BILL ANALYSIS
AB 700
Page 1
Date of Hearing: April 27, 2009
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
AB 700 (Krekorian) - As Amended: March 26, 2009
Majority vote. Fiscal committee.
SUBJECT : Creative Industries and Community Economic
Revitalization Act of 2010.
SUMMARY : Provides that 20% of the state's General Fund (GF)
sales and use tax (SUT) revenues at the 4.75% rate, remitted by
specified taxpayers, shall be deposited into a newly established
Creative Industries and Community Economic Revitalization Fund
(Fund) for specified purposes. Specifically, this bill :
1)Contains legislative findings noting that:
a) Life in this state is enriched by art, innovation, and
creativity;
b) The source of art is in the natural flow of the human
mind, but realizing craft and beauty is demanding, and the
people of the state desire to encourage and nourish these
skills wherever they occur, to the intrinsic benefit of
all;
c) Every dollar in state support for the arts leverages $7
in earned and contributed revenue;
d) This state's cultural enterprises provide nearly 500,891
jobs for its residents, accounting for 7.6% of total
employment;
e) Nonprofit arts organizations contribute over $5 billion
to this state's economy;
f) Nonprofit arts organizations are a partner to the
creative industries, and play a key role in the 21st
Century workforce and the global economy, including in the
fields of architecture, advertising, consulting, education,
performing arts, museums, and other cultural industries,
design, including electronic design, software development,
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film, games, including computer games, historic
preservation, music, new media, publishing, radio and
television, and tourism; and,
g) An investment in the arts and the creative economy
industries can revitalize a neighborhood or area by
accomplishing all of the following: Stimulating the
economy, engaging residents, drawing tourists, providing a
sense of community, serving as a gathering place,
encouraging creativity, strengthening community
partnerships, promoting the arts and supporting artists,
developing a positive image for the area, enhancing
property values, capitalizing on local cultural, economic,
and social assets, and creating jobs.
2)Requires the transfer of 20% of the state's GF SUT revenues at
the 4.75% rate derived from taxpayers engaged in certain lines
of business into the Fund.
3)Provides that the money in the Fund "may be expended by the
[California Arts Council (Council)], upon appropriation by the
Legislature, to issue grants . . . ."
4)Provides that a "city, county, district, including, but not
limited to, a regional park district, a joint powers
authority, or a nonprofit arts organization deemed eligible by
the [Council], may apply to the [Council] for a local
assistance program grant for organizational support."
5)Provides that the Council, when issuing a grant, "shall
encourage joint partnerships between applicants to enhance
investment of public resources to enable the growth of the
creative economy in communities throughout the state."
6)Requires the Council to submit an annual report to the
Legislature that includes the status of each grant made.
EXISTING LAW imposes a:
1)Sales tax on retailers for the privilege of selling tangible
personal property (TPP), absent a specific exemption. The tax
is based upon the gross receipts from the sale of TPP in this
state.
2)Use tax on the storage, use, or other consumption in this
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state of TPP purchased from any retailer for storage, use, or
other consumption in this state, absent a specific exemption.
FISCAL EFFECT : The Board of Equalization (BOE) estimates that
this bill would transfer approximately $26.8 million from the GF
to the Fund for calendar year 2010.
COMMENTS :
1)The author states:
AB 700 will help secure a stable revenue source for
granting programs administered by the [Council]. This bill
will transfer 20% of the sales tax generated on
arts-related items to a fund, administered by the
[Council], that would support arts programs serving
communities throughout California.
For six years, California has allotted to the arts just
three cents per capita from the General Fund. Throughout
that time, California has remained last in the nation for
state investment in the arts. AB 700 will provide a steady
investment in California's nonprofit arts sector, which
contributes substantially to the state's economy and
supports California's larger creative industries.
2)Proponents state, "California is in its sixth year spending
three cents per capita from the General Fund on the arts, and
it remains last in the nation for state spending. AB 700 will
provide funding to invest in California's creative sector
which contributes to the state's economy and its ability to
compete in the global marketplace."
3)Opponents state, "Earmarking is a budget practice that
restricts the ability of the Legislature to address budget
deficits by moving revenue where it is needed most. This bill
would elevate the [Fund] above other vital programs to address
basic human needs, such as health and social services. The
Legislature should have the discretion to apply this revenue
to General Fund programs in its annual budgeting process. If
basic needs programs are funded, then the Legislature can and
should consider increasing funding for the arts."
