Existing law, the California Earthquake Authority Act, establishes the California Earthquake Authority (the authority), administered by the Insurance Commissioner, and authorizes the authority to transact insurance in this state as necessary to, among other things, create and maintain, in collaboration or jointly with subdivisions and programs of local, state, and federal governments and with other national programs, programs and activities that mitigate against seismic risks, for the benefit of homeowners and other property owners. Existing law establishes the Earthquake Loss Mitigation Fund, a subaccount of the California Earthquake Authority Fund, a continuously appropriated fund. Existing law authorizes the authority to apply money in the Earthquake Loss Mitigation Fund to supply grants and loans or loan guarantees to dwelling owners who wish to retrofit their homes to protect against earthquake damage, as specified.

This bill would require the authority to establish a grant program, to be administered by a joint powers authority of the authority and the Office of Emergency Services, that would give a grant to an applicant who owns and lives in a recognize the existence of the California Residential Mitigation Program (CRMP), a joint powers authority created in 2012 by agreement between the authority and the Office of Emergency Services. The bill would require the CRMP to implement a grant program and give a grant to a qualifying owner of a single-family residential structure for the purpose of paying a portion of to defray the owners cost of seismic retrofit work to the structure, as specified, if the Legislature appropriates funds for that purpose. This bill would require the authority and the office to jointly adopt regulations the governing board of the CRMP, after providing notice and opportunity for review and public comment, to adopt policies and procedures necessary to implement the grant program and to establish eligibility criteria for participation in the grant program. This bill would establish the maximum amount of a grant to an applicant, and would provide that a low-income applicant with an adjusted gross income that does not exceed specified limits does not have to provide matching funds as a condition of obtaining a grant under the program. This bill would provide that money in the Earthquake Loss Mitigation Fund may be expended to implement the grant program and make grants under the program upon appropriation by the Legislature. applicant.

Existing law prohibits an insurer who charges an additional earthquake insurance premium or deductible because a dwelling fails to meet certain building requirements relating to earthquake bracing from charging the additional premium or deductible if the dwelling is brought into compliance with those requirements, as specified.

This bill would make nonsubstantive, technical changes by deleting obsolete portions of those provisions.

Existing law prohibits an insurer who charges an additional earthquake insurance premium or deductible because a dwelling fails to meet certain building requirements relating to earthquake bracing from charging the additional premium or deductible if the dwelling is brought into compliance with those requirements, as specified.

This bill would make nonsubstantive, technical changes by deleting obsolete portions of those provisions.

SENATE COMMITTEE ON INSURANCE

Senator Richard Roth, Chair

2015 - 2016 Regular

Bill No: AB 1440 Hearing Date: June 24, 2015

Subject: Earthquake loss mitigation: grant programs.

SUMMARY

Recognizes the California Residential Mitigation Program (CRMP), a joint powers authority (JPA) created in 2012 by the California Earthquake Authority (CEA) and Office of Emergency Services (OES) to provide grants to residential homeowners for the purpose of defraying the cost of seismic retrofitting, among other purposes; and requires, if the legislature appropriates funds, the CRMP to implement a grant program and, on or after July 1, 2017, make grants that assist a qualifying owner of a single-family residential structure that defray the owner’s cost of seismic retrofitting of the structure, as specified.

DIGEST

Existing law

1. Provides that no policy of property insurance may be issued or delivered in this state unless the insurer has been offered earthquake insurance (mandatory offer).

2. Defines a residential property for purposes of the mandatory offer as individually owned residential structure of not more than 4 dwelling units.

3. Establishes the CEA, a privately financed, publicly managed entity to provide residential earthquake insurance.

4. Defines residential earthquake insurance as a policy insuring individually owned residential structures with no more than four dwelling units.

5. Establishes the Earthquake Loss Mitigation Fund (ELMF) within the CEA to provide grants or loans to dwelling owners who wish to retrofit their homes. (Insurance Code § 10089.37 et seq.)

6. Allocates to the ELMF five percent of CEA’s investment income, or $5 million, whichever is less, annually.

7. Requires the OES to carry out a variety of duties with respect to emergency preparedness, mitigation, and response activities in the state, including earthquake education and preparedness activities.
   
