BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNANCE AND FINANCE Senator Robert M. Hertzberg, Chair 2015 - 2016 Regular ------------------------------------------------------------------ |Bill No: |SB 251 |Hearing | 5/13/15 | | | |Date: | | |----------+---------------------------------+-----------+---------| |Author: |Roth |Tax Levy: |No | |----------+---------------------------------+-----------+---------| |Version: |5/4/15 |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant|Grinnell & Favorini-Csorba | |: | | ----------------------------------------------------------------- CIVIL RIGHTS: DISABILITY ACCESS Enacts a tax credit for businesses that make accessibility improvements and requires some state and local agencies to help businesses make accessibility improvements. Background and Existing Law In California, individuals with disabilities and medical conditions have legal protections to ensure full and free access to and use of roadways, sidewalks, buildings and facilities open to the public, hospitals and medical facilities, and housing. After Congress enacted the Americans with Disabilities Act (ADA) in 1990, the Legislature provided that violations of the ADA are also violations of state legal protections, which are comparatively higher and independent of the ADA. Additionally, under the Unruh Civil Rights Act, all persons, regardless of sex, race, color, religion, ancestry, national origin, disability or medical condition, are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments. A violation of the ADA also constitutes a violation of the Act. Persons violating the Act are subject to actual damages incurred by an injured party plus treble damages, with a minimum of $4,000, plus any attorney's fees as the court may determine to be proper. SB 251 (Roth) 5/4/15 Page 2 of ? I. Tax Credits. California law allows various income tax credits, deductions, and sales and use tax exemptions to provide incentives to reward taxpayers that incur certain expenses that benefit the public, such as child adoption, or to influence behavior, including business practices and decisions, such as research and development credits. The Legislature typically enacts such tax incentives to encourage taxpayers to do something that but for the tax credit, they would not do. The Department of Finance is required to annually publish a list of tax expenditures, currently totaling around $51 billion per year. In 1990, Congress enacted a disabled access tax credit against federal taxes for businesses with annual gross receipts of less than $1 million or fewer than 30 full-time employees equal to 50% of the difference between the amount of expenditures reasonable and necessary to accomplish the below purposes and $250, not to exceed $10,000: Remove barriers that prevent a business from being accessible to or usable by individuals with disabilities; Provide qualified interpreters or other methods of making audio materials available to hearing-impaired individuals; Provide qualified readers, taped texts, and other methods of making visual materials available to individuals with visual impairments; and Acquire or modify equipment or devices for individuals with disabilities. II. Local Land Use Permitting. Cities and counties have broad authority to oversee land use within their boundaries, including the ability to approve or deny permits, licenses, certificates or other entitlements needed to construct a project or improvement. The Permit Streamlining Act sets deadlines for cities and counties to make some of those land use decisions, such as approving permits. The length of time that a city or county has to act varies for different projects, based on factors such as the type of project and whether the project requires an environmental impact report before the city or SB 251 (Roth) 5/4/15 Page 3 of ? county makes its decision. So, local building departments make decisions about how to prioritize permitting applications in order to meet those deadlines and properly exercise local governments' police power. III. Construction-Related Accessibility Standards Compliance Act. The Americans with Disabilities Act (ADA) as well as provisions in state law set standards that public buildings-including businesses-must meet to ensure that persons with disabilities have full access. Some of these accessibility standards lay out how public buildings must be constructed. The standards that any given building must meet depends on the history of that building, such as when it was constructed and whether it has been improved. In 2003, the Legislature enacted the Certified Access Specialist Program, administered by the Office of the State Architect, to inspect places of public accommodation to ensure compliance with disability access standards (SB 262, Kuehl, 2003). Persons being sued in a disability access action over a property that has been inspected by a Certified Access Specialist (CASp), and determined to meet applicable construction-related accessibility standards, or is pending a determination by a CASp, may obtain a stay of the action for 90 days and an early evaluation conference to resolve the case (SB 1608, Corbett, 2008). In 2012, the Legislature again amended the law to provide (SB 1186, Steinberg): Any business in California that has received a CASp inspection has 60 days to cure an access violation and the Court may reduce statutory damages by up to 75%. Small businesses