BILL ANALYSIS
AB 2362
Page 1
REPLACE - 06/02/2010 Technical change (Member name)
ASSEMBLY THIRD READING
AB 2362 (Skinner and Blakeslee)
As Amended May 18, 2010
Majority vote. Tax levy
REVENUE & TAXATION 9-0 APPROPRIATIONS 17-0
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|Ayes:|Portantino, DeVore, |Ayes:|Fuentes, Conway, Ammiano, |
| |Beall, | | |
| |Charles Calderon, Coto, | |Bradford, Charles |
| |Fuentes, Harkey, | |Calderon, Coto, |
| |Nestande, Ma | |Davis, Monning, Ruskin, |
| | | |Harkey, |
| | | |Miller, Nielsen, Norby, |
| | | |Skinner, |
| | | |Solorio, Torlakson, |
| | | |Torrico |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Creates a "new construction" exclusion from property
tax for seismic retrofitting improvements made to pre-1978 wood
frame, multi-unit residential buildings, so-called "soft-story
buildings," as specified. Specifically, this bill :
1)Excludes from the definitions of "newly constructed" and "new
construction" the seismic retrofitting improvements made to a
soft-story building.
2)Defines "seismic retrofitting improvements" by reference to
Revenue and Taxation Code (R&TC) Section 74.5.
3)Defines a "soft-story building" as a wood frame, multi-unit
residential building constructed before January 1, 1978, where
the ground floor portion of the structure contains parking or
other similar open floor space that causes soft, weak, or
open-front wall lines.
4)Does not provide for reimbursement to local agencies for any
property tax revenues lost by those agencies pursuant to this
bill.
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5)Takes effect immediately as a tax levy, but will become
inoperative if SCA 4 (Ashburn), Resolution Chapter 115,
Statutes of 2008 (SCA 4) is approved by the voters at the June
8, 2010, statewide general election.
EXISTING LAW :
1)Provides that all property is taxable unless explicitly
exempted by the California Constitution or federal law. The
maximum amount of any ad valorem tax on real property is
limited to 1% of its full cash value.
2)Requires local county assessors to reassess property when it
is purchased, newly constructed, or upon a change in
ownership. "Newly constructed" or "new construction" includes
additions to the real property, or the alteration of the real
property that amounts to a rehabilitation or conversion of the
property to a different use since the preceding lien date.
The assessor is required to determine the added value of the
new construction when completed and add that amount to the
assessed value of the property. In general, if the new
construction replaces existing improvements, the value
attributable to the existing improvements is deducted from the
base year value of the property.
3)Allows the Legislature, pursuant to Article XIII A of the
California Constitution, to enact legislation to exclude from
the definition of "newly constructed" certain improvements
made to buildings for seismic safety purposes. Specifically,
"new construction" does not include:
a) Improvements to buildings with unreinforced masonry
bearing walls (those without steel reinforcing bars) made
to comply with a local ordinance on seismic safety and
completed on or after January 1, 1984 [Proposition 23
(1984)]; and,
b) Any qualified construction (seismic retrofitting
improvements and improvements utilizing earthquake hazard
mitigation technologies) other than work for unreinforced
masonry bearing walls. There is no requirement that
qualified construction be required by local ordinance or
mandate. This exclusion applies to construction completed
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on or after January 1, 1991. [Proposition 127 (1990)].
4)Allows the existing exclusion for improvements to unreinforced
masonry buildings for 15 years. There is no term for
exclusion of other qualified construction improvements for
seismic safety. Both exclusions terminate with the change in
ownership of the property.
FISCAL EFFECT : No fiscal impact, since soft story buildings are
already eligible for the seismic exclusion.
COMMENT S: The author states that, "The United States Geological
Society, California has said that there is a 99.7% chance that
it will be hit by an earthquake of 6.7 magnitude or higher in
the next thirty years. Wood-frame, multi-unit residential
buildings with soft, weak or open-front first stories, commonly
known as soft-story buildings, have a great likelihood of
collapse if an earthquake of 6.7 magnitude or higher occurs. Of
the 16,000 housing units that were rendered uninhabitable by the
Loma Prieta earthquake, 7,700 housing units were in soft-story
buildings. [Thirty four thousands] housing units that were
rendered uninhabitable in the Northridge earthquake were in
soft-story buildings. Soft-story buildings have made up a large
majority of the buildings that are destroyed by a major
earthquake. Moreover, major earthquakes often make these
buildings uninhabitable for residents and therefore displace
hundreds of thousands of residents.
