BILL ANALYSIS
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UNFINISHED BUSINESS
Bill No: SB 1272
Author: Wolk (D), et al
Amended: 8/16/10
Vote: 21
SENATE REVENUE & TAXATION COMMITTEE : 3-2, 4/14/10
AYES: Wolk, Alquist, Padilla
NOES: Walters, Ashburn
SENATE APPROPRIATIONS COMMITTEE : 6-3, 5/3/10
AYES: Kehoe, Corbett, Leno, Price, Wolk, Yee
NOES: Cox, Walters, Wyland
NO VOTE RECORDED: Alquist, Denham
SENATE FLOOR : 21-15, 6/3/10
AYES: Alquist, Cedillo, Corbett, DeSaulnier, Ducheny,
Florez, Hancock, Kehoe, Leno, Liu, Lowenthal, Negrete
McLeod, Oropeza, Padilla, Pavley, Price, Romero,
Simitian, Steinberg, Wolk, Yee
NOES: Aanestad, Ashburn, Calderon, Cogdill, Correa,
Denham, Dutton, Harman, Hollingsworth, Huff, Runner,
Strickland, Walters, Wright, Wyland
NO VOTE RECORDED: Cox, Wiggins, Vacancy, Vacancy
ASSEMBLY FLOOR : 47-27, 8/23/10 - See last page for vote
SUBJECT : Tax credits
SOURCE : California Labor Federation
CONTINUED
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DIGEST : This bill, for taxable years beginning on or
after January 1, 2011, requires any bill that authorizes a
personal income or corporation tax credit to contain, among
other provisions, (1) specified goals, purposes, and
objectives that the tax credit will achieve, (2) detailed
performance indicators to measure whether the tax credit is
meeting those goals, purposes, and objectives, and (3) a
requirement that the tax credit cease to be operative seven
years after its effective date, as specified.
Assembly Amendments make clarifying changes.
ANALYSIS : 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 they would otherwise
not do.
This bill provides that any bill that enacts a credit
against the Personal Income Tax Law or Corporation Tax Law
for taxable years beginning on or after January 1, 2011,
contain:
1. Specific goals, purposes, and objectives that the tax
credit will achieve.
2. Detailed performance indicators for the Legislature to
use when measuring whether the tax credit met its
specific goals, purposes, and objectives.
3. Data collection requirements to enable the Legislature
to determine whether the tax credit is meeting or
failing to meet its detailed performance indicators.
The requirements shall include the specific data,
including baseline measurements, to be collected and
remitted in each year the credit is effective for the
Legislature to measure the change in performance
indicators, and the specific taxpayers, state agencies,
or other entities required to collect and remit data.
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4. A seven-year sunset.
This bill also makes findings regarding tax preferences
generally and their current fiscal impact on federal and
state governments.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/24/10)
California Labor Federation (source)
American Federation of State, County and Municipal
Employees, AFL-CIO
California Federation of Teachers
California Nurses Association
State Building and Construction Trades Council of
California, AFL-CIO
Western Center on Law and Poverty
OPPOSITION : (Verified 8/24/10)
BIOCOM
California Aerospace Technology Association
California Bankers Association
California Business Properties Association
California Chamber of Commerce
California Manufacturers and Technology Association
California Retailers Association
California Taxpayers' Association
TechAmerica
ARGUMENTS IN SUPPORT : According to the author, "Today's
public finance system in California requires major reform.
While I have pursued changing our budgeting system to apply
performance measurements for spending programs, I am trying
to do the same with SB 1272, which applies a
performance-based methodology to future tax expenditures
enacted by the state. There is no good reason not to
evaluate tax expenditure programs with the same rigor that
we use when judging spending decisions, especially when
California's tax preference portfolio now exceeds $41
billion, equal to half of our total revenue. While we
cannot change existing tax preferences, we can at least
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start keeping better track of future tax preferences."
The proponents of this bill state that, while California
"gives tax expenditures to corporations as an incentive to
do business and create jobs," the "state lacks reporting
and evaluation requirements necessary to assess the
effectiveness of tax expenditures." The proponents cite
the Legislative Analyst's Office (LAO) report that notes
several problems with tax expenditure programs in
California, including limited legislative review, a lack of
cap on the amount of money spent and a vote requirement of
a simple majority to create, but a supermajority to
eliminate, a tax credit. The proponents argue that this
bill brings much needed performance review and oversight to
tax expenditure programs in order to make them more
transparent and effective.
ARGUMENTS IN OPPOSITION : The opponents, in contrast,
argue that this bill creates uncertainty regarding
long-term tax planning. The opponents state that, when
"businesses choose to locate in a state, apart from factors
such as availability of a skilled workforce,
infrastructure, regulatory environment, and tax structure,
businesses evaluate whether they can rely on these factors
to remain relatively stable and consistent in the long
term. For example, if a state currently has a skilled
workforce, but high school drop-out rates are escalating,
it is unlikely that a skilled workforce will be available
in the future. Similarly, businesses evaluate whether they
can rely on the existence of current tax incentives ten
years from now." The opponents assert that, while there is
no question that the state should consider the
effectiveness of tax policies, "a 7-year sunset on all tax
credits will have the adverse effect of creating
uncertainty with respect to the future of the state's tax
structure." Finally, the opponents maintain that the
"current practice of constant suspensions of various tax
credits by the Legislature create a difficult environment
for? companies operate [in California], but [it] pales in
comparison to the uncertainty that would be generated by a
legislative renewal being required every seven years."
ASSEMBLY FLOOR :
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AYES: Ammiano, Arambula, Bass, Beall, Block, Blumenfield,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Coto, Davis, De La Torre, De Leon, Eng, Evans,
Feuer, Fong, Fuentes, Gatto, Hall, Hayashi, Hernandez,
Hill, Huber, Huffman, Jones, Lieu, Bonnie Lowenthal, Ma,
Mendoza, Monning, V. Manuel Perez, Portantino, Ruskin,
Salas, Saldana, Skinner, Solorio, Swanson, Torlakson,
Torres, Torrico, Yamada, John A. Perez
NOES: Adams, Anderson, Bill Berryhill, Tom Berryhill,
Conway, Cook, DeVore, Fletcher, Fuller, Gaines, Garrick,
Gilmore, Hagman, Harkey, Jeffries, Knight, Logue, Miller,
Nestande, Niello, Nielsen, Norby, Silva, Smyth, Audra
Strickland, Tran, Villines
NO VOTE RECORDED: Bradford, Furutani, Galgiani, Nava,
Vacancy, Vacancy
DLW:mw 8/24/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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