BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
534 (Strickland)
Hearing Date: 05/28/2009 Amended: 05/19/2009
Consultant: Mark McKenzie Policy Vote: Rev&Tax 6-0
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BILL SUMMARY: SB 534 would exclude the value of a small wind
turbine or geothermal heat pump system from the definition of
"new construction" for purposes of property tax assessment.
This bill would only become operative if SCA 13 (Strickland) is
approved by voters.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
Property tax loss (state impact) $15 $30 $35
General*
Mandate: assessor duties unknown, likely minor
administrative costs General
* Staff notes that the Board of Equalization (BOE) estimates
total property tax losses could initially be approximately
$80,000 per year (see staff notes). The Legislative Analyst's
Office reports that in 2005-06, 38 percent of property tax
revenues were allocated to schools. Since any property tax
revenue losses by schools are backfilled by the state General
Fund, unless Test 1 of Proposition 98 is in effect, the state
fiscal impact is assumed to be 38 percent of the estimated total
property tax loss.
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STAFF COMMENTS: SUSPENSE FILE.
Current law, pursuant to constitutional provisions added by
Proposition 13, provides that real property may only be
reassessed when it changes ownership or when new construction
takes place. Various voter-approved constitutional revisions
also provide that the Legislature may exclude any of the
following from the definition of "new construction" for property
tax assessment purposes:
The construction or addition of an active solar energy system.
Any fire sprinkler system, as defined.
Any portion or structural component that makes a dwelling more
accessible for a disabled or severely disabled person.
Seismic retrofit improvements to existing buildings.
SB 534 would exempt small wind turbines or geothermal heat pump
systems that are constructed on or after January 1, 2010 from
assessment as new construction. This bill would also specify
that the new construction exclusion applies to construction of
these systems in homes or buildings that the owner-builder does
not intend to occupy or use, in which case the exclusion would
apply to the initial purchaser if the owner-builder does not
receive the exclusion. Any rebates received by either the
homeowner or initial purchaser would be reduced from the value
of the wind or geothermal facilities that are being excluded.
Page 2, SB 534 (Strickland)
Small wind turbines are defined by the Energy Commission as
small wind electric systems that are 50 kilowatts (kW) or less
in size and use 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. This bill only allows the
exclusion for wind turbines with an energy rating of 15 kW or
less. 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 heat pumps can provide domestic hot water,
and can be used for virtually any size home or lot.
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 wind or geothermal
system as part of the building's property tax base. SB 534
requires assessors to subtract the value of the system, less
rebates, from the purchase price when determining its new value.
Staff notes that SB 534 imposes a state-mandated local program
by placing new duties on county assessors. Reimbursable costs
are likely minor since assessors already perform these duties
for other improvements that are excluded from the definition of
"new construction," such as active solar energy systems The
demand for small turbines and geothermal heat pumps is minor in
comparison to solar installations.
The initial cost of a geothermal heat pump system is dependent
upon local labor rates, lot geology and size, type of system,
and specific equipment selected. The average cost could be in
the range of $40,000 when drilling and installation are
included. The average price of small wind turbines are also
approximately $40,000. The California Energy Commission
indicates that consumers sought rebates for about 40 small wind
turbine systems of 15 kW or less last year through its Emerging
Renewables Program. The actual number of wind and geothermal
systems that are purchased and installed in California each year
is not known, but as an order of magnitude, for each 100 systems
installed, the sales tax revenue loss would be about $40,000.
The Board of Equalization estimates that this bill could
initially result in property tax revenue losses of approximately
$80,000 per year at the basic 1 percent property tax rate if 100
of each type of system were installed. Based on recent data,
approximately 38 percent of property taxes are allocated to K-14
schools (initially this would be about $30,400 in the first
calendar year). The reduction in property taxes to schools
caused by the extension of this exclusion would increase the
Proposition 98 General Fund obligation by a corresponding amount
unless Test 1 is in effect.
The actual revenue loss would depend upon the number of small
wind turbine and geothermal heat pump systems that are newly
constructed or installed. Staff notes that the American
Recovery and Reinvestment Act of 2009 provides a federal income
tax credit of up to 30 percent of the cost of these systems
installed through December 31, 2016. To the extent that more
small wind turbine and geothermal heat pump systems are
installed due to the federal tax credits and the incentive
provided in this bill, the property tax losses would increase in
future years. Solar incentives enacted after 2005 caused a
short term market increase of 40 to 50 percent annually. While
demand for wind and geothermal systems is not likely to increase
as dramatically, it is conceivable that the annual state revenue
loss from this bill could exceed $50,000 within five years.