"According to the State of California, Multi-Hazard Mitigation
Plan of 2007, there are 46,000 soft-story buildings in
seismically unstable areas of the state. Those buildings have
over 730,000 residential units and over a million residents. AB
2362 will incentivize owners of these unsafe buildings to
seismically retrofit their buildings to protect their residents,
as has happened with Unreinforced Masonry Buildings (URMs). AB
2362 will allow owners to retrofit their buildings to protect
their residents while not being required to pay the increased
property tax assessment for 10 years. After a 10-year period,
the property would be assessed according to the current full
cash value of the portion of reconstruction or improvement to
the structure that was excluded. The substantial risk that
these buildings pose to their residents demonstrates the
necessity of AB 2362."
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Background. Under existing law, certain seismic safety
improvements made to buildings with "unreinforced masonry
bearing walls" are excluded from property tax assessment for the
first 15 years after the work is completed [Revenue and Taxation
Code (R&TC) Section 70). The exclusion applies only if the
improvements are made to comply with a local ordinance, such as
a county or city mandatory strengthening program. In contrast,
any seismic retrofitting improvements or improvements utilizing
earthquake hazard mitigation technologies made to an existing
building or structure, other than unreinforced masonry
buildings, are permanently excluded from the definition of
"newly constructed" and "new construction" (R&TC Section 74.5).
Furthermore, there is no requirement for these improvements to
be mandated by a local government.
In 2008, the Legislature approved SCA 4 and its companion bill
SB 111[(Ashburn), Chapter 336, Statutes of 2008], which makes
the statutory changes necessary to implement SCA 4. On June 8,
2010, voters will decide whether or not to approve SCA 4,
Proposition 13 (2010), which would create a permanent exclusion
from the definitions of "newly constructed" and "new
construction" for construction or reconstruction of seismic
retrofitting components of an existing structure. If SCA 4 is
approved by the voters, then SB 111 would become operative. SB
111 amends R&TC Sections 70 and 74.5 to eliminate the 15-year
limitation on the exclusion from "new construction" for seismic
improvements made to unreinforced masonry buildings. Both SCA 4
and SB 111 would, primarily, benefit the owners of existing
structures who are facing the expiration of the 15-year
exclusion period under Proposition 23 and would ensure equal
treatment of property owners who incorporate seismic safety
improvements into existing buildings, regardless of the type of
the buildings. In addition, if Proposition 13 (2010) is
approved and SB 111 becomes operative, then R&TC Section 74.5
would provide a more precise definition of qualifying
improvements. Property owners would simply use the broader
exclusion provided for by Proposition 127, instead of the more
limited exclusion provided under Proposition 23 for any new
improvements.
What exactly does this bill do? This bill proposes an exclusion
from property tax assessment for the seismic retrofitting
improvements made to a soft-story building. However, existing
R&TC Section 74.5 already provides the necessary protection from
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the property tax assessment for those types of improvements.
Specifically, R&TC Section 74.5 broadly defines "seismic
retrofitting improvements" to mean, among other things,
"structural strengthening or providing the means necessary to
resist seismic force levels that would otherwise be experienced
by an existing building or structure during an earthquake, so as
to significantly reduce hazards to life and safety while also
providing for the substantially safe ingress and egress of
building occupants during and immediately after an earthquake."
Further, Proposition 13 (2010), which is already on the ballot,
would apply to soft-story buildings because it would extend the
permanent new construction exclusion from reassessment to
seismic safety improvements made to all buildings, regardless of
whether or not the building is a masonry structure. Thus, this
bill will become unnecessary if Proposition 13 is approved. And
if Proposition 13 is voted down, then this bill will require a
separate companion constitutional amendment to become operative.
Analysis Prepared by : Oksana G. Jaffe / REV. & TAX. / (916)
319-2098
FN: 0004541