The California Constitution generally limits ad valorem taxes on real property to 1% of the full cash value of that property. For purposes of this limitation, full cash value is defined as the assessors valuation of real property as shown on the 197576 tax bill under full cash value or, thereafter, the appraised value of that real property when purchased, newly constructed, or a change in ownership has occurred.

This measure would authorize the Legislature to exclude from classification as newly constructed the construction or addition, completed on or after January 1, 2019, of a rain water capture system.

The California Constitution generally limits ad valorem taxes on real property to 1% of the full cash value of that property. For purposes of this limitation, full cash value is defined as the assessors valuation of real property as shown on the 197576 tax bill under full cash value or, thereafter, the appraised value of that real property when purchased, newly constructed, or a change in ownership has occurred.

This measure would authorize the Legislature to exclude from classification as newly constructed the construction or addition, completed on or after January 1, 2019, of a rain water capture system.

The California Constitution generally limits ad valorem taxes on real property to 1% of the full cash value of that property. For purposes of this limitation, full cash value is defined as the assessors valuation of real property as shown on the 197576 tax bill under full cash value or, thereafter, the appraised value of that real property when purchased, newly constructed, or a change in ownership has occurred.

This measure would authorize the Legislature to exclude from classification as newly constructed the construction or addition, completed on or after January 1, 2018, 2019, of a rain water capture system.

The California Constitution generally limits ad valorem taxes on real property to 1% of the full cash value of that property. For purposes of this limitation, full cash value is defined as the assessors valuation of real property as shown on the 197576 tax bill under full cash value or, thereafter, the appraised value of that real property when purchased, newly constructed, or a change in ownership has occurred.

This measure would authorize the Legislature to exclude from classification as newly constructed the construction or addition, completed on or after January 1, 2018, of a rain water capture system.

Resolved by the Senate, the Assembly concurring, That the Legislature of the State of California at its 201718 Regular Session commencing on the fifth day of December 2016, two-thirds of the membership of each house concurring, hereby proposes to the people of the State of California, that the Constitution of the State be amended by amending subdivision (c) of Section 2 of Article XIII A thereof, to read:

Resolved by the Senate, the Assembly concurring, That the Legislature of the State of California at its 201718 Regular Session commencing on the fifth day of December 2016, two-thirds of the membership of each house concurring, hereby proposes to the people of the State of California, that the Constitution of the State be amended by amending subdivision (c) of Section 2 of Article XIII A thereof, to read:

Resolved by the Senate, the Assembly concurring, That the Legislature of the State of California at its 201718 Regular Session commencing on the fifth day of December 2016, two-thirds of the membership of each house concurring, hereby proposes to the people of the State of California, that the Constitution of the State be amended by amending subdivision (c) of Section 2 of Article XIII A thereof, to read:

Resolved by the Senate, the Assembly concurring, That the Legislature of the State of California at its 201718 Regular Session commencing on the fifth day of December 2016, two-thirds of the membership of each house concurring, hereby proposes to the people of the State of California, that the Constitution of the State be amended by amending subdivision (c) of Section 2 of Article XIII A thereof, to read:

SENATE THIRD READING

STR Bill Id:SCA 9

Author:(Glazer)

As Amended Ver:April 26, 2017

2/3 vote

SENATE VOTE: 39-0

SUMMARY: Excludes, subject to voter approval, rain water capture systems that are constructed on or after January 1, 2019, from assessment as new construction. Specifically, this constitutional amendment amends the California Constitution allowing the Legislature to exclude rain water capture systems from the definition of "newly constructed."