   

This bill

1. Makes legislative findings regarding the impact recent earthquakes have had on increasing interest in mitigating the damage to residential homes from earthquakes, the Earthquake Brace + Bolt (Brace + Bolt) program operated jointly by the CEA and the OES, the low take-up rate for earthquake insurance, and the need to create and fund a program to assist California homeowners with earthquake mitigation repairs.

2. Recognizes the CRMP, a JPA created in 2012 by the CEA and OES to provide grants to residential homeowners for the purpose of defraying the cost of seismic retrofitting, among other purposes.

3. Requires, if the legislature appropriates funds, the CRMP to implement a grant program and, on or after July 1, 2017, make grants that assist a qualifying owner of a single-family residential structure that defray the owner’s cost of seismic retrofitting of the structure.

4. Requires an applicant for a grant to meet specified conditions, including:

1. The applicant is the owner of record, and lives in the structure to be retrofitted;

2. The structure is a single-family, detached, residential building of not more than 4 dwelling units;

3. The structure and work to be done meet eligibility requirements established by the JPA.

5. Specifies the grant cannot exceed the lesser 75% of the qualifying retrofit, or $3,000.

6. Requires the CRMP governing board to adopt policies and procedures necessary to implement this program.

COMMENTS

1. Purpose of the bill According to the author, only 12% California homeowners have earthquake insurance, but there are between 1.2 to 1.6 million pre-1940s homes with so called "cripple walls," and homes on hillsides, and those with living space over garages that are at serious risk in even a minor quake, let alone a major one. California has an existing seismic mitigation incentive program called Brace + Bolt, which is administered by the CRMP, but is limited to only 650 homes in the Bay Area, LA County and Napa. The goal of this legislation is to expand on Brace + Bolt and create a statewide earthquake retrofit program to cover tens of thousands of more homes.
   
   
   

2. Background Currently, fewer than 12% of California homeowners purchase earthquake insurance, despite predictions that the state will experience a major earthquake sometime in the next 30 years. The low frequency of earthquake disasters, compared to other natural catastrophes, tends to shape the perception that earthquake risk is much lower than it actually is, even in places where there have been very deadly and damaging events like California. In addition, earthquake insurance policies can be expensive and carry large deductibles, making them unattractive to homeowners who are not mandated to carry such coverage by their lenders.

Homeowners can greatly reduce their exposure to earthquake damage by taking relatively simple, low cost steps to strengthen their structures to better withstand earthquakes. An additional benefit to homeowners of seismic retrofitting is the availability of discounts on earthquake insurance premiums as a result of the lower risk of damage to their home.

In August 2011, the CRMP was established as a JPA entity by the CEA and OES to carry out mitigation programs to assist California homeowners who wish to seismically retrofit their houses.  CRMP’s goal is to provide grants and other types of assistance and incentives for these mitigation efforts. Brace + Bolt, the CRMP’s first program launched in 2013, provides grants of up to $3,000 for homeowners who have qualifying homes and meet specified building code requirements. The cost of Brace + Bolt retrofits is coming in between $3,000 and $6,000 for the single-family dwellings presently eligible—the cost seems to be lower in Southern California than in the Bay Area. But the more complicated the retrofit (e.g., for “soft-story” and hillside houses), the more expensive the project will be.

According to the CEA, 16 homes have qualified and completed retrofits under the program, and 650 retrofits are planned in 2015. CEA estimates that there are approximately 1.6 million owner-occupied houses in California that meet the criteria of Brace + Bolt—1.2 million of those are in higher-hazard areas. Those numbers do not include other, non-Brace + Bolt eligible homes that would benefit from seismic retrofits.

Without any appropriation in the budget, this bill simply codifies the existing CRMP. It is committee staff’s understanding that language that mirrors this bill and AB 1429, also before this committee today, has been included in a budget trailer bill, along with an appropriation to increase funding for CRMP to award earthquake mitigation grants.

3. Support According to the Insurance Commissioner, AB 1440 will expand on Brace + Bolt and scale it into a statewide, sustainable earthquake retrofit incentive program. United Policyholders supports AB 1440 because they encourage people who live in earthquake country to protect their investment in their home by retrofitting, buying earthquake insurance, and by setting aside funds to pay for repairs below the deductible. They believe that providing incentives to homeowners to retrofit in the form of monetary grants is good public policy.

