BILL ANALYSIS
AB 1398
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Date of Hearing: January 24, 2008
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mark Leno, Chair
AB 1398 (Arambula) - As Amended: January 17, 2008
Policy Committee: Jobs Vote:7 - 0
Revenue and Taxation 8 - 0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill consolidates the various provisions of the hiring
credits authorized for use by taxpayers located in a
Geographically-Targeted Economic Development Areas (G-TEDA).
Specifically, this bill:
1)Removes the condition that a business located in a the Local
Agency Military Base Recovery Area (LAMBRA) must provide a net
increase in jobs within the LAMBRA within the first two years
of the business' operation in order to claim the hiring tax
credit.
2)Removes current prohibition against businesses in LAMBRAs
using hiring credits to reduce their taxes below the
Alternative Minimum Tax (AMT).
3)Removes the $2 million limitation on qualifying wages for
companies in LAMBRAs.
4)Lowers the first year hiring credit from 50% to 49% of
qualifying wages.
5)Updates the definitions of military service to include
individuals who served in the National Guard on foreign soil.
6)Increases the minimum age limit for disadvantaged individuals
from 14 to 16.
FISCAL EFFECT
AB 1398
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1)FTB estimates that the provision that removes the $2 million
limit on qualifying wages will reduce revenues by $1 million.
2)FTB estimates that the provision that allows hiring credits to
reduce tax liabilities below the AMT will reduce revenues by
$2 million.
3)FTB estimates that the provision reducing the rate from 50% to
49% for first year employment will increase revenues by about
$3 million.
4)Eliminating the net job increase requirements for LAMBRAs will
likely result in General Fund revenue losses potentially in
the range of $250,000 per year.
5)The various G-TEDA hiring tax credits cost the state
approximately $400 million per year in lost general fund (GF)
revenue. If consolidating the credits leads to a simplified
program that more employers take advantage of, the amount of
hiring credits claimed will increase. For every one
percentage point increase, the state will lose $4 million in
GF revenue.
6)To the extent that these provisions stimulate new economic
activity in California there could be an increase in tax
revenues.
7)To the extent that these credits encourage stable businesses
in lower income communities, there could be a reduction in
costs to social service and public safety programs.
COMMENTS
1)Rationale . The G-TEDA programs represent one of the state's
largest economic development and workforce preparedness
programs. Under its current structure, the hiring credit is
very complex, including over a dozen different categories of
eligibility and slightly different provisions among the four
G-TEDA programs. This complexity makes it difficult to both
oversee the program and to proactively market the program to
businesses. According to the author, this bill is a first step
in putting forth a more rational business incentive program
that hopefully will lead to greater private sector investment
in lower income communities.
AB 1398
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2)G-TEDA programs . The Geographically-Targeted Economic
Development Area (G-TEDA) programs are based on the economic
principle that targeting significant incentives to lower
income communities allows these communities to more
effectively compete for new businesses and retain existing
businesses, which may result in increased tax revenues, less
reliance on social services, and lower public safety costs.
Residents and businesses also directly benefit from these more
sustainable economic conditions through improved
neighborhoods, business expansion, and job creation. G-TEDA
programs include LAMBRAs, Enterprise Zones, Manufacturing
Enhancement Zones, and Targeted Tax Areas.
Under the G-TEDA programs, businesses and other entities
located within the area are eligible for a variety of local
and state incentives. Local government incentives can include
writing down the costs of development, funding related
infrastructure improvements, providing job training to
prospective employees, or establishing streamlined processes
for obtaining permits. The state also offers a number of
incentives, including: tax credits, special tax provisions,
priority notification in the sale of state surplus lands,
access to certain Brownfield clean-up programs, and
preferential treatment for state contracts.
3)Related Legislation . AB 579 (Swanson) eliminates the job
increase requirement for LAMBRAs and requires the local
agencies to update their strategic plans. That bill is
currently in this committee.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081