with 25 or fewer employees that have not had a CASp inspection have 30 days to fix a violation, and the Court may reduce their statutory damages up to 50%. State law additionally directs the California Commission on Disability Access to develop educational materials to help California businesses understand the accessibility standards they must meet and identify common violations of the ADA. IV. Charter Cities and Counties. The California Constitution allows cities and counties that adopt charters to control their own "municipal affairs." In all other matters, charter cities must follow the general, statewide laws. Because the SB 251 (Roth) 5/4/15 Page 4 of ? Constitution does not define "municipal affairs," the courts determine whether a topic is a municipal affair or whether it is an issue of statewide concern. Proposed Law Senate Bill 251 makes several changes to assist businesses in complying with ADA requirements. I. Tax Credits. SB 251 enacts tax credits against the Personal Income Tax and Corporation Tax for amounts paid or incurred for eligible access expenditures that exceed $250 for the 2016 to 2022 taxable years, based largely on the current federal credit. The credit amount is calculated the same way as the federal credit, and is equal to 50% of the difference between the amount of the expenditure that does not exceed $10,250, and $250. For example, a taxpayer with $7,000 in expenditures obtains a credit of $3,375 (50% x $6,750 [$7,000 - $250]), while a taxpayer with expenses that exceed $10,250 can take a maximum credit of $5,000. SB 251's credit is different than the federal one in two notable ways: first, it's available to all businesses, not just those meeting the definition of small business in federal law. Second, if the taxpayer meets the definition of microbusiness, he or she may increase the credit calculated using the above formula by $5,000. All taxpayers can carry over the credit for six years. Additionally, FTB may prescribe any rules, guidelines, or procedures necessary to implement the credit, which are exempt from the Administrative Procedures Act. The measure sunsets the credit on December 1, 2023. The bill contains legislative findings and declarations to comply with SB 1335 (Leno, 2014). II. Local Land Use Permitting. SB 251 requires local agencies to: SB 251 (Roth) 5/4/15 Page 5 of ? Expedite their review of an application for a project to modify a public building if the building has been inspected by a CASp and the CASp has completed a written inspection report stating that the building currently complies with all of the applicable construction-related standards. Develop materials on the ADA, and to provide those materials to project applicants, along with a notice stating that approval of the permit does not mean that the project complies with the ADA. SB 251 states that these two requirements apply to all cities and counties, including charter cities and counties. The bill includes a legislative finding and declaration that the bill addresses a matter of statewide concern because it pertains to development permit applications. III. Construction-Related Accessibility Standards Compliance Act. SB 251 also amends the Construction-Related Accessibility Standards Compliance Act to: Import the definition of microbusiness into the Act, and provides that a defendant meeting that definition shall not be liable for statutory damages for more than one offense if they corrected the violation before the lawsuit was filed. Provide that any business inspected by a CASp that corrects a violation defined as a "minor matter" within 30 days of the service of summons and complaint asserting a claim or receipt of written notice, shall not be liable for a violation of a construction-related accessibility standard. "Minor matters" only include violations for interior and exterior signage, the color and condition of parking lot paint striping, and truncated domes. Provide that any business that corrects a violation within 90 days of receiving a CASp inspection shall not be liable for a violation of a construction-related accessibility standard. IV. Other provisions. SB 251 additionally: Requires commercial property owners and lessors to state on every lease form or renal agreement that both they and SB 251 (Roth) 5/4/15 Page 6 of ? the tenant are responsible for compliance with ADA, and that the terms of the lease or other contract must allocate compliance responsibility between the two. Requires an individual who wishes to become a CASp to provide the State Architect with unspecified information about the city or county in which they provide, or plan to provide, service. The State Architect must post that information on its website. Directs the California Commission on Disability Access to link to the State Architect's CASp website and provide state agencies and local building departments with educational materials explaining the ADA. State Revenue Impact No estimate. Comments 1. Purpose of the bill . According to the author, "Due to the lack of education and resources, many businesses throughout California are out of compliance with state and federal disability access laws. This situation is preventing Californians in the disability community from having access to facilities and services. This bill will help ensure individuals with disabilities have the opportunity to access facilities and services in California. The bill also will ensure that business owners and operators have the education and training necessary to comply with federal and state disability access laws and regulations. SB 251 also allows small businesses an opportunity to identify and correct a narrow list of deficiencies in order to provide full and fair access for all Californians. By ensuring compliance with the law, the civil rights of the disabled are protected and the ability to assist small business owners to achieve compliance are accomplished."" 