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SB-254 Personal income taxes: corporation taxes: transfer of tax losses.(2019-2020)

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Date Published: 06/30/2020 11:40 AM
SB254:v96#DOCUMENT

Corrected  July 09, 2020
Amended  IN  Assembly  July 27, 2020
Amended  IN  Senate  January 06, 2020
Amended  IN  Senate  April 01, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Senate Bill
No. 254


Introduced by Senator Hertzberg

February 11, 2019


An act to amend Sections 10089.13, 10089.16, and 10089.23 of, to repeal Section 10089.31 of, and to repeal and add Section 10089.33 of, the Insurance Code, relating to insurance. An act to add Sections 17039.3, 17158, 23005, and 24317 to the Revenue and Taxation Code, relating to taxation.


LEGISLATIVE COUNSEL'S DIGEST


SB 254, as amended, Hertzberg. California Earthquake Authority. Personal income taxes: corporation taxes: transfer of tax losses.
The Personal Income Tax Law and the Corporation Tax Law allow various deductions in computing the income that is subject to the taxes imposed by those laws, including a deduction for net operating losses, which may be carried back for 20 taxable years preceding the taxable year of the loss, as specified. The Personal Income Tax Law and the Corporation Tax Law, in conformity with federal income tax law, generally define “gross income” for purposes of computing taxable income as income from whatever source derived, except as specifically excluded, and provides various exclusions from gross income.
This bill would allow a taxpayer under either the Personal Income Tax Law or the Corporation Tax Law to transfer any tax loss, as defined, to an unrelated party, as provided. The bill, for taxable years beginning on or after January 1, 2021, and before January 1, 2026, would provide for an additional exclusion from the taxpayer’s “gross income” under both of those laws any amount received by a taxpayer in exchange for a tax loss transferred under this bill if the taxpayer invests that amount in an affordable housing project or a corporation, partnership, or limited liability company that is engaged in providing affordable housing, as provided, within 180 days of receipt. The bill would authorize the Franchise Tax Board to adopt regulations to implement these provisions and exempt those regulations from the rulemaking provisions of the Administrative Procedure Act.
Existing law requires a bill that would authorize a new tax expenditure, as defined, under the Personal Income Tax Law or the Corporation Tax Law, or an exemption from the taxes imposed by the Sales and Use Tax Law to contain specific goals, purposes, and objectives that the tax expenditure will achieve and detailed performance indicators and data collection requirements for determining whether the new credit achieves these goals, purposes, and objectives.
This bill would make findings specifying the goals, purposes, and objectives of the exclusions from “gross income” allowed by the bill will achieve and detailed performance indicators and data collection requirements for determining whether those exclusions achieve these goals, purposes, and objectives.

Existing law establishes the California Earthquake Authority (CEA), administered under the authority of the Insurance Commissioner and governed by a 3-member board. Under existing law, the CEA is authorized to transact insurance in this state as necessary to sell policies of basic residential earthquake insurance. Existing law establishes a capital structure for the CEA, with several sources of financing. Existing law authorizes the CEA to assess participating insurance companies up to $1,780,000,000, if claims and claim expenses paid by the CEA due to earthquake events exhaust 4 specified sources of capital, including the CEA’s available capital and all insurer capital contributions and assessments.

This bill would repeal that assessment authorization. The bill would also make technical and conforming changes.

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 17039.3 is added to the Revenue and Taxation Code, to read:

17039.3.
 (a) Notwithstanding any other law, a taxpayer may transfer any tax loss to an unrelated party.
(1) The transferor shall report to the Franchise Tax Board before the transfer of the tax loss, in the form and manner specified by the Franchise Tax Board, all required information regarding the transfer, including the social security or other taxpayer identification number of the unrelated party to whom the transfer has been made and the amount of the tax loss transferred.
(2) A tax loss shall not be transferred pursuant to this section to more than one taxpayer.
(3) In no event may a taxpayer transfer any portion of a tax loss to the extent that portion has already been claimed, is claimed, or will be claimed on any tax return of the transferor.
(4) In the event that both the transferee and the transferor claim the same amount of tax loss on their tax returns, the Franchise Tax Board may disallow the loss of either taxpayer, so long as the statute of limitations upon assessment remains open.
(b) For purposes of this section, “tax loss” means a loss computed pursuant to this part, including, but not limited to, a net operating loss.
(c) (1) The Franchise Tax Board may adopt regulations as necessary or appropriate to carry out the purposes of this section and Section 17158.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code does not apply to any standard, criterion, procedure, determination, rule, notice, or guideline established or issued by the Franchise Tax Board pursuant to this section or Section 17158.

