Incentives to Improve California's Earthquake Safety: “An Agenda In

INCENTIVES TO IMPROVE CALIFORNIA'S EARTHQUAKESAFETY:AN"AGENDAIN WAITING"

SEISMIC SAFETY COMMISSION 1755 Creekside Oaks Drive, Suite 100 Sacramento, CA 95833 (916) 263-5506 (916) 263-0594 FAX www.se1sm1c.ca.gov

SSC 99-02 ACKi'IO\VLEDGMENTS The Commission laid the foundation for this rep011. The members prepared 58 ideas that provided a valuable initial focus for this report on seismic safety incentives. The Commissioners' contributions plus their interest in and close attention given to the report as it developed played important roles in the review and adoption process.

In addition to the Commissioners, the following people and organizations kindly provided thoughts,, materials, and comments on various versions of this report: the California Preservation Foundation; the California Earthquake Authority; the State of California Trade and Commerce Agency; J arnes E. Russell, Building Codes Consultant; Institute for Business and Home Safety; Mary C. Comerio, Professor of Architecture, University of California at Berkeley; the State of California Business, Transportation and Housing Agency; the California Healthcare Association; the City of Long Beach; EQE International; the Urban Financial Services Group; the County of Santa Barbara; California State Senator Jackie Speier; American Technology Alliances; Corliss Lee, former Commissioner; California Energy Commission; and Guna Selvaduray, Professor of Engineering, San Jose State University.

Several of the Commission's staff members were especially helpful. Richard J. McCarthy, Executive Director, provided continually useful guidance. Chris Lindstrom offered valuable legislative materials and tactical insights. Fred Turner supplied useful materials and insights. Cannen Marquez provided valuable support throughout the project, and most importantly, she took the report from a final draft to this published version. The Commission gratefully acknowledges the assistance of Jim Buika, Project Monitor and Earthquake Program Specialist, FEMA IX.

Seismic Safety Commission: Richard Alarcon, Senate Robert Downer Daniel Shapiro Alternate Chris Modrzejewski Insurance Structural Engineering Elaine White Alquist, Assembly Scott P. Haggerty Lowell E. Shields Alternate Bill Gates County Government lvlechanical Engineering J eITy C. Chang Jeffrey Johnson James E. Slosson Soils Engineer Seismology Geology Lloyd S. Cluff Donald 0. Manning Patricia Snyder, Chair Utilities Fire Protection Social Services Gary L. McGavin Keith M. Wheeler Architectural Planning Emergency Services Seismic Safety Commission Staff: Richard J. McCarthy, Kathy Goodell Henry Reyes Executive Director Chris Lindstrom Fred Turner Karen Cogan Caimen Marquez Funding By The Mitigation Directorate Federal Emergency Management Agency 500 C Street, SW Washington, DC 204 72

Contract No. ElvlW-95-C-4678 National Earthquake Technical Assistance Program Task Order No. 244

Prepared By Robert A. Olson, Principal Hazard Mitigation Technical Assistance Partnership Inc. 100 Egloff Circle Folsom, CA 95630 (916) 989-6201

Under Contract to: URS Greiner Woodward Clyde Federal Services 200 Orchard Ridge Drive, Suite 101 Gaithersburg, MD 20878 (301) 258-0780

Disclaimer: The Federal Emergency Management Agency and the California Seismic Safety Commission are pleased to have cooperated in the preparation of this report. The Commission adopted this report at its meeting on June 10, 1999.

CONTENTS

1.0 BACKGROUND ______] 1.1 Purposes and Organization of TWs Report ______1 1.2 Report Process 1 1.3 Report Organization 2 2.0 INCENTIVES AS POLICY TOOLS 2 2.2 Some Federal Insights 3 2.3 Senate Bill 1489: Adoption is Not Always Easy 4 2.4 Energy Incentives: Lessons Learned in California ______5 3.0 THE COivfivfISSION'S INITIAL INCENTIVES PROGRAiv/ ______~6 3.2 Providing Tax Incentives ______7 3.3 Identifying and Implementing Insurance Incentives 7 3.4 Educating and Informing Others 8 3.5 Recognizing and Publicizing Voluntary Commitments 8 3.6 Liability as an "Incentive" 8 4.0 OTHER PRilvfARY INCENTIVES 9

4.1 Geosciences ------9 4.2 Research and Technology ------9 4.3 Education and Information ------9 4.4 Economics ______9 4.5 Land Use ------10 4.6 Existing Buildings 10 4.7 New Construction 11 4.8 Utilities and Transportation ------~ 11 4.9 Preparedness ------12 4.10 Emergency Response ------~------12 4.11 Recovery------12 5.0 IivfPLEivfENTATION CONSIDERATIONS ______l2 5.1 Future Tasks 12 5.2 Other Considerations 13 REFERENCES ------15 APPENDIX I 17 Suggested Initiatives for the Califomia Earthquake Loss Red11ctio11 Pla11 17 APPENDIX II: Incelltive Format 19 APPENDIX III EXAi'vf PLE: Economic Incentive 20