4. Opposition None received.
   
   

5. Questions Without any appropriation, this bill simply codifies the existing CRMP, already operating under existing authorities. Language that mirrors this bill and AB 1429, also before this committee today, has been included in a budget trailer bill, along with an appropriation to increase funding for CRMP to award earthquake mitigation grants. Is this legislation necessary?
   
   
   

6. Related Legislation

AB 1429 (Chiu) would require the CRMP to implement a grant program, on or after July 1, 2017, for qualifying owners of multiunit residential structures that defrays the owner’s cost of seismic retrofitting of the structure if the legislature appropriates money for that purpose.

SB 602 (Monning) adds the CEA to the list of public entities authorized to utilize property assessment districts, impose liens and issue bonds for the purpose of creating a statewide earthquake mitigation assessment district to fund voluntary residential seismic strengthening improvements.

AB 428 (Nazarian) would allow, for taxable years beginning on or after January 1, 2016, and before January 1, 2021, a tax credit under the Personal Income Tax Law and the Corporation Tax Law in an amount equal to 30% of the qualified costs paid or incurred by a qualified taxpayer for any seismic retrofit construction on a qualified building, as defined.

POSITIONS

Support

California Department of Insurance (sponsor)

California Association of Realtors

City of West Hollywood

United Policyholders

Oppose

None received

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1440

Author:(Nazarian)

As Amended Ver:April 20, 2015

Majority vote

SUMMARY: Establishes the statutory structure for seismic retrofit grant program for individual homeowners. Specifically, this bill:

1. Requires the California Earthquake Authority (CEA) to form a joint powers authority (JPA) with the Office of Emergency Services (OES) to develop a seismic retrofit grant program for individual homeowners.

2. Limits grant funding from this program to individual homeowners and grant amounts to 75% of retrofit costs or $3,000.

3. Requires the JPA to adopt regulations defining the type and location of homes eligible for grant funding.

4. Requires the JPA to adopt regulations to establish the criteria for determining grant amounts.

5. Makes findings and declarations regarding earthquake mitigation efforts and the need for residential seismic retrofit programs.

EXISTING LAW:

1. Establishes the CEA as a publicly managed insurer to provide residential earthquake insurance.

2. Defines residential earthquake insurance as a policy protecting a residence with four or fewer dwelling units.

3. Requires OES to perform a variety of duties with respect to specified emergency preparedness, mitigation, and response activities in the state, including emergency medical services.

4. Establishes the Earthquake Loss Mitigation Fund (mitigation fund) as a sub-account with the CEA Fund and directs the fund to transfer 5% of its investment earnings into the fund each year. This fund is available to pay for research and mitigation programs undertaken by the CEA.

5. Allows public agencies to form JPAs for the exercise of shared powers.

FISCAL EFFECT: According to the Assembly Appropriations Committee:

1. The creation of the program in statute, by itself, does not have state costs, as the program would only be operational if the Legislature appropriates funds. The California Earthquake Authority (CEA) is privately funded and the current grant program is funded by a portion of CEA investment income.

2. However, creation of the program in statute, coupled with legislative findings, imply the availability of state funding for the program.

COMMENTS:

1. Purpose. According to the author, only 12% California homeowners have earthquake insurance, but there are between 1.2 million to 1.6 million pre-1940s homes with so called "cripple walls," and homes on hillsides, and those with living space over garages that are at serious risk in even a minor quake, let alone a major one. California has an existing seismic mitigation incentive program called Earthquake Brace + Bolt (EBB), which is administered by the California Residential Mitigation Program, but is limited to only 650 homes in the Bay Area, LA County and Napa. The goal of this legislation is to expand on Brace + Bolt and create a statewide earthquake retrofit program to cover tens of thousands of more homes.

2. Brace + Bolt. The EBB program was created by the California Residential Mitigation Program, which is a joint power authority between the California Earthquake Authority and the Governor's Office of Emergency Services. The EBB was developed to help homeowners lessen the potential for damage to their houses during an earthquake. A residential seismic retrofit strengthens an existing house, making it more resistant to earthquake activity such as ground shaking and soil failure, by bolting the house to its foundation and adding bracing around the perimeter of the crawl space. The EBB program provides homeowners up to $3,000 to strengthen their foundation and lessen the potential for earthquake damage. A typical retrofit may cost between $2,000 and $10,000 depending upon the location, the size of the house, and the amount of work involved.

