BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 2564 - Swanson
Amended: April 20, 2010
Hearing: June 9, 2010 Fiscal: Yes
SUMMARY: Changes the Date that the Department of Finance
Must Submit Its Tax Expenditure Report; Requires
DOF to Provide the Report Directly to Members of
the Legislature Upon Request.
EXISTING LAW requires the Department of Finance (DOF)
to submit a tax expenditure report to the Legislature each
year by September 15th. The report must include:
A comprehensive list of all tax
expenditures exceeding five million dollars in
annual cost.
The statutory authority, sunset date, and
estimate of the revenue loss attributable to each
credit, deduction, exemption, exclusion, or tax
benefit.
A description of the legislative intent
of each tax expenditure and its sunset date if
the bill enacting the tax benefit includes intent
sections or a sunset date.
A brief description of the credit's
beneficiaries, including the number of taxpayers
affected and returns filed in the most recent
year available.
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A listing of any comparable federal tax
benefit.
A description of any evaluation or
compilation of information by any state agency
since the last report was made.
THIS BILL changes the date that DOF must submit the
report to the Legislature from September 15th to February
1st. The bill also requires that DOF directly provide the
report to a member of the Legislature upon request.
FISCAL EFFECT:
According to Committee Staff, AB 2564 does not affect
state revenues.
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COMMENTS:
A. Purpose of the Bill
The author provided the following statement:
Current law requires the Department of Finance to
deliver a tax expenditure report to the Legislature on
September 15th of each year. The report is required
to include each of the following:
A comprehensive list of tax
expenditures exceeding $5 million;
A description of the legislative
intent of each tax expenditure, if specified;
The sunset date of each provision;
The beneficiaries of the provision;
An estimate of the state and local
revenue loss for the current and two subsequent
fiscal years;
For personal income tax expenditures,
the number of taxpayers and returns affected
for the most recent tax year;
For corporation and sales tax
expenditures, the number of returns or
businesses affected for the most recent year
for which data is available;
A listing of any comparable federal
benefit; and
A description of any tax expenditure
evaluation or compilation of information
completed by any state agency since the last
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tax expenditure report by the Department of
Finance.
California is experiencing one of the worst
recessions in recent history. In an effort to
balance the state's budget, the Legislature has been
forced to make cuts to vital programs, including
education, health and human services, and
transportation.
Accurate information about all of the state's
expenditures, including the costs of state
departments, state programs and state tax
expenditures, is necessary to facilitate an honest
debate on the budget. Having the Department of
Finance's expenditure report available while the
budget negotiations are taking place will ensure
that the Legislature has the information necessary
to address California's fiscal condition.
B. Compare and Contrast
AB 2564 seeks to improve transparency in California's
budget process by informing decision makers and the public
regarding California's $42 billion in tax expenditures. As
introduced, AB 2564 required the Department of Finance's
Tax Expenditure Report to be included in the Governor's
Budget submitted to the Legislature in January to mirror
the President's Budget at the federal level, where tax
expenditures are separately listed, explained, and
estimated. However, the Assembly Budget Committee, which
heard AB 2564, amended the measure into its current form,
arguing that including tax expenditure information as part
of the Budget would not be helpful in the Governor's Budget
because that document lacks the fiscal and policy
information contained in the Tax Expenditure Report.
Additionally, tax expenditure information would be more
valuable in February, when Budget Subcommittees are more
directly evaluating spending programs than in January.
However, including tax expenditures within the Governor's
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Budget allows the public and interested parties to contrast
spending programs with tax expenditure programs, which are
programs with similar goals as initiatives that require
budgetary appropriations that are instead financed through
foregone revenues. One can directly compare the costs in
foregone revenue of tax expenditure programs, such as the
Mortgage Interest Deduction, against appropriations amounts
for public education, health and welfare, and corrections,
for example. While moving the deadline up to February
provides the Legislature with the tax expenditure
information in time to consider as part of the budget
process, is that the more effective way of accomplishing
the policy goal of transparency, especially when tax
expenditures identified alongside direct spending at the
federal level?
C. Pretty Please?
AB 2564 requires the Department of Finance to submit
the tax expenditure report to a member of the Legislature
upon request. One would expect that DOF would happily
provide the report upon request absent the statutory
mandate, and the tax expenditure report for the current and
past years can easily be found on DOF's website. The
direction also lacks a penalty, so there would be no
sanction against DOF for failing to comply with the
request. Additionally, once a statutory mandate for a
state department exists requiring an agency to submit a
report, subsequent bills could call for the same direction,
resulting in further distractions from agencies that must
fulfill its mandates with finite time and resources. The
Committee may wish to consider whether specific statutory
mandate is necessary for accomplishing the measure's goal
of increased disclosure of spending on tax expenditures.
Support and Opposition
Support:California Labor Federation, California Nurses
Association, American Federation of State, County, and
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Municipal Employees, Having Our Say,
Oppose: None received.
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Consultant: Colin Grinnell