SEC. 2.

 Section 17158 is added to the Revenue and Taxation Code, to read:

17158.
 (a) For taxable years beginning on or after January 1, 2021, and before January 1, 2026, gross income shall not include any amount received by a taxpayer in exchange for a tax loss transferred pursuant to Section 17039.3 if the following conditions are met:
(1) Within 180 days of receipt, the taxpayer invests that amount in an affordable housing project or a corporation, partnership, or limited liability company that is engaged in providing affordable housing.
(2) The taxpayer provides documentation to the Franchise Tax Board verifying compliance with paragraph (1), in the form and manner prescribed by the Franchise Tax Board.
(b) For purposes of this section:
(1) “Affordable housing” means housing with an affordable housing cost, as defined in Section 50052.5 of the Health and Safety Code, or affordable rent, as defined in Section 50053 of the Health and Safety Code, to households whose gross income does not exceed 120 percent of the area median income.
(2) “Affordable housing project” means any project, whether by an individual, corporation, partnership, or limited liability company, to design, build, convert, or develop residential housing units for rent or sale as affordable housing.
(c) (1) The Franchise Tax Board may adopt regulations as necessary or appropriate to carry out the purposes of this section and Section 17039.3.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code does not apply to any standard, criterion, procedure, determination, rule, notice, or guideline established or issued by the Franchise Tax Board pursuant to this section or Section 17039.3.

SEC. 3.

 Section 23005 is added to the Revenue and Taxation Code, to read:

23005.
 (a) Notwithstanding any other law, a taxpayer may transfer any tax loss to an unrelated party.
(1) The transferor shall report to the Franchise Tax Board before the transfer of the tax loss, in the form and manner specified by the Franchise Tax Board, all required information regarding the transfer, including the social security or other taxpayer identification number of the unrelated party to whom the transfer has been made and the amount of the tax loss transferred.
(2) A tax loss shall not be transferred pursuant to this section to more than one taxpayer.
(3) In no event may a taxpayer transfer any portion of a tax loss to the extent that portion has already been claimed, is claimed, or will be claimed on any tax return of the transferor.
(4) In the event that both the transferee and the transferor claim the same amount of tax loss on their tax returns, the Franchise Tax Board may disallow the loss of either taxpayer, so long as the statute of limitations upon assessment remains open.
(b) For purposes of this section, “tax loss” means a loss computed pursuant to this part, including, but not limited to, a net operating loss.
(c) (1) The Franchise Tax Board may adopt regulations as necessary or appropriate to carry out the purposes of this section and Section 24317.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code does not apply to any standard, criterion, procedure, determination, rule, notice, or guideline established or issued by the Franchise Tax Board pursuant to this section or Section 24317.

SEC. 4.

 Section 24317 is added to the Revenue and Taxation Code, to read:

24317.
 (a) For taxable years beginning on or after January 1, 2021, and before January 1, 2026, gross income shall not include any amount received by a taxpayer in exchange for a tax loss transferred pursuant to Section 23005 if the following conditions are met:
(1) Within 180 days of receipt, the taxpayer invests that amount in an affordable housing project or a corporation, partnership, or limited liability company that is engaged in providing affordable housing.
(2) The taxpayer provides documentation to the Franchise Tax Board verifying compliance with paragraph (1), in the form and manner prescribed by the Franchise Tax Board.
(b) For purposes of this section:
(1) “Affordable housing” means housing with an affordable housing cost, as defined in Section 50052.5 of the Health and Safety Code, or affordable rent, as defined in Section 50053 of the Health and Safety Code, to households whose gross income does not exceed 120 percent of the area median income.
(2) “Affordable housing project” means any project, whether by an individual, corporation, partnership, or limited liability company, to design, build, convert, or develop residential housing units for rent or sale as affordable housing.
(c) (1) The Franchise Tax Board may adopt regulations as necessary or appropriate to carry out the purposes of this section and Section 23005.
(2) Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code does not apply to any standard, criterion, procedure, determination, rule, notice, or guideline established or issued by the Franchise Tax Board pursuant to this section or Section 23005.

