BILL ANALYSIS
AB 1777
Page 1
Date of Hearing: April 19, 2010
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Anthony J. Portantino, Chair
AB 1777 (Portantino) - As Amended: April 5, 2010
Majority vote. Fiscal committee.
SUBJECT : Creative Industries and Community Economic
Revitalization Act of 2010
SUMMARY : Provides that 20% of the state's General Fund (GF)
sales and use tax (SUT) revenues at the 4.75% rate, remitted by
specified taxpayers, shall be deposited into a newly established
Creative Industries and Community Economic Revitalization Fund
(Fund) for specified purposes. Specifically, this bill :
1)Contains legislative findings noting that:
a) Life in this state is enriched by art, innovation, and
creativity;
b) The source of art is in the natural flow of the human
mind, but realizing craft and beauty is demanding, and the
people of the state desire to encourage and nourish these
skills wherever they occur, to the intrinsic and extrinsic
benefit of all;
c) Every dollar in state support for the arts leverages $7
in earned and contributed revenue;
d) This state's cultural enterprises provide approximately
500,891 jobs for its residents, accounting for 7.6% of
total employment;
e) Nonprofit arts organizations contribute over $5 billion
to this state's economy and generate $300 million in state
and local taxes;
f) Nonprofit arts organizations help the state meet its
obligations in the field of education by serving
schoolchildren, college and university students, teachers,
and adults through fieldtrips, assemblies, training, and
outreach programs that enhance and strengthen instruction
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provided by the public sector;
g) Nonprofit arts organizations are a partner to the
creative industries, and play a key role in the 21st
Century workforce and the global economy, including in the
fields of architecture, advertising, consulting, education,
performing arts, museums, and other cultural industries,
design, including electronic design, software development,
film, games, including computer games, historic
preservation, music, new media, publishing, radio and
television, and tourism; and,
h) An investment in the arts and the creative economy
industries can revitalize a neighborhood or area by
accomplishing all of the following: Stimulating the
economy, engaging residents, drawing tourists, providing a
sense of community, serving as a gathering place,
encouraging creativity, strengthening community
partnerships, promoting the arts and supporting artists,
developing a positive image for the area, enhancing
property values, capitalizing on local cultural, economic,
and social assets, and creating jobs.
2)Requires the transfer of 20% of the state's GF SUT revenues at
the 4.75% rate derived from taxpayers engaged in certain lines
of business into the Fund.
3)Provides that the money in the Fund may be expended by the
California Arts Council (Council), upon appropriation by the
Legislature, to issue grants.
4)Provides that a "city, county, district, including, but not
limited to, a regional park district, a joint powers
authority, or a nonprofit arts organization deemed eligible by
the [Council], may apply to the [Council] for a local
assistance program grant for organizational support."
5)Provides that the Council, when issuing a grant, "shall
encourage joint partnerships between applicants to enhance
investment of public resources to enable the growth of the
creative economy in communities throughout the state."
6)Requires the Council to submit an annual report to the
Legislature that includes the status of each grant made.
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EXISTING LAW imposes a:
1)Sales tax on retailers for the privilege of selling tangible
personal property (TPP), absent a specific exemption. The tax
is based upon gross receipts from TPP sales in this state.
2)Use tax on the storage, use, or other consumption in this
state of TPP purchased from any retailer for storage, use, or
other consumption in this state, absent a specific exemption.
FISCAL EFFECT : The State Board of Equalization (BOE) estimates
that this bill would transfer approximately $22.8 million from
the GF to the Fund annually.
COMMENTS :
1)The author states, "Despite the clear evidence proving the
many important contributions of the arts to California's
economy and quality of life, the budget for the California
Arts Council was cut in 2003 by 97 percent. Since then,
California has ranked 50th in the nation in public investment
for the arts, spending just three cents per capita for the
arts from the state's General Fund when the national median is
$1.12." The author states that this reduction in funding has
limited California's ability to ensure equal access to the
arts for all citizens of the state. The author argues that,
with additional arts funding, the state will be able to
leverage the arts to promote tourism and spur local economic
growth.
2)Proponents state, "California is in its seventh year spending
three cents per capita from the General Fund on the arts, and
it remains last in the nation for state spending. AB 1777
will provide funding to invest in California's creative sector
which contributes to the state's economy and its ability to
compete in the global marketplace."
