BILL ANALYSIS Ó
AB 2040
Page 1
Date of Hearing: May 25, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2040 (Melendez) - As Amended May 16, 2016
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|Policy |Revenue and Taxation |Vote:|9 - 0 |
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill allows a tax credit under the personal income tax law
for voluntary water efficiency improvements to outdoor
landscapes. Specifically, this bill:
1)Allows, for years beginning on or after January 1, 2016 and
before January 1, 2019, a cumulative tax credit of the lesser
of $2,500 or 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. Unused credits may be
carried forward for an additional three years.
AB 2040
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2)Limits the credit to property owners whose income is less than
or equal to 120% of the county median income.
3)Limits eligible water efficiency improvements to those
certified by a regional or local water agency as compatible
with state or local water-efficient landscape statutes or
ordinances, or certain water-efficient landscape programs
developed by a regional or local water agency, and excludes
amounts paid or incurred for water-efficiency improvements
mandated by local ordinance or state law.
4)Specifies that the availability of this this credit is
contingent upon an appropriation to the Franchise Board (FTB)
to oversee and audit the credit.
5)Specifies that the size of the credit will depend on the
"adjustment factor" established during the annual budget
process, but the default is 0%.
FISCAL EFFECT:
1)Potentially significant GF costs to Franchise Tax Board (FTB)
to administer changes to forms and systems.
2)Estimated annual GF cost pressures of $27 million, $22
million, and $27 million in FY 2016-17, FY 2017-18, and FY
2018-19, respectively.
COMMENTS:
1)Purpose. This bill is intended to boost water conservation
efforts by providing a tax credit for individuals who go above
and beyond mandated water conservation. 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
AB 2040
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prohibitive.
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)How would this credit work? The bill was amended in policy
committee with two provisions that affect the availability and
size of the credit. Specifically:
a) The availability of the credit is contingent upon a
Budget Act appropriation to FTB to administer the credit.
The credit is only operative when FTB is provided the
resources needed to oversee and audit returns.
b) The Budget Act must set an adjustment factor for the
credit, which determines its size. The adjustment factor
is set at a default of 0%, meaning that unless otherwise
specified, this credit is not available. An adjustment
factor of 0.5 would mean that the credit would be half of
large as it normally would be (up to a $1,250).
These amendments will help policymakers manage costs and
require a newly created tax expenditure to be considered along
with other spending items. Generally, tax expenditures are
considered outside the budget process, even though they have a
direct impact on the availability of funds for other programs.
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These amendments also create practical complications for
ensuring the credit is well targeted and effective. If the
credit is provided in an inconsistent manner, its
effectiveness as a tool to incentivize homeowners to install
water efficiency improvements is undermined. New tax credits
can take some time to get started in part because taxpayers
need to be educated about the program and FTB needs time to
develop systems, and a process by which the credit is provided
in fits and starts only complicates the administration of the
credit.
1)Related legislation. This bill is similar to AB 585
(Melendez), of 2015, which was held in this committee.
Analysis Prepared by:Luke Reidenbach / APPR. / (916)
319-2081