SEC. 5.

 For purposes of complying with Section 41 of the Revenue and Taxation Code, the Legislature finds and declares all of the following with respect to the exclusions from gross income allowed under Sections 17158 and 24317 of the Revenue and Taxation Code, as added by this act:
(a) The specific goal, purpose, and objective that the gross income exclusions will achieve is incentivizing greater investment in the development of affordable housing.
(b) The detailed performance indicators for the Legislature to use when measuring whether the gross income exclusions meet that specific goal, purpose, and objective shall be the amount invested in affordable housing projects as a result of those gross income exclusions, as measured by the amount excluded from gross income pursuant to Sections 17158 and 24317 of the Revenue and Taxation Code.
(c) (1) The data collection requirements to enable the Legislature to determine whether the gross income exclusions are meeting, failing to meet, or exceeding the goal, purpose, and objective described in subdivision (a) shall be the information on each affordable housing project that is required to be provided to the Franchise Tax Board pursuant to Sections 17158 and 24317 of the Revenue and Taxation Code.
(2) To assist the Legislature in measuring whether the gross income exclusions meet the goal, purpose, and objective specified in subdivision (a), the Legislative Analyst shall review the effectiveness of the gross income exclusion and may request information from the Franchise Tax Board.
(3) Notwithstanding Section 19542 of the Revenue and Taxation Code, the Franchise Tax Board shall provide to the Legislative Analyst any data requested by the Legislative Analyst pursuant to this subdivision.
SECTION 1.Section 10089.13 of the Insurance Code is amended to read:
10089.13.

(a)One year following its commencement of operations, and annually thereafter by each August 1, the authority shall report to the Legislature and the commissioner on program operations in a format prescribed by the commissioner. The report shall include, but shall not be limited to, the financial condition of the authority, a description of all rates and rating plans approved for use in the authority, an evaluation of the functioning of the authority in light of its stated purpose of making residential property insurance and residential earthquake insurance more available. The report shall also include an analysis of the growth by market share of residential property insurance of participating insurers compared to nonparticipating insurers, any adverse consequences on the various insurance distribution systems resulting from the operation of the authority or alterations in the growth of the residential property insurance market share between participating insurers and nonparticipating insurers, any adverse consequences of the various insurance distribution systems resulting from the operation of the authority or alterations in the growth of homeowners’ insurance market share between participating insurers and nonparticipating insurers, and an analysis of any recommended program changes to permit the authority to better fulfill its stated purpose. In making this determination the board shall be mindful of the competitive nature of the market and how any decision can negatively impact insurers who are currently competing in the marketplace. The report shall be posted on the authority’s internet website.

(b)The annual report shall include full information describing the following matters relating to the authority’s condition and affairs:

(1)The property or assets held by the authority, including the amount of cash on hand and deposited in banks to its credit, the amount of cash in the hands of servicing insurance companies, the amount of any stocks or bonds owned by the authority, specifying the amount, number of shares, and the par and market value of each kind of stock or bond, and all other assets, specifying each.

(2)The liabilities of the authority, including the amount of losses due and unpaid, the amount of claims for losses resisted by the authority and the amount of losses in the process of adjustment or in suspense, including all reported and supposed losses, the amount of revenue bonds or other debt financing issues under Section 10089.29 or Section 10089.50, and all other liabilities.

(3)Income of the authority during the preceding year, specifying premiums received, interest money received, and income from all other sources, specifying the source.

(4)Expenditures of the authority during the preceding year, specifying the amount of losses paid, the amount of expenses paid by category, and the amount of all other payments and expenditures.