Commission could select one or more to pursue INCENTIVES FOR in greater detail. The references identify several CALIFORNIA'S SEISl\tIIC publications that were used to distill and SAFETY synthesize this document's recommendations. "The bill [Senate Bill 1489, 1996, Rogers] This report also can be used by the Commission was endorsed by the California Seismic following earthquakes to provide guidance to Safety Commission which historically has the Legislature, Governor, and others on needed called for the removal of tax disincentives actions. This could include, for example, and establishment of incentives for capital sponsoring state legislation, suggesting local investment in seismic retrofit." ordinances and needed federal legislation, recommending new or modifying regulatory and 1.0 BACKGROUND administrative measures and procedures, and I.I Purposes and Organization of This informing a.wider audience about the range and Report importance of incentives to further reduce earthquake risk. In this role, the report serves as Increasing attention has been given in recent an "agenda in waiting" for appropriate years to the roles incentives play in helping "windows of opportunity." It is well understood to achieve public policy goals. As in other that major policy advances frequently occur in fields this also is true in seismic safety. the early aftermath of significantly damaging Espe;ially since the 1994 Northridge earthquakes. earthquake and the publication of the California Seismic Safety Commission's 1.2 Report Process (Commission) policy guidance document, Based on its earlier interests in incentives, the California Earthquake Loss Reduction Plan, Commission initiated an internal process that 1997-2001 (CELRPJ, the members of the resulted in members' and staff ideas for 58 Commission have sought to increase the incentives (or the need to remove disincentives). roles various kinds of incentives can play in The Commission's desire to focus on the further earthquake hazard mitigation and development of incentives led to its request to preparedness. The Commission set the the Federal Emergency Management Agency policy context by noting that 'The plan rests (FEMA) for technical assistance. This resulted on the fact that increased levels of seismic in Task Order 244 under the National performance--through the upgrading of . Earthquake Technical Assistance Program existing vulnerable structures, better design (NET AP) being given to FEMA's consultants, of new construction, and increased URS Greiner Woodward Clyde Federal Services preparedness in all areas--provide the most and one of its sub-consultants, The Hazard cost-effective method to reduce loss and Miti baation Technical Assistance Partnership, improve recovery from earthquakes." Inc. One of the Commission's main roles in The consultant's work first involved analyzing California is to act as a policy initiator, and the Commission's 58 ideas. These were to serve that role this report was designed to grouped by the CELRP's 11 program elements: be a "brid ae" that connects ideas and b . Geosciences; Research and Technology; recommendations to policy-related act10ns Education and Information; Economics; Land (e.g., legislation, regulatory changes, Use; Existing Buildings; New Construction; program "partnerships" of various types). Utilities and Transportation; Preparedness; Therefore, the principal purpose of this Emergency Response; and Recovery. report is to support the Commission's decision-making by providing it with a An interpretation of the Commission's original "menu" or "digest" of ideas from which the contributions shows that: • The Commission recognizes that which incentives it desired to pursue, and, economic and financial incentives second, the consultants preparing very detailed are very important to reducing risk. information to support policy-initiation activities. Thus, the Commission can continue • The Commission also believes that to use report as an "action plan," work with and providing incentives to reduce the monitor others' efforts to implement risk from existing buildings must be recommended incentives, evaluate addressed strongly. effectiveness, and modify existing incentives to • The Commission realizes that better meet seismic safety needs. incentives are needed to sustain 1.3 Report Organization education and information programs The following section (2.0) summarizes the for both mitigation and preparedness roles and issues associated with incentives as purposes. policy tools. Section 3.0 presents the • Other types of incentives are spread Commission's initial six item incentives almost evenly over the other eight program: Leveraging Lending and Financing plan elements. Practices; Providing Tax Incentives; Identifying and Implementing Insurance Incentives; • This grouping does not reflect Educating and Informing Others; Recognizing priorities, relationships among and Publicizing Voluntary Commitments; and incentives, or the possibility of Considering Liability as an "Incentive." Section combining several (e.g., a "tax" 4.0 identifies a broader range of more particular package). incentives. The concluding Section 5.0 focuses While the Commission's 58 ideas did not on issues related to the design, implementation, reflect suggested priorities, there were and evaluation of seismic safety incentives. several common themes, items that needed Appendix I contains the Commission's to be explored further before the scope of initiatives that were refen-ed from the members' appropriate incentives could be defined, and original 58 ideas to the CELRP so they can be several others, while not specific incentives, addressed during the plan's periodic revisions. are being fed into the CELRP revision Using the example of pending legislation, process. Further work involved collecting Appendix II offers an Incentive Format that can and analyzing applicable documents, be used to develop the supporting information conducting limited interviews, developing a for Phase Two's more specific proposals. An conceptual approach, preparing drafts (one example has been completed for pending of which was circulated to several state, legislation related to extending the property tax local, and federal agencies for comments), incentive. Many documents were consulted and several meetings with the Commission during the course of this work, and they are and its staff. listed in the References so as to serve as The Commissioner's original submissions resources of more detailed information about are available from the Commission's offices. some of the general strategies presented here. Many of the members' ideas were combined to form elements of this report. Others were 2.0 INCENTIVES AS POLICY TOOLS considered more appropriate to become 2.1 Roles of Incentives in Achieving initiatives in future editions of the CELRP. Public Policy Goals This report was conceived as "Phase One" Incentives are interesting-and perhaps of a possible two-phase effort. Using this as underntilized-public policy tools. However, a foundation, Phase Two would build on this such methods are increasingly important in the report, first, by the Commission deciding current climate of governance which

