislature to enact standard purpose legislation
when he signed a disaster-specific bill (AB 18, La Malfa,
2005). The Legislature has previously enacted statewide
legislation in response to a flurry of local
jurisdiction-specific bills, notably in the areas of
transaction and use taxes (SB 566, Scott, 2003), and
disputes over property tax allocation errors (AB 169,
Wiggins, 2001). However, SB 1494 (Committee on Revenue and
Taxation) would automatically enact the preclusion of
assessors revoking a homeowners' exemption for
disaster-affected property, hopefully bringing some sanity
to these annual rituals.
C. The CalHOME Program
AB 2136 - V.M. Perez
Page 5
Traditionally, disaster relief bills only include the
three tax provisions, and sometimes the Natural Disaster
Assistance Act provisions. However, AB 2136 shortens the
timeline for owner-occupied mobilehomes that receive
CalHOME loans to covert to grants by half. HCD provides
the following information on this proposal:
"The CalHome program is an HCD-administered Prop 1C
bond-funded program that provides grants to local public
agencies and nonprofit developers to assist individual
households through deferred-payment loans. In response to
the earthquake that damaged homes in Imperial County in
April, HCD issued a $10 million over-the-counter (first
come/first served until funds are depleted) Notice of
Funding Availability (NOFA) on May 6. The funds made
available through the NOFA are to be used for lower-income
owner-occupied rehabilitation or reconstruction of
conventional and manufactured homes damaged in the April 4
earthquake in Imperial County. HCD does not make direct
assistance to homeowners in the CalHome program, rather
local jurisdictions apply to HCD and then make grants and
loans to the homeowners.
To date, HCD has awarded $1.5 million to the County of
Imperial for its CalHome Program Disaster Assistance for
Imperial County Grant for 36 households and $1,320,000 to
the City of Calexico for 26 households.
The maximum subsidy amount to each homeowner is
$60,000. The NOFA specifies that financial assistance
provided to an individual household to rehabilitate or
repair, or replace manufactured housing located in a
mobilehome park and not permanently affixed to a foundation
shall be in the form of a conditional grant due and payable
in 20 years, with 10 percent of the original principle to
be forgiven annually for each additional year beyond the
tenth year that the manufactured home is owned and
continuously occupied by the borrower.
The proposed amendments to AB 2136 (V. Perez) alter
the terms of the grant to due and payable in 10 years, with
20 percent of the original principal to be forgiven
AB 2136 - V.M. Perez
Page 5
annually for each additional year beyond the fifth year
that the manufactured home is owned and continuously
occupied by the borrower.
HCD has made the awards to the jurisdictions noted
above but has not executed the Standard Agreement
(contract). In recognition of the proposed amendments, HCD
would provide for terms that could be altered by later
enacted statute."
D. When Disaster Strikes
The Committee will also hear AB 1662 (Portantino), AB
1690 (Chesbro), and AB 1766 (Gaines) at its June 23, 2010
hearing, which enacts disaster tax relief provisions for
wildfires for other natural disasters.
Support and Opposition
Support:Regional Council of Rural Counties; California
State Legislature Rural Caucus; Board of Supervisors of the
County of Imperial; California State Association of
Counties; Regional Council of Southern California
Association of Governments; City of El Centro
Oppose:None received.
---------------------------------
Consultant: Colin Grinnell
>
AB 2136 - V.M. Perez
Page 5