BILL ANALYSIS Ó AB 509 Page 1 Date of Hearing: May 11, 2011 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair AB 509 (Skinner) - As Amended: March 25, 2011 Policy Committee: Revenue and Taxation Vote: 6-2 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill requires state departments and agencies to notify certain program recipients that they may qualify for the federal earned income tax credit (EITC). Specifically, this bill: 1)Specifies this notice shall be provided at least once a year during the months of January through April, or alternatively, during a regularly scheduled contact with a recipient. States that notification may be provided by telephone, mail, electronic communication, or by an in-person communication. 2)Encourages departments, agencies and programs to develop the least costly and the most effective method to provide notice. FISCAL EFFECT Estimated costs to provide notice to low-income individuals and families of approximately $5 million. Costs could be significantly higher and will depend on the method of contact, the ease of adding this requirement to existing communications, and the ability of the agency to limit communication to those who would most benefit from the notice. Many low-income individuals and families do not work because they are disabled or have left the labor force because of their age. Costs could also be less if agencies have a data base that allows easy effective contact, but this is unlikely. If the required contacts are effective, then revenues could offset the costs. If $5 million is spent on communication and 20 % more EITC is claimed, state and local revenues could increase by $20 million, more than offsetting the costs. AB 509 Page 2 COMMENTS 1)Purpose. According to the author, AB 509 will expand existing legislation to require state departments and agencies that serve low-income Californians to notify their program recipients that they may be eligible for the EITC. In recognizing the unique capacities of each affected state department and agency, this bill allows the departments and agencies to conduct the annual notification during regularly scheduled contacts with a recipient, by telephone, mail, electronic communication or by an in-person visit. 2)Background. Existing federal law, allows a refundable EITC to qualifying individuals. The amount of the credit is based on the taxpayer's income and is phased out as income increases. The amount of the credit also varies based on the number of qualifying children the taxpayer claims. Currently, to qualify for the credit, an individual with two children must have an adjusted gross income of less than $40,363 ($45,373 filing jointly). Existing state law requires employers to notify employees they may be eligible for the EITC and specifies this notice shall be provided within one week before or after an employer provides his/her employees with their annual wage summary (e.g. a Form W-2 or a Form 1099). Employers are required to either hand the notice directly to each employee or to mail the notice to each employee's last known address. 3)Potential impact on the state's economy. A 2010 report published by the New America Foundation, estimates that in 2009, 800,000 Californians failed to claim over $1.3 billion worth of EITC credit. The report also estimates that if these refunds were claimed, they would spur $1.4 billion in business sales, pay $340 million in wages, and add 8,200 jobs to the California economy. Using the report's assumptions and estimates, increased state and local taxes would approach $100 million annually. 4)Duplication of effort? To qualify for the EITC, an individual must be employed. Current law requires employers to notify all employees that they may be eligible for the EITC. Individuals eligible for the EITC are informed of the credit within a week of the time W-2s are issued. If all employees receive notice of the EITC around the time they receive their AB 509 Page 3 W-2s, would another notification simply be a duplication of effort by the state department or agency or would it be that important second reminder which results in expanded claiming of federal funds? There will also be duplications because the various programs have many of the same individuals enrolled. For example, a CalWorks recipient is also enrolled in Medi-Cal. 5)Pilot project. Because of the uncertainties in the cost and method of making the contacts and the unknown effectiveness, a pilot project might provide useful information that would help in expanding the project to more agencies and programs. Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081