BILL ANALYSIS                                                                                                                                                                                                    Ó






                                                                     AB 931


                                                                     Page A


          CONCURRENCE IN SENATE AMENDMENTS


          AB  
          931 (Irwin)


          As Amended  July 1, 2015


          2/3 vote. Tax levy


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          Original Committee Reference:  REV. & TAX.




          SUMMARY:  Revises, under the Corporation Tax (CT) and the  
          Personal Income Tax (PIT) Law, the definition of a "qualified  
          full-time employee" to include a veteran who separated from  
          service in the United States Armed Forces within 36 months  
          preceding commencement of employment with a qualified taxpayer,  
          for purposes of qualifying for a hiring tax credit.  




          The Senate amendments: 













                                                                     AB 931


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          1)Revise the definition of a "qualified full-time employee," for  
            taxable years beginning on or after January 1, 2014, and  
            before January 1, 2016, to include a veteran who separated  
            from service in the Armed Forces of the United States within  
            the 12 months preceding commencement of employment with the  
            qualified taxpayer.




          2)Revise the definition of a "qualified full-time employee," for  
            taxable years beginning on or after January 1, 2016, to  
            include a veteran who separated from service in the Armed  
            Forces of the United States within the 36 months preceding  
            commencement of employment with the qualified taxpayer.




          AS PASSED BY THE ASSEMBLY, this bill:  


          1)Revised, under the CT and the PIT Law, on or after January 1,  
            2016, the definition of a "qualified full-time employee" to  
            include a veteran who separated from service in the Armed  
            Forces within 36 months and was unemployed for the six months  
            immediately preceding commencement of employment with the  
            qualified taxpayer. 


          2)Takes effect immediate as a tax levy.


          FISCAL EFFECT:  According to the Senate Appropriations  
          Committee, the Franchise Tax Board (FTB) estimates that this  
          bill would result in General Fund losses of $20,000 in fiscal  
          year (FY) 2015-16, $150,000 in FY 2016-17, and $250,000 in FY  











                                                                     AB 931


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          2017-18.  The bill would not impact FTB's administration costs. 


          COMMENTS:  


          1)Author's Statement:  The author has provided the following  
            statement in support of this bill:


               AB 931 will expand the timeframe for veterans who have  
               separated from active duty to be eligible for a hiring  
               tax credit which makes them a more attractive hire for  
               potential employers.  This bill will also increase the  
               total amount of veterans in California who are  
               included in this group which will help employers  
               identify more unemployed veterans.


               California is home to a growing population of over 1.8  
               million veterans.  As two overseas operations are  
               concluding, the employment needs for veterans in  
               California will continue to increase.  According to a  
               Congressional Joint Economic Committee report, the  
               unemployment rate for California's veterans continues  
               to be substantially larger than the national average.   
               The state's unemployment rate is also higher for  
               post-9/11 veterans.


               There is not yet sufficient tax data on the  
               effectiveness of the New Employment Credit because it  
               began on January 1, 2014.  However, based on early  
               project based on tax reservation the hiring tax credit  
               appears to be going underutilized.  Less than 50  
               employers in the state have applied for tax  
               reservation for hiring a veteran eligible for the tax  
               credit.












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               AB 931 will address this by allowing more veterans to  
               be hired under the New Employment Credit.  This tax  
               credit also ensures that those hired are paid at least  
               150% of the minimum wage and for no less than 35 hours  
               per week.  This bill will increase incentives for  
               employers to connect Veterans with quality,  
               high-paying jobs.


          2)What is a "tax expenditure":  Existing law provides various  
            credits, deductions, exclusions, and exemptions for particular  
            taxpayer groups.  In the late 1960s, United States Treasury  
            officials began arguing that these features of the tax law  
            should be referred to as "expenditures," since they are  
            generally enacted to accomplish some governmental purpose and  
            there is a determinable cost associated with each (in the form  
            of foregone revenues).  This bill would modify the existing  
            hiring tax credit program by expanding eligible veterans that  
            qualify for the program.