3. California Earthquake Authority. The CEA was formed through legislation in 1995 and 1996 to address an insurance-availability crisis that followed the 1994 Northridge earthquake. After that earthquake, many homeowners found it difficult or impossible to find basic homeowner's insurance. Many others were faced with the prospect of having their homeowners' insurance non-renewed as insurance companies tried to shed their exposure to earthquake risk. Because state law requires insurers to offer earthquake insurance to their applicants and holders of residential policies, the insurers’ retreat from the California market resulted in an availability crisis for both homeowners and earthquake insurance. The Department of Insurance reported in the summer of 1996, at the height of the crisis, that 95% of the homeowners' insurance market had either stopped, or severely restricted, sales of new homeowners' policies. After the CEA began operations in December 1996, the California homeowners' insurance market recovered quickly. A Department of Insurance report noted that at the peak of the availability crisis, 82 insurers had restricted the sale of new homeowners' insurance policies. By October 1997, only three insurers were restricting the sale of new policies. Since that time, the requirement to offer earthquake insurance has not been a factor in restricting the availability of homeowners' insurance.

Analysis Prepared by: Paul Riches / INS. / (916) 319-2086 FN: 0000954

Date of Hearing: April 29, 2015

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Jimmy Gomez, Chair

ABPCA Bill Id:AB 1440

Author:(Nazarian) – As Amended Ver:April 20, 2015

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill establishes a grant program for the seismic retrofit of (one to four unit) residential structures in high-risk earthquake areas.

FISCAL EFFECT:

1. The creation of the program in statute, by itself, does not have state costs, as the program would only be operational if the Legislature appropriates funds. The California Earthquake Authority (CEA) is privately funded and the current grant program is funded by a portion of CEA investment income.

2. However, creation of the program in statute, coupled with legislative findings, imply the availability of state funding for the program. The bill's findings state, "There are many paths to funding a retrofit program, including income tax credits, sales tax rebates, attaching the financing to property taxes, and grants. Therefore, it is the intent of the Legislature to enact legislation that would create and fund a program to assist California homeowners with earthquake mitigation repairs to their homes." State tax credits and/or rebates would result in a reduction in state GF revenues.

The size and scope of the expansion of this existing grant program is unknown, but would likely be in the millions of dollars. For example, $4.5 million in total funding would provide retrofit-incentive grants of $3,000 for 1,500 single-family houses.

The current Earthquake Brace + Bolt (EBB) program provides homeowners up to $3,000 for qualifying single-family, detached residential buildings (which may be of one to four dwelling units).

COMMENTS:

1. Purpose. California has an existing seismic mitigation incentive program called EBB, which is administered by the California Residential Mitigation Program (CRMP), but it is limited to only 650 homes in the Bay Area, Los Angeles County and Napa. The goal of this legislation is to expand on Brace + Bolt and create a statewide earthquake retrofit program to cover the tens of thousands of small multi-family residential structures that need retrofitting. This bill is sponsored by the California Department of Insurance.

2. California Earthquake Authority. The CEA was formed through legislation in 1996 to address an insurance-availability crisis that followed the 1994 Northridge earthquake. The CEA is a privately funded, publicly managed not-for-profit organization that provides catastrophic residential earthquake insurance. The Governor, State Treasurer, and Insurance Commissioner serve as the CEA’s governing board voting members. CEA has about 75% of the market for earthquake insurance in California, and is funded through sales of earthquake policies, and investments.

3. Brace + Bolt. The EBB program was created by the California Residential Mitigation Program (CRMP), which is a joint powers authority between the CEA and the Office of Emergency Services. The EBB was developed to help homeowners lessen the potential for damage to their houses during an earthquake. A residential seismic retrofit strengthens an existing house by bolting the house to its foundation and adding bracing around the perimeter of the crawl space. CRMP is funded through a portion of CEA's investment income; CEA provided about $2 million in mitigation funding for the EBB program in 2014.

The bill would require the existing JPA to develop the program requirements for small, multi-family residential structures along the lines of the existing EBB program.

4. Related Legislation. AB 1429 (Chiu), also in today's agenda, is nearly identical to this bill, but establishes a statutory structure for seismic retrofit grant program for multiunit houses instead of individual homeowners.

