BILL ANALYSIS                                                                                                                                                                                                    




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                           974 (Steinberg)
          
          Hearing Date:  05/27/2010           Amended: 05/19/2010
          Consultant: Dan Troy            Policy Vote: ED 8-0, Rev & Tax  
          3-1
          _________________________________________________________________ 
          ____
          BILL SUMMARY:   SB 974 would eliminate an existing Enterprise  
          Zone (EZ) hiring tax credit and establish a new Career Pathways  
          Investment Credit (CPIC) administered by the California  
          Department of Education (CDE) to business entities that partner  
          with local education agency (LEA) programs to develop and  
          support career pathways, as specified.
          _________________________________________________________________ 
          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2010-11      2011-12       2012-13     Fund
          Hiring credit changes  ($20,000)  ($75,000)   ($100,000)General

          New CPIC credit        $20,000    $75,000     $100,000  General

          CDE regs & startup     $150 to $225, repaid in future fiscal  
          year                   General
                                    by CPIC applicant fees 
          FTB administration     Initial costs unknown, ongoing costs   
          General
                                    covered by CPIC applicant fees 

          Staff notes that the bill authorizes CDE to charge a fee on CPIC  
          applicants that is reasonably sufficient to cover CDE and FTB  
          administrative costs.  It is unclear whether an appropriate fee  
          level can be established to fully offset costs to develop and  
          administer the CPIC program.  Initial costs would be paid from  
          the General Fund until sufficient fees are collected to  
          reimburse CDE for startup costs.  
          _________________________________________________________________ 
          ____

          STAFF COMMENTS: SUSPENSE FILE.
          
          Current law provides various tax credits in order to incentivize  
          certain behaviors.  To this end, current law provides special  










          tax incentives (e.g., wage credits, accelerated depreciation,  
          etc.) for businesses located in enterprise zones, as specified.   
          Local governments may request the Department of Housing and  
          Community Development to designate areas as enterprise zones  
          (EZ), with the intention of encouraging business investment into  
          depressed areas.  These areas are capped statewide at 42 and tax  
          credits from the program total close to $500 million, annually.   


          Included among the EZ incentives is a Targeted Employment Area  
          (TEA) wage credit for the employment of residents in a targeted  
          area within the EZ.  These TEAs cover census tracts where at  
          least 51 percent of the residents are low or moderate income, as  
          defined.  While other EZ wage credits are awarded for the  
          employment of individuals that qualify due to personal  
          experiences or circumstances (e.g., military veterans,  
          individuals eligible for job training or public assistance,  
          dislocated workers, etc.), the TEA credit awards wage credits  
          based on a qualifying employee's zip code. 
          Page 2
          SB 974 (Steinberg)

          Under current law, taxpayers can receive a certification  
          qualifying an employee for an enterprise zone hiring credit at  
          any time.  Taxpayers may certify employees who worked for them  
          in past years, then submit claims for refunds for previous taxes  
          paid to the Franchise Tax Board (FTB) based on those  
          certifications under California's general four year statute of  
          limitations for amending past returns.  This is sometimes  
          referred to as retro-vouchering. 

          This bill would eliminate the TEA wage credit and require  
          applications for certification for qualified employees be  
          submitted to a certifying agency within 28 days and obtained  
          from the certifying agency within 42 days of the employee's  
          first day of work for the qualified taxpayer.

          This bill would also establish the Career Pathways Investment  
          Credit (CPIC) to be administered by the Department of Education  
          (CDE).  The CPIC is intended for allocation to businesses that  
          partner with local education agencies to support the development  
          and implementation of career pathways programs, defined as  
          instructional programs provided by high schools, alternative  
          schools, county offices of education, or public other schools  
          that integrate academic and technical learning to prepare pupils  
          for both postsecondary instruction and careers in high-growth or  










          high-need sectors of the economy.  

          For calendar years beginning on or after January 1, 2011, CDE  
          would be required to:

             1)   Determine and allocate the investment credit ceiling, as  
               specified.
             2)   Allocate the credit on a regular basis consisting of two  
               or more periods in a calendar year in which applications  
               may be filed or considered.
             3)   Establish a procedure for applicants to file an  
               application for the allocation of the tax credit and  
               establish application filing deadlines. 
             4)   Give priority in allocating the credits to applicants  
               that have entered into a memorandum of understanding (MOU)  
               or contract with an LEA that meets specified criteria  
               including specified unemployment and high school graduation  
               rates, or serving of socioeconomically diverse student  
               populations.
             5)   Adopt allocation criteria that award credits to  
               applicants that demonstrate specified elements in their  
               application, including the provision of a one-to-one match  
               of private to public investment in programs that create  
               career pathways and the effectiveness of the program toward  
               preparing students for productive, high-wage employment.
             6)   Develop and provide forms to describe the purpose of the  
               credit and certify the amount of the allocated tax credits.
             7)   Develop an application that requires the submission of  
               the contracts or MOUs that would include the career  
               pathways plan, a description of the applicant's support  
               (e.g., equipment, employees to provide instruction in  
               partnership with credentialed teachers, internships, etc.),  
               contributions to postsecondary institutions that provide  
               teacher training or other support to high schools or middle  
               schools that provide career pathways, and the method by  
               which program accountability will be maintained.

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          SB 974 (Steinberg)

          The bill specifies that the aggregate amount of credits that may  
          be allocated in a calendar year are $78 million in 2011, $100  
          million in 2012 (baseline), with the baseline thereafter  
          increased by the rate of inflation or deflation, as measured by  
          the Consumer Price Index or other method which the FTB deems  
          reliable.  











          Successful applicants would receive a certification from CDE for  
          use as a credit against the taxpayer's net corporate or personal  
          income tax.  The bill allows any excess credits to be carried  
          over to reduce the net tax in any subsequent year.  

          The bill would authorize CDE to prescribe rules and regulations  
          to implement CPIC and to consult with the Treasurer and the  
          California Tax Credit Allocation Committee regarding the  
          allocation of tax credits. CDE would also be authorized to  
          impose a fee on applicants sufficient to carry out the costs of  
          administering the program.  CDE would be further authorized to  
          borrow funds for the purpose of meeting necessary  
          administrative.  

          According to the FTB, repealing the TEA and retro-vouchering  
          provisions increase revenue by $20 million in 2010-11, $75  
          million in 2011-12, and $100 million in 2012-13. These amounts  
          would be entirely offset by granting the CPIC, so the credit  
          provisions of the bill would be revenue neutral.  CDE reports  
          initial administrative costs of between $150,000 and $225,000 to  
          establish the program.  These costs would ultimately be  
          recovered through applicant fees.  Also, the FTB indicates that  
          it would also incur administrative costs, though no estimate has  
          yet been provided.  These administrative costs would also be  
          covered by applicant fees.

          While the bill defines aggregate annual credit amounts, staff  
          notes that the bill does not establish a clear manner for  
          determining a qualifying credit amount for an individual CPIC  
          applicant.  Should this determination by left to CDE  
          regulations?