2. Sure, but will it work ? Tax benefits directed for specific purposes do two things: First, they reward behavior that would have occurred without the subsidy, so-called "deadweight loss." Some firms will install disabled access improvements without a tax credit, or in response to the federal credit. In these instances, the state receives no marginal benefit, and transfers SB 251 (Roth) 5/4/15 Page 7 of ? wealth from purposes it would otherwise spend money on for government purposes to the firm. Second, the bill may lead to more disabled access improvements in California that wouldn't have occurred but for the credit; the financial incentive provides enough of a marginal benefit for the taxpayer to purchase disabled access improvements. A successful tax credit leads to more improvements at the margin than its deadweight loss, but no tax credit has yet conclusively demonstrated that its benefits outweigh its costs. Firms may install disabled access improvements to draw more customers, in response to the risk of litigation, or simply because it's the right thing to do. However, these improvements aren't cheap, and the credit will help reduce the cost. The Committee may wish to consider whether SB 251 will lead to additional disabled access improvements necessary to justify its cost. 3. More to know ? Last year, the Legislature enacted SB 1335 (Leno), which required introduced legislative bills enacting tax credits to contain: Specific goals, purposes, and objectives that the tax credit will achieve. Detailed performance indicators for the Legislature to use when measuring whether the tax credit met its specific goals, purposes, and objectives. Data collection requirements to enable the Legislature to determine whether the tax credit is meeting, failing to meet, or exceeding its goals, purposes, and objectives. The requirements shall include specific data and baseline data to be collected and remitted in each year the credit is effective, and the specific taxpayers, state agencies, or other entities required to collect and remit data. SB 251 enacts its tax credit without specifying these items, compelling no reporting of information to determine whether the measure is effective, although it does contain legislative intent to do so. The Committee may wish to consider whether SB 251 should include provisions called for by SB 1335. 4. Microbusiness . SB 251's tax credit is increased by $5,000 for a microbusiness that pays for disabled access improvements; however, the taxpayer is entitled to the increase regardless of SB 251 (Roth) 5/4/15 Page 8 of ? the amount spent. For example, a microbusiness that spends $252 on disabled access improvements would generate a $5,001 credit (50% times $2 [$252 - $250], plus $5,000). Additionally, the measure imports the definition of microbusiness from the Government Code, which includes affiliates, which is inconsistent with the way FTB groups firms within commonly controlled groups for tax purposes. The Committee may wish to consider amending SB 251 to only allow the $5,000 increase for microbusinesses incurring expenses above a specified amount, and altering the microbusiness definition to ensure consistency with current law. 5. Checklist . Eagle Lodge West is an annual gathering of professional tax attorneys, FTB and Board of Equalization attorneys and legislative tax staff intended to foster dialogue and discussion on difficult tax issues. Last year, a part of the conference drafted a checklist called "general considerations for drafting credit statutes," which attempts to focus on more technical aspects of tax credits important for implementation and to prevent the need for subsequent clean-up bills. While SB 251 includes many items on the checklist, the measure doesn't speak to: Requirement that the credit only be claimed on original returns, Documentation requirements, Rules for passthrough entities such as limited liability companies, S-Corps, and partnerships, Denial of business expense deduction for the same costs that generate the credit, Ability to reduce regular tax below tentative minimum tax, Items that aren't on the checklist but could also help implement the credit more cost-effectively would be to capping the credit among taxpayers within the same commonly controlled group, and disallowing the credit for installations for personal, not business, use. 6. Unintended consequences. SB 251 creates an incentive for SB 251 (Roth) 5/4/15 Page 9 of ? owners of businesses and public buildings to hire a CASp to inspect their public spaces by promising speedier review of their project applications. However, this incentive might have several unintended consequences. First, it could make it harder for local officials to balance important tradeoffs among permit applications. Local building departments may have good reasons for how they prioritize permit applications, such as a need to address life safety issues. Pushing a project to