BILL ANALYSIS Ó
AB 2877
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Date of Hearing: April 12, 2016
ASSEMBLY COMMITTEE ON HUMAN SERVICES
Susan Bonilla, Chair
AB 2877
(Committee on Human Services) - As Introduced February 22, 2016
SUBJECT: CalWORKs: rehabilitation services
SUMMARY: Includes references to the new State Earned Income Tax
Credit (EITC) and the California Secure Choice Retirement
Savings Program in current provisions related to the California
Work Opportunity and Responsibility to Kids (CalWORKs) program,
and makes technical language changes to conform to federal
provisions pertaining to vocational rehabilitation services for
individuals with disabilities.
Specifically, this bill:
1)Includes reference to the state EITC and California Secure
Choice Retirement Savings Program in intent language related
to CalWORKs participants' access to certain benefit, savings,
and investment programs.
2)Permits counties , in order to encourage CalWORKs recipients
to participate in activities that will maximize their receipt
of EITC, to inform CalWORKs recipients that:
a) earned income may make them eligible for the state
EITC;
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b) receipt of the state EITC does not affect their CalWORKs
grant and is additional tax-free income for them; and
c) a CalWORKs recipient who receives the state EITC may
invest these funds in specified savings and investments
accounts, and that investments in these accounts will not
make the recipient ineligible for CalWORKs benefits or
reduce the recipient's CalWORKs benefits.
3)Adds the California Secure Choice Retirement Savings Program
to the list of specified accounts in which a CalWORKs
recipient who receives EITC may invest funds without impacting
his or her CalWORKs eligibility or benefit level.
4)States Legislative intent that counties, at each regular
CalWORKs redetermination, ask a CalWORKs recipient if he or
she is eligible for and takes advantage of the state EITC,
and, where applicable, provide the recipient with the state
EITC form and encourage application.
5)Changes references from "most severe" disabilities to "most
significant" disabilities in language related to vocational
rehabilitation services offered by the Department of
Rehabilitation (DOR) pursuant to the 1998 reauthorization of
the Workforce Investment Act (WIA).
6)Updates references to federal law to include the Workforce
Innovation and Opportunity Act (WIOA).
7)Changes references from "individual written rehabilitation
program" to "individual plan for employment" pursuant to the
1998 reauthorization of WIA.
EXISTING LAW:
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1)Establishes the federal EITC for eligible taxpayers based on
the taxpayer's income. (26 U.S.C. Section 32)
2)Establishes the state EITC for eligible taxpayers based on
certain eligibility criteria. (RTC 17052)
3)Creates the California Secure Choice Retirement Savings Plan
which creates a statewide program which allows private
industry workers without access to other retirement savings
through work. (GOV 100000)
4)Establishes under federal law the Temporary Assistance for
Needy Families (TANF) program to provide aid and
welfare-to-work services to eligible families and, in
California, provides that TANF funds for welfare-to-work
services are administered through the CalWORKs program. (42
U.S.C. 601 et seq., WIC 11200 et seq.)
5)Requires all individuals over 16 years of age, unless they are
otherwise exempt, to participate in welfare-to-work activities
as a condition of eligibility for CalWORKs. (WIC 11320.3,
11322.6)
6)Establishes a 48-month lifetime limit of CalWORKs benefits for
eligible adults, including 24 months during which a recipient
must meet federal work requirements in order to retain
eligibility. (WIC 11454, 11322.85)
7)Establishes the federal Workforce Investment Act (WIA) for the
purpose of providing workforce investment activities through
statewide and local workforce investment systems. (P.L.
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105-220)
8)Establishes the federal Workforce Innovation and Opportunity
Act (WIOA) as the most recent reauthorization of WIA. (P.L.
113-128)
FISCAL EFFECT: Unknown.
COMMENTS:
Federal Earned Income Tax Credit: The federal EITC, established
in 1975, is a provision of the federal income tax code
originally implemented with the intention of compensating
lower-income workers for the federal payroll taxes paid to fund
the Social Security and Medicare programs, with the amount of
the credit limited to the taxpayer's payroll tax liability up to
a certain income level. Eventually, the purpose of the federal
EITC was expanded to encourage paid work and reduce poverty.
The EITC has become a major federal antipoverty program by
supplementing lower wages, offering a short-term safety net to
families in the form of an annual refund, and facilitating asset
building and savings.
The federal EITC is a tax credit used to reduce a taxpayer's
final federal income tax liability after computing taxable
income and then applying the relevant tax rates. In contrast, a
tax deduction is used to reduce taxable income before rates are
applied. The federal EITC is a "refundable" credit, meaning if
a taxpayer's EITC credit is greater than their initial tax
liability, the federal government owes the taxpayer money for
that year. For example, if a taxpayer's tax liability is $400
and the calculated EITC is $900, the federal government must
refund the taxpayer $500.
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The federal EITC is based on the number of dependent children
the taxpayer has and typically plays out over the course of
three stages. The first stage, referred to as the "phase-in"
stage, allows taxpayers with an earned income below a certain
threshold to earn a higher credit as income increases. The
second stage, referred to as the "flat" range, is characterized
by a taxpayer receiving the maximum EITC amount based on incomes
within a certain range. The final stage, referred to as the
"phase-out" stage, is when a taxpayers earned income increases
enough that over time the formula used to calculate their EITC
benefit decreases the amount refunded, until a refund of zero is
reached. This three-stage structure, with phase-in and
phase-out stages, avoids creating a "cliff" effect whereby a
slight increase in earnings would result in complete loss of the
tax benefit.
