Legislature OKs Quake Agency in Year-End Rush

The state Legislature on Friday approved a bill creating a $10.5-billion state earthquake insurance authority, pointing the way toward an end to a widespread sales freeze on new homeowners insurance.

As part of the annual rush to approve hundreds of bills before lawmakers leave the Capitol for the year, the Legislature also was expected to approve a $279-million tax cut aimed chiefly at business and industry.

At the same time, legislators scrambled to strike a deal by their constitutional deadline--midnight tonight--that would authorize a November vote on a $2-billion school construction bond and a separate prison construction bond.

A sweeping bill that would deregulate the electrical industry and give residential users a 10% rate cut whipped through the Assembly, 71 to 0. The Senate takes a final vote today.

And by a 51 to 8 vote, the Assembly gave final approval to a bill that forces chemical castration on repeat child molesters. Gov. Pete Wilson has said he intends to sign the bill, making California the only state to approve such a sanction.

Legislation making it easier for the San Fernando Valley to secede from Los Angeles was approved 43-13 in the lower house.

The measure by Assemblywoman Paula Boland (R-Granada Hills) heads to the state Senate, which rejected an earlier version last week.

Boland believes she boosted her bill’s chances of success in the upper house by agreeing that all residents of Los Angeles, not just residents of the Valley, would have a say in whether the city should be divided.

But of all the measures, one of the hardest fought involved earthquake insurance, Senate Bill 1993.

Many insurance companies have been refusing to sell new homeowners policies because of the high cost of covering earthquake damage following the Northridge quake in 1994. These companies pledge to reenter the homeowners market once the earthquake authority puts a ceiling on their future earthquake losses.

The Senate gave the measure final passage on 28-5 vote. The Republican-controlled Assembly approved the measure last month by the required two-thirds margin.

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The state Department of Insurance estimates that the average policy will cost $3.29 per $1,000 in coverage, although prices will vary according to the age of homes, soil conditions and other factors, especially the relative seismic risk as assessed by quake experts.

Deductibles will be 15%, meaning that in a $150,000 home, there would have to be $22,500 in damage before the victim will qualify for the first dollar in relief.

“The days of cheap earthquake insurance are over,” said Sen. Charles M. Calderon (D-Whittier), a leading author of the earthquake authority bill. “I’d love to say we could give everybody coverage for $150 a year, but we can’t.”

Wilson gave private assurances to legislative leaders Friday that he will sign the main bill and a bill carrying separate amendments demanded by Senate President Pro Tem Bill Lockyer (D-Hayward) and accepted by Assembly Speaker Curt Pringle (R-Garden Grove).

Insurance Commissioner Chuck Quackenbush, attempting to ease opposition from San Francisco Bay Area lawmakers, pledged to lower rates in the Bay Area.

Earlier, he had said those rates would be 60% higher than rates in Southern California. Quackenbush did not say he would erase the entire difference, however.

Most scientists believe the quake risk in the long term is higher in the Bay Area than in Los Angeles and Orange counties.

Quackenbush said he expects the new authority will be running by Dec. 1, after private insurance companies representing at least a required 70% of the market join it.

Three Northern California Democrats--Daniel Boatwright of Concord, Milton Marks of San Francisco and Henry Mello of Watsonville--opposed the measure, as did Sens. Tom Hayden (D-Santa Monica) and Herschel Rosenthal (D-Los Angeles).

Lockyer, who had opposed the bill last month, said he now has concluded that there is no reasonable alternative to the state getting into the quake insurance business.

The insurance to be offered by the authority will cost about twice as much as the private company policies before the 1994 Northridge quake, and coverage will be far more restrictive.

Policyholders still will obtain their policies from their own insurers, but the policies will be transferred to control of the state agency, which will pay claims.

The tax cut, meanwhile, will benefit high-tech industries, airlines, multinational corporations, aerospace manufacturers and start-up companies that gross less than $1 million.

To a lesser extent, rice farmers of the Sacramento Valley, livestock producers, independent oil companies and Californians with long-term medical costs would also benefit.

