BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 509
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          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.








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           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 








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            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