BILL ANALYSIS �
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: sb 810
SENATOR MARK DESAULNIER, CHAIRMAN AUTHOR: price
VERSION:
2/22/2013
Analysis by: Eric Thronson FISCAL: yes
Hearing date: April 16, 2013
SUBJECT:
California Transportation Financing Authority tax credits
DESCRIPTION:
This bill authorizes California Transportation Financing
Authority (CTFA) to create processes and procedures necessary to
award up to $100 million in tax credit certificates per year
between 2014 and 2018 to qualifying importers and exporters.
ANALYSIS:
Existing law provides for various tax credits in order to
influence taxpayer behavior by providing incentives to incur
certain expenses, such as those related to adoption of foster
children. The state also uses tax credits to influence business
practices and decisions, such as Geographically Targeted
Economic Development Area credits, which encourage investment in
areas otherwise lacking economic opportunity. The Legislature
typically enacts such tax incentives to encourage taxpayers to
choose to do something they otherwise might not choose to do,
generally expecting those induced choices to create greater
public benefit.
Existing law establishes CTFA within the California State
Treasurer's Office to assist transportation agencies in
obtaining financing for transportation projects. The objective
of CTFA is to increase new capacity in the state transportation
system in a manner consistent with the state's greenhouse gas
reduction, air quality improvement, and natural resource
conservation goals. CTFA expects to accomplish this through
either issuing revenue bonds directly or through the approval of
the issuance of bonds that are backed by specified
transportation-related revenues. The Treasurer's Office has
currently assigned one staff person to administer this program.
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California has eleven public seaports, including some of the
world's largest, as well as numerous airports from which freight
can be imported or exported. Because of California's geographic
locale and its status as a gateway between the burgeoning
economies of the Pacific Rim and North American markets, these
ports provide the state unique and considerable economic
benefits. For example, approximately 600,000 containers are
imported and nearly 300,000 containers exported each month in
the Ports of Los Angeles and Long Beach alone, the two largest
ports in the US.
This bill authorizes CTFA to create processes and procedures
necessary to award up to $100 million in tax credit certificates
per year between 2014 and 2018 to qualifying importers and
exporters, with each certificate not to exceed $250,000 per
recipient per year. Importers and exporters can qualify for
these tax credits if they do any of the following:
Import or export goods through California ports or airports if
they did not import or export goods through the state during
the previous taxable year.
Increase their imports or exports through California ports or
airports over the previous taxable year.
Demonstrate a net increase in qualified full-time employees in
California over the previous taxable year.
Demonstrate that they paid capital costs on cargo facilities
with useful lives of five years or more at California ports or
airports designed to increase cargo-moving capacity.
Specifically, in order to administer this tax credit program,
this bill requires CTFA to do the following:
Establish a procedure for applicants to apply for the tax
credit certificates as well as a process for awarding the
certificates to qualifying applicants.
Establish application forms and determine the information
necessary for CTFA to award the certificates.
Establish and charge applicants fees that CTFA determines
reasonably sufficient to cover all costs in carrying out its
responsibilities and duties related to this program.
Determine the amount of each tax credit and provide the
Franchise Tax Board with an electronic copy of each tax credit
certificate within 30 days of issuing the certificate.
Establish audit procedures of taxpayers redeeming tax credit
certificates and conduct audits as CTFA deems appropriate.
Notify the applicant within 45 days of either a denial
or award of the tax credit certificate.
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Finally, this bill takes effect immediately because it is a tax
levy and sunsets on December 1, 2019.
COMMENTS:
1.Purpose . Port trade activity in California faces a very real
threat from the upcoming expansion of the Panama Canal which
will enable the Canal to accommodate larger ships and could,
therefore, result in ships bypassing California. According to
the author, this bill provides tax credits to encourage the
use of California's ports to offset the negative impact of the
Panama Canal's expansion. The author contends that
international trade accounts for nearly 25 percent of the
state's economy; this economic generator relies on land ports
of entry and seaports.
2.Why CTFA ? Notwithstanding the merits of using tax credits to
promote international trade, it is not clear why CTFA should
be the administering entity for this proposal. First, as
noted earlier, CTFA was created as a tool to increase new
capacity in the state transportation system in ways consistent
with the state's environmental goals. This bill only
marginally relates to expansion of the state's transportation
system in that one of the four ways an importer or exporter
can qualify for a tax credit involves expenditures related to
capital projects at a state port or airport. Depending on the
project, expansion of a cargo facility at a port may not
expand the state's transportation system at all, and may not
fit the original legislative intent of CTFA. In addition,
this proposal does not relate to improved environmental
outcomes and, in fact, could have negative environmental
impacts because the state's air quality in many ways is linked
to the amount of freight transported into and out of the
state's ports. A tax credit program intended to increase
international trade lies outside of CTFA's current mission.
