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. Existing law defines newly constructed and new construction to mean any addition to real property since the last lien date and any alteration of land or of any improvement since the last lien date that constitutes a major rehabilitation thereof or that converts the property to a different use. Existing law, where real property has been damaged or destroyed by misfortune or calamity, excludes from the definition of newly constructed and new construction any timely reconstruction of the real property, or portion thereof, where the property after reconstruction is substantially equivalent to the property prior to damage or destruction. Existing law, pursuant to the authorization of the California Constitution, authorizes the transfer of the base year value of property that is substantially damaged or destroyed by a disaster, as declared by the Governor, to comparable replacement property within the same county that is acquired or newly constructed within 5 years after the disaster, as provided.

Existing law authorizes the owner of property substantially damaged or destroyed by a disaster, as declared by the Governor, to apply the base year value of that property to replacement property reconstructed on the same site of the damaged or destroyed property within 5 years after the disaster if the reconstructed property is comparable to the substantially damaged or destroyed property, determined as provided.

This bill would extend the 5-year time period described above by 3 years if the property was substantially damaged or destroyed by the 2018 Woolsey Fire or by the 2018 Camp Fire on or after November 1, 2018, but on or before November 30, 2018. The bill would make these provisions applicable to the determination of base year values for the 201819 fiscal year and fiscal years thereafter. By imposing additional duties on local tax officials, the bill would create a state-mandated local program.

This bill would make legislative findings and declarations as to the public purpose served by these provisions.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law requires the state to reimburse local agencies annually for certain property tax revenues lost as a result of any exemption or classification of property for purposes of ad valorem property taxation.

This bill would provide that, notwithstanding those provisions, no appropriation is made and the state shall not reimburse local agencies for property tax revenues lost by them pursuant to the bill.

This bill would declare that it is to take effect immediately as an urgency statute.

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. Existing law defines newly constructed and new construction to mean any addition to real property since the last lien date and any alteration of land or of any improvement since the last lien date that constitutes a major rehabilitation thereof or that converts the property to a different use. Existing law, where real property has been damaged or destroyed by misfortune or calamity, excludes from the definition of newly constructed and new construction any timely reconstruction of the real property, or portion thereof, where the property after reconstruction is substantially equivalent to the property prior to damage or destruction. Existing law, pursuant to the authorization of the California Constitution, authorizes the transfer of the base year value of property that is substantially damaged or destroyed by a disaster, as declared by the Governor, to comparable replacement property within the same county that is acquired or newly constructed within 5 years after the disaster, as provided.

Existing law authorizes the owner of property substantially damaged or destroyed by a disaster, as declared by the Governor, to apply the base year value of that property to replacement property reconstructed on the same site of the damaged or destroyed property within 5 years after the disaster if the reconstructed property is comparable to the substantially damaged or destroyed property, determined as provided.

This bill would extend the 5-year time period described above by 3 years if the property was substantially damaged or destroyed by the 2018 Woolsey Fire or by the 2018 Camp Fire on or after November 1, 2018, but on or before November 30, 2018. The bill would make these provisions applicable to the determination of base year values for the 201819 fiscal year and fiscal years thereafter. By imposing additional duties on local tax officials, the bill would create a state-mandated local program.

This bill would make legislative findings and declarations as to the public purpose served by these provisions.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law requires the state to reimburse local agencies annually for certain property tax revenues lost as a result of any exemption or classification of property for purposes of ad valorem property taxation.

This bill would provide that, notwithstanding those provisions, no appropriation is made and the state shall not reimburse local agencies for property tax revenues lost by them pursuant to the bill.

This bill would declare that it is to take effect immediately as an urgency statute.

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. Existing law defines newly constructed and new construction to mean any addition to real property since the last lien date and any alteration of land or of any improvement since the last lien date that constitutes a major rehabilitation thereof or that converts the property to a different use. Existing law, where real property has been damaged or destroyed by misfortune or calamity, excludes from the definition of newly constructed and new construction any timely reconstruction of the real property, or portion thereof, where the property after reconstruction is substantially equivalent to the property prior to damage or destruction. Existing law, pursuant to the authorization of the California Constitution, authorizes the transfer of the base year value of property that is substantially damaged or destroyed by a disaster, as declared by the Governor, to comparable replacement property within the same county that is acquired or newly constructed within 5 years after the disaster, as provided.

Existing law authorizes the owner of property substantially damaged or destroyed by a disaster, as declared by the Governor, to apply the base year value of that property to replacement property reconstructed on the same site of the damaged or destroyed property within 5 years after the disaster if the reconstructed property is comparable to the substantially damaged or destroyed property, determined as provided.

This bill would extend the 5-year time period described above by 3 years if the property was substantially damaged or destroyed by the 2018 Woolsey Fire or by the 2018 Camp Fire on or after November 1, 2018, but on or before November 30, 2018. The bill would make these provisions applicable to the determination of base year values for the 201819 fiscal year and fiscal years thereafter. By imposing additional duties on local tax officials, the bill would create a state-mandated local program.

This bill would make legislative findings and declarations as to the public purpose served by these provisions.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law requires the state to reimburse local agencies annually for certain property tax revenues lost as a result of any exemption or classification of property for purposes of ad valorem property taxation.

This bill would provide that, notwithstanding those provisions, no appropriation is made and the state shall not reimburse local agencies for property tax revenues lost by them pursuant to the bill.

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. Existing law defines newly constructed and new construction to mean any addition to real property since the last lien date and any alteration of land or of any improvement since the last lien date that constitutes a major rehabilitation thereof or that converts the property to a different use. Existing law, where real property has been damaged or destroyed by misfortune or calamity, excludes from the definition of newly constructed and new construction any timely reconstruction of the real property, or portion thereof, where the property after reconstruction is substantially equivalent to the property prior to damage or destruction. Existing law, pursuant to the authorization of the California Constitution, authorizes the transfer of the base year value of property that is substantially damaged or destroyed by a disaster, as declared by the Governor, to comparable replacement property within the same county that is acquired or newly constructed within 5 years after the disaster, as provided.

Existing law authorizes the owner of property substantially damaged or destroyed by a disaster, as declared by the Governor, to apply the base year value of that property to replacement property reconstructed on the same site of the damaged or destroyed property within 5 years after the disaster if the reconstructed property is comparable to the substantially damaged or destroyed property, determined as provided.

This bill would extend the 5-year time period described above by 3 years if the property was substantially damaged or destroyed by the 2018 Woolsey Fire or by the 2018 Camp Fire on or after November 1, 2018, but on or before November 30, 2018. The bill would make these provisions applicable to the determination of base year values for the 201819 fiscal year and fiscal years thereafter. By imposing additional duties on local tax officials, the bill would create a state-mandated local program.

This bill would make legislative findings and declarations as to the public purpose served by these provisions.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law requires the state to reimburse local agencies annually for certain property tax revenues lost as a result of any exemption or classification of property for purposes of ad valorem property taxation.

