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Legislature OKs Quake Agency in Year-End Rush

Bills: Creation of $10-billion insurance authority is expected to clear way for sale of new homeowners policies. Tax cut for business also appears headed for approval.


SACRAMENTO — 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.


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.

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