The EITC is an effective tool in directly reducing the number of
individuals that are considered to be living in poverty by
providing additional resources directly to low-income
individuals and families. According to the Internal Revenue
Service (IRS), during the 2014 tax year, 27.5 million people
received roughly $66.7 billion in EITC benefits. In California,
3.1 million individuals applied for the EITC; with $7.4 billion
dollars in EITC refunded, the average EITC was $2,401 per
claimant.
California's Earned Income Tax Credit: California's 2015-16
budget package established a refundable state EITC beginning in
tax year 2015, making California the 26th state in the nation
(27th jurisdiction when counting the District of Columbia) with
a state EITC. California's EITC, however, is different in that
it only reaches a portion of workers who are eligible for
federal EITC; the state credit is only available to households
of annual earnings below about $7,000-$14,000, depending on
family size. California's EITC is also limited to workers with
earnings subject to wage withholding; income earned from
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self-employment is not eligible. The Governor's office
estimates that 2 million Californians will benefit from the
state EITC.
California's EITC differs from other states' EITC in that the
credit amount must be specified by policymakers in each year's
state budget. Specifically, legislators must set the state
credit at a particular percentage of the federal EITC; this is
referred to as the adjustment factor. The 2015-2016 Budget sets
the state EITC at 85% of the federal EITC. The state EITC is
also only provided in years in which the budget provides
resources to the Franchise Tax Board (FTB) to oversee
administration of the State EITC and to audit tax returns that
claim the credit; in the 2015-2016 Budget, the FTB was given $22
million to implement the credit and conduct public outreach
efforts to promote it.
CalWORKs: The California Work Opportunity and Responsibility to
Kids (CalWORKs) program provides monthly income assistance and
employment-related services aimed at moving children out of
poverty and helping families meet basic needs. Federal funding
for CalWORKs comes from the Temporary Assistance for Needy
Families (TANF) block grant. The average 2015-16 monthly cash
grant for a family of three on CalWORKs (one parent and two
children) is $506.55, and the maximum monthly grant amount for a
family of three, if the family has no other income and lives in
a high-cost county, is $704. According to recent data from the
California Department of Social Services, over 497,000 families
rely on CalWORKs, including over one million children. Nearly
60% of cases include children under 6 years old.
Maximum grant amounts in high-cost counties of $704 per month
for a family of three with no other income means $23.46 per day,
per family, or $7.82 per family member, per day to meet basic
needs, including rent, clothing, utility bills, food, and
anything else a family needs to ensure children can be cared for
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at home and safely remain with their families. This grant
amount puts the annual household income at $8,448 per year, or
42% of poverty. Federal Poverty Guidelines for 2016 show that
100% of poverty for a family of three is $20,160 per year.
Federal Workforce Investment Act (WIA): The Workforce
Investment Act, which provided workforce investment activities
through statewide and local workforce investment systems in
order to increase the employment, retention, and earnings of
participants was reauthorized in 1998. The goal was to improve
the quality of the workforce and reduce dependence on public
assistance programs. Through this reauthorization, the
Rehabilitation Act was also reauthorized and changed terminology
related to individuals with disabilities. The Rehabilitation
Act, established in 1973 prohibits discrimination on the basis
of disability in programs run by federal agencies, programs that
receive federal financial assistance, in federal employment, and
in the employment practice of federal contractors. In 2014, WIA
was reauthorized again and was titled the Federal Workforce
Innovation and Opportunity Act (WIOA).
Need for this bill: According to the author, "The federal
Earned Income Tax Credit (EITC) has proven to be an important
tool for low-income workers and their families, enabling them to
increase their income and savings as they work to move out of
poverty or near-poverty. In the 2015-2016 budget, California
joined many other states by adopting its own state EITC;
starting in tax year 2015, eligible households may now apply for
this state tax credit. This bill seeks to educate some of the
lowest-income Californians about the state EITC, and to inform
them that they will not be inadvertently harmed by receipt of
the state EITC because the new refundable state tax credit will
not be considered income for purposes of determining CalWORKs
eligibility or benefit amounts; this conforms to current state
law which treats the federal EITC in the same manner. This bill
also seeks to maximize low-income individuals' ability to invest
in their retirement by including references to the
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recently-established California Secure Choice Retirement Savings
Plans alongside references in current statute to permitted
savings accounts into which CalWORKs recipients may invest their
EITC benefits without impacting their eligibility or grant
amounts. Additionally, this bill updates current law pertaining
to the Department of Rehabilitation's Vocational Rehabilitation
program by conforming to federal law and removing outdated
language."
PRIOR AND RELATED LEGISLATION:
SB 1234 (De Leon), 2016, seeks to implement the California
Secure Choice Retirement Savings Program provided for in SB 1234
(De Leon), Chapter 734, Statutes of 2012. This bill has been
referred to the Senate Committee on Public Employment and
Retirement.
SB 80 (Senate Committee on Budget and Fiscal Review), Chapter
21, Statutes of 2015, created the State Earned Income Tax Credit
(EITC) which was later adopted in the 2015-16 Budget.
SB 1234 (De Leon), Chapter 734, Statutes of 2012, created the
California Secure Choice Retirement Savings Program, which is a
voluntary retirement savings program for private industry
workers without access to other retirement options through work.
REGISTERED SUPPORT / OPPOSITION:
Support
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None on file.
Opposition
None on file.
Analysis Prepared by:Kelsy C. Castillo / HUM. S. / (916)
319-2089