This bill would provide that, notwithstanding those provisions, no appropriation is made and the state shall not reimburse local agencies for property tax revenues lost by them pursuant to the bill.

Existing property tax law provides, pursuant to a requirement of the California Constitution, that the property tax base year value of real property that is substantially damaged or destroyed by a disaster, as declared by the Governor, may be transferred to a comparable property located within the same county that is acquired or newly constructed within a prescribed time after the disaster as a replacement property.

This bill would state the intent of the Legislature to enact legislation relating to the taxation of real property that is substantially damaged or destroyed by a disaster.

 THIRD READING  

Bill No: AB 1500

Author: Irwin (D), et al.

Amended: 4/26/23 in Assembly

Vote: 27 - Urgency

SENATE GOVERNANCE & FIN. COMMITTEE: 8-0, 6/28/23

AYES: Caballero, Seyarto, Blakespear, Dahle, Durazo, Glazer, Skinner, Wiener

SENATE APPROPRIATIONS COMMITTEE: 7-0, 9/1/23

AYES: Portantino, Jones, Ashby, Bradford, Seyarto, Wahab, Wiener

ASSEMBLY FLOOR: 79-0, 6/1/23 - See last page for vote

SUBJECT: Property taxation: application of base year value: disaster relief

SOURCE: Author

DIGEST:

This bill extends by three years the deadline for a taxpayer to maintain their previous base year value under specified circumstances when reconstructing if the property was substantially damaged or destroyed on or after November 1, 2018, but on or before November 30, 2018.

ANALYSIS:

Existing law:

1. Provides that all property is taxable 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 set assessed values at 1975 market value levels and only reappraise property thereafter if there is new construction or a change in ownership (California Constitution, Article XIIIA, as added by Proposition 13, 1978).
3. Sets, generally, a property’s value as its sales price when the taxpayer purchases it, or when there is no sales price, at its fair market value, which becomes its “base year value.”
4. Allows taxpayers to continue to pay property taxes at the factored base year value of their previous home (or other property types where the law allows) and not on the value of their newly purchased or constructed replacement home in specified circumstances, including:
   1. When their property is damaged by a major misfortune or calamity and located in an area the Governor declared to be in a state of disaster (Proposition 50, 1986).
   2. To other counties when their property is damaged by a major misfortune or calamity and located in an area declared to be in a state of disaster by the Governor when the county enacts an ordinance allowing the transfer (Proposition 171, 1993).
5. Implements Proposition 50 to allow base year value transfers when:
   1. The damaged property sustains physical damages amounting to more than 50% of its full cash value immediately prior to the disaster;
   2. The replacement property is located in the same county as the damaged property and is acquired or newly constructed within five years after the disaster;
   3. The replacement property is comparable to the damaged property in size, utility, and function. For example, a residential property can be replacement property for a damaged residence, but not for a commercial, agricultural, or industrial property;
   4. The market value of the replacement property does not exceed 120% of the fair market value of the replaced property in its pre-damaged condition. Property owners can still receive the disaster relief in cases where the value of the replacement property exceeds the 120% limitation, but any amount over this threshold is assessed at full market value and added to the transferred base year value; and,
   5. The buyer of the replacement property was the owner of the damaged property at the time of damage.
6. Directs assessors not to revalue a structure that is larger in size if its value is within 120% of the value of the damaged or destroyed structure for any timely reconstruction of property damaged or destroyed by a misfortune or calamity (AB 2013, Irwin, Chapter 124, Statutes of 2020). Specifically, AB 2013:
   1. Provides that the assessor can only assess to fair market value that portion of value that exceeds 120% of its pre-disaster value.
   2. Applies only when taxpayers complete reconstruction within five years of the disaster.

This bill:

1. Extends the five-year deadline in AB 2013 by three years if the qualified property was substantially damaged or destroyed on or after November 1, 2018, but on or before November 30, 2018.
2. Limits its provisions to property that was substantially damaged or destroyed by the 2018 Camp Fire or Woolsey Fire disaster, as proclaimed by the Governor.
3. Applies its provisions to the determination of base year values for the 2018–19 fiscal year and fiscal years thereafter.
4. Makes a legislative finding and declaration stating its provisions do not constitute a gift of public funds.
5. Contains an urgency clause.

Background

AB 2013. Prior to 2020, any timely reconstruction of property damaged or destroyed by a misfortune or calamity, was not reassessed so long as the reconstruction is “substantially equivalent” to the property prior to damage or destruction. Assessors then valued any property that was not “substantially equivalent,” at fair market value. As a result, taxpayers who have endured disasters and subsequently reconstructed property can often have some portions of their properties with different base year values, depending on whether the property was destroyed, the damaged property’s loss in value, and the degree of any reconstruction. Taxpayers can even have different base year values for the same building, because the assessor will only assess to fair market value the portion of the building that is not substantially equivalent. For example, a taxpayer owns a 1,200 square foot home which is destroyed in a wildfire. If they replace the home with a 3,500 square foot one, the assessor values the additional square footage to fair market value, and adds that value to the previous base year value for the 1,200 square foot home. AB 2013 (Irwin) ensured consistency between the standards that apply to owners who rebuild onsite using the new construction exclusion, who currently must meet the “substantial equivalence” requirement, and the more specific and flexible requirements that apply to owners who transfer their base year values to a newly purchased or constructed offsite property under Proposition 50.

The Camp Fire. The Camp Fire started on Thursday, November 8, 2018, in Northern California's Butte County. Ignited by a faulty electric transmission line, an east wind drove the fire downhill through developed areas where it spread rapidly with high intensity through the rural community of Concow, culminating in an urban firestorm in the foothill Town of Paradise. The fire caused at least 85 fatalities, and injured 12 civilians and 5 firefighters. It covered an area of 153,336 acres, and destroyed more than 18,000 structures, with most of the destruction occurring within the first four hours. Paradise and Concow were almost completely destroyed, each losing about 95% of their structures.

