BILL ANALYSIS
AB 2641
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Date of Hearing: May 12, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2641 (Arambula) - As Amended: April 27, 2010
Policy Committee: Revenue and
Taxation Vote: 6-3
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires, beginning January 1, 2014 and every fifth
year thereafter, the Legislature to review all tax expenditures
to determine whether they have a measurable benefit (defined as
meeting the objectives provided in the statute adding that tax
expenditure), and take actions with respect to those that do
not. Specifically, the bill:
1)Requires future legislatures to consider whether to eliminate
tax expenditures enacted prior to January 1, 2011 and found to
be lacking measurable benefits. The bill reducing or
eliminating the tax expenditure would contain new tax
expenditures of equal value to maintain revenue neutrality.
2)Requires that all bills passed after January 1, 2011, have
five-year sunsets.
FISCAL IMPACT
1)Unknown but potentially significant costs to state tax
entities and legislative staff to research and analyze the
measurable benefit of all tax expenditures - potentially
averaging more than $500,000 per year (General Fund).
2)Potential impact on amount and composition of tax
expenditures. Net impact on GF revenues is unknown, and would
depend on actions by future legislatures and governors.
COMMENTS
1)Background . Tax expenditures are deductions, credits,
AB 2641
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exemptions, and income exclusions and other deviations from a
basic tax system designed to meet various objectives. Several
state agencies are required to issue annual tax expenditures
reports, including the LAO, Department of Finance, and the
Franchise Tax Board.
2)Rationale . According to the author's office, the purpose of
this bill is to evaluate tax expenditures to and to provide a
mechanism to ensure they are providing clear benefit to the
state and its taxpayers.
3)Key Issues . Given that tax expenditures can be enacted with a
majority vote but repealed only with a two-thirds vote, it can
be argued that including sunsets in future tax expenditures
makes sense. However, as a practical matter, the provisions of
this bill guiding future legislative actions on tax
expenditures have no force, as courts have held that one
legislative body may not restrict the powers of subsequent
legislatures, and the act of one legislature may not bind its
successors.
Also, the in-depth analysis required by this bill, if applied
to all tax expenditures, represents a major undertaking,
requiring considerable time and effort on the part of several
state entities. Given current budget constraints facing the
state, it may make sense to prioritize the reviews so that the
Legislature can focus on those having relatively significant
fiscal impacts.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081