EXISTING LAW:

1. Provides that all property is taxable unless explicitly exempted by the California Constitution or federal law. Ad valorem taxes on real property are generally limited to 1% of the full cash value of that property as set forth in the California Constitution, based on the property's assessed value as determined by the county assessor when purchased, newly constructed, or a change in ownership has occurred. The full cash value base may reflect the yearly inflation rate, not to exceed 2% for any given year.
2. Requires the assessor to increase the assessment to reflect the value of "new construction" when substantial additions or alterations occur. New construction is assigned its own distinct base year value, and the remainder of the property's base year value is unaffected.
3. Provides that "newly constructed" does not include real property that is reconstructed after a disaster declared by the Governor if the fair market value (FMV) of the real property, as reconstructed, is comparable to its FMV prior to the disaster, and does not include that portion of an existing structure that consists of the construction or reconstruction of seismic retrofitting components.
4. Allows the Legislature to provide that the term "newly constructed" does not include any of the following:
   1. The construction or addition of any active solar energy system;
   2. The construction or installation of any fire sprinkler system, other fire extinguishing system, fire detection system, or fire-related egress improvement, as specified;
   3. The construction, installation, or modification of any portion or structural component of a single- or multiple-family dwelling to make it more accessible to a severely disabled person, as specified; and,
   4. The construction, installation, removal, or modification of any portion or structural component of an existing building or structure to make it more accessible to a disabled person, as specified.

FISCAL EFFECT: According to the Assembly Appropriations Committee, one-time General Fund costs to the Secretary of State in the range of $414,000 to $552,000 for printing and mailing costs to place the measure on the ballot in a statewide election.

COMMENTS:

1. The author has provided the following statement in support of this constitutional amendment:

The reality in California is that we live in constant state of extremes. Historical weather patterns have shown that we go back and forth between times of heavy precipitation followed by times of intense drought. Californians need to expect this and do all we can to conserve water during times of heavy precipitation. Rainwater capture systems are a great way to accomplish this goal of water conservation. Rainwater capture systems collect, store and use rain water for landscape irrigation and other uses. Moreover, everyone benefits from the increased use of rainwater capture systems; when a business or individual employs captured rain water, water from conventional sources is freed for consumption by others. That is why I feel it is necessary to incentivize the proliferation of rainwater capture systems. A property tax exclusion created by this measure would do precisely that and lead to a significant expansion of rainwater capture systems throughout the state, all while contributing to the State's conservation efforts.

1. Supporters of this constitutional amendment state that "SCA 9 represents a common-sense solution to incentivize the capture and retention of rainwater across California. New construction projects should not be hit with a property tax if they enhance the well-being of millions of people. This is true for rainwater capture as much as it was true for seismic retrofits, which made the statewide ballot back in 2008."
2. Revenue and Taxation Committee Staff Comments:
   1. Assessing New Construction under Proposition 13: Much of the law pertaining to property taxation is prescribed by California Constitution Articles XIII and XIII A (commonly known as "Proposition 13"). Proposition 13 was added to the California Constitution in June 1978 and was designed to provide real property tax relief by imposing a set of interlocking limitations upon the assessment and taxing powers of state and local governments.

As a general rule, the maximum amount of any ad valorem tax on real property may not exceed one percent of the property's full cash value, as adjusted for the lesser of inflation or 2% per year. The term "full cash value" is defined as the "county assessor's valuation of real property as shown on the 1975-1976 tax bill" or, thereafter, "the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment." (California Constitution, Article XIII A, Sections 1 and 2.) In other words, the California Constitution requires that real property's base year value be reassessed to its current FMV whenever a "change in ownership" occurs and requires additional assessments to reflect certain construction activities that qualify as "new construction." When substantial additions or alterations occur, the assessor assigns the assessable new construction with its own distinct base year value and the remainder of the property's assessment is unaffected and retains its own base year value.