3)Opponents state, "By creating an inflexible 20 percent earmark
allocated exclusively to the California Arts Council for
grants, this bill is the legislative equivalent of ballot-box
budgeting, which is a step in the wrong direction for the
financial health of California."
4)BOE notes the following in its staff analysis of this bill:
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a) "Only the state's General Fund sales and use tax
revenues at the 4.75% rate would be transferred under the
provisions of this bill. Although an additional component
of the state's General Fund sales and use tax rate of 1.25%
applies to taxable sales (which includes the one percent
increase beginning April 1, 2009), this bill would only
transfer the state sales and use tax revenues derived from
the specified establishments at the 4.75% rate. If the
author intends to include the entire 6% state General Fund
rate, [Revenue and Taxation Code] Sections 6051.3, 6201.3,
6051.7, and 6201.7 would be the appropriate statutes to
reference in the bill (in addition to Sections 6051 and
6201 currently referenced)."
b) "The NAICS [North American Industry Classification
System] is the industry classification system of the United
States, developed by the Economic Classification Policy
Committee on behalf of the Office of Management and Budget.
It is currently used by the United States, Canada and
Mexico's federal governments, state agencies and private
industries to identify a business' principal activity
within the retail, wholesale and service categories."
c) "In early 2007, the Board began the process of
converting its former business classification coding
system, which used broad based business codes to categorize
and identify a taxpayer's primary business activity, to the
NAICS classification system. This conversion to the NAICS
coding system for active accounts has been implemented.
Therefore, based on the references to the specific codes in
the bill, revenues from the following establishments would
be transferred in accordance with the measure:
451100 - Sporting goods, hobby, and musical instrument
stores
453920 - Art dealers
453998 - All other miscellaneous store retailers
(except tobacco stores), including art supply stores,
candle shops, closet organizer stores, flower shops,
janitorial equipment and supply stores, trophy shops,
and a variety of other specialized retail stores."
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d) "The bill would not cause administrative concerns as
currently written. However, it should be noted that the
first transfer of funds would occur on or around the
[sixth] month following the effective date of the bill
(projected to be January 1, 2011). This is so, because
once enacted, the due date of the first quarterly returns
and payments would be April 30, and, once the returns are
filed and payments are made, the average processing time
necessary to review the return, input the data into our
computer system, and identify the funds by specific
business codes is around 60 days. Thereafter, transfers
would occur quarterly."
5)Committee Staff Comments:
a) Precedent for Future Legislation? : This bill would
transfer the GF portion of significant SUT revenues to the
Fund. This, in turn, could establish a precedent for
future dedicated funding legislation.
b) Technical Issues :
i) This bill provides that a "city, county, district,
including, but not limited to, a regional park district,
a joint powers authority, or a nonprofit arts
organization deemed eligible by the [Council], may apply
to the [Council] for a local assistance program grant for
organizational support." This raises the following
issues:
(1) The author may wish to provide a definition
for the term "nonprofit arts organization."
(2) Does the author wish to grant the Council
discretion in deciding only which "nonprofit arts
organizations" are eligible for grants, or does he
wish to provide the Council with discretion in
deciding whether other entities are eligible as well?
c) Related Legislation :
i) During the 2007-08 Legislative Session, both AB 1365
(Karnette) and AB 2728 (Karnette) contained provisions
similar to this measure. Both bills were held in the
Assembly Committee on Appropriations.
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ii) During the current Legislative Session, AB 700
(Krekorian and Portantino) contained provisions nearly
identical to this bill. AB 700 was held in the Assembly
Committee on Appropriations.
d) Double Referral : This bill was double-referred with the
Assembly Committee on Arts, Entertainment, Sports, Tourism,
and Internet Media, and passed out of that committee by a
vote of 6-1 on April 6, 2010. For additional discussion of
this bill, please refer to that committee's analysis.
REGISTERED SUPPORT / OPPOSITION :
Support
Arts Orange County
AXIS Dance Company
Balboa Performing Arts Theater Foundation
California Arts Advocates
Laguna Art Museum
Muckenthaler Cultural Center
Orchestra Nova San Diego
San Diego Youth Symphony and Conservatory
San Francisco Musical Fund Society
The Laguna Playhouse
Theatre Bay Area
Opposition
California Taxpayers' Association
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098