BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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                                 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 
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          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 

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              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 

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          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

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