• 1. What is a "Tax Expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, United States Treasury officials began arguing that these features of the tax law should be referred to as "expenditures" since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each of them (in the form of forgone revenues). This constitutional amendment, if approved by voters, would allow the Legislature create a new tax expenditure program by allowing a new construction exclusion from property tax for rain water capture systems.
  2. Incentive or Reward: Tax expenditures are typically provided as a matter of legislative grace to encourage taxpayers to engage in socially beneficial behavior that may not occur absent a financial incentive. This constitutional amendment attempts to encourage the construction of additional rain water capture systems by excluding their value for property tax purposes. The 1% savings that this constitutional amendment effectively provides is a relatively small amount of the total cost of a rain water capture system and the benefit is only realized when property taxes become due. Although some will take the subsidy into consideration, it is inevitable that some of the benefits will also fall on individuals who would have purchased a rain water capture system irrespective of the subsidy.
  3. Costs, Benefits, and Alternatives: Excluding the construction of rain water capture systems from the assessed value of property may require California to backfill local governments as a result of Proposition 98's minimum finding guarantee for public education. To meet previous levels of education funding, California may have to either raise taxes or shift funds from other existing programs. Ideally, this tax expenditure would increase the number of total rain water capture systems built beyond the total number of systems that the market would produce on its own; even if the tax expenditure works as expected, it is not clear that encouraging these types of rain water capture systems represent the best use of state funds. If the goal is to capture additional rain water, California could instead create or expand existing reservoirs. Doing so may render more water per dollar spent.
  4. Qualifying for the Exclusion: New construction exclusions associated with a property generally end when a subsequent change in ownership occurs and triggers reassessment of the property at its current FMV, meaning the proposed new construction exclusion for rain water capture systems added to a property would cease when the property is sold to a purchaser. The companion legislation, SB 558 (Glazer) of the current legislative session, includes administrative provisions that would allow the initial purchaser of a new building with a rain water capture system to qualify for the exclusion (after the property is sold to the initial purchaser) if specified conditions are met. These provisions are modeled after existing law that allows the solar new construction exclusion to be "passed down" to the initial purchaser of a new building when the owner-builder incorporates a solar system into the building it does not intend to occupy or use. However, as noted in the BOE's analysis of this constitutional amendment, such complex administrative provisions for the solar new construction exclusion are only necessary because the original constitutional amendment authorizing the exclusion did not specifically extend to this "built-for-sale" scenario. A simpler approach to crafting a "built-for-sale" provision may be to explicitly authorize the exclusion for initial purchasers in the constitutional amendment instead having the provision in the companion legislation.

Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098 FN: 0002548

Date of Hearing: January 18, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

SBPCA Bill Id:SCA 9

Author:(Glazer) – As Amended Ver:April 26, 2017

Urgency: State Mandated Local Program: No Reimbursable: No

SUMMARY:

This measure, subject to voter approval, excludes rain water capture systems that are constructed on or after January 1, 2019, from property tax assessment. Specifically, this measure amends the California Constitution to allow the Legislature to exclude rain water capture systems from the definition of "newly constructed."

FISCAL EFFECT:

One-time General Fund costs to the Secretary of State (SOS) in the range of $414,000 to $552,000 for printing and mailing costs to place the measure on the ballot in a statewide election.

COMMENTS:

1. Background. Adopted in June 1978, Proposition 13 was designed to provide property tax relief by limiting the assessment and taxing powers of state and local governments. As a general rule, Proposition 13 limits any tax on real property to 1% of its assessed value, measured as the appraisal value when the home is purchased, constructed, or undergoes a change in ownership. “Construction” includes when substantial additions or alterations occur, and the assessor assigns the assessable new construction with its own distinct base year value and the remainder of the property's assessment is unaffected and retains its own base year value.

Some types of construction are excluded from the definition of construction for property tax assessment purposes. For example, the construction or addition of any active solar energy system or fire sprinkler systems are not considered new construction and are not included in an updated property tax assessment.

1. Purpose. SCA 9 allows a new property tax exclusion in the California Constitution for the construction or addition of rain water capture systems. According to the author, historical weather patterns in California suggest that there will be periods of intense drought and Californians need to do everything it can to conserve water.
2. Related legislation. SB 558 (Glazer) is a companion piece of legislation that implements the property tax exclusion that would be allowed under SCA 9 (Glazer). SB 558 is also being heard by this committee today.

Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081

Date of Hearing: January 16, 2018

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Autumn Burke, Chair

SBPCA Bill Id:SCA 9

Author:(Glazer) – As Amended Ver:April 26, 2017

2/3/vote.

SENATE VOTE: 39-0

SUBJECT: Property tax: new construction exclusion: rain water capture system

SUMMARY: Excludes, subject to voter approval, rain water capture systems that are constructed on or after January 1, 2019, from assessment as new construction. Specifically, this constitutional amendment amends the California Constitution allowing the Legislature to exclude rain water capture systems from the definition of "newly constructed."

EXISTING LAW:

1. Provides that all property is taxable unless explicitly exempted by the California Constitution or federal law. Ad valorem taxes on real property are generally limited to 1% of the full cash value of that property as set forth in the California Constitution, based on the property's assessed value as determined by the county assessor when purchased, newly constructed, or a change in ownership has occurred. The full cash value base may reflect the yearly inflation rate, not to exceed 2% for any given year.
2. Requires the assessor to increase the assessment to reflect the value of "new construction" when substantial additions or alterations occur. New construction is assigned its own distinct base year value, and the remainder of the property's base year value is unaffected.
3. Provides that "newly constructed" does not include real property that is reconstructed after a disaster declared by the Governor if the fair market value (FMV) of the real property, as reconstructed, is comparable to its FMV prior to the disaster, and does not include that portion of an existing structure that consists of the construction or reconstruction of seismic retrofitting components.
4. Allows the Legislature to provide that the term "newly constructed" does not include any of the following:
   1. The construction or addition of any active solar energy system;
   2. The construction or installation of any fire sprinkler system, other fire extinguishing system, fire detection system, or fire-related egress improvement, as specified;
   3. The construction, installation, or modification of any portion or structural component of a single- or multiple-family dwelling to make it more accessible to a severely disabled person, as specified; and,
   4. The construction, installation, removal, or modification of any portion or structural component of an existing building or structure to make it more accessible to a disabled person, as specified.

FISCAL EFFECT: The State Board of Equalization (BOE) states that the revenue impact is unknown, as costs associated with rain water capture systems can vary widely. Assuming cost equates to market value, every $1 million in cost of a rain water capture system equates to $10,000 in local revenue loss.

COMMENTS:

1. The author has provided the following statement in support of this constitutional amendment:

The reality in California is that we live in constant state of extremes. Historical weather patterns have shown that we go back and forth between times of heavy precipitation followed by times of intense drought. Californians need to expect this and do all we can to conserve water during times of heavy precipitation. Rainwater capture systems are a great way to accomplish this goal of water conservation. Rainwater capture systems collect, store and use rain water for landscape irrigation and other uses. Moreover, everyone benefits from the increased use of rainwater capture systems; when a business or individual employs captured rain water, water from conventional sources is freed for consumption by others. That is why I feel it is necessary to incentivize the proliferation of rainwater capture systems. A property tax exclusion created by this measure would do precisely that and lead to a significant expansion of rainwater capture systems throughout the state, all while contributing to the State's conservation efforts.

1. Supporters of this constitutional amendment state that "SCA 9 represents a common-sense solution to incentivize the capture and retention of rainwater across California. New construction projects should not be hit with a property tax if they enhance the well-being of millions of people. This is true for rainwater capture as much as it was true for seismic retrofits, which made the statewide ballot back in 2008."
2. Committee Staff Comments:
   1. Assessing New Construction under Proposition 13: Much of the law pertaining to property taxation is prescribed by Articles XIII and XIII A (commonly known as "Proposition 13") of the California Constitution. Proposition 13 was added to the California Constitution in June 1978 and was designed to provide real property tax relief by imposing a set of interlocking limitations upon the assessment and taxing powers of state and local governments.

As a general rule, the maximum amount of any ad valorem tax on real property may not exceed one percent of the property's full cash value, as adjusted for the lesser of inflation or 2% per year. The term "full cash value" is defined as the "county assessor's valuation of real property as shown on the 1975-1976 tax bill" or, thereafter, "the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment." (California Constitution, Article XIII A, Sections 1 and 2.) In other words, the California Constitution requires that real property's base year value be reassessed to its current FMV whenever a "change in ownership" occurs and requires additional assessments to reflect certain construction activities that qualify as "new construction." When substantial additions or alterations occur, the assessor assigns the assessable new construction with its own distinct base year value and the remainder of the property's assessment is unaffected and retains its own base year value.