          3)How is a tax expenditure different from a direct expenditure?   
            As the Department of Finance notes in its annual Tax  
            Expenditure Report, there are several key differences between  
            tax expenditures and direct expenditures.  First, tax  
            expenditures are reviewed less frequently than direct  
            expenditures once they are put in place.  Second, there is  
            generally no control over the amount of revenue losses  
            associated with any given tax expenditure.  Finally, it should  
            also be noted that, once enacted, it generally takes a  
            two-thirds vote to rescind an existing tax expenditure absent  
            a sunset date.  This effectively results in a "one-way  
            ratchet" whereby tax expenditures can be conferred by majority  
            vote, but cannot be rescinded, irrespective of their efficacy,  
            without a supermajority vote. 


          4)Background:  AB 93 (Budget Committee), Chapter 69, Statutes of  











                                                                     AB 931


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            2013, phased out and replaced the California Enterprise Zone  
            tax credits with three new economic development incentives:   
            a) hiring tax credit, b) partial sales and use tax exemption,  
            and c) a negotiated incentive administered by the Governor's  
            Office of Business and Economic Development (GO-Biz).  The new  
            hiring tax credit incentivizes additional hiring of certain  
            individuals within specified geographic areas of California.   
            In general, a business is allowed to claim the hiring tax  
            credit for wages paid to a qualifying employee performing work  
            in an economic development area or certified census tract.  As  
            a way of encouraging the hiring of veterans, the hiring tax  
            credit specifically provides that a taxpayer may claim a  
            credit for hiring a veteran who has separated from service in  
            the Armed Forces within the last 12 months.  Despite the  
            incentive, only 35 companies have claimed a credit for hiring  
            a veteran<1>.  The author hopes to address the  
            underutilization of the hiring tax credit by adding veterans  
            who have separated from service in the Armed Forces within 36  
            months and are unemployed for the six months immediately  
            preceding commencement of employment with a qualified  
            taxpayer.


          5)Do Hiring Tax Credits Work?  In previous years, some have  
            advocated job creation tax credits as a means of revitalizing  
            the struggling economy.  The question, however, is whether  
            such credits actually work, and whether they are an  
            appropriate tool in light of substantial declines in  
            unemployment over the last five years.  Daniel Wilson,  
          ---------------------------


          <1>


           The FTB has provided information indicating that only 35  
          companies have requested a tentative new employment tax credit  
          reservation for a veteran.  However, FTB's research department  
          also notes that most of the companies applying for reservations  
          have been marking all of the categories.  As such, the data may  
          not be representative of the actual number of employees that  
          qualify as veterans.










                                                                     AB 931


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            Assistant Director of the Center for the Study of Innovation  
            and Productivity at the Federal Reserve Bank of San Francisco,  
            attempted to answer this question.  In a paper co-authored  
            with Robert Chirinko of the University of Illinois at Chicago,  
            Wilson examined the period between January 1990 and August  
            2009 and found that among states where employers could qualify  
            for credits immediately after enactment of the credit  
            legislation there was a slight employment increase of 0.12%.   
            These findings suggest that hiring credits, at least at the  
            state level, have some impact but appear to be very a blunt  
            tool for stimulating job growth.  Additionally, it is unclear  
            if the hiring tax credit provides an incentive or reward.  The  
            state's unemployment rate has been steadily declining over the  
            last few years to a rate of 6.5%.  An improved economy is more  
            likely to lead to additional hiring of all individuals in all  
            industries, irrespective of state incentives such as a hiring  
            tax credit.  As a result, this hiring tax credit could  
            potentially provide an employer with a windfall for actions  
            that would have already taken place because of improvements in  
            the economy and job market.   


          Analysis Prepared by:                                             
                          Carlos Anguiano / REV. & TAX. / (916) 319-2098    
                                                                    FN:  
          0001730