(5)The costs and scope of all reinsurance and capital market contracts entered into by the authority under Section 10089.10.

(c)As part of the annual report, the authority shall make a separate, summary report on the financial capacity of the authority to pay claims made against the authority. Copies of this report shall also be made available to the public. The report shall include, but shall not be limited to, the following information, valued as of 30 days prior to the date of the report:

(1)The available capital of the authority.

(2)The liabilities of the authority.

(3)The amount of all assessments previously made and the amount of assessments that may be made in the future under Section 10089.23.

(4)The amount of the reinsurance under contract and actually available to the authority.

(5)The amount of all revenue bonds or other debt financing previously issued or contracted for and the amount of all revenue bonds or other debt financing that may be issued or contracted for in the future under Section 10089.29.

(6)The amount of surcharges previously assessed against policyholders and the amount of surcharges that are currently outstanding against policyholders under Section 10089.29.

(7)The amount of capital committed and actually available by contract from private capital markets that is available to pay claims against the authority.

(8)The amount of all assessments previously made and the amount of all assessments that may be made in the future under Section 10089.30.

(d)In verification of the matters set forth in the annual report provided for in subdivision (a), the Department of Finance shall approve independent qualified auditors selected by the commissioner to examine the books and accounts relating to all matters concerning the financial and program operations of the authority. The commissioner shall file a certified report of the examination with the President pro Tempore of the Senate, the Speaker of the Assembly, the Chairpersons of the Senate and Assembly Insurance Committees, and the Chairperson of the Senate Committee on Judiciary within 10 days of its receipt. Copies of this report shall also be made available to the public. The expense of examining the books and accounts of the authority shall be paid out of the operating funds of the authority.

(e)The authority shall, within 120 days following a seismic event that results in the payment of claims by the authority, and within one year of a major seismic event that results in the payment of claims by the authority, submit to the President pro Tempore of the Senate, the Speaker of the Assembly, the Chairpersons of the Senate and Assembly Insurance Committees, the Chairperson of the Senate Committee on Judiciary, and the commissioner a concise written report of program operations related to that seismic event. The reports shall include, but not be limited to, progress on payment of claims, claims payments made and anticipated, and the functioning of the authority in response to the seismic event. Copies of this report shall also be made available to the public.

SEC. 2.Section 10089.16 of the Insurance Code is amended to read:
10089.16.

(a)On application to the board, payment of any assessments and fees calculated by the board, and fulfillment of any additional requirements imposed by the board, nonparticipating insurers may become participants in the authority with all rights and privileges attendant to that participation.

(b)In order to act upon any findings and recommendations reported to the Legislature pursuant to Section 10089.13, or to implement a specific finding by the commissioner or the board that modification of requirements for entry into the authority is necessary to broaden the availability of residential property or residential earthquake insurance, the board is authorized to open the authority to participation by insurers who have not elected to participate in compliance with Section 10089.15. In implementing the authority granted by this section, the board may:

(1)Offer incentives for insurers to participate in the authority.

(2)Allow an insurer or insurer group that has not elected to become a participating insurer to become an associate participating insurer without complying with the capital contribution requirements of Section 10089.15 if it has maintained or exceeded its number of policies of residential property insurance written as of January 1, 1996.

(c)An action by the board pursuant to subdivision (b) shall be subject to the following conditions and limitations:

(1)Any deliberation and action by the board shall be conducted at a public meeting of the board.

(2)An action may not be taken within one year of the date upon which the authority begins writing policies of basic residential earthquake insurance.

(3)The board shall not have authority to modify the requirements of Section 10089.23 or 10089.30, or to provide, in any other manner, for reduction of the liability of an insurer or insurer group to comply with the assessments placed upon participating insurers in the event of a loss.

(4)Notwithstanding Section 10089.11, an action of the board pursuant to subdivision (b) shall be by regulation promulgated by the board. Notwithstanding any other law, the board shall not have the authority to promulgate emergency regulations to implement subdivision (b). Regulations may not be proposed within one year of the date upon which the authority begins writing policies of basic residential earthquake insurance. Notwithstanding any exception provided in Section 11343 of the Government Code, any regulation adopted pursuant to subdivision (b) shall be submitted to the Office of Administrative Law for approval pursuant to the Administrative Procedure Act.

