BILL ANALYSIS Ó
AB 151
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Date of Hearing: May 18, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 151
(Rodriguez) - As Amended April 21, 2015
Majority vote. Tax levy. Fiscal committee
SUBJECT: Income taxes: credits: apprenticeships.
SUMMARY: Provides a temporary tax credit of up to $2,000 under
both the Personal Income Tax (PIT) and the Corporation Tax (CT)
laws for each registered apprentice trained by the taxpayer in
the taxable year. Specifically, this bill:
1)Allows a tax credit to a taxpayer, for each taxable year
beginning on or after January 1, 2016, and before January 1,
2020, in an amount equal to $1 for each hour a registered
apprentice worked during the taxable year, up to $2,000 for
each registered apprentice trained by the taxpayer in the
taxable year.
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2)Defines a "registered apprentice" as an individual who meets
all of the following requirements:
a) Is 16 years of age or older at the time of application
into the program;
b) Meets one of the following requirements:
i) Has not obtained a high school diploma and is
enrolled in high school or a General Education
Development test preparation program (GED program); or,
ii) Has obtained a high school diploma or GED
credential while participating in the apprenticeship;
and,
c) Is trained by the taxpayer through an apprenticeship
program, as specified.
3)Requires an apprenticeship program to meet all of the
following conditions:
i) It must be approved by the Chief of the Division of
Apprenticeship Standards (the "DAS"), pursuant to Chapter
4 (commencing with Section 3070) of Division 3 of the
Labor Code and be registered with the Office of
Apprenticeship at the United States (U.S.) Department of
Labor;
ii) It must be provided pursuant to an apprenticeship
agreement as described in Section 3077 of the Labor Code
(LC); and,
iii) The minimum term in hours for the apprenticeship
program must be 2,000 hours.
4)Specifies that the apprenticeship tax credit is allowed only
if the taxpayer has received a certificate from the DAS.
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5)Requires the taxpayer claiming the apprenticeship tax credit
to obtain a certificate for each taxable year and provide a
copy of the certificate to the Franchise Tax Board (FTB) upon
request.
6)Provides that a deduction otherwise allowed for any amount
paid or incurred by the qualified taxpayer in training a
registered apprentice as a trade or business expense must be
reduced by the amount of the credit allowed by this bill.
7)Requires the DAS to do all of the following:
a) Establish a procedure for taxpayers, in the form and
manner jointly prescribed by the DAS and FTB, to apply and
receive a certificate;
b) Verify that the taxpayer is training an individual who
meets the requirements of a registered apprentice during
the taxable year, as provided;
c) Provide the taxpayer with a certificate for the
registered apprentice;
d) Annually provide the FTB with a list of the names of
taxpayers that received certificates and the names of
registered apprentices. The list may also contain other
information included on the certificates;
e) Inform the FTB if the DAS has knowledge that the
training of a registered apprentice is terminated prior to
the completion of the apprenticeship program, after the
taxpayer has received a certificate.
f) Prepare a report on the apprenticeship tax credit for
each of the five calendar years beginning on January 1,
2017, and before January 1, 2022, and include in the report
all of the following information:
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i) The number of companies or businesses taking
advantage of the apprenticeship income tax credit;
ii) The number of apprentices participating in the
apprenticeship programs and the number of apprentices who
completed an apprenticeship program that was the basis of
the apprenticeship tax credit;
iii) The number of apprentice program graduates hired by
the taxpayer after the apprenticeship training was
completed for which the taxpayer was allowed a credit for
training that apprentice;
iv) Information on the employment status of individuals
who have completed an apprenticeship to the extent the
information is available; and,
v) The fiscal impact of the apprenticeship tax credits.
g) Submit an annual report on the apprenticeship tax
credits to the Assembly and Senate Appropriations
Committees, the Assembly Committee on Revenue and Taxation,
and the Senate Governance and Finance Committee on or
before March 1 of the calendar year, commencing with March
1, 2018.
8)Authorizes the DAS, in consultation with the FTB, to adopt
rules and regulations as reasonably necessary to effectuate
the implementation of the apprenticeship tax credit.
9)Authorizes the FTB to prescribe rules, guidelines, or
procedures necessary or appropriate to carry out the purposes
of the apprenticeship tax credit provisions.
10)Requires the FTB to provide DAS with any information
necessary to prepare the reports on the apprenticeship tax
credit, as specified.
11)Allows a taxpayer to carry forward the apprenticeship tax
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credit to the following tax year, and succeeding four years,
if necessary, until the credit is exhausted.
