Who should pay for quake retrofitting?

Legislators have plenty to resolve before passing a retrofit tax credit, but they can’t duck and cover.

The city of Los Angeles has finally acknowledged that preparing for a cataclysmic earthquake will take more than stocking up on water or participating in a Great Shakeout drill. In December, Mayor Eric Garcetti unveiled an ambitious plan to fortify the city’s infrastructure, including mandatory retrofitting of the soft-story wood structures and brittle concrete buildings that are at risk of collapse in a major quake. City officials have been compiling inventories of the buildings, and Garcetti has said that he’d like to see laws in place by the end of this year.

That’s encouraging. But now comes the hard part — figuring out how to pay for those mandatory retrofits, which could range from thousands of dollars for a smaller building to hundreds of thousands of dollars if not a million for some big concrete structures.

Assemblyman Adrin Nazarian (D-Sherman Oaks), who represents a swath of the San Fernando Valley dotted with many of the wooden buildings that may be vulnerable, has proposed AB 428, which would offer a tax credit to property owners throughout the state who retrofit buildings certified by local officials as being at risk of collapse. The bill is supported by Garcetti and a rare coalition of business and tenant groups. Tenant advocates hope the tax savings will encourage the city to require that landlords share the costs of repairs with tenants rather than passing them on in full.

Under Nazarian’s bill, a property owner whose building had been certified at-risk would be allowed to claim a credit on his or her state taxes equal to 30% of the cost of the seismic retrofitting performed. The credit would be available only after the retrofitting was completed and would have to be claimed in equal installments over five years.

The bill would go into effect in 2016 and sunset after 2020. Of course, some retrofitting projects could take several years, but as long as property owners applied for the credit before the end of 2020, they would be eligible for it when their projects were done.

And how much would this cost the state in tax revenue? That’s difficult to project. The Franchise Tax Board has estimated that 2,100 buildings would undergo retrofitting each year, at a cost of between $20,000 and $100,000 per building. The board concluded that there would be about $77 million in retrofitting costs incurred in 2016 alone, resulting in $23 million in tax credits that would be spread out in five yearly increments.

If that rate of spending continued throughout the life of the program, that would be a total of $115 million in tax credits that would be doled out over a decade or so. However, the number may actually be higher than that. Some experts have suggested that the cost of retrofitting big concrete buildings might be significantly higher than $100,000. And as for the estimate that 2,100 buildings will be retrofitted each year in the whole state? L.A. building officials say there are as many as 12,000 wood buildings in this city alone that might require retrofitting.

Because no one knows just how high the cost of statewide retrofitting may go, there would be only a five-year window in which to apply for the credit, and Nazarian’s office would cap the available credit at a specific figure. It wouldn’t cover every property owner who wanted it. Then the question would be how to distribute it most rationally across the state. First come, first served seems unfair. The state could require local municipalities to create a ranking of which buildings are at greatest risk.

State lawmakers have a lot of complicated issues to resolve before they can pass a bill allowing a tax credit. But that shouldn’t stop them from pressing ahead. Fortifying buildings to make them stronger in an earthquake is a public safety priority, and there’s nothing wrong with asking all Californians to pay a share of the cost. A good portion should be paid by property owners, because retrofitting raises property values. However, tenants and taxpayers must expect that they will have to contribute as well.

As challenging as it is to come up with the right formula for a tax credit, the state should not duck and cover to avoid the responsibility of making the state’s buildings safer.