Analysis Prepared by: Lisa Murawski / APPR. / (916) 319-2081

Date of Hearing: April 22, 2015

ASSEMBLY COMMITTEE ON INSURANCE

Tom Daly, Chair

ABPCA Bill Id:AB 1440

Author:(Nazarian) – As Amended Ver:April 20, 2015

SUBJECT: Earthquake loss mitigation: grant programs

SUMMARY: Establishes the statutory structure for seismic retrofit grant program for individual homeowners. Specifically, this bill:

1. Requires the California Earthquake Authority (CEA) to form a joint powers authority (JPA) with the Office of Emergency Services (OES) to develop a seismic retrofit grant program for individual homeowners.

2. Limits grant funding from this program to individual homeowners and grant amounts to 75% of retrofit costs or $3,000.

3. Requires the JPA to adopt regulations defining the type and location of homes eligible for grant funding.

4. Requires the JPA to adopt regulations to establish the criteria for determining grant amounts.

5. Makes findings and declarations regarding earthquake mitigation efforts and the need for residential seismic retrofit programs.

EXISTING LAW:

1. Establishes the CEA as a publicly managed insurer to provide residential earthquake insurance.

2. Defines residential earthquake insurance as a policy protecting a residence with four or fewer dwelling units.

3. Requires OES to perform a variety of duties with respect to specified emergency preparedness, mitigation, and response activities in the state, including emergency medical services.

4. Establishes the Earthquake Loss Mitigation Fund (mitigation fund) as a sub-account with the CEA Fund and directs the fund to transfer 5% of its investment earnings into the fund each year. This fund is available to pay for research and mitigation programs undertaken by the CEA.

5. Allows public agencies to form JPAs for the exercise of shared powers.

FISCAL EFFECT: Undetermined

COMMENTS:

1. Purpose. According to the author, only 12% California homeowners have earthquake insurance, but there are between 1.2 to 1.6 million pre-1940s homes with so called "cripple walls," and homes on hillsides, and those with living space over garages that are at serious risk in even a minor quake, let alone a major one. California has an existing seismic mitigation incentive program called Earthquake Brace + Bolt (EBB), which is administered by the California Residential Mitigation Program, but is limited to only 650 homes in the Bay Area, LA County and Napa. The goal of this legislation is to expand on Brace + Bolt and create a statewide earthquake retrofit program to cover tens of thousands of more homes.

2. Brace + Bolt. The EBB program was created by the California Residential Mitigation Program, which is a joint power authority between the California Earthquake Authority and the Governor's Office of Emergency Services. The EBB was developed to help homeowners lessen the potential for damage to their houses during an earthquake. A residential seismic retrofit strengthens an existing house, making it more resistant to earthquake activity such as ground shaking and soil failure, by bolting the house to its foundation and adding bracing around the perimeter of the crawl space. The EBB program provides homeowners up to $3,000 to strengthen their foundation and lessen the potential for earthquake damage. A typical retrofit may cost between $2,000 and $10,000 depending upon the location, the size of the house, and the amount of work involved.

3. California Earthquake Authority. The CEA was formed through legislation in 1995 and 1996 to address an insurance-availability crisis that followed the 1994 Northridge earthquake. After that earthquake, many homeowners found it difficult or impossible to find basic homeowner's insurance. Many others were faced with the prospect of having their homeowners' insurance non-renewed as insurance companies tried to shed their exposure to earthquake risk. Because state law requires insurers to offer earthquake insurance to their applicants and holders of residential policies, the insurers’ retreat from the California market resulted in an availability crisis for both homeowners and earthquake insurance. The Department of Insurance reported in the summer of 1996, at the height of the crisis, that 95 percent of the homeowners' insurance market had either stopped, or severely restricted, sales of new homeowners' policies. After the CEA began operations in December 1996, the California homeowners' insurance market recovered quickly. A Department of Insurance report noted that at the peak of the availability crisis, 82 insurers had restricted the sale of new homeowners' insurance policies. By October 1997, only three insurers were restricting the sale of new policies. Since that time, the requirement to offer earthquake insurance has not been a factor in restricting the availability of homeowners' insurance.

REGISTERED SUPPORT / OPPOSITION:

Support

Department of Insurance (sponsor)

United Policyholders

Opposition

None received

Analysis Prepared by: Paul Riches / INS. / (916) 319-2086