12)Provides that any unused carryover of the apprenticeship tax
credits shall be canceled and any previously claimed credit
that reduced the taxpayer's tax shall be recaptured, as
specified, if the training of a registered apprentice is
terminated prior to the completion of the apprenticeship
program, unless any of the following applies:
a) The registered apprentice voluntarily leaves the
apprenticeship program;
b) The registered apprentice, before the completion of the
apprenticeship program, becomes disabled and unable to
perform, as specified, unless that disability is removed
prior to the close of the apprenticeship program and the
taxpayer fails to offer reinstatement to the program for
that apprentice;
c) The training of a registered apprentice was terminated
due to the apprentice's misconduct, as defined in Section
1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations; or,
d) The training of a registered apprentice was terminated
due to a substantial reduction in the trade or business
operations of the taxpayer.
13)Takes effect immediately as a tax levy.
EXISTING LAW allows various tax credits designed to influence
taxpayer behavior or to provide tax relief for taxpayers who
incur certain expenses. These credits are created to
incentivize taxpayers to engage in certain activities that
taxpayers may not undertake in the absence of the credit.
FISCAL EFFECT: The FTB staff estimates that this bill will
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result in an annual revenue loss of $3.8 million in the fiscal
year (FY) 2015-16, $11 million in FY 2016-17, and $14 million in
FY 2017-18.
COMMENTS:
1)The Author's Statement . The author provided the following
statement in support of this bill:
"Registered apprenticeship programs are a key component of an
overall strategy to expand the pool of skilled workers in our
state and keep key sectors of our economy expanding. For
apprentices, these programs provide them with the flexibility
to acquire knowledge and training at the same time they are
making a living. For employers, voluntarily sponsoring or
participating in an apprenticeship program, [it] is a cost
effective way of training employees creating a diversified and
flexible pool of employees with the desired skills.
Increasing the number of employers and industry sectors that
offer apprenticeships would ensure that we continue to create
and expand training opportunities and help more workers get
into rewarding careers. It has been proven that
apprenticeships work. As our economy continues to recover, we
need to provide more opportunities for job training and entry
into the job market."
2)Arguments in Support . The proponents argue that this bill
"can be an important tool to reduce the horrendous
unemployment rate among youth, particularly among youth of
color." They assert that this bill encourage employers to give
young job seekers "a chance" and encourage youth "to complete
their high school education."
3)Arguments in Opposition . The opponents acknowledge the
importance of apprenticeship programs as "a means of providing
opportunities to enter the workforce in stable, well-paying
jobs." However, the opponents are doubtful that "the use of
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tax credits is an effective way to increase apprenticeships."
They note that, historically, "hiring credits in most forms
have not worked, primarily because the decision to hire, or in
this case, take on an apprentice, is a costly one for which
tax credits are a negligible part of the cost." The opponents
argue that employers "hire because of the employee value to
the bottom line, not because of tax credits of $2000."
Nonetheless, they admit that their "skepticism about the use
of tax credits could be overcome by information demonstrating
that these tax credits are more efficient than a direct
subsidy program" and welcome an analysis demonstrating that "a
more effective apprenticeship program would be created by tax
credits rather than direct subsidies and placement of
apprentice."
4)What Does this Bill Do ? This bill proposes to create an
income tax credit for five taxable years - from January 1,
2016, until January 1, 2020 - for employers who have
established an eligible apprenticeship program approved by the
DAS and is registered with the Office of Apprenticeship at the
U.S. Department of Labor. Thus, this bill would subsidize the
cost of training youth at the work site, up to $2,000 annually
per each registered apprentice trained by the taxpayer. Only
specified individuals who are 16 years of age or older would
qualify as "registered apprentices." Generally, an individual
must be enrolled in high school or a GED test preparation
program. In order to claim the apprenticeship tax credit, a
taxpayer must receive a certificate from the DAS for each
taxable year in which the taxpayer intends to claim the
credit. The taxpayer must ensure that a registered apprentice
completes the training program; otherwise, the credit claimed
by the taxpayer may be subject to recapture. However, the
recapture provisions will not apply in the case where a
registered apprentice left the program voluntarily; was unable
to perform, as required by the program, due to acquired
disability; or was terminated for misconduct or due to a
substantial reduction in the trade or business operations of
the taxpayer.
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5)Annual Reporting . This bill would require the DAS to prepare
an annual report regarding the effectiveness of the
apprenticeship tax credit, including the number of companies
and apprentices participating in the program, the number of
apprentices hired after the apprenticeship, and the fiscal
impact of the apprenticeship tax credit, among other types of
information. The annual report will be delivered to the
Legislature for review.
6)Disconnected Youth . According to the report<1> released by
Measure America, a project of the Social Science Research
Council, one in every seven Americans between the ages of 16
and 24 (or about 5.8 million young people in the country) is
neither working nor is in school. The highest rate of youth
disconnection among the country's most populous 25 metro areas
was found in the Inland Empire: nearly one in every five
young people, or 117,000 of approximately 620,000 teens and
young adults. The national disconnection rate was 14.6%.
