BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 534 - Strickland
Amended: May 6, 2009
Hearing: May 13, 2009 Tax Levy Fiscal: Yes
SUMMARY: Implements SCA 13 (Strickland) by Providing a New
Construction Exclusion for Small Wind Turbines
and Geothermal Heat Pump Systems
EXISTING LAW (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. Assessors reappraise property whenever it is
purchased, newly constructed, or when ownership changes.
The Constitution and statute define those terms.
EXISTING LAW (Constitution) provides that the
Legislature may exclude from the definition of "new
construction":
The construction or addition of any
active solar energy system (Proposition 7, 1980).
Any fire sprinkler system, as defined
(Proposition 31, 1984).
Any portion or structural component that
makes the dwelling more accessible for a disabled
or severely disable person (Proposition 110, 1990
and Proposition 177, 1994).
SB 534 - Strickland
Page 4
Seismic retrofit components (Proposition
23, 1984 and Proposition 127, 1990).
THIS BILL amends the California Constitution to allow
the Legislature to exclude from "new construction" the
construction or addition of a small wind turbine or
geothermal heat pump system, as defined by the Legislature.
Geothermal heat pumps are defined as a system that uses
the constant temperature of the earth as the exchange
medium for energy instead of the outside air temperature,
and small wind turbines mean a turbine that spins on top of
a tower to turn the wind into usable electricity rated at a
maximum of 15 kilowatts.
FISCAL EFFECT:
BOE estimates that SB 274 results in property tax
revenue losses of $100,000.
COMMENTS:
A. Purpose of the Bill
According to the Author, "SB 534 seeks to amend the
California Constitution, and the Revenue and Taxation Code
in order to seek similar property tax exclusions as
currently offered for the new construction of an active
solar energy system (CA Rev and Tax Code 73). According
to the U.S. Department of Energy, geothermal heat pumps
(GHPs) use the constant temperature of the earth as the
exchange medium instead of the outside air temperature.
This allows the system to reach fairly high efficiencies
(300% - 600%) on the coldest of winter nights, compared to
175% - 250% for airsource heat pumps on cool days. SB 534
seeks to maximize California's potential in using
geothermal energy to meet the state's renewable energy
goals. The California Energy Commission stated that
SB 534 - Strickland
Page 4
geothermal energy currently accounts for nearly 40% of
California's renewable energy with a total of 1,800
megawatts (MW) installed in California. It is estimated by
the commission that the state has a potential for at least
another 4,000 MW of added power from geothermal energy.
Small wind turbines are as defined by the Energy Commission
to be the following: a small wind electric system is 50
kilowatts (kW) or less in size and uses the wind's energy
to produce electricity. A turbine spins on top of a tower
to turn the wind into usable electricity for a home or
business. Currently, the commission is offering a rebate
for anyone installing a wind turbine system of less than 30
kW and lives in the electric service territory of Pacific
Gas and Electric Company, Southern California Edison
Company, San Diego Gas and Electric Company, or Bear Valley
Electric. California tax credits for wind energy were
available after Janaury 1, 2001, but expired on December
31, 2005. SB 534 will help Californians contribute to
meeting the state's 33% renewable energy goal by 2020. The
property tax exemptions will expand the renewable energy
options for tax payers with the addition of small wind
turbines and geothermal heat pump systems."
B. Hang Your Head Over?
Known for its minimal environmental impact, wind power
is becoming popular. According to the California
Department of Energy, turbines and wind farms produced 2.3
percent of the state's gross system power, and are mostly
located in Altamont Pass near Tracy, Tehachapi southeast of
Bakersfield, and San Gorgino near Palm Springs.
Individuals can also install small wind energy systems
which generate less than 50 kilowatts of energy to meet
their own energy needs in windy areas. The California
Energy Commission provides rebates through its renewable
energy program for persons who receive power from one of
the state's investor-owned utilities. Geothermal heat
pumps use the natural heat storage capacity of the earth or
ground water to provide energy efficient heating and
cooling. In addition to heating and cooling, geothermal
SB 534 - Strickland
Page 4
heat pumps can provide domestic hot water, and can be used
for virtually any size home or lot.