The Woolsey Fire. The destructive Woolsey Fire started on Nov. 8, 2018, near the Santa Susana Field Laboratory above Simi Valley, near the boundary between Los Angeles and Ventura counties. Santa Ana winds pushed the fire in a southerly direction the first day. It then crossed the 101 Freeway between the San Fernando Valley and the Conejo Valley and headed into the Santa Monica Mountains. The fire burned 96,949 acres of land, destroyed 1,643 structures, killed three Californians, and prompted the evacuation of more than 295,000 people

Related/Prior Legislation

AB 556 (Gallagher, 2023) extends the Proposition 50 deadline by three years for taxpayers affected by the Camp Fire to transfer base year values to replacement property.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Senate Appropriations Committee:

• The Board of Equalization (BOE) estimates that this bill would result in a maximum annual property tax revenue loss of $30 million. BOE notes that this figure is an upper bound, reflecting the scenario that every impacted property owner (1) elects to rebuild property damaged or destroyed by the fires, and (2) needs the full three years allowed under the bill.
• Reductions in local property tax revenues, in turn, increase General Fund Proposition 98 spending by up to roughly 50 percent (the exact amount depends on the specific amount of the annual Proposition 98 guarantee, which in turns depends upon a variety of economic, demographic and budgetary factors).
• BOE would incur minor and absorbable costs to implement the provisions of the bill, including providing guidance to assessors, updating informational materials, and conducting legal reviews.
• By requiring the Butte, Los Angeles, and Ventura County assessors to process additional base-year value transfers, this bill creates a state-mandated local program. To the extent the Commission on State Mandates determines that the provisions of this bill create a new program or impose a higher level of service on local agencies, the impacted counties could claim reimbursement of those costs (General Fund). The magnitude is unknown

SUPPORT: (Verified 9/2/23)

California Association of Realtors
California Builders Alliance
California Professional Firefighters
City of Malibu

County of Butte
Howard Jarvis Taxpayers Association
Sacramento Builders Exchange
Town of Paradise

OPPOSITION: (Verified 9/2/23)

None received

ARGUMENTS IN SUPPORT: According to the author, “Rebuilding after a wildfire is a difficult task. Residents must not only deal with the trauma of losing their home and possessions, but often long negotiations with insurance companies and contractors, and navigating the complex permitting requirements of local governments. The victims of the Woolsey and Camp Fires in 2018 have worked diligently to rebuild their lives, but various obstacles outside of their control have left hundreds of properties yet to be rebuilt. AB 1500 appropriately gives these fire victims an additional 3 years to rebuild and retain their base year property tax values from before the fires.”

ASSEMBLY FLOOR: 79-0, 6/1/23

AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Chen, Connolly, Megan Dahle, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Friedman, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, Mathis, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Rendon

NO VOTE RECORDED: Gabriel

Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119

9/4/23 10:27:43

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

AB 1500 (Irwin) - Property taxation: application of base year value: disaster relief

Bill Summary:

AB 1500 would allow property owners an additional three years to reconstruct improvements on property substantially damaged or destroyed by the 2018 Woolsey Fire and the 2018 Camp Fire.

Fiscal Impact:

• The Board of Equalization (BOE) estimates that this bill would result in a maximum annual property tax revenue loss of $30 million. BOE notes that this figure is an upper bound, reflecting the scenario that every impacted property owner (1) elects to rebuild property damaged or destroyed by the fires, and (2) needs the full three years allowed under the bill.

Reductions in local property tax revenues, in turn, increase General Fund Proposition 98 spending by up to roughly 50 percent (the exact amount depends on the specific amount of the annual Proposition 98 guarantee, which in turns depends upon a variety of economic, demographic and budgetary factors).

• BOE would incur minor and absorbable costs to implement the provisions of the bill, including providing guidance to assessors, updating informational materials, and conducting legal reviews.
• By requiring the Butte, Los Angeles, and Ventura County assessors to process additional base-year value transfers, this bill creates a state-mandated local program. To the extent the Commission on State Mandates determines that the provisions of this bill create a new program or impose a higher level of service on local agencies, the impacted counties could claim reimbursement of those costs (General Fund). The magnitude is unknown.

Background:

Under the California Constitution, all property is taxable unless explicitly exempted by either itself or by federal law. The Constitution limits the maximum amount of any ad valorem tax on real property at one percent of full cash value, plus any locally-authorized bonded indebtedness. County assessors reappraise property whenever it is purchased, newly constructed, or when its ownership changes.

Current law generally sets a property’s value as (1) its sales price when purchased or, (2) when there is no sales price, at its fair market value when ownership changes; this amount is referred to as “base-year value”. In subsequent years, current law requires an annual inflation adjustment to that value that cannot exceed 2 percent (referred to as “factored base-year value”).

Base-year value transfers permit a taxpayer to continue to pay property taxes at the factored base-year value of their previous home and not on the value of their newly purchased or constructed home, often resulting in less tax owed. For example, as described by the Senate Committee on Governance and Finance, a taxpayer who purchased a residence for $100,000 in 1975 currently has a base-year value under that cannot exceed $259,000 under the 2 percent cap in annual inflationary growth, regardless of its market value. If that taxpayer sold the residence for $500,000 and purchased a new one for the same amount, a base-year value transfer allows them to continue to pay property taxes based on the $259,000 value, not $500,000, which at the 1 percent property tax rate results in $2,410 in annual tax savings ($500,000 - $259,000 = $241,000 x 1% = $2,410).

In June 1986, voters enacted Proposition 50 to allow a taxpayer to transfer their base-year value when their property is damaged by a major misfortune or calamity and located in an area the Governor declared to be in a state of disaster. Subsequent implementing legislation allows the transfer when (1) the damaged property sustains physical damages amounting to more than 50 percent of current market value immediately prior to the disaster, (2) the replacement property is located in the same county as the damaged property and is acquired or newly constructed within five years after the disaster, (3) the replacement property is comparable to the damaged property in size, utility, and function, (4) the market value of the replacement property does not exceed 120 percent of the fair market value of the replaced property in its pre-damaged condition, and (5) the buyer of the replacement property was the owner of the damaged property at the time of damage.

Prior to 2020, any timely reconstruction of property damaged or destroyed by a misfortune or calamity was not reassessed if the reconstruction is “substantially equivalent” to the property prior to damage or destruction. Assessors then valued any property that was not “substantially equivalent,” at fair market value. Consequently, taxpayers who have endured disasters and subsequently reconstructed property can often have some portions of their properties with different base-year values.

In 2020, the Legislature enacted AB 2013 (Irwin), which ensured consistency between the standards that apply to owners who rebuild onsite using the new construction exclusion, who currently must meet the “substantial equivalence” requirement, and the more specific and flexible requirements that apply to owners who transfer their base-year values to a newly purchased or constructed offsite property under Proposition 50. Under AB 2013, assessors would not revalue a structure that is larger in size if its value is within 120 percent of the value of the damaged or destroyed structure. Additionally, the assessor only assesses to fair market value that portion of value that exceeds 120 percent of its pre-disaster value. This treatment applied only when taxpayers complete reconstruction within five years of the disaster.

Proposed Law:

This bill would, among other things, do the following:

• Extend the five-year deadline in AB 2013 by three years if the qualified property was substantially damaged or destroyed on or after November 1, 2018, but on or before November 30, 2018.
• Limit its provisions to property that was substantially damaged or destroyed by the 2018 Camp Fire or Woolsey Fire disaster, as proclaimed by the Governor.
• Be applicable to the determination of base-year values for 2018–19 and fiscal years thereafter.

Related Legislation:

• AB 556 (Gallagher) would extend, by an additional three years, the time period during which the property tax base year value of a property substantially damaged by the 2018 Camp Fire may be transferred to a comparable replacement property. The bill is currently pending in this Committee.
• SB 303 (Borgeas, Chapter 540, Statutes of 2021) extended by two years the time period during which the base year value of a property substantially damaged or destroyed by a Governor-proclaimed disaster may be transferred to a comparable replacement property, if the last day for the transfer or the damage to the property occurred between March 4, 2020, and the “COVID-19 emergency termination date” or March 4, 2022, whichever occurred sooner.