Among the factors associated with youth disconnection are high
rates of poverty and unemployment, low levels of educational
attainment, and high rates of disconnection identified over a
decade ago. While youth disconnection is a complex problem
with no easy solution, the new approaches identified by the
U.S. Department of Labor show great promise. The key
component of the overall strategy is a focus on job readiness
and training. Apprenticeship programs allow people to obtain
on-the-job experience and move into gainful employment.
According to the U.S. Department of Labor, some 37,000 program
sponsors signed for the Registered Apprenticeship program in
the United States, representing over one-quarter million
employers, industries and companies. The training programs
serve a diverse population, including minorities, women,
youth, and dislocated workers.
7)The 21st Century Registered Apprenticeship Program . The
National Apprenticeship Act of 1937 (also known as the
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<1> "Halve the Gap by 2030: Youth Disconnection in America's
Cities."
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Fitzgerald Act) established the national Registered
Apprenticeship system, offering a training model for diverse
industry sectors which combines on-the-job learning, classroom
instruction, and mentoring.<2> Apprentices earn paychecks
while in training and employers are assured of a valuable and
competent workforce. Equally important, the program offers "a
career pathways leading to industry recognized credentials,
giving employers an avenue to elevate the competencies of
their workers, and giving workers and their families
opportunities for advancement and increased earnings as skills
and expertise are acquired."<3>
Either the U.S. Department of Labor's Office of Apprenticeship
or a State Apprenticeship Agency approved by the Secretary of
Labor for federal purposes administers the National
Apprenticeship Act. The program is sponsored by an individual
business or an employer association and may be partnered with
a labor organization through a collective bargaining
agreement. Sponsors identify the minimum applicable
qualifications and credentials. Those programs range from one
to six years, with an average of four years. For each year of
the apprenticeship, the apprentice will normally receive 2,000
hours of on-the-job training and a recommended minimum of 144
hours of related classroom instructions.<4>
The Registered Apprenticeship is primarily funded by industry,
allowing the opportunity for the public sector "to leverage
the significant investments made by the private sector in this
industry-driven model." The U.S. does not provide incentives
to potential sponsors to utilize Registered Apprenticeship
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<2> 21st Century Registered Apprenticeship: Outeducate,
Outbuild, Outinnovate, A shared Vision for Increasing
Opportunity, Innovation, and Competitiveness for American
Workers and Employers, Report from the Secretary of Labor's
Advisory Committee on Apprenticeship, January 2013 (the
"Report").
<3> Id., p. 4
<4> Id., p. 13
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program.<5> According to a recent evaluation, the social
benefits of Registered Apprenticeship are much larger than the
social cost, where participants had substantially higher
earnings than did nonparticipants.<6> According the Report,
the net social benefits of the Registered Apprenticeship
Program have important implications for states, regions, and
local communities - enhanced worker productivity and skill
levels; increased worker earnings; a larger revenue base; and
reduced utilization of government-provided assistance, such as
unemployment compensation and food stamps.
8)California Apprenticeship Programs . Apprenticeship in
California dates back to the Shelly-Maloney Apprenticeship
Labor Standards Act of 1939. Currently, California has the
largest apprenticeship system in the nation. Apprenticeship
programs are offered in occupations that meet specific
state-approved standards, registered with and approved by the
DAS. There are over 800 apprenticeable occupations in
California across a variety of industry sectors. The bulk of
registered apprenticeship programs are in the construction
sector - at present, about two-thirds of California's
apprentices are in training in building and construction
trades and occupations. However, there are significant
numbers of apprentices in training as barbers, cosmetologists,
firefighters, machinists, auto mechanics and public safety
officers among the DAS's over 600 approved apprenticeship
program sponsors.
Generally, wages and benefits are paid to registered apprentices
by employers participating in the apprenticeship programs, but
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<5> Id., p.10
<6> An Effectiveness Assessment and Cost-benefit Analysis of
Registered Apprenticeship in 10 states, Mathematica Policy
Research.
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apprenticeship program educational funding (RSI or "Montoya
Funds") are appropriated annually in the State Budget Act from
Proposition 98 funds. The appropriations are made to the
California Department of Education (CDE) and the California
Community College Chancellor's Office. The funds are then
disbursed to high school districts, Regional Occupational
Centers and Programs, and community college districts that
contract with apprenticeship program sponsors. The CDE
supports approximately 35 regional and occupational centers
offering apprenticeship programs for a specified length of
time, usually three to five years, and include on-the-job
training and classroom related and supplemental instruction.