4)BOE notes:
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a) "Only the state's General Fund sales and use tax
revenues at the 4.75% rate would be transferred under the
provisions of this bill. Although an additional component
of the state's General Fund sales and use tax rate of 1.25%
applies to taxable sales (which includes the one percent
increase beginning April 1, 2009), this bill would only
transfer the state sales and use tax revenues derived from
the specified establishments at the 4.75% rate. If the
author intends to include the entire 6% state General Fund
rate, (Revenue and Taxation Code) Sections 6051.3 and
6201.3 and 6051.7 and 6201.7 would be the appropriate
statutes to reference in the bill (in addition to Sections
6051 and 6201 currently referenced)."
b) "The NAICS (North American Industry Classification
System) is the industry classification system of the United
States, developed by the Economic Classification Policy
Committee on behalf of the Office of Management and Budget.
It is currently used by the United States, Canada and
Mexico's federal governments, state agencies and private
industries to identify a business' principal activity
within the retail, wholesale and service categories."
c) "Over the past few years, the Board has been actively
converting its former business classification coding
system, which used broad based business codes to categorize
and identify a taxpayer's primary business activity, to the
NAICS classification system. This conversion to the NAICS
coding system will soon be replacing the Board's former
classification system, and should be fully implemented by
the time this bill is enacted. Therefore, based on the
references to the specific codes in the bill, revenues from
the following establishments would be transferred in
accordance with this measure:
451100 - Sporting goods, hobby, and musical instrument
stores
453920 - Art dealers
453998 - All other miscellaneous store retailers
(except tobacco stores), including art supply stores,
candle shops, flower shops, and a variety of other
specialized retail stores."
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d) "The bill would not cause administrative concerns as
currently written. However, it should be noted that the
first transfer of funds would occur on or around the
[sixth] month following the effective date of the bill.
This is so, because once enacted, the due date of the first
quarterly returns and payments would be April 30, and, once
the returns are filed and payments are made, the average
processing time necessary to review the return, input the
data into our computer system, and identify the funds by
specific business codes is around 60 days. Thereafter,
transfers would occur quarterly."
5)Committee Staff Notes:
a) This bill would transfer the GF portion of significant
SUT revenues to the Fund. This, in turn, could establish a
precedent for future dedicated funding legislation.
b) This bill provides that a "city, county, district,
including, but not limited to, a regional park district, a
joint powers authority, or a nonprofit arts organization
deemed eligible by the [Council], may apply to the
[Council] for a local assistance program grant for
organizational support." This raises the following issues:
i) What exactly is meant by the term "nonprofit arts
organization"?
ii) Does the author wish to provide the Council with
discretion in deciding only which "nonprofit arts
organizations" are eligible for grants, or does he wish
to provide the Council with discretion in deciding
whether other entities are eligible as well?
iii) Does the author wish to provide any legislative
guidance regarding the criteria to be used in making
these determinations?
iv) It is not entirely clear to Committee staff what is
meant by "a local assistance program grant for
organizational support". The author may wish to take
amendments to provide greater clarity on this issue.
c) This bill provides that the Council, "when issuing a
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grant pursuant to this chapter, shall encourage joint
partnerships between applicants to enhance investment of
public resources to enable the growth of the creative
economy in communities throughout the state." Committee
staff are unclear regarding this provision's precise
meaning.
d) During the 2007-08 Legislative Session, both AB 1365
(Karnette) and AB 2728 (Karnette) contained provisions
similar to this measure. Both bills were held in the
Assembly Committee on Appropriations.
e) AB 700 has been double-referred with the Committee on
Arts, Entertainment, Sports, Tourism, and Internet Media,
and passed out of that committee by a vote of 5-3 on March
31, 2009. For a more comprehensive discussion of this
bill, please refer to that committee's analysis.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees,
AFL-CIO
Art Between Us, Inc.
Art Providers Alliance of San Francisco
AXIS Dance Company
Balboa Park Cultural Partnership
Berkeley Unified School District
California Alliance for Arts Education
California Arts Advocates
California Association of Museums
Campo Santo Theatre Company
CounterPULSE
Diavolo
Flights of Fantasy Story Theatre
Intersection for the Arts
Long Beach Shakespeare Company
Musicians Union Local 6
New Conservatory Theatre Center of San Francisco
North Coast Repertory Theatre in Solana Beach
Performing Arts Workshop
Playwrights Project
Professional Musicians of California
P.S. ARTS
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San Diego Opera
San Diego Youth Symphony and Conservatory
San Francisco Musical Fund Society
San Francisco Symphony
San Francisco War Memorial and Performing Arts Center
South Coast Dance Arts Alliance
South Coast Repertory
Stagebridge
Synthaxis Theatre Company
Theatre Bay Area
Theatre West
The Laguna Playhouse
6 individuals
Opposition
California Taxpayers' Association
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098