• 1. What is a "Tax Expenditures"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, United States Treasury officials began arguing that these features of the tax law should be referred to as "expenditures" since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each of them (in the form of forgone revenues). This constitutional amendment, if approved by voters, would allow the Legislature create a new tax expenditure program by allowing a new construction exclusion from property tax for rain water capture systems.
  2. Incentive or Reward: Tax expenditures are typically provided as a matter of legislative grace to encourage taxpayers to engage in socially beneficial behavior that may not occur absent a financial incentive. This constitutional amendment attempts to encourage the construction of additional rain water capture systems by excluding their value for property tax purposes. The 1% savings that this constitutional amendment effectively provides is a relatively small amount of the total cost of a rain water capture system and the benefit is only realized when property taxes become due. Although some will take the subsidy into consideration, it is inevitable that some of the benefits will also fall on individuals who would have purchased a rain water capture system irrespective of the subsidy.
  3. Costs, Benefits, and Alternatives: Excluding the construction of rain water capture systems from the assessed value of property may require California to backfill local governments as a result of Proposition 98's minimum finding guarantee for public education. To meet previous levels of education funding, California may have to either raise taxes or shift funds from other existing programs. Ideally, this tax expenditure would increase the number of total rain water capture systems built beyond the total number of systems that the market would produce on its own; even if the tax expenditure works as expected, it is not clear that encouraging these types of rain water capture systems represent the best use of state funds. If the goal is to capture additional rain water, California could instead create or expand existing reservoirs. Doing so may render more water per dollar spent.
  4. Qualifying for the Exclusion: New construction exclusions associated with a property generally end when a subsequent change in ownership occurs and triggers reassessment of the property at its current FMV, meaning the proposed new construction exclusion for rain water capture systems added to a property would cease when the property is sold to a purchaser. The companion legislation, SB 558 (Glazer), being heard by this Committee today, includes administrative provisions that would allow the initial purchaser of a new building with a rain water capture system to qualify for the exclusion (after the property is sold to the initial purchaser) if specified conditions are met. These provisions are modeled after existing law that allows the solar new construction exclusion to be "passed down" to the initial purchaser of a new building when the owner-builder incorporates a solar system into the building it does not intend to occupy or use. However, as noted in the BOE's analysis of this constitutional amendment, such complex administrative provisions for the solar new construction exclusion are only necessary because the original constitutional amendment authorizing the exclusion did not specifically extend to this "built-for-sale" scenario. A simpler approach to crafting a "built-for-sale" provision may be to explicitly authorize the exclusion for initial purchasers in the constitutional amendment instead having the provision in the companion legislation.
  5. Related Legislation: SB 558, a companion measure to this constitutional amendment, would add a new construction exclusion for rain water capture systems. Being heard today. SB 558 will be heard by this Committee today.

REGISTERED SUPPORT / OPPOSITION:

Support

City of Santa Monica

Howard Jarvis Taxpayers Association

Trout Unlimited

Opposition

None on file

Analysis Prepared by: Carlos Anguiano - Irene Ho / REV. & TAX. / (916) 319-2098

 THIRD READING  

Bill No: SCA 9

Author:

:

Vote:

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 4/19/17

AYES: McGuire, Nguyen, Beall, Hernandez, Hertzberg, Lara, Moorlach

SENATE ELECTIONS & C.A. COMMITTEE: 4-0, 6/6/17

AYES: Anderson, Allen, Hertzberg, Leyva

NO VOTE RECORDED: Stern

SENATE APPROPRIATIONS COMMITTEE: 7-0, 9/1/17

AYES: Lara, Bates, Beall, Bradford, Hill, Nielsen, Wiener

SUBJECT:

SOURCE: Author

DIGEST:

This constitutional amendment amends the California Constitution to allow a new construction exclusion from reassessment for property tax purposes for taxpayers installing a rainwater capture system.