Staff Comments: Available data indicate that 14,000 homes were destroyed in the Camp Fire (Butte County). Additionally, an estimated 1,000 homes were destroyed in the Woolsey Fire, near the border of Los Angeles County and Ventura County. BOE’s revenue estimate reflects the difference between (1) county median home price, and (2) the average assessed value of a home receiving each county’s homeowners’ property tax exemption. BOE staff then applied the 1 percent basic tax rate to the difference.

As noted earlier, the BOE revenue estimate assumes that all 15,000 impacted homeowners (across the two fires) would seek the additional full three years allowed under the bill. Consequently, the Board’s estimate of the revenue loss can be considered an upper bound. BOE notes that the requisite data series needed to further refine its revenue estimate are not available.

Finally, if AB 556 were enacted, the revenue loss resulting from this bill would likely be lower, as some property owners could choose to buy replacement property instead of rebuilding improvements on their existing property.

-- END --

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Anna M. Caballero, Chair

2023 - 2024 Regular

Property taxation: application of base year value: disaster relief

Extends by three years the deadline for a taxpayer to maintain their previous base year value under specified circumstances when reconstructing if the property was substantially damaged or destroyed on or after November 1, 2018, but on or before November 30, 2018.

Background

Article XIII of the California Constitution provides that all property is taxable unless explicitly exempted by the Constitution or federal law. Article XIIIA of the Constitution limits the maximum amount of any ad valorem tax on real property at 1% of full cash value, and directs assessors to set assessed values at 1975 market value levels and only reappraise property thereafter if there is new construction or a change in ownership (Proposition 13, 1978).

Base year value transfers. State law implementing Proposition 13 generally sets a property’s value as its sales price when purchased or, when there is no sales price, at its fair market value when ownership changes (base year value). Thereafter, the law requires an annual inflation adjustment to that value that cannot exceed 2% (factored base year value).

Base year value transfers allow a taxpayer to continue to pay property taxes at the factored base year value of their previous home (or other property types where the law allows) and not on the value of their newly purchased or constructed home, often resulting in tax savings. For example, a taxpayer who purchased their residence for $100,000 in 1975 now has a base year value under Proposition 13 that cannot exceed $259,000 under the 2% cap in annual inflationary growth, regardless of its market value. If that taxpayer sold their residence for $500,000 and purchased a new one for the same amount, a base year value transfer allows them to continue to pay property taxes based on the $259,000 value, not $500,000, which at the 1% rate results in $2,410 in annual tax savings ($500,000 - $259,000 = $241,000 x 1% = $2,410).

In June 1986, voters enacted Proposition 50 to allow a taxpayer to transfer their base year value when their property is damaged by a major misfortune or calamity and located in an area the Governor declared to be in a state of disaster. Revenue and Taxation Code (RTC) §69 implements Proposition 50 to allow the transfer when:

• The damaged property sustains physical damages amounting to more than 50% of current market value immediately prior to the disaster;
• The replacement property is located in the same county as the damaged property and is acquired or newly constructed within five years after the disaster;
• The replacement property is comparable to the damaged property in size, utility, and function. For example, a residential property can be replacement property for a damaged residence, but not for a commercial, agricultural, or industrial property;
• The market value of the replacement property does not exceed 120% of the fair market value of the replaced property in its pre-damaged condition. Property owners can still receive the disaster relief in cases where the value of the replacement property exceeds the 120% limitation, but any amount over this threshold is assessed at full market value and added to the transferred base year value; and,
• The buyer of the replacement property was the owner of the damaged property at the time of damage.

AB 2013 (Irwin, 2020). Prior to 2020, any timely reconstruction of property damaged or destroyed by a misfortune or calamity, was not reassessed so long as the reconstruction is “substantially equivalent” to the property prior to damage or destruction. Assessors then valued any property that was not “substantially equivalent,” at fair market value. As a result, taxpayers who have endured disasters and subsequently reconstructed property can often have some portions of their properties with different base year values, depending on whether the property was destroyed, the damaged property’s loss in value, and the degree of any reconstruction. Taxpayers can even have different base year values for the same building, because the assessor will only assess to fair market value the portion of the building that is not substantially equivalent. For example, a taxpayer owns a 1,200 square foot home which is destroyed in a wildfire. If they replace the home with a 3,500 square foot one, the assessor values the additional square footage to fair market value, and adds that value to the previous base year value for the 1,200 square foot home.

In 2020, the Legislature enacted AB 2013 (Irwin), which ensured consistency between the standards that apply to owners who rebuild onsite using the new construction exclusion, who currently must meet the “substantial equivalence” requirement, and the more specific and flexible requirements that apply to owners who transfer their base year values to a newly purchased or constructed offsite property under Proposition 50. Under AB 2013, assessors would not revalue a structure that is larger in size if its value is within 120% of the value of the damaged or destroyed structure. Additionally, the assessor will only assess to fair market value that portion of value that exceeds 120% of its pre-disaster value. This treatment applied only when taxpayers complete reconstruction within five years of the disaster, which can be difficult if there are permit and other delays.

The Camp Fire. The Camp Fire started on Thursday, November 8, 2018, in Northern California's Butte County. Ignited by a faulty electric transmission line, an east wind drove the fire downhill through developed areas where it spread rapidly with high intensity through the rural community of Concow, culminating in an urban firestorm in the foothill Town of Paradise. The fire caused at least 85 fatalities, and injured 12 civilians and 5 firefighters. It covered an area of 153,336 acres, and destroyed more than 18,000 structures, with most of the destruction occurring within the first four hours. Paradise and Concow were almost completely destroyed, each losing about 95% of their structures.

The Woolsey Fire. The destructive Woolsey Fire started on Nov. 8, 2018, near the Santa Susana Field Laboratory above Simi Valley, near the boundary between Los Angeles and Ventura counties. Santa Ana winds pushed the fire in a southerly direction the first day. It then crossed the 101 Freeway between the San Fernando Valley and the Conejo Valley and headed into the Santa Monica Mountains. The fire burned 96,949 acres of land, destroyed 1,643 structures, killed three Californians, and prompted the evacuation of more than 295,000 people.

The five-year deadline for taxpayers affected by the Camp and Woolsey Fires who reconstruct their properties and apply AB 2013 will occur in November, 2023. The author wants to extend it for another three years to allow taxpayers who have not completed construction to apply its benefits.

Proposed Law

Assembly Bill 1500 extends the five-year deadline in AB 2013 by three years if the qualified property was substantially damaged or destroyed on or after November 1, 2018, but on or before November 30, 2018. The measure limits its provisions to property that was substantially damaged or destroyed by the 2018 Camp Fire or Woolsey Fire disaster, as proclaimed by the Governor. The bill applies its provisions to the determination of base year values for the 2018–19 fiscal year and fiscal years thereafter.

AB 1500 also makes a legislative finding and declaration stating its provisions do not constitute a gift of public funds, and contains an urgency clause

State Revenue Impact

According to the Board of Equalization (BOE), AB 1500 would reduce annual property tax revenues by an estimated $7.7 million to $11.5 million.

Comments

1. Purpose of the bill. According to the author, “Rebuilding after a wildfire is a difficult task. Residents must not only deal with the trauma of losing their home and possessions, but often long negotiations with insurance companies and contractors, and navigating the complex permitting requirements of local governments. The victims of the Woolsey and Camp Fires in 2018 have worked diligently to rebuild their lives, but various obstacles outside of their control have left hundreds of properties yet to be rebuilt. AB 1500 appropriately gives these fire victims an additional 3 years to rebuild and retain their base year property tax values from before the fires.”

2. Revenue loss. AB 1500 extends the ability of taxpayers whose property was damaged or destroyed to transfer their base year values to replacement properties, which would likely reduce valuations for property tax purposes. As a result, the state, Butte, Ventura, and Los Angeles counties, as well as cities or special districts in those counties will have to reduce spending or increase taxes to compensate for any foregone revenue resulting from the measure.

3. Related legislation. On June 21^st, the Committee unanimously approved AB 556 (Gallagher), which extends the Proposition 50 deadline by three years for taxpayers affected by the Camp Fire to transfer base year values to replacement property.

4. Proposition 19. In 2020, the Legislature placed on the ballot, and voters approved as Proposition 19, the Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act (ACA 11, Mullin). The Act created a new section of the California Constitution to allow base year value transfers for disabled taxpayers and those over the age of 55, as well as a victim of a wildfire or other natural disaster. Proposition 19 allowed taxpayers to transfer base year values to properties of greater value and across county lines regardless of whether the accepting county enacted an ordinance, so long as the replacement property is purchased or constructed within two years of the date the original property is sold, or damaged or destroyed by a disaster. However, Proposition 19 only gives disaster victims two years to purchase or construct a replacement residence, whereas current law allows taxpayers five years. While initial disagreement existed regarding whether Proposition 19 also “impliedly” repealed other base year value transfer laws, including AB 2013, the Legislature clarified as part of an omnibus Proposition 19 implementation measure (SB 539, Hertzberg, 2021) that Proposition 19 did not repeal other statutes allowing taxpayers to transfer base year values as a result of a natural disaster.

5. Gift of public funds. Section Six of Article XVI of the California Constitution prohibits the Legislature from making a gift of public funds, but by applying its provisions retroactively to the 2018-19 fiscal year, AB 1500 could be construed to constitute a gift of public funds. The bill includes provisions stating legislative intent it does not constitute a gift of public funds because it is necessary to ensure owners of real property that has been substantially damaged or destroyed in the 2018 Woolsey Fire disaster or in the 2018 Camp Fire disaster are provided the full and fair opportunity to reconstruct on the site of the damaged or destroyed real property and to retain the property tax base year value of that property.

6. Mandate. The California Constitution requires the state to reimburse local governments for the costs of new or expanded state mandated local programs. Since AB 1500 extends time periods for disaster-affected taxpayers to maintain the base year value of properties damaged or destroyed by a disaster, Legislative Counsel says it imposes a new state mandate. The measure provides the state shall not reimburse local agencies for property tax revenue losses, instead stating that should the Commission on State Mandates determine the bill imposes a reimbursable mandate, reimbursement must be made pursuant to existing statutory provisions.

7. Urgency. As an urgency statute, AB 1500 must be approved by a two-thirds vote of each house of the Legislature. Regular legislation takes effect on the January 1 following its passage, but urgency bills take effect as soon as they are passed, signed, and chaptered.

Assembly Actions

Assembly Revenue and Taxation Committee: 11-0
Assembly Appropriations Committee: 15-0
Assembly Floor: 79-0

Support and Opposition

(6/23/23)

Support:

Town of Paradise (Co-Sponsor)
California Association of Realtors
California Builders Alliance
California Professional Firefighters
City of Malibu
Howard Jarvis Taxpayers Association (HJTA)
Sacramento Regional Builders Exchange

Opposition: None submitted.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 1500

Author:(Irwin)

As Amended Ver:April 26, 2023

2/3 vote. Urgency

SUMMARY

Extends by three years the period to apply the base year value of a property substantially damaged or destroyed by certain disasters when rebuilding on the same site.

Major Provisions

1. Extends by three years the period to apply the base year value of a "qualified property" to replacement property reconstructed on the same site if the "qualified property" was damaged or destroyed on or after November 1, 2018 through November 30, 2018.
2. Defines a "qualified property" as a property that was substantially damaged or destroyed by the Governor-proclaimed 2018 Woolsey Fire or the 2018 Camp Fire disaster.
3. Applies this bill's provisions to determinations of base year values for the 2018-19 fiscal year (FY), and FYs thereafter.
4. Takes immediate effect as an urgency measure.

COMMENTS

1. California wildfires: California has seen a sharp increase in the severity and frequency of wildfires in the last two decades. According to the California Department of Forestry and Fire Protection, 15 of the 20 most destructive wildfires in California's history have occurred in the last decade. Of these, the Camp Fire was the most destructive by a significant margin, with 153,336 acres and 18,804 structures burned; the Woolsey Fire was the eighth most destructive, with 96,949 acres and 1,643 structures burned.
2. General background: For the purposes of property taxation, existing law requires county assessors to reassess real property from its base year value to its current market value whenever a change in ownership occurs or upon completion of construction. That law, however, provides certain exceptions to this reassessment requirement. For example, pursuant to constitutional authorization, R&TC Section 70.5 allows the base year value of property that is substantially damaged or destroyed by a Governor-proclaimed disaster to be applied to that property if reconstructed on the same site within five years. Property is considered substantially damaged or destroyed if either the land or improvements sustain physical damage amounting to more than 50% of either the land's or the improvement's full cash value immediately before the disaster. Finally, base year value applications are available for all property types with the limitation that the original property and the reconstructed property must be for the same use, whether residential, commercial, agricultural, or industrial.

If the full cash value of the reconstructed property does not exceed 120% of the full cash value of the property substantially damaged or destroyed, then the adjusted base year value of the property substantially damaged or destroyed is applied to a reconstructed property as its replacement base year value. If, however, the full cash value of the reconstructed property exceeds 120% of the full cash value of the property substantially damaged or destroyed, then the amount of the full cash value over 120% of the full cash value of the property substantially damaged or destroyed shall be added to the adjusted base year value of the property substantially damaged or destroyed. The sum of these amounts then becomes the reconstructed property's replacement base year value.

