BILL ANALYSIS SENATE COMMITTEE ON EDUCATION Gloria Romero, Chair 2009-2010 Regular Session BILL NO: SB 974 AUTHOR: Steinberg AMENDED: April 5, 2010 FISCAL COMM: Yes HEARING DATE: April 21, 2010 URGENCY: No CONSULTANT:Kathleen Chavira NOTE : This bill has been referred to the Committees on Education and Revenue and Taxation. A "do pass" motion should include referral to the Committee on Revenue and Taxation. SUBJECT : Career Pathways Investment Credit. KEY POLICY ISSUE Should career technical education program partnerships between local educational agencies and private business entities be encouraged through the use of tax credits? SUMMARY This bill establishes the Career Pathways Investment Credit (applicable to taxable years beginning on or after January 1, 2011), to be administered by the California Tax Credit Allocation Committee and to be allocated to local educational agencies (LEAs) for distribution to business entities that enter into contracts or memoranda of understanding with LEAs to provide career technical education through the creation of career pathway programs. BACKGROUND The California Tax Credit Allocation Committee (CTAC) administers two low-income housing tax credit programs - a federal program and a state program. Both programs were authorized to encourage private investment in affordable rental housing for households meeting certain income requirements. Responsibility for administering the federal program was assigned to the TCAC, first by a February 1987 SB 974 Page 2 gubernatorial proclamation, and later by enactment of SB 113, Chapter 658, Statutes of 1987 (which also authorized the state program). The TCAC has seven members, including three voting members and four advisors. The voting members include the State Treasurer, the State Controller, and the Governor, who may choose to designate the Director of the Department of Finance as his representative. The non-voting members are the Executive Director of the California Housing Finance Agency, the Director of the Department of Housing and Community Development, and two representatives of local governments. One local representative must be associated with a city and is appointed by the Speaker of the Assembly. The other member is a county representative appointed by the Senate Rules Committee. ANALYSIS This bill : 1) Requires, on or after an unspecified date, the California Tax Credit Allocation Committee (CTAC) to administer the Career Pathways Investment Credit, applicable to taxable years on or after January 1, 2011. More specifically it requires the CTAC to: a) Determine and allocate the investment credit ceiling, as specified. b) Establish application filing deadlines, and give priority in allocating the credits to LEAs meeting specified criteria including, among other things, specified unemployment and high school graduation rates, or serving of socioeconomically diverse student populations. c) Allocate the credits to LEAs that enter into enforceable contracts or memorandums of understanding, as specified, with the CTAC and meet any additional requirements the CTAC deems necessary or appropriate. d) Adopt allocation criteria that award credits to LEAs that demonstrate specified elements in their application. e) Develop and provide forms to inform LEAs and taxpayers of the purpose of the SB 974 Page 3 credit and certify to an LEA (which must provide a copy to the business entity receiving the credits) the amount of the allocated tax credits. f) Consult with the California Department of Education to develop forms, procedures for submission and review of applications, and to require the application to include, but not be limited to, specified components. 2) Authorizes the CTAC to: a) Contract with other entities to process and review applications. b) Charge fees of applicants, as specified, and authorizes the borrowing of money to cover administrative costs, to be repayable solely from these fees. 3) Authorizes a business entity that partners with an LEA to provide career technical education, as specified, to claim a career pathways investment credit against qualified state sales and use taxes, as specified, and imposes a number of related administering duties on the Franchise Tax Board and the State Board of Equalization. 4) Changes a definition within enterprise zone tax credit provisions within the Revenue and Taxation Code. 5) Defines various terms for purposes of the bill. 6) Makes a number of technical and clarifying changes to Revenue and Taxation Code provisions. 7) Makes a number of related declarations and findings. STAFF COMMENTS 1) Need for the bill . According to the author, new research by the Public Policy Institute of California raises serious questions about the effectiveness of the enterprise zone tax credit in contributing to economic and job development. At a time when California's General Fund is shrinking, it is more SB 974 Page 4 important than ever to prioritize investments and ensure that tax credits are producing a beneficial return on the state's investment. California suffers from too many high school dropouts, too little meaningful career pathway programs at the middle and high school levels, and shortages of skilled workers to fuel high-need sectors of our economy. Investments in high quality career pathway programs at the secondary school level would bring a greater return on the state's tax expenditure investment. 2) Double-referral . According to information provided by the author, it is the intent to redirect a portion of the existing enterprise zone tax credits to businesses that partner with public schools to build career pathway programs. This bill authorizes a business entity that partners with an LEA to provide career technical education, as specified, to claim a career pathways investment credit against qualified state sales and use taxes. If passed by this committee, the tax policy implications of this proposal will appropriately be heard and considered by the Senate Revenue and Taxation Committee. 3) What are career pathway programs ? This bill defines "applicants" as LEAs that apply for an allocation of the proposed tax credit to create career pathways programs. According to the bill, these can include high school pathway programs delivered through high schools, regional occupation centers or programs, California Partnership Academies, alternative education programs, and adult education programs. These programs are envisioned to include core academic courses aligned with State Board of Education approved career technical education standards and frameworks that integrate academic concepts and skills, work-based learning, and additional counseling or supplementary instruction services. Most relevant to the tax credit proposed, these programs must also include active engagement by business and industry in their design and implementation, work-based learning, and assessment of student work. 4) Will it work ? This bill is premised on the belief that better linkages between public school curriculum and real world work experience will result in more engaged SB 974 Page 5 and successful students, increased graduation rates, and better prepared students for both college and career. According to a 2006 study of California Regional Occupational Centers and Programs (CROCP) conducted by the School Improvement Research Group at the University of California, Riverside and funded by the CDE, ROCP students improve their high school grade point averages at a greater rate than comparison students, enroll in post-secondary education in large numbers, earn higher wages than comparison group peers, have more success in securing raises and promotions on the job, prefer ROCP classes over other subjects, and question the value and relevance of many of their high school courses. A 2010 study conducted by the Career Academy Support Network finds that, after more than four decades of development and three decades of evaluation, career academies (small learning communities that provide a college-preparatory curriculum with a career-related theme) have been effective in improving outcomes for students during and after high school and declares them a proven strategy to prepare high school students for college and careers. SUPPORT California Regional Occupational Centers and Programs (CROCP) OPPOSITION None received.