(5)An action by the board to establish an incentive pursuant to subdivision (b) that is available to a single insurer or insurer group shall be based upon standards adopted by the board that are not arbitrary or discriminatory. Notwithstanding Section 10089.11, these standards shall be established by regulation promulgated by the board.

(6)A finding of necessity pursuant to subdivision (b) shall state the specific facts and conditions that establish the necessity and justify the actions to implement subdivision (b). All materials and documents prepared or used by the authority to determine the necessity to implement subdivision (b), other than proprietary materials and documents owned or licensed by third parties, shall be considered public documents, and copies of the public documents shall be made available to the public for inspection at no charge. Members of the public may purchase copies of these documents from the authority at actual cost.

(d)(1)A nonparticipating insurer that applies to the board to become an authority participant shall submit to the authority, in connection with its application, earthquake insurance policy data sufficient for the authority to ascertain through computer modeling the current likelihood and magnitude of earthquake insurance losses that would be attributable to that insurer’s book of earthquake insurance business during its first full year of authority participation. The authority’s modeled representation of those insured earthquake losses shall be termed the “earthquake insurance risk profile” of that insurer.

(2)If in the board’s sole judgment the earthquake insurance risk profile the nonparticipating insurer would bring to the authority would be more likely to produce losses for the authority, or would be likely to produce greater losses for the authority, than would a book of existing authority business of similar size, the board may require as a condition for approving the insurer’s application that the insurer pay up to five annual risk capital surcharges into the authority in addition to any capital contribution required by Section 10089.15 and any assessment obligations required by Section 10089.23 or 10089.30.

(3)The board shall first calculate the nonparticipating insurer’s risk capital surcharge as of the first anniversary of the date the insurer first placed or renewed into the authority earthquake insurance policies. The board shall recalculate the risk capital surcharge for each of up to four years after the first year of calculation and shall impose the resulting surcharge. If the insurer’s earthquake insurance risk profile becomes substantially similar to the authority’s average risk profile for a book of authority earthquake insurance business of similar size, the board shall relieve the insurer of any further obligation to pay risk capital surcharges.

(4)Each annual risk capital surcharge shall be in an amount that, in the board’s determination, is equal to the authority’s increased cost of providing capacity to insure that insurer’s excess earthquake insurance risk. The authority shall cause to be sent to each insurer a notice of that insurer’s annual risk capital surcharge.

(5)Full payment of a noticed risk capital surcharge shall be due within 30 days and shall be overdue after 30 days. Penalties and interest shall be assessed for late payments in the same manner as provided for late payments of the insurer gross premium tax provided for in Section 12258 of the Revenue and Taxation Code. The board may waive the penalties and interest for good cause shown.

(e)Associate participating insurers shall place all new policies of residential earthquake insurance, when writing new policies of residential property insurance, into the authority. Insurers placing policies with the authority under this section shall be subject to the assessments provided for in Sections 10089.23 and 10089.30. Notwithstanding subdivision (m) of Section 10089.5, “residential earthquake insurance market share” for purposes of any assessments pursuant to Sections 10089.23 and 10089.30 levied on an associate participating insurer shall mean an individual associate participating insurer’s total direct premium received for residential earthquake policies written or renewed by the authority for which the insurer has written or renewed an underlying policy of residential property insurance, divided by the total gross premiums received by all admitted insurers and the authority for their basic residential earthquake insurance in California.

(f)(1)An associate participating insurer shall not cancel or refuse to renew a residential property insurance policy existing on the date it elected to become an associate participating insurer after an offer of earthquake coverage is accepted solely because the insured has accepted that offer of earthquake coverage.

(2)An associate participating insurer shall maintain in force any policy of residential property insurance existing on the date it elected to become an associate participating insurer after an offer of earthquake insurance has been accepted, unless the policy is properly canceled pursuant to Section 676 or the associate participating insurer has grounds for nonrenewal pursuant to subdivision (g).