According to the Author

Rebuilding after a wildfire is a difficult task. Residents must not only deal with the trauma of losing their home and possessions, but often long negotiations with insurance companies and contractors, and navigating the complex permitting requirements of local governments. The victims of the Woolsey and Camp Fires in 2018 have worked diligently to rebuild their lives, but various obstacles outside of their control have left hundreds of properties yet to be rebuilt. AB 1500 appropriately gives these fire victims an additional 3 years to rebuild and retain their base year property tax values from before the fires.

Arguments in Support

The City of Malibu, writing in support of a previous, but substantially similar, version of this bill, states, in part:

Reconstructing a home or business property destroyed by a disaster such as a wildfire is difficult and time consuming: debris and dead trees must be cleared, building and other permits acquired, contractors and other construction workers hired, materials purchased, and construction completed. Disaster victims unaccustomed to completing these tasks are further burdened as each seeks to procure labor and materials in the same market, squeezing prices, and causing construction delays. Additionally, due to the COVID-19 pandemic, owners of these homes were even further hampered in their ability to rebuild. The courts were less capable of processing the claims on liability for the fire and come to a settlement with Southern California Edison, delaying compensation to residents, many of whom were depending on that compensation to rebuild. Additionally, construction was materially hindered by the pandemic and supply chain shortages, leading to many not being able to rebuild within the five-year window.

Arguments in Opposition

None on file

FISCAL COMMENTS

1. Maximum annual property tax revenue loss of $30.2 million, if an estimated 14,000 homeowners whose homes were destroyed in the Camp Fire and 1,000 homeowners whose homes were destroyed in the Woolsey Fire needed additional time to reconstruct the property. However, some homeowners would likely purchase a replacement property instead of rebuilding, thus lessening this estimated revenue impact. Although property tax is a local government revenue source and this bill specifies that the state shall not reimburse any local agency for lost property tax revenues, reductions in property tax revenues increase Proposition 98 General Fund (GF) spending by up to roughly 50% (the exact amount depends on the specific amount of the annual Proposition 98 guarantee).
2. One-time costs of approximately $28,000 and ongoing costs of approximately $6,000 per year to the Board of Equalization (BOE) to provide guidance to assessors, updated informational materials, and legal reviews (GF).
3. By requiring the Butte, Los Angeles, and Ventura County assessors to process additional base year value transfers, this bill likely creates a state-mandated local program. If the Commission on State Mandates determines the provisions of this bill create a new program or impose a higher level of service for which the state must reimburse local costs, the three counties could claim reimbursement from the state (GF).

VOTES

ASM REVENUE AND TAXATION: 11-0-0

YES: Irwin, Wallis, Bains, Grayson, Pacheco, Jim Patterson, Petrie-Norris, Luz Rivas, Ta, Valencia, Zbur

ASM APPROPRIATIONS: 15-0-1

YES: Holden, Megan Dahle, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Sanchez, Weber, Ortega

ABS, ABST OR NV: Robert Rivas

UPDATED

VERSION: April 26, 2023

CONSULTANT: Harrison Bowlby / REV. & TAX. / (916) 319-2098 FN: 0000636

Date of Hearing: May 17, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 1500

Author:(Irwin) – As Amended Ver:April 26, 2023

Urgency: Yes State Mandated Local Program: Yes Reimbursable: Yes

SUMMARY:

This bill extends, by an additional three years, the time period during which the property tax base year value of a property substantially damaged or destroyed by the 2018 Camp Fire or 2018 Woolsey Fire may be applied to a replacement property reconstructed on the site of the damaged or destroyed property.

FISCAL EFFECT:

1. Maximum annual property tax revenue loss of $30.2 million, if an estimated 14,000 homeowners whose homes were destroyed in the Camp Fire and 1,000 homeowners whose homes were destroyed in the Woolsey Fire needed additional time to reconstruct the property. However, some homeowners would likely purchase a replacement property instead of rebuilding, thus lessening this estimated revenue impact. Although property tax is a local government revenue source and this bill specifies that the state shall not reimburse any local agency for lost property tax revenues, reductions in property tax revenues increase Proposition 98 General Fund (GF) spending by up to roughly 50% (the exact amount depends on the specific amount of the annual Proposition 98 guarantee).
2. One-time costs of approximately $28,000 and ongoing costs of approximately $6,000 per year to the Board of Equalization (BOE) to provide guidance to assessors, updated informational materials, and legal reviews (GF).
3. By requiring the Butte, Los Angeles, and Ventura County assessors to process additional base year value transfers, this bill likely creates a state-mandated local program. If the Commission on State Mandates determines the provisions of this bill create a new program or impose a higher level of service for which the state must reimburse local costs, the three counties could claim reimbursement from the state (GF).

COMMENTS:

1. Purpose. According to the author, residents rebuilding after a wildfire “must not only deal with the trauma of losing their home and possessions, but often long negotiations with insurance companies and contractors, and navigating the complex permitting requirements of local governments.” The author proposes to give victims of the Woolsey and Camp Fires “an additional [three] years to rebuild and retain their base year property tax values from before the fires” as “various obstacles outside of their control have left hundreds of properties yet to be rebuilt.” This bill is sponsored by the Town of Paradise and supported by the County of Butte, City of Malibu, and associations representing taxpayers, firefighters, and realtors.
2. Base Year Value Transfers. Existing law provides several exceptions to the required reassessment of real property from its base year value to its current market value when a change in ownership occurs. For example, the base year value of a property substantially damaged or destroyed by a Governor-proclaimed disaster may be transferred to a comparable replacement property in the same county or to a reconstructed property on the same site within five years. All property types (residential, commercial, agricultural, or industrial) are eligible for such base year value transfers. Since Proposition 13 capped the annual growth of a property’s assessed value and set the tax rate at 1% of assessed value, this exception allows the taxpayer to maintain lower property tax bills.

This bill grants a property owner three more years to apply the base year value of qualified property substantially damaged or destroyed by the Camp Fire or Woolsey Fire during a specified time period in November 2018 to a replacement property reconstructed on the site of the damaged or destroyed property. This bill does not provide a similar extension to base year value transfers for a property owner electing to purchase a replacement property.

1. Related Legislation. AB 556 (Gallagher) extends, by an additional three years, the time period during which the property tax base year value of a property substantially damaged by the 2018 Camp Fire may be transferred to a comparable replacement property. AB 556 is pending hearing in this committee.
2. Prior Legislation. SB 303 (Borgeas), Chapter 540, Statutes of 2021, extended by two years the time period during which the base year value of a property substantially damaged or destroyed by a Governor-proclaimed disaster may be transferred to a comparable replacement property, if the last day for the transfer or the damage to the property occurred between March 4, 2020, and the “COVID-19 emergency termination date” or March 4, 2022, whichever occurred sooner.

Analysis Prepared by: Irene Ho / APPR. / (916) 319-2081

Date of Hearing: April 24, 2023

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 1500 (

Author:Irwin) – As Amended Ver:March 22, 2023

SUSPENSE

Majority vote. Fiscal committee.

SUBJECT: Property taxation: application of base year value: disaster relief

SUMMARY: Extends by three years the period to apply the base year value of a property substantially damaged or destroyed by certain disasters when rebuilding on the same site. Specifically, this bill:

1. Extends by three years the period to apply the base year value of a "qualified property" to replacement property reconstructed on the same site if the "qualified property" was damaged or destroyed on or after November 1, 2018 through November 30, 2018.
2. Defines a "qualified property" as a property that was substantially damaged or destroyed by the Governor-proclaimed 2018 Woolsey Fire or the 2018 Camp Fire disaster.
3. Applies this bill's provisions to determinations of base year values for the 2018-19 fiscal year (FY), and FYs thereafter.
4. Finds and declares that this bill does not constitute a gift of public funds, as defined. This bill serves the public purpose of ensuring that owners of real property that has been substantially damaged or destroyed in the 2018 Woolsey Fire disaster or in the 2018 Camp Fire disaster, as declared by the Governor, are provided the full and fair opportunity to reconstruct on the site of the damaged or destroyed real property and to retain the property tax base year value of that property.
5. Requires the state to reimburse local agencies and school districts if the Commission on State Mandates determines that this bill contains costs mandated by the state.
6. Provides that no appropriation is made by this bill and prohibits the state from reimbursing any local agency for any property tax revenue lost as a result of this bill's provisions.

EXISTING LAW:

1. Provides that all property is taxable unless otherwise provided by the California Constitution or the laws of the United States. (California Constitution, Article XIII, Section 1.)
2. Limits the maximum amount of ad valorem property taxation to 1% of the full cash value of the property. Generally, the Constitution restricts the full cash value of a property to the assessed value upon a change of ownership in, or new construction on, the property. This is referred to as the base year value, which may be adjusted upwards for inflation at no more than 2% annually. (California Constitution, Article XIIIA, Section 1 and 2.)
3. Provides, pursuant to a requirement of the California Constitution, that the property tax base year value of real property that is substantially damaged or destroyed by a disaster, as proclaimed by the Governor, may be applied to a reconstructed property on the same site within five years of the disaster. (California Constitution, Article XIIIA, Section 2 and Revenue and Taxation Code (R&TC) Section 70.5.)
4. Requires the state to reimburse local agencies and school districts for certain costs mandated by the state. (Government Code Section 17500 et seq.)
5. Requires the state to reimburse local agencies annually for certain property tax revenues lost as a result of any exemption or classification of property for purposes of ad valorem property taxation. (R&TC Section 2229.)

FISCAL EFFECT: Unknown

COMMENTS:

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

Rebuilding after a wildfire is a difficult task. Residents must not only deal with the trauma of losing their home and possessions, but often long negotiations with insurance companies and contractors, and navigating the complex permitting requirements of local governments. The victims of the Woolsey and Camp Fires in 2018 have worked diligently to rebuild their lives, but various obstacles outside of their control have left hundreds of properties yet to be rebuilt. AB 1500 appropriately gives these fire victims an additional 3 years to rebuild and retain their base year property tax values from before the fires.

1. The City of Malibu, writing in support of this bill, states, in part:

Reconstructing a home or business property destroyed by a disaster such as a wildfire is difficult and time consuming: debris and dead trees must be cleared, building and other permits acquired, contractors and other construction workers hired, materials purchased, and construction completed. Disaster victims unaccustomed to completing these tasks are further burdened as each seeks to procure labor and materials in the same market, squeezing prices, and causing construction delays. Additionally, due to the COVID-19 pandemic, owners of these homes were even further hampered in their ability to rebuild. The courts were less capable of processing the claims on liability for the fire and come to a settlement with Southern California Edison, delaying compensation to residents, many of whom were depending on that compensation to rebuild. Additionally, construction was materially hindered by the pandemic and supply chain shortages, leading to many not being able to rebuild within the five-year window.

1. Committee Staff Comments:
   1. California wildfires: California has seen a sharp increase in the severity and frequency of wildfires in the last two decades. According to the California Department of Forestry and Fire Protection, 15 of the 20 most destructive wildfires in California's history have occurred in the last decade. Of these, the Camp Fire was the most destructive by a significant margin, with 153,336 acres and 18,804 structures burned; the Woolsey Fire was the eighth most destructive, with 96,949 acres and 1,643 structures burned.
   2. General background: For the purposes of property taxation, existing law requires county assessors to reassess real property from its base year value to its current market value whenever a change in ownership occurs or upon completion of construction. That law, however, provides certain exceptions to this reassessment requirement. For example, pursuant to constitutional authorization, R&TC Section 70.5 allows the base year value of property that is substantially damaged or destroyed by a Governor-proclaimed disaster to be applied to that property if reconstructed on the same site within five years. Property is considered substantially damaged or destroyed if either the land or improvements sustain physical damage amounting to more than 50% of either the land's or the improvement's full cash value immediately before the disaster. Finally, base year value applications are available for all property types with the limitation that the original property and the reconstructed property must be for the same use, whether residential, commercial, agricultural, or industrial.

If the full cash value of the reconstructed property does not exceed 120% of the full cash value of the property substantially damaged or destroyed, then the adjusted base year value of the property substantially damaged or destroyed is applied to a reconstructed property as its replacement base year value. If, however, the full cash value of the reconstructed property exceeds 120% of the full cash value of the property substantially damaged or destroyed, then the amount of the full cash value over 120% of the full cash value of the property substantially damaged or destroyed shall be added to the adjusted base year value of the property substantially damaged or destroyed. The sum of these amounts then becomes the reconstructed property's replacement base year value.

• 1. Recent legislative action: In 2021, the Legislature passed SB 303 (Borgeas), Chapter 540, Statutes of 2021. SB 303 extended the period during which a property owner may transfer the base year value of a property pursuant to R&TC Section 69 by two years if the last day to transfer the base year value of the property occurred, or if the property was substantially damaged or destroyed, on or after March 4, 2020, but on or before March 4, 2022. This extension was provided to acknowledge the delays caused by the sudden increase in demand for contractors and construction materials, in conjunction with the supply constraints that arose during the COVID-19 pandemic. While this bill provides a three-year extension and authorizes the application of the base year value of the damaged or destroyed property to a rebuilt property on the same site, this bill also is intended to acknowledge the difficulties of rebuilding a taxpayer's home in the midst of the COVID-19 pandemic.
  2. Related legislation: AB 556 (Gallagher) would authorize a three-year extension to the existing five-year period during which the base year value of a property substantially damaged or destroyed by the Camp Fire may be transferred to a site in the same county. AB 556 is currently on this Committee's Suspense File.

REGISTERED SUPPORT / OPPOSITION:

Support

California Association of Realtors

California Professional Firefighters

City of Malibu

County of Butte

Howard Jarvis Taxpayers Association

Town of Paradise

Opposition

None on file

Analysis Prepared by: Harrison Bowlby / REV. & TAX. / (916) 319-2098

Date of Hearing: April 17, 2023

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 1500 (

Author:Irwin) – As Amended Ver:March 22, 2023

Majority vote. Fiscal committee.

