BILL ANALYSIS Ó
AB 585
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Date of Hearing: August 19, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
585 (Melendez) - As Amended July 15, 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 allows a tax credit under the personal income tax law,
for years beginning on or after January 1, 2016 and before
January 1, 2021, equal to 25% of the amount paid or incurred by
a taxpayer on voluntary water efficiency improvements to outdoor
landscapes on real property owned by the taxpayer and used as
the taxpayer's principal residence. The bill places a $2,500
cap on total credits and allows taxpayers to carry forward
unused credits up to 4 years.
The bill limits eligible water efficiency improvements to those
certified by a regional or local water agency as compatible with
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state or local water-efficient landscape statutes or ordinances,
or certain water-efficient landscape programs developed by a
regional or local water agency. The bill excludes amounts paid
or incurred for water-efficiency improvements mandated by local
ordinance or state law.
FISCAL EFFECT:
1)Potentially significant GF costs to Franchise Tax Board (FTB)
to administer changes to forms and systems.
2)Estimated GF revenue decreases of $21 million, $44 million,
and $55 million in FY 2015-16, FY 2016-17, and FY 2017-18,
respectively.
COMMENTS:
1)Purpose. According to the author, the severity of the current
drought makes it imperative that all Californians conserve
water. The author believes many residents have voluntarily
implemented water conservation strategies, including
installation of drought-friendly landscaping. However, the
author believes those water conscious efforts can be
expensive, and sometimes cost prohibitive. This bill is
intended to encourage water-efficient landscape improvements
that exceed mandated water conservation requirements.
Proponents note the bill provides incentives to install
water-efficient drip systems, plant drought-tolerant
landscapes, and remove lawns, resulting in reduced water usage
of up to 80% over traditional turf landscapes in some areas
during the year's hottest periods.
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2)Local Water Rebate Programs. Several local governments and
agencies offer rebate programs to encourage water
conservation. For example, the Metropolitan Water District of
Southern California and the City of Sacramento Department of
Utilities both offer rebates for water-intensive turf removal
based on the square footage of turf removed. The popularity
of lawn replacement programs is expected to increase as
residents continue to cope with the effects of the drought.
3)Turf Removal Windfall? While this tax credit applies to all
homeowner taxpayers who voluntarily implement water-efficient
landscape improvements, it includes those participating in
local water agency lawn replacement programs. Those who are
selected to receive water rebates will also be able to claim
the credit, receiving both incentives for the same activity.
As a result, a significant portion of this credit will go to
taxpayers who are already incentivized to implement
water-efficient landscape improvements through local water
rebate programs.
While the goal of this tax credit may be laudable, the cost of
allowing taxpayers to receive both local and state incentives
will likely be substantial. AB 603 (Salas) provided a 25% tax
credit, up to $1,500, for taxpayers selected to participate in
a local turf removal program, and FTB estimated the program
would result in a $30 million annual loss of revenue. Given
this bill provides a $2,500 cap, it is reasonable to expect a
substantial portion, perhaps even a majority, of the revenue
loss will benefit taxpayers already receiving local turf
removal incentives.
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
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deductions as the taxpayer may take the same credit regardless
of income.
This bill expressly ignores 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
that 25% or $2,500 is the appropriate credit amount to achieve
the desired increase in water-efficient landscape
improvements, 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.
Analysis Prepared by:Joel Tashjian / APPR. / (916)
319-2081
AB 585
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