BILL ANALYSIS Ó
SB 670
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Date of Hearing: August 26, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
SB 670
(Jackson) - As Amended August 20, 2015
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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 the following tax credits, for taxable years
beginning on or after January 1, 2016, and before January 1,
2021, under the Personal Income and Corporation Tax Laws:
1)A credit equal to 30%, subject to a cap of $50,000 for any
taxable year, for certified employer child care facility
startup expenses related to establishing a child care program
or facility used primarily by the children of the taxpayer's
employees or employees of the taxpayer's commercial tenants,
or contributions to child care referral services on behalf of
the taxpayer's employees (Employer Child Care Credit). Unused
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credits may be carried forward up to eight years.
2)A credit equal to 30%, subject to a cap of $360 per child
under 12 years of age for any taxable year, for direct
contributions to qualified child care plans made on behalf of
taxpayer's employees (Contributions Credit). The bill limits
the credit to only the employer's portion of total payments
made, and prorates the credit if the duration of child care
received is less than 42 weeks. Unused credits may be carried
forward up to eight years.
The bill requires the Franchise Tax Board (FTB) to submit
reports to the Legislature on or before January 1, 2018 on: (a)
the amount of each credit claimed annually; (b) the number of
child care facilities established by taxpayers claiming the
credit; and (c) the number of children served by those
facilities and child care plans for which taxpayers have claimed
credits.
FISCAL EFFECT:
1)Potentially significant administrative costs to FTB to
administer credits and produce reports.
2)Estimated GF revenue decreases for each credit as follows:
a) Employer Child Care Credit: estimated GF revenue
decreases of $100,000, $600,000, and $700,000 in FY
2015-16, FY 2016-17, and FY 2017-18, respectively.
b) Contributions Credit: estimated GF revenue decreases of
$400,000, $3.7 million, and $4.1 million in FY 2015-16, FY
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2016-17, and FY 2017-18, respectively.
COMMENTS:
1)Purpose. According to the author, re-establishing these child
care credits will improve the state's business environment
while helping provide working parents affordable access to
child care. The bill also revives a credit to encourage
businesses to establish child care programs to help them
recruit, retain, and support working families.
SB 670's sponsor, the Bay Area Council, indicates its business
members consistently cite the lack of access to affordable and
quality child care a key challenge to attracting and retaining
talent. The sponsor argues a quality child care system is
critical for the state to remain economically competitive, and
demand for child care has consistently outpaced supply.
2)Prior Credit Usage. This bill revives two credits that
existed in various guises between 1988 and 2012. The Employer
Child Care Credit and the Contributions Credit were last
authorized in 2006, and were repealed by their own terms in
2012. As part of that legislation, the FTB reported to the
Legislature in 2011 the following credit usage:
a) Employer Child Care Credit: taxpayers claimed
approximately $400,000 in credits each year, serving
approximately 1,400 children; and
b) Contributions Credit: taxpayers claimed approximately
$2.7 million in credits each year, servicing approximately
8,700 children.
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3)Incentive or Reward? While the rising cost and limited
availability of child care present genuine challenges for
working parents, the limited use and structure of the tax
credit makes it difficult to determine whether the credit will
incentivize new activity or simply reward activity already
underway. The sponsor's members include several of the
largest and most profitable technology, financial services,
legal services, health, and energy companies in the world.
Those companies may have strong incentives to offer quality
child care in order to recruit employees, but would such
companies make decisions to build child care facilities based
on a $50,000 credit? Would they subsidize child care costs
for a $360 credit?
Furthermore, it would appear the companies best positioned to
benefit from these credits are those that already offer some
of the most lucrative employment compensation and benefits.
The Committee may wish to consider whether a subsidy for
parents employed at those firms represents the best use of
state resources, or whether a direct subsidy to parents based
on means would better help those with the greatest need.
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 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 goals of this bill
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may be laudable, there is no indication that 30% or
$50,000/$360 are the appropriate credit amounts to achieve the
desired increase in affordable child care, 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