2 emphasizes greater roles of state and local • Low interest loans for the cost of retrofit governments and resources-optimizing work (banks and lending companies) intergovernmental and public-private sector • Low interest new constrnction loans for partnerships. contractors who build disaster resistant Incentives are used to establish or modify strnctures contexts and relationships (especially • Reduced origination fees for loans financial) so that desired actions be taken that otherwise might not have been. The • Employee bonuses given by employers result is that people will take the desired for employees who take disaster safety actions because the "benefits" now outweigh precaution in their home the "costs." For example, similar to many of the Commission's ideas expressed in this • Discounts on building materials report, the Institute for Business & Home • Reduced utility (gas and electric) Safety (IBHS): changes ... Is working with FEMA to recommend As one Seismic Safety Commissioner noted, incentives that will spur property owners "These are 'real' incentives and, if to take action to reduce losses before implemented, have the potential for great impact disaster strikes. IBHS is recommending in the hazard mitigation area. [These] to FEMA that the following incentives incentives can be readily implemented because, be granted to "qualified" owners of generally speaking, they don't take money from homes and buildings to offset the costs the government or the private sector that of retrofitting: otherwise, absent these incentives, would accrne Insurance Incentives: to them." [Commissioner Gates, personal communication, 6/2/99] • Discount or credits on homeowners insurance premiums 2.2 Some Federal Insights Two 1998 documents issued by the U.S. • Lower deductibles and coinsurance General Accounting Office (GAO) emphasize percentages the potential roles incentives could play in • Increased availability of insurance in reducing disaster assistance costs. In 1998 disaster-prone areas testimony before a congressional subcommittee a GAO representative discussed promoting the Public Sector incentives: use of federal incentives to encourage hazard • Elimination of property taxes on the mitigation. He noted: value of retrofit improvements ... Specific initiatives for improving • Federal and state income tax credits mitigation included linking mitigation actions with the receipt of federal • Elimination of sales tax on materials disaster and other assistance and used in retrofitting prohibiting federally insured lenders from issuing conventional mortgages to • Low interest loans for the cost of households or businesses in an retrofit work (state and local earthquake-prone area unless state or governments) local governments have adopted or • Reduced or eliminated Permit and enforced appropriate seismic building Plan Check fees standards. Other Private Sector Incentives: GAO provided additional insights a few to meet seismic standards at a reasonable weeks later when in another document cost another GAO representative emphasized the importance of mitigation-focused incentives • more favorable federal mortgage as one approach for lowering federal disaster insurance te1ms for properties that meet assistance costs. The report noted: seismic safety standards For example ... providing federal • certification of loans for seismic income tax credits for investments to rehabilitation as eligible projects that improve the perfo1mance of existing would systematically be considered facilities. Furthe1more, to the extent investments in the community under the that the availability of federal relief CRA (Community Reinvestment Act) inhibits mitigation, amending post • federal tax exemptions for public disaster federal financial assistance purpose bonds used for seismic could help prompt cost-effective rehabilitation mitigation. The National Performance Review, for example, • decoupling of Americans with recommended providing relatively Disabilities Act (ADA) requirements more disaster assistance to states that from upgrades for seismic safety, so had adopted mitigation measures seismic rehabilitation projects do not than to states than had not. automatically trigger costly access requirements Further insights into an emerging Federal Government role in creating incentives for 2.3 Senate Bill 1489: Adoption is Not hazard mitigation was provided in a 1997 Always Easy report by the National Academy of Public This report opened with a laudable quote from a Administration (NAPA) titled Reducing California Engineering Foundation (CEF) Seismic Risks in Existing Buildings. report, and it is in the State of California that the NAP A's approach recommends an emphasis Commission will be concentrating its primary on incentives and voluntary compliance efforts to expand the range of incentives. Partly rather than on mandates. Specific incentives as a word of caution, therefore, it is worth citing discussed include: portions of CEF' s report regarding the • lower interest rates on federal loans legislative history of Senate Bill 1489: for improvements to existing This bill would have allowed any private buildings, if the projects include capital invested in seismic retrofit of an seismic rehabilitation existing building to be depreciated over • bonuses on top of building-related a three-year period rather than thirty loans, if building owners are nine years as is current (1996) state and undertaking seismic rehabilitation federal tax policy. The bill also provided that any "triggering" costs, i.e., • federal income-tax credits for those changes that must be incorporated expenditures on seismic in a building as part of any other rehabilitation structural changes, be included in the total capital outlay for rapid • accelerated depreciation of costs of depreciation. seismic rehabilitation and the same treatment for the costs of demolition ... The California Department of Finance of properties that cannot be upgraded opposed the bill and said that for every $100 million of capital investment made

4 for seismic retrofit, the state would incentives exist today, but the major lessons lose $2 million in tax dollars if it from this earlier experience include the were depreciated in three years (as following: the bill provided) instead of thirty • Efforts were needed to make the design nine years ... and construction professions aware of Senator Rogers requested a special energy conservation measures and new study by the Senate Office of technologies. Substantial effort was Research (SOR) to determine the needed to work with building officials amount of voluntary, private sector on energy-related building code matters. financed, seismic retrofit taking place in California after the 1989 • At their peaks, the combined federal and state income tax credits totaled a "hefty" Loma Prieta and 1994 No11hridge 55% of the costs incurred by consumers. earthquakes. While consumers benefited, the real goal The SOR report was provided to the of the incentive was to promote the entry Senate Revenue and Taxation into the energy field of new products, Committee to demonstrate that there systems, and companies. vVhen the tax was little or no retrofit taking place, credits were reduced over time to only a and thus, rapid capital recovery 10% state credit, there was little or no would have no negative impacts on further interest in the incentive. state revenue but actually would Moreover, as expiration ("sunset") dates generate taxable cash flow that approached, lending institutions become would increase state and federal tax more cautious about financing projects revenues. subsidized by incentives because this would change the financial status of the The bill was defeated in the Senate borrowers. Revenue and Taxation Committee as urged by the California Department • Energy tax credits should be based on of Finance. Senator Rogers performance standards for products and discovered that. .. the Department systems that are independently verified uses a static rather than a dynamic and/or certified. This was not done model of analyzing tax related earlier, and many machines or systems legislative initiatives. In addition, did not perform well, especially in the the Department assumes that the solar and wind fields. Related to this investment would have been made were inflated costs due to energy without the stimulus of rapid write conservation being a "hot" item and the off, a position refuted by the SOR vendors' need to cover the costs of sales study findings. "gimmicks" (e.g., trips to resorts).

