Who should pay for quake retrofitting?

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

Los Angeles Times - - OPINION -

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.

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