BILL ANALYSIS Ó
AB 151
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Date of Hearing: May 27, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
151 (Rodriguez) - As Amended May 20, 2015
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|Policy |Revenue and Taxation |Vote:|9 - 0 |
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Urgency: Yes State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill creates a tax credit, for registered apprentices
trained by taxpayers, under both the personal income tax and
corporation tax laws, for tax years beginning on or after
January 1, 2016, and before January 1, 2020, equal to $1 for
each hour a registered apprentice worked during the taxable
year, subject to a maximum of $2,000, not to exceed 10
registered apprentices each taxable year. The bill specifies
the aggregate tax credits allowed per calendar year shall not
exceed $10 million. In summary, this bill:
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1)Defines a "registered apprentice" as an individual who
satisfies all of the following:
a) Is 16 years of age or older at the time of application
into the program.
b) Meets one of the following: (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.
c) Is trained by the taxpayer through an apprenticeship
program.
2)Requires an "apprenticeship program:" 1) to be approved by the
by the Chief of the Division of Apprenticeship Standards, in
the Department of Industrial Relations (DAS), and registered
with the Office of Apprenticeship at the US Department of
Labor; 2) to be provided pursuant to an apprenticeship
agreement under California labor law; and 3) to consist of a
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term of at least 4,000 hours.
3)Requires DAS to establish procedures for applications and the
verification, allocation, and certification of credits, and
provide ongoing information to the FTB with respect to the
taxpayers that received certificates.
4)Requires DAS to prepare an annual report on the apprenticeship
tax credit program for each of the five calendar years,
beginning on January 1, 2017, and submit the report to the
Legislature on or before March 1 of the relevant calendar
year, beginning March 1, 2018.
5)Allows a taxpayer to carry forward the apprenticeship tax
credit up to five years or until the credit is exhausted.
6)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 if the
training of a registered apprentice is terminated prior to the
completion of the apprenticeship program, subject to certain
exceptions.
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7)Provides that any other deduction allowed for the taxpayer for
any amount paid or incurred in training a registered
apprentice as a trade or business expense shall reduce the
amount of the credit allowed under this program.
FISCAL EFFECT:
1)Potentially significant costs to DAS and FTB to develop
processes and regulations to administer the program.
2)Estimated GF revenue decreases of $200,000, $500,000, and
$700,000 in FY 2015-16, FY 2016-17, and FY 2017-18,
respectively.
COMMENTS:
1)Purpose. According to the author, registered apprenticeship
programs expand the pool of skilled workers and provide
individuals with the flexibility to acquire knowledge and
training, while still earning income. The author claims
employers voluntarily sponsor or participate in apprenticeship
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programs as a cost effective way of training employees with
specifically desired skills. The author believes providing
tax incentives to employers will expand apprenticeship
training opportunities, providing additional entry points into
the job market.
Proponents argue apprenticeships can be particularly important
tools for helping young people of color. They assert this
bill will incentivize employers to help young adults to gain
valuable skills and complete their high school education.
2)Tax Credits vs Investment in Training. Opponents argue that,
while the aim of promoting more apprenticeships is laudable,
tax credits are ill-suited to achieving it. They assert
hiring credits have little track record of improving overall
hiring, and are not a cost-effective means of achieving hiring
goals. Instead, opponents claim California has a variety of
training funds that involve direct training and oversight for
the same purposes proposed in this bill, and those programs
are more effective and could be strengthened through direct
investment. The Committee may wish to consider whether
increased funding to existing programs, such as the Employment
Training Panel (ETP), as discussed in comment 4 below, to
support and expand the existing apprenticeship programs, would
be a more efficient approach to achieving the policy goals of
this bill.
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3)National Registered Apprenticeship Program. The National
Apprenticeship Act of 1937 established a registered
apprenticeship system, creating a training model that combines
on-the-job learning, classroom instruction, and mentoring.
Apprentices earn a paycheck while in training, and employers
are provided a valuable and competent workforce. Equally
important, the program offers career pathways leading to
industry recognized credentials, giving employers
opportunities to improve the competencies of their workers
while giving workers opportunities to acquire skills and
expertise, advance, and increase earnings.
Either the US Department of Labor or a State Apprenticeship
Agency administers the National Apprenticeship Act. However,
the programs are sponsored by individual businesses or
employer associations, and may be partnered with labor
organizations through collective bargaining agreements. The
programs range from one to six years, and 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.
The Registered Apprenticeship is primarily funded by industry,
allowing the public sector to leverage investments made by the
private sector. The US government does not provide incentives
to potential sponsors to utilize Registered Apprenticeship
programs. According to a recent evaluation, participants in
Registered Apprenticeship programs had substantially higher
earnings than nonparticipants, and the social benefits of the
programs have important implications for states, regions, and
local communities. These benefits include enhanced worker
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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.
4)California Apprenticeship Programs. 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. The majority of registered
apprenticeship programs are in building and construction
trades. However, there are significant numbers of apprentices
in training as barbers, cosmetologists, firefighters,
machinists, auto mechanics and public safety officers among
the DAS's more than 600 approved apprenticeship program
sponsors.
Generally, wages and benefits are paid to registered
apprentices by employers participating in the apprenticeship
programs, but apprenticeship program educational funding
(known as related and supplementary instruction (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.
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In March 2012, the ETP began funding apprenticeship training
through an Apprentice Training Pilot Program as a way to
supplement RSI funds. The Pilot 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 and journeyman training. In
March 2013, the ETP revised its apprenticeship guidelines to
expand apprenticeship into new sectors such as healthcare.
4)Is Section 41 Already Doomed? Tax credits are often used to
encourage or influence socially beneficial behavior, and
provide relief to taxpayers who incur expenses from desired
behavior. Tax credits are often more appealing than tax
deductions as the taxpayer may take the same credit regardless
of income.
This bill ignores the requirements of Section 41 of the
revenue and taxation code, authorized just last year in SB
1335 (Leno), Statutes of 2014, which requires tax credits to
articulate specific goals, purposes, and objectives for the
credit, as well as establish performance indicators to measure
the credit's success in achieving those goals. While the
policy goals of this bill may be laudable, there is no
indication the credits offered in this bill are appropriate to
achieve the desired increase in apprenticeship training, and
that taxpayers seeking the credit would not have invested in
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apprenticeship programs absent the credit. In addition, there
are no metrics proposed with which to evaluate whether the
credit is achieving its aims of increasing apprenticeship
enrollments or training more people. Ensuring the Legislature
conducts some objective and dispassionate evaluation of tax
credits was the goal of SB 1335, and the committee might wish
to consider whether this is precisely the type of tax credit
for which Section 41 ought to apply.
5)Prior Legislation. AB 1569 (Rodriguez) of 2014 was
substantially similar to this bill, and was held on the
Suspense File of this committee.
Analysis Prepared by:Joel Tashjian / APPR. / (916)
319-2081
AB 151
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