2.4 Energy Incentives: Lessons • To encourage the development of new Learned in California industries in about the I 970s, investment Another interesting California example tax credits allowed 80% of a qualified relates to the history of the state's alternative company's eligible costs to be energy (wind, solar, etc.) tax credits. Staff recovered, leaving only 20% of the start members of the California Energy up costs "at risk." This helped foster the Commission provided useful lessons learned growth of companies that developed about the effectiveness of energy-related alternative energy technologies. incentives that were common in the late • Absolutely essential for solar and 1970s and in the 1980s. No significant photovoltaic generating plant development were property tax ... An economic development-based exemptions (which expired in 1990). revitalization plan, which would resolve This incentive helped allow them to the issue of seismic retrofit, but which compete with fossil fuel plants, also would help generate additional which do not pay taxes on fuel. income to property owners to offset the cost of the loans they would have to 3.0 THE COivlivIISSION'S INITIAL obtain. INCENTIVES PROGRAM Banks had money ... The banks all agreed 3.1 Leveraging Lending and to modify their lending policies to Financing Practices accommodate commercial properties and Especially for existing buildings, perhaps to foim a lender pool wherein each one of the most challenging ways to lender would commit dollars to each improve their earthquake safety is to loan based upon each bank's percentage influence the complex financial relationships of the total dollar commitment. that are involved. Drawing on other Documentation acceptable to everyone experiences, it is clear that seismic safety had to be developed. New federal improvements can be "built in" as eligible banking regulations had to be met. The costs in loan packages and other financing divergent underwriting policies of the mechanisms that seek a broader range of various banks had to be synthesized. improvements to the building stock. Loan packaging and review procedures were developed. Approval was obtained Such transactions between lenders, from the banking regulators for the guarantors, and bmTowers are project appraisal process. Environmental site specific (e.g., redevelopment area, historic assessment issues were successfully building, multiple building owner) and result addressed. These and a multitude of from private negotiations over terms and other issues were examined and conditions. Therefore, while on the surface resolved. such processes do not readily lend themselves to policy intervention by The final issue, loan pricing, was a government agencies such as the concern to everyone. A formula had to Commission, over the long term the ability be found that was affordable, yet to influence such processes could be profitable to the banks; this was less significant. difficult than anticipated ... A pricing formula was established based on the Seismic retrofit may persuade lenders to banks' cost of funds, which produced change the pricing of the financing packages below-market interest rates. or modify conditions on the loan, such as Banks were comfortable with a long requiring the purchase of insurance. The amortization schedule resulting in appraisal community also should be smaller monthly payments. involved as its reports are central to valuing buildings for lending purposes. There may Early Action: The Commission could lead by be ways to factor into appraisers' analyses hosting a workshop to explore the various the earthquake resistance of commercial and aspects of these complex relationships. The residential buildings. results might disclose where some delicate policy interventions might reinforce the To help illustrate the importance of this inclusion of seismic safety considerations in recommendation, sections of a 1994 Western lending and financing negotiations. City magazine article, "Hayward Is Banking on Seismic Safety", it stated in part that:

6 3.2 Providing Tax Incentives reflected as rewards in rate-setting and other Several measures have been proposed to insurance practices. Somewhat akin to good modify tax laws and regulations to make driver, non-smoker, or more recently long-term investments in seismic safety more care discounts, the desire is to extend the same attractive. In some cases, this means concept to properties that have been effectively eliminating current practices that act as seismically retrofitted or rehabilitated to lessen disincentives. For example, according to the future losses (and the repair and replacement IBHS current tax codes do not allow costs to insurance companies). deductions for retrofit, but they do allow tax The process for initiating changes in this arena deductions for catastrophic losses. could be complicated because of the various The State of Oregon has been considering responsibilities and interests of the potentially several tax incentives. Proposed legislation affected stakeholders. Typical California would allow partial tax credits to be taken stakeholders include the Insurance by homeowners for premiums paid for Commissioner/Department of Insurance (DOI), hazard insurance (flood or earthquake) on California Earthquake Authority (CEA), their personal residences. Another idea is to industry associations, the underwriting policies provide an income tax credit of up to 35% of and practices of the many companies competing the costs of seismic rehabilitation of existing for business here, and, of course, the buildings as long as the investment is 20% Commission. or greater than the building's value. The While it may select to pursue one or two items, credit could be carried forward for up to 10 the Commission will have to sustain a long-term years. A further locally administered tax process, probably supported by independent incentive would allow 35% of the cost of expertise, which addresses the particular issues seismic rehabilitation to be abated from real associated with each change it seeks to achieve. property taxes for up to 10 years as long as For example, the Commission could explore the work equals or exceeds 20% of the how the Community Rating System (CRS) building's value. might be applied to earthquake insurance Early Actions: First, the Commission has ratings. While CRS is known for its proceeded to continue an existing incentive applications to coastal and river flooding, with legislation to amend Section 74.5 of the credits can be given for mitigating "special Revenue and Taxation Code so the current hazards," such as tsunamis. sunset date of July 1, 2000 is removed or Early Action: The commission should enter into extended. Second, possibly through an agreement with DOI and the CEA to hearings or committee work, explore with establish a cooperative partnership to help legislation or regulatory changes in mind the implement common cost-effective objectives set implications of changing federal and state forth in the Commission's CELRP. The goal of tax codes to allow either or both the the agreement-currently in draft form-will be expensing of seismic safety improvements to further develop incentives by collaborating on to buildings in the years in which the work legislative matters, helping to promote DOI's was done or providing for accelerated existing grant program, and pursuing a variety depreciation of such expenses. of topics related directly to many of the subjects 3.3 Identifying and Implementing discussed in this report. Examples include Insurance Incentives retrofit programs, standards, and verification procedures; information dissemination and Much has been said and written, including education; training of contractors and building the Commission's own ideas, that reflect the inspectors; developing benefit-cost data and desire to modify insurance programs so that methods for the state's fiscal agencies; and loss-reducing measures are somehow finding ways to demonstrate the benefits of It will be imponant to ensure that informational mitigation. materials communicate the message to others through their networks (e.g., professional and 3.4 Educating and Informing Others trade, local government, industry, and other Within the context of improving incentives associations or groups). This will take some for seismic safety, several recommendations effort and will vary with each recipient, but the were made to educate and inform potential positive influence is much greater if consumers. The underlying theme is the the information effons are sustained and appear need to provide knowledge about the scope in familiar and often-consulted outlets (e.g., and availability of incentives so consumers trade publications, "how we did it" packages can make informed choices and consider tailored for targeted users). how the incentives might effect their financial calculations regarding investing in Early Action: The Commission work with the seismic safety. The process for Office of the Governor to establish a strengthening educational and informational "Governor's Award for Earthquake Safety." It programs lends itself to Commission can be given to those who demonstrate leadership. exemplary efforts in the fields of hazard mitigation or earthquake preparedness. It is clear that a major and sustained educational and informational ("sales") 3.6 Liability as an "Incentive" effort will be needed to increase the When confronted with general knowledge of an knowledge about incentives and the area's earthquake risk, and more importantly, willingness to invest in especially voluntary specific knowledge about buildings' seismic safety measures. This program will vulnerability to damage and the consequent have to be strongly user-oriented. Who potential loss of life and occurrence of injury, should do it and how to pay for it is a the liability exposure to owners can become a question. major but perhaps grudgingly accepted reason to improve seismic safety. Early Action: Possibly through committee work or hearings, identify how greater This is a complex legal issue that should be synergy can be achieved and sustained for answered on a case-by-case basis. For example, both mitigation and preparedness efforts by a recent FEMA publication, Planning For better integrating the informational and Seismic Rehabilitation: Societal Issues notes educational efforts of public, private, and that: charitable organizations. . .. throughout these legal discussions is 3.5 Recognizing and Publicizing the fundamental "reasonable person" Voluntary Commitments principle. For example, judgments The Commission identified several measures would be made on what a "reasonable that seek to increase voluntary commitment person" would do or be expected to do to seismic safety by recognizing exemplary under the following illustrative efforts to reduce earthquake risk. The circumstances: the apparent probability Commission also implicitly understands the that the harm-causing event will occur, need to widely publicize such "awards" to whether the person involved actually encourage others to take similar actions. knew or should have known the risk, the While various types of recognition can be magnitude of the expected resulting defined (e.g., certificates, plaques), perhaps harm, and the effort required to institute the more important part of this effort will be proper precautions. the publicity given to the recipients of the Nevertheless, the acceptance of potential Commission's awards. liability by owners, coupled with other more

