BILL ANALYSIS Ó
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| SENATE COMMITTEE ON NATURAL RESOURCES AND WATER |
| Senator Fran Pavley, Chair |
| 2013-2014 Regular Session |
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BILL NO: SB 355 HEARING DATE: April 23, 2013
AUTHOR: Beall URGENCY: Yes
VERSION: April 15, 2013 CONSULTANT: Dennis O'Connor
DUAL REFERRAL: Governance & FinanceFISCAL: Yes
SUBJECT: Conservation: tax credits
BACKGROUND AND EXISTING LAW
1.The Wildlife Conservation Board (WCB) is a separate and
independent board within the Department of Fish and Wildlife
with authority and funding to carry out an acquisition and
development program for wildlife conservation. WCB consists
of the President of the Fish and Game Commission, the Director
of the California Department of Fish and Wildlife and the
Director of the Department of Finance.
The WCB's main functions are land protection, habitat
restoration, and development of wildlife-oriented public
access facilities. To those ends, the WCB approves and funds
land acquisitions, conservation easement acquisitions, and
habitat restoration, enhancement, and public access projects.
2.The Natural Heritage Preservation Tax Credit Act of 2000 was
intended to foster public/private partnerships to resolve land
use and water disputes, assist habitat stewardship, and
demonstrate the state's commitment to protect natural
resources by rewarding landowners who perceive habitat as an
asset rather than a liability. Consequently, the Act provided
up to $100 M in state tax credits for donations of water
rights or qualified land (fee title or easement) equal to 55
percent of the appraised market value. The donation had to
protect wildlife habitat, parks and open space, archaeological
resources, agricultural land, or water. The donation could
have been to any department within the Natural Resources
Agency, a local government, or a qualified non-profit. Credit
was limited to landowners "net tax" liability. However, the
credit could be carried over up to eight years until the
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credit was exhausted. The tax credit program was run through
the Wildlife Conservation Board.
The tax credit program was first implemented in 2001 but was
suspended in 2002 because of pressures on the General Fund.
In 2005, an amended version of the program was reinstated
through June 30, 2008. Under the amended program, a donation
was only eligible for a tax credit if all the lost revenue
resulting from the tax credit could have been reimbursed to
the General Fund from another source, such as state bond funds
including Proposition 40 and Proposition 50.
The tax credit was continued in 2009, by, among other things,
extending the sunset date from June 30, 2008 to June 30, 2015,
removing the $100 M cap on the amount of tax credits that can
be approved by the WCB, and allowing certain fund sources
other than bond funds to reimburse the General Fund for the
revenue loss resulting from the award of tax credits.
PROPOSED LAW
The bill would:
Transfer the responsibility for managing the tax credit
program from the WCB to the Natural Resources Agency (Agency).
Allow a taxpayer to transfer any credit, in whole or in part,
to an unrelated party.
Require the donor to indicate the donor's interest in
transferring the credit, in whole or in part, to an unrelated
party.
Require the Agency to maintain a list of parties that are
interested in acquiring a tax credit.
Require the Agency to match projects with donors interested in
transferring credits with parties interested in acquiring a
tax credit. All parties would need to agree to any proposed
transfer of a tax credit.
ARGUMENTS IN SUPPORT
According to the sponsor, "The [Natural Heritage Preservation
Tax Credit (NHPTC)] has protected 8,006 acres with the
authorization of $48.5 M in tax credits for a total of 14
projects. And, it has delivered high value for the state's
dollar. While this success cannot be overlooked or minimized,
not a single eligible entity had taken advantage of the NHPTC
since 2005. Prior to 2005, many landowners were interested but
were unable to make it work for them. The primary reason is that
most landowners are simply unable to take advantage of the state
tax credit because they lack the state tax liability that would
make the tax credit under NHPTC attractive to them. In contrast,
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California business entities frequently have state tax
liabilities. In recognition of this mismatch between the
realities of landownership and state tax liabilities, SB 355
proposes to modify the existing NHPTC so that landowners who are
unable to utilize the tax credit can transfer the tax credit to
interested corporate entities who can utilize the tax credit."
ARGUMENTS IN OPPOSITION: None
COMMENTS
Why changing horses in the middle of the stream? This bill
proposes to transfer the administration of the tax credit
program from the WCB to the Agency. According to the sponsor,
"This addresses an anomaly that was introduced to the program
over the years in which you have one body (WCB) approving
projects of another department (e.g., a state conservancy)."
While committee staff has heard, anecdotally, that there has
been some level of tension among agencies in the past of having
to go through WCB for approval of their program's acquisition,
staff have not heard of any instance where such tension has led
to actual problems in executing the program.
While the Natural Resources Agency does manage some grant
programs, (River Parkways, Urban Greening, Environmental
Enhancement and Mitigation), it has never run a tax credit
program.
The WCB, on the other hand, has administered the tax credit
program in the past, currently has instructions for applying for
the tax credit program on its website, and has extensive
experience in funding land and conservation easements. Instead
of forcing the Natural Resources Agency to develop the internal
expertise and process necessary to manage the tax credit
program, the committee may wish to consider leaving it with WCB.
(See Amendment 1.)
Matchmaker, Matchmaker, make me a match. This bill would require
the donor to indicate the donor's interest in transferring the
credit, in whole or in part, to an unrelated party. It would
further require the Agency to maintain a list of parties that
are interested in acquiring a tax credit. The Agency would then
match projects with donors interested in transferring credits
with parties interested in acquiring a tax credit.
This matchmaking role would be unique in California. According
to Senate Governance & Finance Committee staff, transferable tax
credits are in themselves uncommon. While those few
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transferable tax credits do include mechanism for transfers,
sales, and assignments, they don't direct the agency to look for
matches. Moreover, federal law, to which we conform, requires
for like-kind exchanges that a private-sector exchange
facilitator execute the transaction for the taxpayer to be
eligible for the deferral.
It is not clear if this matchmaking function would be an
appropriate role for the WCB (presuming the committee adopts
Amendment 1) nor is it clear if this is appropriate tax policy.
If the committee is uncomfortable with establishing such a
process, the appropriate amendments are listed in Amendment 2,
below. Alternatively, the committee may wish to defer such a
decision to the Governance & Finance Committee.
Issues to be addressed in other committees. This bill has been
referred to this committee, the Governance & Finance Committee,
and then the Appropriations Committee. Questions and issues
likely to be addressed in these other committees, beyond those
raised in this analysis, include:
Do we have bonds or other monies to fund the credit?
If the credit is bond funded, it defers but does not eliminate
the general fund impact
How common is it to allow transfers of tax credits for
compensation and under what circumstances?
With two years left before the sun sets on the tax credit, is
the sunset date at the appropriate time?
SUGGESTED AMENDMENTS
AMENDMENT 1:
Delete page 2, line 1 through page 13, line 11.
From page 13, line 12 though the end of the bill, delete
all references to the "Natural Resources Agency" and
replace with "Wildlife Conservation Board"
AMENDMENT 2:
Page 14, lines 23-40; Page 15, lines 1-9; Page 16, lines
23-40; Page 17, lines 1-9
SUPPORT
California Council of Land Trusts (Sponsor)
California Rangeland Trust
Land Trust of Santa Cruz County
Marin Agricultural Land Trust
Peninsula Open Space Trust
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Sequoia Riverlands Trust
Trust for Public Land
Wildlife Heritage Foundation
OPPOSITION: None Received
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