ANALYSIS:

Existing law:

1. Provides that all property is taxable at the same percentage of fair market value unless explicitly exempted by the Constitution or federal law (California Constitution, Article XIII).
2. Limits the maximum amount of any ad valorem tax on real property at 1% of full cash value, and directs assessors to only reappraise property when newly constructed, or ownership changes (Proposition 13, 1978).
3. Allows the Legislature to exclude from the definition of “new construction” constructing or adding any of the following property improvements:
   1. Any active solar energy system (Proposition 7, 1980).
   2. Any fire sprinkler system, as defined (Proposition 31, 1984).
   3. Any portion or structural component that makes the dwelling more accessible for a disabled or severely disabled person (Proposition 110, 1990 and Proposition 177, 1994).
   4. Seismic retrofit components (Proposition 23, 1984 and Proposition 127, 1990).

This constitutional amendment:

1. Adds to the California Constitution’s list of new construction exclusions the installation of a rainwater capture system, as defined by the Legislature.
2. Applies to systems installed on or after January 1, 2018.

Background

The California Constitution allows the Legislature to exclude from the definition of “new construction” constructing or adding any of the following property improvements:

• 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).
• Seismic retrofit components (Proposition 23, 1984 and Proposition 127, 1990).

SCA 9 amends the California Constitution to enact a new construction exclusion for rainwater capture systems. However, to ensure successful administration, implementation details must be set forth in statute. Currently pending in the Assembly Revenue and Taxation Committee, SB 558 (Glazer) makes the statutory changes necessary to implement SCA 9.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Senate Appropriations Committee, this bill will result in one-time General Fund costs to the Secretary of State in the range of $414,000 to $552,000, likely in 2018-19, for printing and mailing costs to place the measure on the ballot in a statewide election. Actual costs may be higher or lower, depending on the length of required elements and the overall size of the ballot.

SUPPORT: (Verified 9/1/17)

Amigos de los Rios

California Building Industry Association

California Trout

City of Santa Monica

Heal the Bay

Howard Jarvis Taxpayers Association

Kiss The Ground

League of California Cities

Los Angeles Waterkeeper

The River Project

TreePeople

Trout Unlimited

Surfrider Foundation

OPPOSITION: (Verified 9/1/17)

California Tax Reform Association

ARGUMENTS IN SUPPORT: According to the author, “The reality in California is that we live in constant state of extremes. Historical weather patterns have shown that we go back and forth between times of heavy precipitation followed by times of intense drought. Californians need to expect this and do all we can to conserve water during times of heavy precipitation. Rainwater capture systems are a great way to accomplish this goal of water conservation. Rainwater capture systems collect, store and use rain water for landscape irrigation and other uses. Moreover, everyone benefits from the increased use of rainwater capture systems; when a business or individual employs captured rain water, water from conventional sources is freed for consumption by others. That is why I feel it is necessary to incentivize the proliferation of rainwater capture systems. A property tax exclusion created by this measure would do precisely that and lead to a significant expansion of rainwater capture systems throughout the state, all while contributing to the State’s conservation efforts.”

ARGUMENTS IN OPPOSITION: According to the California Tax Reform Association, “if such investments [are] truly beneficial, a loan or grant program is a far better way of getting projects built than an indirect property tax exemption, the case for which is questionable in any case.”

Prepared by:

9/4/17 12:24:09

**** END ****

SENATE COMMITTEE ON

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SCA 9 (Glazer) - Property tax: new construction exclusion: rain water capture system

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

SCA 9 would enact a construction exclusion related to rainwater capture systems.

Fiscal Impact:

This bill would result in one-time General Fund costs to the Secretary of State (SOS) in the range of $414,000 to $552,000, likely in 2018-19, for printing and mailing costs to place the measure on the ballot in a statewide election. Actual costs may be higher or lower, depending on the length of required elements and the overall size of the ballot.

Background:

The California Constitution provides that all property is taxable unless explicitly exempted by either the Constitution or federal law. The Constitution limits the maximum amount of any ad valorem tax on real property at one percent of full cash value. Assessors reappraise property whenever it is purchased, newly constructed, or when ownership changes, as defined.

Under the Constitution, the Legislature is permitted to exclude from the definition of “new construction” constructing or adding any of the following property improvements: (1) any active solar energy system, (2) any fire sprinkler system, as defined, (3) any portion or structural component that makes the dwelling more accessible for a disabled or severely disable person, and (4) seismic retrofit components.