8 positive incentives (e.g., tax credits, low boards, and local building, planning and interest loans) can be a powerful incentive to community development departments) implement seismic safety improvements, provide the public with lists of those especially the strengthening, replacement, or who regularly take part in continuing removal of hazardous buildings. education programs. 4.2 Research and Technology 4.0 OTHER PRilvIARY INCENTIVES • Provide incentives (e.g., patents, grants, consulting fees) to earth science The previous section identified some early researchers and universities to develop actions the Commission has taken or will cost effective methods for mitigating take to develop improved seismic safety foundation and slope failures affecting initiatives. This section contains additional existing buildings and systems. suggestions taken from a variety of sources, including the Commission's original work, 4.3 Education and Information that have been organized following the 11 • Recognize achievements (or noted CELRP categories. While there is weaknesses) by some visible programs, some redundancy and common themes, this such as a "seismic safety report card." list provides further items for consideration. Each item needs to be explored in more • Provide a more integrated approach to detail before it can be moved into the policy stimulate and sustain mitigation and process. preparedness efforts (e.g., educational materials, fairs, equipment, outreach 4.1 Geosciences programs, awards and certificates, • Provide property tax and property training) so that the involved groups' insurance premium reductions when resources are optimized and mutually building foundations are retrofitted reinforcing. in high-risk areas. 4.4 Economics • Develop a "package" of incentives • Design income tax deductions for (e.g., tax deductions, public individuals who contribute time, relations/awards) so the petroleum materials, equipment, and other industry would be willing to publicly resources to earthquake preparedness release important geophysical data programs. (perhaps limited to the top 500 to 1,000 feet of a profile) that could be • Reduce residential (and small used for earthquake protection. This commercial strncture) homeowner and subject also is important to the property insurance rates when approved tsunami community, and the and certified loss reduction measures Commission could join with the have been taken (e.g., bolting structure Steering Committee of the National to concrete sills, replacing hazardous Tsunami Hazard Reduction Program foundations, adding shear strength to to undertake a joint effort to explore walls). this issue. • Encourage or authorize local • Encourage geoscience professionals governments, especial! y those to improve their knowledge and participating in the "Project Impact" capabilities by having state and local communities or similar programs, to agencies (e.g., California Division of reduce or waive ("forgive") permit and Mines and Geology, registration related fees for retrofitting existing buildings. For example, following • Using measures like "pollution credits" the Loma Prieta earthquake the City and other trade-off mechanisms, provide of Oak.land permitted changes in use for reduced densities in especially high- of unreinforced masonry buildings if risk areas through local community they were retrofitted to a "tougher" planning and building regulating voluntary standard, but would not functions. allow changes in use of a building if it were only retrofitted to meet a • Review the life safety and property mandatory but weaker standard. damage-reducing implications of waiving pennits and requirements in • Encourage local governments (e.g., post-earthquake situations as these counties, cities, special districts) and practices may, in fact, create exposure in the state's Franchise Tax Board to the future. develop tax incentives for the earthquake retrofitting of existing • Detennine if modifying California's buildings. redevelopment law to add URM and other classes of earthquake hazardous • Work with the CEA and the buildings to the definition of blighted insurance industry to extend conditions would provide redevelopment premium incentives to residential agencies greater flexibility to use their buildings that confo1m to adequate resources to support the retrofitting or earthquake standards in force at the rehabilitation of buildings. time of construction or upon retrofitting. • Explore if the concept of "mitigation banking"-used often to mitigate • Provide insurance rate and/or environmental and habitat effects- mortgage incentives for buildings might be adaptable to seismic safety. that meet adequate structural, non- Such banks "sell" mitigation credits by structural, and contents earthquake providing higher quality mitigation in protection on the premise that losses defined areas rather than requiring to them will be substantially less relatively minor activities in large than not being so protected. numbers of individual locations. The state's Bay Conservation and Review federal and state policies that • Development Commission appears to be extend current post-disaster in the early phases of such a program, economic benefits (e.g., low interest and it has a long history of considering loans, grants) to pre-earthquake earthquake issues within its area of mitigation actions on the premise jurisdiction. that rehabilitation is less expensive than repair or replacement. 4.6 Existing Buildings 4.5 Land Use • Recognize superior seismic retrofitting or rehabilitation of existing buildings by Develop lower property insurance • issuing certificates of earthquake premiums for structures designed at perfo1mance that could be used by the or retrofitted to meet higher insurance and lending industries to standards to account for "near adjust rates and terms based on the source" strong motion shaking on the presence of such certificates, and basis that losses and repair costs will provide long-te1m support of the be lower. program with a continuing public information program.

