BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 463 - Strickland
Amended: April 29, 2009
Hearing: May 13, 2009 Tax Levy Fiscal: Yes
SUMMARY: Enacts a Tax Credit for Costs Paid to Install
Renewable
Energy Resource Projects
EXISTING LAW provides various tax credits designed to
provide incentives for taxpayers that incur certain
expenses, such as child adoption, or to influence behavior,
including business practices and decisions, such as
research and development credits and Geographically
Targeted Economic Development Area credits. The
Legislature typically enacts such tax incentives to
encourage taxpayers to do something but for the tax credit,
they would otherwise not do.
THIS BILL allows taxpayers a credit of 30% of the
costs paid up to $3,000 for installing a renewable energy
resource project on land owned or leased by the taxpayer
and reduces the taxpayer's demand on the electric grid.
The taxpayer may carry over the credit to reduce or
eliminate tax in future years until exhausted. A renewable
energy project is an electric generation facility that
includes biomass, solar thermal, photovoltaic, wind,
geothermal, fuel cells using renewable fuels, small
hydroelectric generation of 30 megawatts or less, digester
gas, municipal solid waste conversion, landfill gas, ocean
wave, ocean thermal, or tidal current. The tax credit
expires on January 1, 2017.
SB 463 - Strickland Page 3
FISCAL EFFECT:
According to the Franchise Tax Board, SB 463 results
in revenue losses of $10 million in 2009-10, $16 million in
2010-11, and $15 million in 2011-12.
COMMENTS:
A. Purpose of the Bill
According to the Author, "the State has placed a
greater emphasis on the use of renewable energy in order to
reduce our reliance on fossil fuels and their harmful
impact to the environment and the public's health. Federal
tax credits have been implemented for renewable energy
projects and state rebates are offered through the
California Solar Initiative. This bill would create a
California tax credit to encourage individuals and
businesses to install renewable energy projects. By
increasing the installation of these projects we can help
California meet its goals in reducing greenhouse gas
emissions and its overall mission to increase the use of
renewable energy resources. These tax credits are
especially important to encourage small businesses to
invest in renewable technology during these difficult
economic times. This will help promote business growth and
cleaner energy."
B. Tax Expenditures
California foregoes nearly $50 billion in revenue each
year due to tax expenditures. While some are as American
as apple pie, such as the exclusion from income for pension
contributions and social security benefits, others are
subsidies for other types of economic behavior deemed
preferable by the Legislature, such as the mortgage
interest deduction to spur homeownership, the research and
development credit to stimulate high-paying jobs and new
exciting consumer products and services, and Geographically
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Targeted Economic Development Area credits to help
hard-to-hire employees and businesses in economically
distressed areas. Tax expenditures evoke passionate and
complicated debates, chiefly regarding whether state
legislative action to forego tax revenues from specified
taxpayers provides superior benefits than commensurate
direct spending programs or general tax reductions. One
of America's top state and local tax scholars, Richard
Pomp, suggests evaluating tax expenditures as such,
stating:
"A tax expenditure can be viewed as if the taxpayer
actually paid the full amount of tax owed in the
absence of the special provision and simultaneously
had received a grant equal to the savings provided by
the special provision ? a tax expenditure is just one
of a number of ways of providing governmental
assistance and should be reexamined periodically using
traditional budgetary and funding criteria"<1>
SB 463 seeks to encourage taxpayers to install more
renewable energy projects than they otherwise would but for
the tax credit. However, as the Senate Energy, Utilities,
and Communications Committee points out, generous subsidies
and rebates already exist for individuals to purchase these
items. Additionally, solar energy systems are excluded
from the definition of "new construction," for property tax
purposes, and another measure the Committee will hear today
seeks identical treatment for wind energy and geothermal
heat pumps (SB 534/SCA 13, Strickland). Are the exiting
rebates and subsidies not working? Why or why not? Will
worsening the state's abysmal financial health by forgoing
revenues equal to the amount of tax credits authorized
under this bill work where these other efforts have failed?
What evidence demonstrates that tax credits will be more
effective than other means to change taxpayer behavior, or
is the intent to reward taxpayers already operating under
different incentives? The Committee may wish to consider
whether tax credits will result in any marginal addition to
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<1> Pomp, Richard D. "Rethinking State Tax Expenditure
Budgets," in Public Budgeting and Financial Management
5(2), 337-351 (1993).
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renewable energy resources in California or whether SB 463
provides a double-reward.
Support and Opposition
Support:None Received
Oppose:None Received
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Consultant: Colin Grinnell