the top of the queue simply because the existing building meets accessibility standards could override those decisions. Second, because SB 251 doesn't define how much faster a city or county must review a qualifying application, it could expose cities and counties to litigation for not moving fast enough. Without a more specific definition, cities and counties don't know what bar they have to meet in order to comply with the law. 7. Intent of the measure . SB 251 might not help a business that is concerned about having an accessibility violation come into compliance more quickly. This is because businesses that do not meet the applicable accessibility standards are ineligible for the expedited review provided by SB 251. Instead, there may be other ways to achieve the goal of improving access for persons with disabilities while giving businesses time to comply with the law. The Committee may wish to consider amending SB 251 to remove this provision and instead extend the period a business has to correct an accessibility violation if the business owner (1) has a CASp review their plans to ensure that the proposed project will meet all applicable standards, and (2) can demonstrate that any delay in correcting the violation is due to an inability to receive a needed permit in a timely fashion. 8. Let's get specific. SB 251 is unclear about what specific information that it requires CASp applicants to provide to the State Architect about the cities and counties that they serve. The State Architect already maintains a website that lists CASPs and includes a field where a CASp can list their service area. However, because this field is optional, many CASps do not currently provide that information. The Committee may wish to amend SB 251 to clarify what information is required by specifying that CASp applicants must identify the cities or counties in which they provide service. This would make it easier for businesses to find and hire CASps that serve their area. SB 251 (Roth) 5/4/15 Page 10 of ? 9. A material world. Since the Commission on Disability Access already develops materials relating to the ADA under current law, SB 251's requirement for local agencies to also develop materials could result in duplication of effort. The Committee may wish to amend SB 251 to explicitly allow local agencies to satisfy this requirement by providing permit applicants with the materials developed by the commission. 10. Related legislation. Some parts of AB 1342 (Steinorth) overlap with SB 251. Specifically, AB 1342 and SB 251 include identical amendments to the Government Code that require: (1) CASp applicants to provide information to the State Architect, and (2) the California Commission on Disability Access to make educational materials available to relevant state and local agencies. The Assembly Judiciary Committee heard AB 1342 on April 27, 2015, where it passed with a 10-0 vote. It's currently pending in the Assembly Appropriations Committee. 11. Mandate. The California Constitution generally requires the state to reimburse local agencies for their costs when the state imposes new programs or additional duties on them. According to the Legislative Counsel's Office, SB 251 creates a new state-mandated local program because local agencies will have to provide increased services when reviewing applications for certain development projects. SB 251 says that if the Commission on State Mandates determines that it creates a state-mandated local program, the state must reimburse local agencies by following the existing statutory process for mandate claims. 12. Incoming ! The Senate Committee on Judiciary will hear SB 251 on Tuesday, May 12th, 2015. Support and Opposition (5/8/15) Support : California Chamber of Commerce; Apartment Association of Orange County; Associated Builders and Contractors of SB 251 (Roth) 5/4/15 Page 11 of ? California; CalAsian Chamber of Commerce; California Ambulance Association; California Association of Bed and Breakfast Inns; California Business Properties Association; California Citizens Against Lawsuit Abuse; California Grocers Association; California Hotel and Lodging Association; California Manufacturers and Technology Association; California Retailers Association; Camarillo Chamber of Commerce; Chamber of Commerce Alliance of Ventura and Santa Barbara Counties; Chamber of Commerce Mountain View; Civil Justice Association of California; Consumer Attorneys of California (in concept); Culver City Chamber of Commerce; East Bay Rental Housing Association; Fairfield-Suisun Chamber of Commerce; Family Business Association; Fullerton Chamber of Commerce; Greater Bakersfield Chamber of Commerce; National Association of Theatre Owners of California/Nevada; National Federation of Independent Business; Nor Cal Rental Housing Association; North Valley Property Owners Association; Orange County Business Council; Oxnard Chamber of Commerce; Rancho Cordova Chamber of Commerce; Redondo Beach Changer of Commerce and Visitors Bureau; San Jose Silicon Valley Chamber of Commerce; Santa Maria Valley Chamber of Commerce Visitors and Convention Bureau; Simi Valley Chamber of Commerce and Visitors Bureau; South Bay Association of Chamber of Commerce; South Lake Tahoe Chamber of Commerce; Southwest California Legislative Council. Opposition : American Civil Liberties Union of California, Disability Rights California, United African-Asian Abilities Club. -- END --