In March 2012, the Employment Training Panel<7> (ETP) began
funding apprenticeship training through an Apprentice Training
Pilot Program as a way to supplement RSI funds.<8> The Pilot
program funds RSI at the rate of $13 per hour and is capped at
154 hours per individual apprentice. Only DASapproved
apprenticeship programs are eligible to apply. Apprenticeship
training may stand alone or be combined with preapprenticeship
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<7> There are several workforce development programs in
California; they are primarily administered through the Labor
and Workforce Development Agency and the California Community
College System. One of the largest programs of its kind in the
nation is the Employment Training Panel (ETP), a business- and
labor-supported state agency that funds job skill development
initiatives that have good pay potential. The ETP provides
customized training to new and current workers of California
employers, particularly those facing out-of-state competition.
One source of funding is provided by an assessment of one-tenth
of 1% of unemployment insurance wages paid by every private,
for-profit employer in California, as well as some non-profits
amounting to no more than $7 per covered employee per year.
<8> "Apprenticeship as a Critical Component of an "Earn and
Learn" Job Training Strategy in California," White Paper
produced on behalf of the California Workforce Investment Board
by the Interagency Working Group on 'Earn and Learn' Job
Training Strategies and Apprenticeship in California, December
2012.
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and journeyman training. As the March 2013 meeting, the ETP
revised its apprenticeship guidelines to expand
apprentices9)hip into new sectors, such as healthcare.<9>
10)Will the Proposed Tax Credit Increase Apprentice Enrollment ?
Many states and local communities have been actively
"innovating 'on the ground,' incubating and scaling strategies
and models that highlight Registered Apprenticeship's critical
role in meeting complex 21st century workforce needs."<10>
Some states enacted business tax credits and employed
utilization agreements, project labor agreements and other
strategies to expand Registered Apprenticeship.<11> Several
states, including Arkansas, Connecticut, Michigan, Missouri,
Rhode Island and Virginia, have established Youth
Apprenticeship Tax Credit programs. In July 2000, the
National Conference of State Legislatures (NCSL) reviewed
school-to-career apprenticeship tax credit programs. The NCSL
found that most states lacked sufficient data to analyze their
credit's impact on apprenticeship enrollment. However, the
State of Arkansas showed a 10% increase in the number of
apprentices after the passage of the tax credit. Similarly,
South Carolina has seen a 680% increase in the number of
employers sponsoring apprentices since the implementation of
an apprenticeship program in 2007, which includes a state tax
credit of $1,000 for every apprentice that a business hires
and $700,000 in direct state funding annually, among other
subsidies.<12>
Although well intentioned, this bill represents an attempt to
use the tax code to accomplish a public policy objective that
may be better addressed through a direct outlay of state
funds. As noted by the California Budget Project, nearly
two-thirds of the projected 2020 labor force is already past
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<9> Employment Training Panel, 2013-14 Strategic Plan, p.16.
<10> The Report, p. 21.
<11> Ibid.
<12> Innovations in Apprenticeship, Center for American
Progress, S. Steinberg and E. Gurwitz, September 2014, pp.
13-14.
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high-school age, and meeting the needs of working adults
requires changes in the areas that include financial aid
policies; supportive services, such as child care and
transportation; new approaches to teaching and curriculum
design; and flexibility in the scheduling of classes.
(California Budget Project, Mapping California's Workforce
Development System: A guide to Workforce Development Programs
in California, 2009.) It was also suggested that one
promising strategy for addressing both the needs of workers
and employers is employment and training programs that target
a specific industry and work to meet its local labor market
needs. (Id.) Would a stand-alone tax credit be sufficient to
improve the state's workforce and to ensure that the state's
workers have the skills needed to compete in the global
marketplace? The Committee may wish to consider whether an
increased funding to the ETP to support and expand the
existing apprenticeship programs would be a more efficient
approach to achieve these goals.
11)Credit vs. Deduction . Existing law already provides a tax
incentive, in the form of a deduction for business expenses,
for wages and benefits paid to employees. A tax credit is
more valuable because it lowers the tax liability
dollar-for-dollar. A deduction decreases the taxpayer's
income; the value of a deduction depends on one's tax bracket.
For example, if a taxpayer is in the 25% bracket, a $1,000
deduction would lower the taxpayer's tax bill by $250. In
contrast, a $1,000 credit decreases the tax liability by the
full $1,000, regardless of the tax bracket. Thus, the value
of a tax credit is the same, regardless of the tax rate and,
therefore, it is generally more appealing to taxpayers. In
fact, the credit proposed by this bill may be so great that it
may incentivize employers to hire an apprentice instead of an
employee. Would this bill potentially result in the increased
number of apprentices at the expense of full-time employees?
The Committee may wish to consider whether the total amount of
apprenticeship credit available to all employers in any given
taxable year should be capped.
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12)Prior Legislation : AB 1569 (Rodriguez), of the 2013-14
Legislative Session, was substantially similar to this bill.
AB 1569 was held on the Assembly Committee on Appropriations'
Suspense File.
REGISTERED SUPPORT / OPPOSITION:
Support
Council of California Goodwill Industries
Opposition
California Tax Reform Association
Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916) 319-2098