10 • Develop and post a "Good • Waive plan check and/or pe1mit fees Housekeeping Seal of Approval" on charged to homeowners when they buildings, including residential retrofit their dwellings, possibly through structures, which have been providing local, state, and federal seismically retrofitted, especially in subsidies, insurance rate reductions, or communities that are participating in fee reimbursements. the Project Impact or similar programs. • In congested urban and downtown areas, waive zoning and other requirements • Develop incentives to allow for cost (e.g., on-site parking requirements) for effective incremental or partial building owners who seismically retrofit retrofitting where it may be possible their buildings voluntarily or by local to achieve an 80% loss reduction for mandate. 50% of the cost even though some retrofit actions will not meet the code • Explore removing required posting from requirements for new buildings. For unreinforced masonry buildings example, the City of Los Angeles' ("URt\ils") when they have been "Tie-Down LA" mitigation program retrofitted, or perhaps eliminating the offers less than market interest rate requirement because of uneven local loans for qualifying work on single- enforcement in California. family and multiple-family 4.7 New Construction dwellings. • Like that for existing buildings, • To lessen overall project costs, seek recognize superior construction (i.e., methods to exempt the "triggering" beyond minimum code requirements) of of other code requirements (e.g., new buildings by issuing certificates of electrical, fire, ADA, infrastructure) earthquake performance that could be when making seismic retrofit used by the insurance and lending improvements so financial feasibility industries to adjust rates and terms based is improved when the work done on the presence of such certificates, and meets the needs of the current provide long-term support of the occupant, especially when the program with a continuing public retrofit is done voluntarily. This will information program. need careful attention because these other requirements represent other • Recognize local building departments' groups' definitions of important superior enforcement of building codes public policies. by using the results of the Insurance Services Office's (ISO) Building Code • Seek reduced costs for liability Effectiveness Grading Program, insurance and other specific especially where ISO recommends incentives, especially for hospitals earthquake insurance discounts (e.g., and schools buildings, that would 24% and 13%). encourage the lateral bracing and Utilities and Transportation anchorage of non-structural elements 4.8 (e.g., ceilings, partitions, glass, roof • Expand existing benefits programs by tiles) and mechanical and electrical providing employees with monthly equipment (e.g., generators, HY AC public transit passes or free shuttle units, ducts, pipes). services, especially after earthquakes, so highway demand is reduced for at least the time of recovery, and to help the long-term development of public wells and filters for emergency potable transit systems by reducing water supplies; sensors and shut-off dependency on and the direct and valves; film for glass; anchoring of non indirect costs associated with structural items; and completing automobile use. structural retrofit projects.

4.9 Preparedness 4.10 Emergency Response • Stimulate preparedness by ensuring • Support CERT programs by providing that the Commission's CELRP is recognition, training, and equipment, widely disseminated with the intent preferably via new funding sources or that influential groups and contributions. organizations "adopt causes" listed 4.11 Recovery as important to the state's seismic safety. • Enact state legislation that encourages or requires local eat1hquake mitigation and • Ask the Federal Emergency preparedness activities by identifying the Management Agency (FEMA) to types of activities that would qualify agree that those working on (i.e., "count") towards meeting the implementing initiatives before locals' share following federally earthquakes get highest priority declared disasters. consideration for post-earthquake Hazard Mitigation Grant Program • Seek insurance premium reductions for (HMGP) funds. local agencies that have adequate disaster preparedness and recovery • Find effective mechanisms to link plans. schools' compliance with the Standardized Emergency 5.0 IMPLEIYIENTATION Management Systems (SEMS) and CONSIDERATIONS other requirements with Community Emergency Response Team (CERT) Specific incentives will be adopted and programs as a way of simulating implemented in a variety of ways. Regardless, preparedness and disseminating the Commission should remain aware of the full information. If successful, currently range of seismic safety incentives available to pending legislation (Senate Bill l 95, various stakeholders, monitor and evaluate their Senator Baca, introduced January 19, effectiveness over the long-term, and be 1999) might provide a mechanism. prepared to add, delete, or modify incentives so This bill would fund the preparation they remain effective seismic safety tools. of "comprehensive school safety 5.1 Future Tasks plans." Some future tasks to help fulfill this • Pursue enactment of legislation responsibility include: providing economic incentives to corporations for strengthening their • Continuing over the long-term to provide sustained attention to incentives preparedness. Japan provides reduced taxation and/or accelerated and to act as the critical interface depreciation for companies between private and federal, state, and purchasing or installing containers local sources of such incentives. for emergency response equipment; • Monitoring, evaluating and adjusting fire extinguishers; portable water incentives so they remain effective, and pumps for fire suppression; water so that the benefits and costs are