SB 534 implements SCA 13, which asks California voters
to add small wind energy and geothermal heat pumps to the
list of construction or additions that do not constitute
"new construction," ensuring that taxpayers who install
these improvements do not trigger a reassessment and
directing assessors not to include the value of the energy
system in the value of the property. The voters authorized
identical treatment for solar energy systems in 1980
(Proposition 7), and the Legislature subsequently enacted
the exclusion, and extended it to 2015-16 (AB 1451, Leno,
2008).
C. Clarifying Treatment for New Homes
Wind energy is clean and renewable, thereby reducing
demand on fossil fuel consumption, and when generated close
to electric load, eases transmission congestion. In recent
years, Californians have become increasingly interested in
installing wind energy systems, driving the Legislature and
the California Energy Commission to provide rebates for
homeowners installing wind energy systems. Current law
restricts eligibility for the new construction exclusion
only to the initial builder if the active solar energy
system is built on a home or business property intended for
immediate sale thereby limiting the benefits to the
homebuyer. Under Proposition 13, current law requires a
reassessment based on a property's entire value when it
changes ownership, meaning that the Assessor must add the
value of the solar energy system and part of the building's
property tax base. The Committee may wish to consider
directing assessors to subtract the value of the system,
less rebates, from the purchase price when determining its
new value.
Additionally, the Committee may wish to consider
amending AB 1451 to prohibit homes assessed as fully
constructed to the builder as of the lien date from
SB 534 - Strickland
Page 4
allowing the first purchaser to receive the exclusion to
prevent a new construction exclusion morphing into a change
of ownership exclusion, which could conflict with the
California Constitution. AB 1451 (Leno) which extended the
sunset on the new construction exclusion for solar energy
contained similar provisions:
1. On Page 2, Line 10, before "SEC 2," add:
(b) (1) Notwithstanding any other law, for purposes of
this section, "the construction or addition of any
active solar energy system" includes the construction
of an active solar energy system incorporated by the
owner-builder in the initial construction of a new
building that the owner-builder does not intend to
occupy or use. he exclusion from "newly constructed"
provided by this subdivision applies to the initial
purchaser who purchased the new building from he
owner-builder, but only if the owner-builder did not
receive an exclusion under this section for the same
active solar energy system and only if the initial
purchaser purchased the new building prior to hat
building becoming subject to reassessment to the
owner-builder, as described in subdivision (d) of
Section 75.12. The assessor shall administer this
subdivision in the following manner:
(A) The initial purchaser of the building shall file a
claim with the assessor and provide to the assessor
any documents necessary to identify the value
attributable to the active solar energy system
included in the purchase price of the new building.
The claim shall also identify the amount of any rebate
for the active solar energy system provided to either
the owner-builder or the initial purchaser by the
Public Utilities Commission, the State Energy
Resources Conservation and Development Commission, an
electrical corporation, a local publicly owned
electric utility, or any other agency of the State of
California.
SB 534 - Strickland
Page 4
(B) The assessor shall evaluate the claim and
determine the portion of the purchase price that is
attributable to the active solar energy system. The
assessor shall then reduce the new base year value
established as a result of the change in ownership of
the new building by an amount equal to the difference
between the following two amounts:
(i) That portion of the value of the new building
attributable to the active solar energy system.
(ii) The total amount of all rebates, if any,
described in subparagraph (A) that were provided to
either the owner-builder or the initial purchaser.
(C) The extension of the new construction exclusion to
the initial purchaser of a newly constructed new
building shall remain in effect only until there is a
subsequent change in ownership of the new building.
D. Companionship
The Committee will also hear SCA 13 (Strickland) at
its May 13, 2009 hearing, which amends the California
Constitution to authorize the Legislature to enact SB 534.
Support and Opposition
Support:California Assessors' Association
Southwest California Legislative Council
R.F. Hooper Accountancy Corp.
The Tax Law Office of Cheryl L. Christopher
Inland Empire Taxpayers Association
Poway Chamber of Commerce
SB 534 - Strickland
Page 4
Howard Jarvis Taxpayers Association
City of Wildomar
Oppose:California School Employees Association
California Tax Reform Association
---------------------------------
Consultant: Colin Grinnell
>