SUBJECT: Property taxation: application of base year value: disaster relief

SUMMARY: Extends by three years the period to apply the base year value of a property substantially damaged or destroyed by certain disasters when rebuilding on the same site. Specifically, this bill:

1. Extends by three years the period to apply the base year value of a "qualified property" to replacement property reconstructed on the same site if the "qualified property" was damaged or destroyed on or after November 1, 2018 through November 30, 2018.
2. Defines a "qualified property" as a property that was substantially damaged or destroyed by the Governor-proclaimed 2018 Woolsey Fire or the 2018 Camp Fire disaster.
3. Applies this bill's provisions to determinations of base year values for the 2018-19 fiscal year (FY), and FYs thereafter.
4. Finds and declares that this bill does not constitute a gift of public funds, as defined. This bill serves the public purpose of ensuring that owners of real property that has been substantially damaged or destroyed in the 2018 Woolsey Fire disaster or in the 2018 Camp Fire disaster, as declared by the Governor, are provided the full and fair opportunity to reconstruct on the site of the damaged or destroyed real property and to retain the property tax base year value of that property.
5. Requires the state to reimburse local agencies and school districts if the Commission on State Mandates determines that this bill contains costs mandated by the state.
6. Provides that no appropriation is made by this bill and prohibits the state from reimbursing any local agency for any property tax revenue lost as a result of this bill's provisions.

EXISTING LAW:

1. Provides that all property is taxable unless otherwise provided by the California Constitution or the laws of the United States. (California Constitution, Article XIII, Section 1.)
2. Limits the maximum amount of ad valorem property taxation to 1% of the full cash value of the property. Generally, the Constitution restricts the full cash value of a property to the assessed value upon a change of ownership in, or new construction on, the property. This is referred to as the base year value, which may be adjusted upwards for inflation at no more than 2% annually. (California Constitution, Article XIIIA, Section 1 and 2.)
3. Provides, pursuant to a requirement of the California Constitution, that the property tax base year value of real property that is substantially damaged or destroyed by a disaster, as proclaimed by the Governor, may be applied to a reconstructed property on the same site within five years of the disaster. (California Constitution, Article XIIIA, Section 2 and Revenue and Taxation Code (R&TC) Section 70.5.)
4. Requires the state to reimburse local agencies and school districts for certain costs mandated by the state. (Government Code Section 17500 et seq.)
5. Requires the state to reimburse local agencies annually for certain property tax revenues lost as a result of any exemption or classification of property for purposes of ad valorem property taxation. (R&TC Section 2229.)

FISCAL EFFECT: Unknown

COMMENTS:

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

Rebuilding after a wildfire is a difficult task. Residents must not only deal with the trauma of losing their home and possessions, but often long negotiations with insurance companies and contractors, and navigating the complex permitting requirements of local governments. The victims of the Woolsey and Camp Fires in 2018 have worked diligently to rebuild their lives, but various obstacles outside of their control have left hundreds of properties yet to be rebuilt. AB 1500 appropriately gives these fire victims an additional 3 years to rebuild and retain their base year property tax values from before the fires.

1. The City of Malibu, writing in support of this bill, states, in part:

Reconstructing a home or business property destroyed by a disaster such as a wildfire is difficult and time consuming: debris and dead trees must be cleared, building and other permits acquired, contractors and other construction workers hired, materials purchased, and construction completed. Disaster victims unaccustomed to completing these tasks are further burdened as each seeks to procure labor and materials in the same market, squeezing prices, and causing construction delays. Additionally, due to the COVID-19 pandemic, owners of these homes were even further hampered in their ability to rebuild. The courts were less capable of processing the claims on liability for the fire and come to a settlement with Southern California Edison, delaying compensation to residents, many of whom were depending on that compensation to rebuild. Additionally, construction was materially hindered by the pandemic and supply chain shortages, leading to many not being able to rebuild within the five-year window.

1. Committee Staff Comments:
   1. California wildfires: California has seen a sharp increase in the severity and frequency of wildfires in the last two decades. According to the California Department of Forestry and Fire Protection, 15 of the 20 most destructive wildfires in California's history have occurred in the last decade. Of these, the Camp Fire was the most destructive by a significant margin, with 153,336 acres and 18,804 structures burned; the Woolsey Fire was the eighth most destructive, with 96,949 acres and 1,643 structures burned.
   2. General background: For the purposes of property taxation, existing law requires county assessors to reassess real property from its base year value to its current market value whenever a change in ownership occurs or upon completion of construction. That law, however, provides certain exceptions to this reassessment requirement. For example, pursuant to constitutional authorization, R&TC Section 70.5 allows the base year value of property that is substantially damaged or destroyed by a Governor-proclaimed disaster to be applied to that property if reconstructed on the same site within five years. Property is considered substantially damaged or destroyed if either the land or improvements sustain physical damage amounting to more than 50% of either the land's or the improvement's full cash value immediately before the disaster. Finally, base year value applications are available for all property types with the limitation that the original property and the reconstructed property must be for the same use, whether residential, commercial, agricultural, or industrial.

If the full cash value of the reconstructed property does not exceed 120% of the full cash value of the property substantially damaged or destroyed, then the adjusted base year value of the property substantially damaged or destroyed is applied to a reconstructed property as its replacement base year value. If, however, the full cash value of the reconstructed property exceeds 120% of the full cash value of the property substantially damaged or destroyed, then the amount of the full cash value over 120% of the full cash value of the property substantially damaged or destroyed shall be added to the adjusted base year value of the property substantially damaged or destroyed. The sum of these amounts then becomes the reconstructed property's replacement base year value.

• 1. Recent legislative action: In 2021, the Legislature passed SB 303 (Borgeas), Chapter 540, Statutes of 2021. SB 303 extended the period during which a property owner may transfer the base year value of a property pursuant to R&TC Section 69 by two years if the last day to transfer the base year value of the property occurred, or if the property was substantially damaged or destroyed, on or after March 4, 2020, but on or before March 4, 2022. This extension was provided to acknowledge the delays caused by the sudden increase in demand for contractors and construction materials, in conjunction with the supply constraints that arose during the COVID-19 pandemic. While this bill provides a three-year extension and authorizes the application of the base year value of the damaged or destroyed property to a rebuilt property on the same site, this bill also is intended to acknowledge the difficulties of rebuilding a taxpayer's home in the midst of the COVID-19 pandemic.
  2. Related legislation: AB 556 (Gallagher) would authorize a three-year extension to the existing five-year period during which the base year value of a property substantially damaged or destroyed by the Camp Fire may be transferred to a site in the same county. AB 556 is currently on this Committee's Suspense File.

REGISTERED SUPPORT / OPPOSITION:

Support

California Association of Realtors

City of Malibu

County of Butte

Town of Paradise

Opposition

None on file

Analysis Prepared by: Harrison Bowlby / REV. & TAX. / (916) 319-2098