12 distributed in ways that achieve the included as part of more comprehensive incentives' intended goals. efforts. For example, the City of Los Angeles has a variety of economic • Considering a geographic emphasis development incentives (e.g., business (i.e., seismic zone and/or expense deductions; hiring, sales or use microzonation characteristics) in the tax credits; utility services discounts; formulation of selected incentives so operating loss carryovers; net interest they are applied on the basis of deductions for lenders; and several seismic risk. forms of tax exemptions) that are related • Considering factors related to to Federal Empowerment Zone, State building use and/or occupancy when Enterprise Zone, and a City Tax Free designing particular incentives so Zone programs. Another example is the that certain types of buildings (e.g., California Commerce and Trade non-ductile concrete) or uses (e.g., Agency's California 1Wain Street multi-family apartments) clearly are program, which aims at revitalizing the foci of the incentive. downtown areas by partially using incentives. • Further analyzing the subject of incentives to identify and develop 5.2 Other Considerations explicit strategies to overcome The complex policy issue of effective incentives particular, and perhaps subtle, touches on other considerations, often broader disincentives to avoid increasing than seismic safety. The items below are to help seismic risk (e.g., poor serve as reminders about a few of these other communication of loss and risk concerns that the Commission should keep in information). In a comparable mind as it proceeds. manner, the Commission could focus Overall, while this work focused on incentives specifically on developing (i.e., actions that can be taken to create a greater disincentives to discourage social and economic activities that create willingness to invest in seismic safety), it is reasonable to assume that many approaches, conditions of unacceptable long-te1m especially regarding strengthening existing earthquake risk. buildings, have and will depend on a • Undertaking a comprehensive and combination of mandatory and voluntary in-depth evaluation of incentives programs with effective incentives playing a used in other fields to determine the facilitating role such as making mandatory goals desired, the kinds of incentives requirements easier to afford and more used, and their effectiveness in politically acceptable. achieving their stated goals. For These other considerations include: example, the results of recent research on intergovernmental roles • A concern that little data is available to and incentives related to energy clearly demonstrate the extent of actual conservation, radon reduction, and damage reduction to be achieved by te1mite control could be helpful. retrofitting various types of buildings, including residences. This is especially • Extending contacts far beyond those important for property insurance rating people concerned about seismic considerations. safety, but who are actively involved in advocating, enacting, and • Positive responses from state agencies managing other programs so that and other organizations, such as those seismic safety considerations are from the CEA, the California Trade and Commerce Agency, and the California Preservation Foundation, that reflect a strong desire to work with the Commission on developing effective incentives and processes that help achieve multiple program objectives,

• The Commission should recognize how important non-seismic safety incentives (e.g., 20% federal historic preservation tax credits) might work in combination with earthquake related incentives to make undertaking multi-objective projects more feasible than single purpose approaches.

• One way of encouraging pre earthquake mitigation is to "weigh" tax incentives so greater benefits are received if the work is done before rather than after an event by ensuring that the economic benefits accrued for post-disaster work are less advantageous to property owners.

• In many ways, the issue of "affordable financing" made available to property owners, especially for smaller residential and commercial properties, is the primary need to spur building mitigation programs at the local level. Closely related to this is the need for the financing to be available long enough so lenders can factor it into loan decisions.

14 through Federal-Aid and Regulatory Programs. REFERENCES Washington, DC California Preservation Foundation. 1996. 20 Tools That Protect Historic Resources Pacific Earthquake Engineering Research After an Earthquake: Lessons learned from Center. September 1998. Pacific Earthquake the Northridge earthquake. Oakland, CA. Engineering Research Invitational Workshop Proceedings, May 14-15, 1998: Defining the Earthquake Engineering Research Institute. links Between Planning, Policy Analysis, June 1998. Incentives and Impediments to Economics and Earthquake Engineering (PEER Improving the Seismic Pe,formance of 98/04). University of California, Berkeley. Buildings. Oakland. Seismic Safety Commission. 1998. The Eichenfield, Jeff. June 30, 1992. Preparing Commercial Property Owner's Guide to for Earthquakes: It's Your Business. The Earthquake Safety (SSC No. 98-01). Alameda Main Street Project, Alameda, CA. Sacramento. Federal Emergency Management Agency. Seismic Safety Policy Advisory Commission, August 1994. Seismic Retrofit Incentive Oregon Emergency Management. May 12, Programs: A Handbook for Local 1998. Transcript: A Work Session on Seismic Governments (FEMA 254). Washington, Rehabilitation of Existing Buildings. Salem. DC Seismic Safety Commission. November 4, Federal Emergency Management Agency. 1997. Budget Change Proposal correspondence March 1998. Planning for Seismic and documentation addressed to Ms. Louise Rehabilitation: Societal Issues (FEMA 275). Heredia-Sauseda, Department of Finance from Washington, DC. Richard J. McCarthy, Executive Director. Sacramento. Institute for Business & Home Safety (IBHS). Incentives. Boston, MA I 998. Selvaduray, Guna S. "Industrial Earthquake Preparedness in Shizouka and the Role of the Kuntz, Dr. Robert J., P.E. October 1997. Prefectural Government." Earthquake Spectra Pe,jonnance Based Design: Public Policy, 1:2:307-318 February 1985. Earthquake Economics and Education. California Engineering Research Institute. Oakland. Engineering Foundation, Rancho Cordova, CA. State of Oregon, Seismic Rehabilitation Task Force. September 30, 1996. Seismic League of California Cities. April 1994. Rehabilitation of Existing Buildings in Oregon, Banking on Seismic Retrofit, Western City Report to the Sixty-ninth Oregon Legislative LXX, No. 4. Sacramento. Assembly. Salem. May, Peter J., Raymond J. Burby, and The Bernstein Law Firm, PLLC, Ad Hoc Panel Howard Kunreuther. November 1998. on a National Pre-Disaster Mitigation Plan. Policy Design for Earthquake Hazard March 30, 1998. Report and Commentary on Mitigation: Lessons from Energy Pre-Disaster lvlitigation. Washington, DC Conservation, Radon Reduction, and Term'ite Control. Earthquake Spectra United States General Accounting Office. 14:4:629-650. Earthquake Engineering March 26, 1998. Disaster Assistance: Research Institute. Oakland. Infor111ation on Federal Costs and Approaches for Reducing The111 (GAO/T-RCED-98-139). National Academy of Public Administration. Washington, DC. November 1997. Reducing Seismic Risks in Existing Buildings: Options for Applying U.S. General Accounting Office. January 28, Federal Standards for Seismic Safety 1998. Disaster Assistance: Infor111ation on Federal Disaster /vlitigation Efforts (GAO/T-RCED-98-67). Washington, DC.