Home rainwater capture systems typically channel rainwater that falls on rooftops through gutters and downspouts that flow into receptacles where the water is stored for later use. Since the water is not potable, it is commonly used to irrigate landscaping, which is often the primary use of water in a typical suburban or rural home. Costs for these systems vary greatly depending on the size of the system and plumbing features that make the captured water easier to utilize.

Proposed Law: SCA 9 would amend the California Constitution to provide a new construction exclusion for the construction or addition of a rain water capture system completed on or after January 1, 2018

Related Legislation:

SB 558 (Glazer), which makes the statutory changes necessary to implement SCA 9, is currently pending in this Committee.

Staff Comments:

SOS indicates that printing and mailing costs associated with placing a measure on the statewide ballot are approximately $69,000 per page, depending on the length of the ballot. The fiscal estimates noted above reflect the addition of 6-8 pages in the Voter Information Guide. Actual costs would depend upon the length of the title and summary, analysis by the Legislative Analyst’s Office, proponent and opponent arguments, and text of the proposal.

-- END --

SENATE COMMITTEE ON

ELECTIONS AND CONSTITUTIONAL AMENDMENTS

Senator Henry Stern, Chair

2017 - 2018 Regular

Bill No: 9 Hearing Date: 6/6/17

Subject:

DIGEST

This measure would enact a new construction exclusion for the construction or installation of rainwater capture systems.

ANALYSIS

Existing law:

1. Generally limits, pursuant to the California Constitution, ad valorem taxes on real property to 1% of the full cash value of that property.
   
2. Provides, for purposes of this limitation, that “full cash value” is defined as the assessor’s valuation of real property as shown on the 1975–76 tax bill under “full cash value” or, thereafter, the appraised value of that real property when purchased, newly constructed, or a change in ownership has occurred.
   
3. Authorizes, pursuant to the California Constitution, the Legislature to exclude from the definition of “new construction” constructing or adding any of the following property improvements:
4. Any active solar energy system (Proposition 7, 1980).
   
5. Any fire sprinkler system, as defined (Proposition 31, 1984).
   
6. 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).
   
7. Seismic retrofit components (Proposition 23, 1984 and Proposition 127, 1990).
   

This measure:

1. Authorizes the Legislature to exclude from classification as “newly constructed” the construction or addition of a rain water capture system completed on or after January 1, 2019.

BACKGROUND

What is a Rain Water Capture System? Home rainwater capture systems typically channel rainwater that falls on rooftops through gutters and downspouts that flow into receptacles where the water is stored for later use. Since the water is not potable, it is commonly used to irrigate landscaping which can often constitute the largest use of water in a typical suburban or rural home. Costs for these systems vary greatly depending on the size of the system and plumbing features that make the captured water easier to utilize.

COMMENTS

1. According to the author: The reality in California is that we live in constant state of extremes. Historical weather patterns have shown that we go back and forth between times of heavy precipitation followed by times of intense drought. Californians need to expect this and do all we can to conserve water during times of heavy precipitation.
   
   Rainwater capture systems are a great way to accomplish this goal of water conservation. Rainwater capture systems collect, store and use rain water for landscape irrigation and other uses. Moreover, everyone benefits from the increased use of rainwater capture systems; when a business or individual employs captured rain water, water from conventional sources is freed for consumption by others. That is why I feel it is necessary to incentivize the proliferation of rainwater capture systems. A property tax exclusion created by this measure would do precisely that and lead to a significant expansion of rainwater capture systems throughout the state, all while contributing to the State’s conservation efforts.
2. According to the Board of Equalization, SCA 9 has an unknown revenue impact, but states that for every $1 million in rainwater capture system installed equates to $10,000 in local revenue loss.
   
3. Opposition Argument. In a letter of opposition, the California Tax Reform Association states, in part: “...if such investments [are] truly beneficial, a loan or grant program is a far better way of getting projects built than an indirect property tax exemption, the for which is questionable in any case.”

RELATED/PRIOR LEGISLATION

SB 558 (Glazer), which makes the statutory changes necessary to implement SCA 9, is currently pending in the Senate Appropriations Committee.