Second, CTFA is not currently involved in any of the
activities required by this bill. The Treasurer's Office
currently dedicates one staff person to CTFA workload, whose
job primarily involves discussing transportation finance and
the potential role CTFA could play with interested
transportation entities. CTFA would essentially need to
recreate itself, hire a significant number of new staff, and
possibly relocate in order to administer the program as
proposed by this bill.
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With this in mind, the committee may wish to amend the bill to
place this program within an organization more suited to
administering tax credit programs, such as the Franchise Tax
Board.
3.Other considerations . While the jurisdiction of this
committee principally lies with the question of whether or not
CTFA is the right place for this, other significant questions
committee members may wish to consider include:
Is this the best way to spend state resources? Tax
credits are equivalent to direct expenditures, except they
are usually not reviewed with the same scrutiny to
determine if they demonstrate any public benefit.
Considering the significant cuts to many state programs the
past few years, is this the best use of tax dollars?
Are these tax credits likely to induce the desired
behavior? In other words, will these tax credits encourage
importers and exporters to increase their use of California
ports and employees, or are there larger economic forces at
work that will influence those taxpayers' business
decisions regardless of the state's tax policies?
The Department of Finance notes that tax expenditures
such as these can occur by majority vote, but if found
ineffective, require a two-thirds vote to rescind. Is the
Legislature confident enough of the expected benefits of
this program to adopt it with the understanding that taking
back this decision could be difficult if not impossible?
Is there a market for this tax credit? Tax credits are
helpful only to those individuals or entities with tax
liabilities. Is it clear that importers and exporters in
California carry heavy state tax burdens, and that these
credits will be worth applying for and basing business
decisions on?
If this proposal could result in the desired outcomes,
are there ways to "game" the system as proposed? Are there
ways to reduce the ability of certificate recipients to
abuse the system for personal gain without generating the
desired public benefit?
1.Previous legislation . In 2012, Assemblymember Charles
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Calderon introduced AB 2656, which was identical to this bill.
AB 2656 passed out of Assembly Revenue and Taxation
Committee, but failed passage in the Assembly Appropriations
Committee.
Senator Wright introduced SB 830 in 2011 that, similar to this
bill, proposed tax credits for the purpose of encouraging
trade through California, but did so through different
mechanisms and did not involve CTFA. SB 830 failed to pass
the Senate Governance and Finance Committee.
2.Require reporting ? To address questions raised concerning the
efficacy of tax credits to encourage trade in California, SB
830 included language which required the Legislative Analyst's
Office to prepare an evaluation of the effectiveness of the
credit by January 1, 2020. The evaluation included the
overall impact of the tax credits, the amount of credits
issued, the number of new jobs created, the amount of
California payroll created, the economic impact of the tax
credits on the port and maritime industry located in this
state and regionally, the amount of new infrastructure that
has been developed in the state, and any other factors that
describe the impact of the program. The committee may wish to
amend the bill to require an evaluation of the effectiveness
of the program similar to that proposed in SB 830 (Wright).
3.Double-referral . The Rules Committee has referred this bill
to both this committee and the Governance and Finance
Committee. Therefore, if this bill passes this committee, it
will be referred to the Committee on Governance and Finance.
RELATED LEGISLATION:
AB 886 (Allen) is identical to this bill. This bill is
currently in the Assembly Committee on Revenue and Taxation.
POSITIONS: (Communicated to the committee before noon on
Wednesday, April 10,
2013.)
SUPPORT: Port of Los Angeles (Sponsor)
Bay Area Council
Business Council of San Joaquin County
California Chapter of the American Fence
Association
California Contract Cities Association
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California Fence Contractors' Association
California Taxpayers Association
Construction Industry Air Quality Coalition
East Bay Economic Development Alliance
Engineering Contractors' Association
Flasher Barricade Association
FuturePorts
Greater Fresno Area Chamber of Commerce
Greater Los Angeles African American Chamber of
Commerce
Harbor Association of Industry & Commerce
Independent Cities Association
Inland Empire Economic Partnership
International Longshore and Warehouse Union
Jobs 1st Alliance
Long Beach Chamber of Commerce
Los Angeles Area Chamber of Commerce
Los Angeles County Economic Development
Corporation
Los Angeles/Orange County Building & Construction
Trades Council
Marin Builders Association
National Association of Women Business Owners -
Los Angeles
North Bay Leadership Council
Oakland Metropolitan Chamber of Commerce
Orange County Business Council
Pacific Merchant Shipping Association
Regional Economic Association Leaders of
California (REAL Coalition)
Sacramento Metro Chamber of Commerce
San Diego Economic Development Corporation
San Diego Regional Chamber of Commerce
San Francisco Chamber of Commerce
San Gabriel Valley Economic Partnership
San Jose Silicon Valley Chamber of Commerce
Silicon Valley Leadership Group
Southern California Association of Governments
(SCAG)
Southern California Leadership Council
Ventura County Economic Development Association
OPPOSED: None received.
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