On the flip side, the legislation would boost state taxes for some of these same taxpayers by bringing California into conformity with federal law.

In another display of bipartisanship, the bill was written by Lockyer and Pringle. It was fashioned over the past few days as lawmakers wind up their two-year session and launch their election campaigns in earnest.

“These carefully designed changes . . . will spur economic growth, provide relief to taxpayers and won’t harm schools,” Lockyer said.

To limit losses to state coffers, the reductions would be partially offset by increases that would align California with federal tax codes. Lockyer said conformity would enable businesses to save money by no longer having to keep one set of books for state tax purposes and a second for federal purposes.

The bill would reduce taxes by an aggregate $279 million over three years and increase other levies by $202 million. Tax experts said that for each $1.38 reduction, there would be a $1 increase.

Rather than enacting an across-the-board reduction in rates, the bill would target tax credits at specific industries considered key to further stimulating the economic recovery.

For example, the Silicon Valley computer and biotech industries would receive increased tax credits for research and development totaling $55 million over three years. Commercial airlines would receive a sales tax exemption of $25.3 million on the purchase of repair parts.

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Individual taxpayers with chronic health problems would be allowed to deduct the costs of long-term insurance and health care expenses as a medical expense if they exceeded 7.5% of a patient’s adjusted gross income. This would save them $21 million.

Hardest hit by the proposed increases would be workers who are required to transfer by their employers. Moving cost deductions would be tightened so that Californians no longer could write off $25 million a year from their income taxes.

Also hard hit would be companies that buy life insurance coverage for employees, borrow against the policies and deduct the interest on the loans. Such a deduction no longer would be allowed, except for limited key employees. It would result in $10 million in higher taxes.

Despite the bipartisan acts, legislators were getting ready to engage in some significant political sparring.

Senate Republican Leader Rob Hurtt of Garden Grove convened a press conference to announce that he intended to attempt to force a vote on legislation to reinstate part of the three-strikes sentencing bill struck down by the state Supreme Court in June.

Republicans also intended to force votes on measures to bar California recognition of same-sex marriages, and to prohibit certain late-term abortions known as partial birth abortions.

Democrats hoped to press for votes on various gun bills. It was all part of election-year ritual to get rival lawmakers to make “bad” votes, which can be used against them in campaigns.

Lockyer threatened to take unspecified retaliatory action, if Hurtt attempted to bring the Republican measures to a vote, prompting Hurtt to declare, “We aren’t going to be bullied or buffaloed.”

In other measures:

* Lobbyists for environmentalists and county prosecutors continued efforts to kill legislation that would relieve corporations from criminal sanctions for dumping pollutants into rivers and other waterways, and failing to report the spill and clean it up. The measure, SB 649, by Sen. Jim Costa (D-Fresno), is backed by industry groups, including the California Independent Petroleum Assn.

* The legislature gave final approval to a measure by Calderon that requires local water agencies to disclose to consumers the levels of toxins in the water, but declares that the agencies are not required to completely purify the water. After a yearlong fight, large chemical companies ended up striking a compromise with environmentalists on the bill, SB 1307.

Times staff writer Dan Morain contributed to this story.

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The State Tax Cut Plan

Here are highlights of the proposed $279 million tax cut over three years, which mainly affects business:

* Expanded tax credits for in-house research and development increase to 11% from 8%; and to 24% from 12% for projects undertaken by universities and hospitals. Total: $55 million.

* Allows the self-employed and small employers to establish tax-exempt medical savings accounts for payment of medical expenses. Total: $22 million.

* Reduces the minimum franchise tax from $800 to $600 for new corporations who gross less than $1 million a year. Total: $19 million.

* Provides a tax credit for developers who build or donate farm worker housing and a credit to banks which provide low interest financing for such shelter. Total: $1.5 million.

* Authorizes a 6% credit to semiconductor manufacturers for construction of clean rooms and other specialized buildings. Total: $7 million.

* Gives truckers a credit for transporting donated food to food banks for the needy. Total: $600,000.