PRIOR ACTION

POSITIONS

Sponsor: Author

Support: Amigos de los Rios

Daniel M. Kammen, Co-Director, Oakland EcoBlock Project

Howard Jarvis Taxpayers Association

Kiss the Ground

League of California Cities

Los Angeles Waterkeeper

Surfrider Foundation

The River Project

TreePeople

Oppose: California Tax Reform Association

-- END --

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2017 - 2018 Regular

Property tax: new construction exclusion: rain water capture system

Enacts a new construction exclusion for the construction or installation of rainwater capture systems.

Background

Article XIII of the California 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, terms defined in statute

The Constitution allows the Legislature to exclude from the definition of “new construction” constructing or adding any of the following property improvements:

• 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).
• Seismic retrofit components (Proposition 23, 1984 and Proposition 127, 1990).

Seeking a tax incentive to enhance the state’s water conservation goals, the author wants to enact a new construction exclusion from reassessment for property tax purposes for the construction or addition of a rain water capture system.

Proposed Law

Senate Constitutional Amendment 9 amends the California Constitution to provide a new construction exclusion for the construction or addition of a rain water capture system completed on or after January 1, 2018.

State Revenue Impact

According to BOE, SCA 9 has an unknown revenue impact, but states that for every $1 million in rainwater capture system installed equates to $10,000 in local revenue loss.

Comments

1. Purpose of the bill. According to the author, “The reality in California is that we live in constant state of extremes. Historical weather patterns have shown that we go back and forth between times of heavy precipitation followed by times of intense drought. Californians need to expect this and do all we can to conserve water during times of heavy precipitation. Rainwater capture systems are a great way to accomplish this goal of water conservation. Rainwater capture systems collect, store and use rain water for landscape irrigation and other uses. Moreover, everyone benefits from the increased use of rainwater capture systems; when a business or individual employs captured rain water, water from conventional sources is freed for consumption by others. That is why I feel it is necessary to incentivize the proliferation of rainwater capture systems. A property tax exclusion created by this measure would do precisely that and lead to a significant expansion of rainwater capture systems throughout the state, all while contributing to the State’s conservation efforts.”

2. Tax expenditures. California law allows various income property tax exclusions, tax credits, deductions, and sales and use tax exemptions for taxpayers that incur certain expenses, such as child adoption, or to influence behavior, including business practices and decisions. The Legislature typically enacts such tax incentives to encourage taxpayers to do something that but for the tax incentive, they would otherwise not do. The Department of Finance is required to annually publish a list of tax expenditures, currently totaling around $57 billion in 2016-17. SCA 9 would exclude rain water capture systems from value for property tax purposes. As such, local agencies and the state as a result of Proposition 98’s minimum funding guarantee for public education will have to either reduce spending or increase taxes to match the amount of revenue foregone as a result of the measure.

3. Costs and benefits. Tax benefits directed at specific industries or items, such as rain water capture, do two things: First, they reward behavior that would have occurred without the subsidy, providing a windfall benefit for taxpayers who would’ve purchased the system without the bill’s expanded benefit. In these instances, the state receives no marginal benefit, and transfers wealth from purposes it would otherwise spend money on for government purposes to the taxpayer. Second, the bill may lead to more purchases of rainwater capture systems in California that wouldn’t have occurred without the exemption, increasing the public benefits of water conservation, and reducing demand on other sources of water. Successful tax expenditures’ benefits exceed its losses, but no tax credit has yet conclusively demonstrated that its aggregate gains exceed its fiscal losses. The Committee may wish to consider SCA 9’s impact on taxpayer decision-making.

4. Lead and follow. SCA 9 amends the California Constitution to enact a new construction exclusion for rainwater capture systems. However, to ensure successful administration, implementation details must be set forth in statute. The Committee will also hear SB 558 (Glazer) at its April 19^th hearing, which makes the statutory changes necessary to implement SCA 9.

Support and Opposition

(4/15/17)

Support: California Building Industry Association, City of Santa Monica.

Opposition: Unknown.

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