BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
974 (Steinberg)
Hearing Date: 05/27/2010 Amended: 05/19/2010
Consultant: Dan Troy Policy Vote: ED 8-0, Rev & Tax
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BILL SUMMARY: SB 974 would eliminate an existing Enterprise
Zone (EZ) hiring tax credit and establish a new Career Pathways
Investment Credit (CPIC) administered by the California
Department of Education (CDE) to business entities that partner
with local education agency (LEA) programs to develop and
support career pathways, as specified.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Hiring credit changes ($20,000) ($75,000) ($100,000)General
New CPIC credit $20,000 $75,000 $100,000 General
CDE regs & startup $150 to $225, repaid in future fiscal
year General
by CPIC applicant fees
FTB administration Initial costs unknown, ongoing costs
General
covered by CPIC applicant fees
Staff notes that the bill authorizes CDE to charge a fee on CPIC
applicants that is reasonably sufficient to cover CDE and FTB
administrative costs. It is unclear whether an appropriate fee
level can be established to fully offset costs to develop and
administer the CPIC program. Initial costs would be paid from
the General Fund until sufficient fees are collected to
reimburse CDE for startup costs.
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STAFF COMMENTS: SUSPENSE FILE.
Current law provides various tax credits in order to incentivize
certain behaviors. To this end, current law provides special
tax incentives (e.g., wage credits, accelerated depreciation,
etc.) for businesses located in enterprise zones, as specified.
Local governments may request the Department of Housing and
Community Development to designate areas as enterprise zones
(EZ), with the intention of encouraging business investment into
depressed areas. These areas are capped statewide at 42 and tax
credits from the program total close to $500 million, annually.
Included among the EZ incentives is a Targeted Employment Area
(TEA) wage credit for the employment of residents in a targeted
area within the EZ. These TEAs cover census tracts where at
least 51 percent of the residents are low or moderate income, as
defined. While other EZ wage credits are awarded for the
employment of individuals that qualify due to personal
experiences or circumstances (e.g., military veterans,
individuals eligible for job training or public assistance,
dislocated workers, etc.), the TEA credit awards wage credits
based on a qualifying employee's zip code.
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SB 974 (Steinberg)
Under current law, taxpayers can receive a certification
qualifying an employee for an enterprise zone hiring credit at
any time. Taxpayers may certify employees who worked for them
in past years, then submit claims for refunds for previous taxes
paid to the Franchise Tax Board (FTB) based on those
certifications under California's general four year statute of
limitations for amending past returns. This is sometimes
referred to as retro-vouchering.
This bill would eliminate the TEA wage credit and require
applications for certification for qualified employees be
submitted to a certifying agency within 28 days and obtained
from the certifying agency within 42 days of the employee's
first day of work for the qualified taxpayer.
This bill would also establish the Career Pathways Investment
Credit (CPIC) to be administered by the Department of Education
(CDE). The CPIC is intended for allocation to businesses that
partner with local education agencies to support the development
and implementation of career pathways programs, defined as
instructional programs provided by high schools, alternative
schools, county offices of education, or public other schools
that integrate academic and technical learning to prepare pupils
for both postsecondary instruction and careers in high-growth or
high-need sectors of the economy.
For calendar years beginning on or after January 1, 2011, CDE
would be required to:
1) Determine and allocate the investment credit ceiling, as
specified.
2) Allocate the credit on a regular basis consisting of two
or more periods in a calendar year in which applications
may be filed or considered.
3) Establish a procedure for applicants to file an
application for the allocation of the tax credit and
establish application filing deadlines.
4) Give priority in allocating the credits to applicants
that have entered into a memorandum of understanding (MOU)
or contract with an LEA that meets specified criteria
including specified unemployment and high school graduation
rates, or serving of socioeconomically diverse student
populations.
5) Adopt allocation criteria that award credits to
applicants that demonstrate specified elements in their
application, including the provision of a one-to-one match
of private to public investment in programs that create
career pathways and the effectiveness of the program toward
preparing students for productive, high-wage employment.
6) Develop and provide forms to describe the purpose of the
credit and certify the amount of the allocated tax credits.
7) Develop an application that requires the submission of
the contracts or MOUs that would include the career
pathways plan, a description of the applicant's support
(e.g., equipment, employees to provide instruction in
partnership with credentialed teachers, internships, etc.),
contributions to postsecondary institutions that provide
teacher training or other support to high schools or middle
schools that provide career pathways, and the method by
which program accountability will be maintained.
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SB 974 (Steinberg)
The bill specifies that the aggregate amount of credits that may
be allocated in a calendar year are $78 million in 2011, $100
million in 2012 (baseline), with the baseline thereafter
increased by the rate of inflation or deflation, as measured by
the Consumer Price Index or other method which the FTB deems
reliable.
Successful applicants would receive a certification from CDE for
use as a credit against the taxpayer's net corporate or personal
income tax. The bill allows any excess credits to be carried
over to reduce the net tax in any subsequent year.
The bill would authorize CDE to prescribe rules and regulations
to implement CPIC and to consult with the Treasurer and the
California Tax Credit Allocation Committee regarding the
allocation of tax credits. CDE would also be authorized to
impose a fee on applicants sufficient to carry out the costs of
administering the program. CDE would be further authorized to
borrow funds for the purpose of meeting necessary
administrative.
According to the FTB, repealing the TEA and retro-vouchering
provisions increase revenue by $20 million in 2010-11, $75
million in 2011-12, and $100 million in 2012-13. These amounts
would be entirely offset by granting the CPIC, so the credit
provisions of the bill would be revenue neutral. CDE reports
initial administrative costs of between $150,000 and $225,000 to
establish the program. These costs would ultimately be
recovered through applicant fees. Also, the FTB indicates that
it would also incur administrative costs, though no estimate has
yet been provided. These administrative costs would also be
covered by applicant fees.
While the bill defines aggregate annual credit amounts, staff
notes that the bill does not establish a clear manner for
determining a qualifying credit amount for an individual CPIC
applicant. Should this determination by left to CDE
regulations?