BILL ANALYSIS Ó
AB 603
Page 1
Date of Hearing: May 27, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
603 (Salas) - As Amended May 21, 2015
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|Policy |Revenue and Taxation |Vote:|9 - 0 |
|Committee: | | | |
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Urgency: Yes State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill allows a tax credit under the personal income and
corporation tax laws equal to 25% of the qualified costs
incurred for conventional lawn removal by a taxpayer
participating in a lawn replacement program offered by a local
water agency, subject to a maximum credit of $1,500.
The bill applies to taxable years beginning on or after January
1, 2016, and before January 1, 2021, unless the state of
emergency with respect to drought conditions proclaimed by the
Governor on January 17, 2014, is terminated, in which case the
bill shall only remain in effect until December 1 of the year of
AB 603
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termination.
The bill defines qualified costs as those costs eligible for a
rebate under the local replacement program in excess of the
amounts actually received from the local water agency, and
allows any unused credit to be carried forward, up to five
years.
FISCAL EFFECT:
1)Potentially significant GF costs to Franchise Tax Board (FTB)
to administer the changes to forms and systems.
2)Estimated GF revenue decreases of $23 million, $26 million,
and $30 million in FY 2015-16, FY 2016-17, and FY 2017-18,
respectively.
COMMENTS:
1)Purpose. According to the author, grass is one of the most
water-intensive plants in landscaping, and outdoor irrigation
accounts for over 50% of all water used by residential
consumers. To encourage water conservation, several local
agencies have established rebate programs to support customers
who replace traditional laws with drought-resistant plants and
landscaping. The author argues the state has reduced water
use by 8.8%, but this remains short of the 25% conservation
target set by the Governor in his recent executive order. AB
603 is intended to provide an additional incentive for
taxpayers to participate in lawn replacement programs offered
by local water agencies.
AB 603
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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 Lottery. The tax credit proposed in this bill
applies only to taxpayers participating in local water agency
lawn replacement programs, providing an additional incentive
for customers to apply. Yet these programs are already
oversubscribed, with many more customers eager to participate
than local agencies can accommodate. Adding a tax credit to
the benefits received by participants will incentivize greater
competition for participation, bestowing an even greater
reward on those who are selected, but will not result in
additional lawn removal. The committee may wish to consider
whether those who are not selected to participate in local
water agency programs should be incentivized to remove their
lawns instead of rewarding those who were selected.
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 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
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goals of this bill may be laudable, there is no indication
that 25% or $1,500 is the appropriate credit amount to achieve
the desired increase in lawn removal program participation,
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