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