(g)An associate participating insurer may refuse to renew a policy of residential property insurance after an offer of earthquake coverage has been accepted if one of the following exceptions applies:

(1)The policy is terminated by the named insured.

(2)The policy is refused renewal on the basis of sound underwriting principles that relate to the coverages provided by the underlying policy of residential property insurance and that are consistent with the approved rating plan and related documents filed with the department as required by existing law.

(3)The commissioner finds that the exposure to potential losses will threaten the solvency of the associate participating insurer or place the associate participating insurer in a hazardous condition. “Hazardous condition” has the same meaning as in Section 1065.1 and includes, but is not limited to, a condition in which an associate participating insurer makes claims payments for losses resulting from an earthquake that occurred within the preceding two years and that required a reduction in policyholder surplus of at least 25 percent for payment of those claims.

(4)There is cancellation under Section 676.

(5)The associate participating insurer has lost or experienced a substantial reduction in the availability or scope of reinsurance coverage or a substantial increase in the premium charged for reinsurance coverage for its residential property insurance policies, and the commissioner has approved a plan for the nonrenewals that is fair and equitable, and that is responsive to the changes in the associate participating insurer’s reinsurance position.

(6)The named insured is insured based upon membership in a motor club, as defined in Section 12142, and the membership in that organization is terminated as provided in paragraph (2) of subdivision (c) of Section 1861.03.

(h)For associate participating insurers, underwriting standards applicable to residential property insurance shall not be applied in an unfairly discriminatory fashion against any person who accepts or elects to continue earthquake coverage.

(i)Associate participating insurers shall be subject to the following requirements:

(1)Associate participating insurers shall conform to all provisions of the authority’s plan of operation applicable to participating insurers.

(2)A property that has previously been covered by a policy of residential earthquake insurance written by the associate participating insurer or associate participating insurer group, absent at least one full policy year with an insurer not affiliated with the associate participating insurer or its group, shall not be placed into the authority by an associate participating insurer.

(3)An associate participating insurer or associate participating insurer group defined in paragraph (2) of subdivision (b) that has failed to maintain or exceed the number of policies of residential property insurance in force on January 1, 1996, may become an associate participating insurer by contributing additional capital into the authority at a rate to be established by the board, which shall be a per policy rate comparable to the average cost per policy paid by a participating insurer that joins the authority pursuant to Section 10089.15.

(j)An associate participating insurer shall be required to establish procedures to verify compliance with this section. The procedures shall require verification that each basic residential earthquake policy written by the authority complies with paragraph (2) of subdivision (i).

(k)Any violation of this section may be enforced as a violation of the Unfair Trade Practices Act (Article 6.5 (commencing with Section 790) of Chapter 1 of Part 2 of Division 1). Each policy of basic residential earthquake insurance written in the authority by an associate participating insurer in violation of this section shall be deemed to be a separate violation of the Unfair Trade Practices Act.

(l)For purposes of this section, an insurer or associate participating insurer shall not participate in the authority unless all affiliated insurers participate in the authority.

(m)Policies of basic residential earthquake insurance written by associate participating insurers shall be subject to assessment by the California Insurance Guarantee Association and shall be covered to the extent provided in Article 14.2 (commencing with Section 1063) of Chapter 1 of Part 2 of Division 1. Except as provided in Section 10089.34, insurance policies written by participating insurers that are not associate participating insurers shall not be subject to assessment by the California Insurance Guarantee Association if the assessment is imposed to pay claims covered by policies of basic residential earthquake insurance written by an associate participating insurer.

SEC. 3.Section 10089.23 of the Insurance Code is amended to read:
10089.23.

(a)(1)If at any time following the payment of earthquake claims and claim expenses the authority’s available capital is reduced to less than three hundred fifty million dollars ($350,000,000), or if at any time the authority’s available capital is insufficient to pay benefits and continue operations, the authority shall have the power to assess participating insurance companies subject to the maximum limits as set forth in this section and Section 10089.30. The assessment shall be limited to the amount necessary to pay the outstanding or expected claims and claim expenses of the authority and to return the authority’s available capital to three hundred fifty million dollars ($350,000,000), as determined by the board, subject to approval by the commissioner.

(2)Each participating insurer’s assessment shall be determined by multiplying the percentage share of the authority’s total gross written premium that is attributable to that participating insurer’s sales of authority insurance policies, as of April 30 of the immediately preceding year or the most recent year for which premium data not more than one year old are available, by the amount of the total assessment sought by the authority.

(3)The maximum permissible insurer assessments pursuant to this section and Section 10089.30 shall be reduced uniformly by multiplication of the maximum assessments and other amounts provided in those sections by the percentage of the total residential property insurance market share participation attained by the authority. The total amount of all assessments levied on participating insurance companies by the authority pursuant to this section shall not exceed three billion dollars ($3,000,000,000), regardless of the frequency or severity of earthquake losses at any and all times subsequent to the creation of the authority. Once a participating insurer has paid, pursuant to this section, amounts equal to the percentage share of the authority’s total gross written premium attributable to that participating insurer’s sales of authority insurance policies, as of April 30 of the immediately preceding year or the most recent full year for which premium data not more than one year old are available, multiplied by three billion dollars ($3,000,000,000) reduced as provided in this paragraph from the maximum assessment, the authority’s power to assess that insurer under this section shall cease and the authority shall be prohibited from levying additional assessments on that insurer pursuant to this section.

(4)Beginning December 31 of the first year of operations, and each December 31 thereafter, the board shall adjust the maximum permissible insurer assessments pursuant to this section, the maximum permissible insurer assessments pursuant to Section 10089.30, the maximum permissible authority policyholder assessment pursuant to Section 10089.29, and the maximum permissible bond issuances or other debt financing issued or secured by the Treasurer pursuant to Section 10089.29 to reflect the market share of new insurers entering into the authority as authorized by Sections 10089.15 and 10089.16 and participating insurers withdrawing from the authority as authorized by Section 10089.19. The adjustments shall be made in the same manner as authorized by paragraph (3).

(b)In the case of any insurer assessment, the authority shall cause to be sent to each participating insurer a notice of that insurer’s assessment, and full payment shall be due within 30 days and shall be overdue after 30 days. Penalties and interest shall be assessed for late payments in the same manner as provided for late payments of the insurer gross premium tax pursuant to Section 12258 of the Revenue and Taxation Code. The board may waive the penalties and interest for good cause shown. The board shall make every effort to assess insurers only for funds reasonably anticipated to be necessary for claims payments and claim expenses and to return the authority’s available capital to three hundred fifty million dollars ($350,000,000).

(c)Notwithstanding the other provisions of this section, the aggregate assessment the authority is authorized by this section to impose shall be reduced to zero on December 1, 2008, with respect to earthquake events that commence on or after December 1, 2008.

(d)The authority shall not assess a participating insurer under this section based on any insurance business that is attributable to the insurer selling the insurer’s insurance products that supplement or augment the basic residential earthquake insurance provided by the authority.

SEC. 4.Section 10089.31 of the Insurance Code is repealed.
SEC. 5.Section 10089.33 of the Insurance Code is repealed.
SEC. 6.Section 10089.33 is added to the Insurance Code, to read:
10089.33.

(a)If the average daily balance of the authority’s available capital exceeds six billion dollars ($6,000,000,000) for the last 180 days of any calendar year, the board shall relieve all participating insurers of their obligation to pay additional earthquake loss assessments under subdivision (a) of Section 10089.30, by an aggregate amount equal to the amount of available capital in excess of six billion dollars ($6,000,000,000). Each December 31 thereafter, the board shall further reduce the aggregate assessment authorized under subdivision (a) of Section 10089.30 by the net increase in available capital in excess of the previous levels of available capital at which a reduction in the aggregate assessment under subdivision (a) of Section 10089.30 was made. A reduction pursuant to this subdivision shall not exceed 15 percent of the original aggregate assessment under subdivision (a) of Section 10089.30 in any year of operation of the authority.

(b)The board shall not reinstate, in whole or in part, any assessment obligation it has reduced pursuant to this section.

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CORRECTIONS:
Heading—Amend date.
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