BILL ANALYSIS Ó AB 515 Page 1 Date of Hearing: May 20, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair AB 515 (Eggman) - As Amended May 4, 2015 ----------------------------------------------------------------- |Policy |Revenue and Taxation |Vote:|9 - 0 | |Committee: | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: NoReimbursable: No SUMMARY: This bill expands the scope and size of the existing tax credit program under the personal income and corporate tax laws for contributions of items donated to food banks, and extends the program until January 1, 2021. In summary, this bill: 1)Expands the universe of qualified taxpayers who may claim a donation credit to include persons responsible for growing or raising a donated item, or harvesting, packing, or processing a donated item. AB 515 Page 2 2)Expands the qualifying items to include, in addition to fresh fruits and vegetables, certain raw or processed nuts, poultry, eggs, fish, certain dairy products, rice, beans, vegetable oils, soup, pasta, pasta sauce, salsa, infant formula, bread, and other canned meats and seafood. 3)Increases the allowed credit from 10% to 15%, and specifies the credit value is calculated with reference to the taxpayer's weighted average wholesale price for the item or, if unavailable, the nearest regional wholesale price as published by the US Department of Agriculture's Agricultural Marketing Service, subject to a minimum credit amount as available under existing statute. 4)Requires donors to provide item value and information regarding where the items were grown and processed to food banks, requires the food banks to issue certificates with respect to donated items, and authorizes the Franchise Tax Board (FTB) to request copies of any certificates. 5)Requires FTB to include in its annual report to the legislature on the utilization of the credit the estimated value and origin of the donated items, and the month in which the donations were made. 6)Renames the State Emergency Food Assistance Program as the "CalFood" program but maintains current administration and funding with the Department of Social Services (DSS). FISCAL EFFECT: 1)Potentially significant GF costs to FTB to administer changes to systems and procedures; no change to DSS costs, which are AB 515 Page 3 reimbursed with federal funds received under the program. 2)Estimated GF revenue decreases of $0.4 million, $1.0 million, and $1.4 million in FY 2015-16, FY 2016-17, and FY 2017-18, respectively. COMMENTS: 1)Purpose. According to the author, California is the leading agricultural producing state in the US, yet many Californians still suffer from hunger and poor nutrition. AB 515 broadens the existing state tax credit offered to agricultural producers for donations to qualified non-profits such as food banks, and expands the list of eligible products to include other fresh items and a limited selection of core shelf-stable items. The bill increases the credit amount from 10% to 15%, and bases the credit's value on the donor's wholesale or comparable market wholesale price for the items, instead of the more cumbersome inventory cost measure in the existing statute. 2)Food Insecurity in California. Food insecurity is generally defined as being without reliable access to a sufficient quantity of affordable, nutritious food. According to the California Association of Food Banks (CAFB), one of the bill's sponsors, California ranks 19th for food insecurity in the US, with approximately 6.1 million people, or 16.2% of the population, facing food insecurity. Among children, this rate is 26.3%, ranking California 12th in the nation for childhood food insecurity. CAFB represents over 40 food banks in California that provide food to soup kitchens, schools, churches, and community and senior centers, partnering with AB 515 Page 4 over 100 growers and packers to distribute approximately 140 million pounds of food each year. 3)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 is particularly true among corporate taxpayers. This bill not only broadens the pool of potential participants and items that may be donated for credit, and reforms the valuation methods used for calculating credits, it increases the credit from 10% to 15%. While the expansion will very likely result in an increase in food donations, it is unclear whether the increase in credit value is needed to help achieve that expansion, or whether 15% is the optimal credit amount to encourage the desired behavior. This bill does not address the aspirations 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 are certainly laudable, and it may be argued it is an expansion of an existing credit and not the creation of a new credit, there is no indication that 15% is the appropriate credit amount to achieve the desired increase in donations, and there are no metrics proposed with which to evaluate whether the credit is achieving its aims. 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. AB 515 Page 5 Analysis Prepared by:Joel Tashjian / APPR. / (916) 319-2081