16 4. Establish a multi-agency "Earthquake APPENDIX I Speakers Bureau" to promote seismic safety Suggested Initiatives for the California throughout the state (e.g., providing speakers, Earthquake Loss Reduction Plan advising the media of key events, preparing The following suggestions made originally feature stories and press releases). within the context of developing incentives 5. Identify and form informal "partnerships" for seismic safety are more appropriate to with other groups to enhance their efforts to consider for inclusion in future editions of increase seismic safety by sponsoring seminars, the California Earthquake Loss Reduction publications, and other activities. Plan (CELRP). Some reflect themes and ideas similar to those contained in the main 6. Promote the adoption of seismic safety body of this report. legislation and programs by using existing ones as models, and which would be accompanied by The CELRP is published pursuant to 1985 lessons learned about the programs during the legislation known as The California implementation. Earthquake Hazards Reduction Act (Government Code Chapter 12, Section 7. Working with the California Department of 8870 et seq.). In sum, it "requires the Insurance (DOI) and the California Earthquake Seismic Safety Commission to prepare and Authority (CEA), find ways to encourage administer a program setting forth priorities, mitigation through insurance programs and funding sources, amounts, schedules, and underwriting practices. other resources needed to reduce statewide 8. Support others' efforts to translate earthquake hazards significantly by the year earthquake risk and preparedness information 2000." into user friendly and possibly interactive The ideas are: manners. 1. Help owners of large buildings avoid the 9. Seek reductions in the amount of paperwork need for and cost of post-earthquake and compatibility of documentation (including structural inspections by convincing them to electronic filing) and information requests (e.g., install and maintain strong motion forms) between the Governor's Office of instruments so the data can be used to Emergency Services (OES) and FEMA that determine if an inspection is needed and if improve administrative processes and lower "hidden" damage is sufficient to wa.ITant program management costs for applicants. evacuation of the building or the dispatching l 0. Develop and demonstrate benefit/cost of emergency responders to the site. methodologies that can be used by decision 2. Establish a list of "trained" practitioners makers to systematically evaluate the economics (e.g., contractors, engineers, architects) who of mitigation practices. have been certified as having completed 11. Develop a building rating system (i.e., A. B, special training to assist the California C, etc.) that can be used by lenders and insurers Earthquake Authority (CEA) to perform the to establish rates based on expected building residential retrofit work under CEA' s grant performance in earthquakes inasmuch as better program. buildings will suffer lower losses. 3. Increase the visibility and promotion of 12. Develop measures with private industry that "Earthquake Preparedness Month" (April), will provide sufficient portable rest rooms and possibly by conducting an "earthquake fair" other emergency sanitation measures within two at the State Capitol in conjunction with the hours after damaging earthquakes for use by Commission's annual Legislative Day. victims and emergency workers.

17 13. To help increase response time, ensure that reimbursement systems and commitments are in place to pay broadly defined mutual aid costs (e.g., engineers to rapidly evaluate buildings, fire protection services) incurred by such providers after earthquakes. 14. Require a "seismic disclosure" for any existing building, including its non strnctural elements, at the time of its transfer or sale, regardless of the age of the building. 15. Further the development and support of "One Stop Recovery Centers" to aid recovery assistance and program management, including extending the time that such centers operate. 16. Strengthen efforts to assure effective communications during the lengthy recovery period between victims (e.g., homeowners, assistance providers, insurance adjusters.

18 APPENDIX II: Priority (How important is this incentive, and Incentive Format what level of effort is the CSSC willing to spend to secure its adoption?) [Note: this may be modified to use for "packages" of similar incentives (e.g., tax incentives, insurance incentives) based on the CSSC's decisions.] Incentive title (\Vhat is the labeP) Objective (What is the desired outcome?) Scope/Intent (What is the general approach7) Policy mechanism (How does the CSSC put the incentive in place?) Target stakeholders (Who does the CSSC want to benefit from using this incentive, and who pays if it is adopted?) Arguments for and against (What pro and con cases can be made and by whom?) State fiscal impact (What are its fiscal and budgetary implications?):

First year estimated costs

Annual costs

Order of magnitude benefits

\Vho "pays?"

Who "benefits?" Example implementation considerations: A. Is the technical knowledge available7 B. ls there an existing administrative mechanism, or will a new one be needed? C. What will be the fu11her role of the Commission? D. How is "demand" created and the beneficiaries informed and supported? Overall feasibility (Can we estimate the possibilities of adoption and implementation 7)

19 C. What will be the further role of the APPENDIX III EXAMPLE: Commission? CSSC should monitor Economic Incentive implementation closely to avoid the perceived Incentive title: Property tax exemption for earlier problem of lack of use, probably partially seismic improvements to buildings. attributable to info1mation not reaching owners. Objective: Obtain continuation of Section D. How is "demand" created and the 74.5 of the Revenue and Taxation Code, beneficiaries informed and supported? Need to which currently expires on July I, 2000. get word out, possibly via inserts in property tax bills, work with local government, building Scope/Intent: To retain incentive that owners associations, and others to be identified. exempts property tax increases because of seismic safety improvements made to real Overall feasibility: Highly feasible because an properties. existing benefit is being extended. Policy mechanism: State legislation Priority: Critical because of short time (introduced as AB1291, 1999) available to obtain legislative and gubernatorial approvals. Better to keep this on the books Target stakeholders: Beneficiaries rather than re-starting initiative. primarily intended to be owners of single family dwellings, but all commercial and non-owner occupied properties are eligible. Arguments for and against: For: retains existing incentive passed by voter initiative, contributes to local efforts to reduce future damages, gives financial benefit now when work is done, reduces disaster assistance costs to governmenUinsurers/owners, employs constrnction trades. Against: reduces local government income for property-tax financed public services. State fiscal impact: to be determined later; CSSC has no information about the impacts of this program since its first enactment (e.g., numbers of retrofits, total costs and values, types of buildings) Implementation considerations: A. Is the technical knowledge available? Yes, for simpler buildings; complicated buildings may require engineering analyses and advice. B. Is there an existing administrative mechanism, or will a new one be needed? Exists through county assessors' offices.