BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 508| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 508 Author: Wolk (D) Amended: As introduced Vote: 21 SENATE GOVERNANCE & FINANCE COMMITTEE : 6-2, 3/30/11 AYES: Wolk, DeSaulnier, Hancock, Hernandez, Kehoe, Liu NOES: Huff, La Malfa NO VOTE RECORDED: Fuller SENATE APPROPRIATIONS COMMITTEE : 5-3, 4/11/11 AYES: Kehoe, Alquist, Pavley, Price, Steinberg NOES: Walters, Emmerson, Runner NO VOTE RECORDED: Lieu SUBJECT : Income and corporation taxes: credits: information and operative limitations SOURCE : Author DIGEST : This bill requires any bills enacting tax preferences to include specified information and a seven-year sunset. ANALYSIS : California law allows various income tax credits, deductions, and sales and use tax exemptions to provide incentives to compensate taxpayers that incur certain expenses, such as child adoption, or to influence behavior, including business practices and decisions, such CONTINUED SB 508 Page 2 as research and development credits and geographically targeted economic development area credits. The Legislature typically enacts such tax incentives to encourage taxpayers to do something that but for the tax credit, they will not do. The Department of Finance is required to annually publish a list of tax expenditures. This bill provides that any bill that enacts a credit against the Personal Income Tax Law or Corporation Tax Law for taxable years beginning on or after January 1, 2012, contain: Specific goals, purposes, and objectives that the tax credit will achieve. Detailed performance indicators for the Legislature to use when measuring whether the tax credit met its specific goals, purposes, and objectives. Data collection requirements to enable the Legislature to determine whether the tax credit is meeting, failing to meet, or exceeding its goals, purposes, and objectives. The requirements shall include specific data and baseline data to be collected and remitted in each year the credit is effective, and the specific taxpayers, state agencies, or other entities required to collect and remit data. A seven-year sunset. This bill also makes findings regarding tax preferences generally and their current fiscal impact on federal and state governments. Prior Legislation This bill is identical to SB 1272 (Wolk), 2009-10 Session, which Governor Schwarzenegger vetoed, stating: "I am returning Senate Bill 1272 without my signature. While the sponsors seem intent on eliminating measures that will generate jobs and stimulate the economy, the average California taxpayer would probably be better CONTINUED SB 508 Page 3 served if the Legislature were willing to automatically sunset every new spending entitlement, program expansion and business mandate after 7 years. For this reason, I am unable to sign this bill." FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee: Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund Future tax credit unknown, potentially significant increase General limitations in tax revenues to the extent that the bill limits the duration of future tax expenditures SUPPORT : (Verified 4/12/11) California Labor Federation OPPOSITION : (Verified 4/12/11) BIOCOM California Bankers Association California Chamber of Commerce California Taxpayers Association California Aerospace Technology Association California Manufacturers Association Simi Valley Chamber of Commerce TechAmerica ARGUMENTS IN SUPPORT : According to the author, "Today's public finance system in California requires major reform. While I have pursued changing our budgeting system to apply performance measurements for spending programs, I am trying to do the same with SB 508, which applies a performance-based methodology to future tax expenditures CONTINUED SB 508 Page 4 enacted by the state. There is no good reason not to evaluate tax expenditure programs with the same rigor that we use when judging spending decisions, especially when California's tax preference portfolio now exceeds $47 billion, equal to half of our total revenue. While we cannot change existing tax preferences, we can at least start keeping better track of future ones." ARGUMENTS IN OPPOSITION : Some opponents to this bill state that mandatory sunsets for tax expenditures are inappropriate and unfair when similar requirements do not apply to spending programs. Others state that the seven year standard is arbitrary; while sunset provisions and performance review are important, a firm's investment horizon and the tax credits themselves vary from case to case, and the same, fixed sunset period should not apply to tax incentives which may require different periods of time to accomplish its purposes. AGB:do 4/12/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED