BILL ANALYSIS                                                                                                                                                                                                    �




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                          SB 508 (Wolk)
          
          Hearing Date: 04/11/2011        Amended: As Introduced
          Consultant: Mark McKenzie       Policy Vote: G&F 6-2
          
















































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          BILL SUMMARY: SB 508 would require any bill introduced on or 
          after January 1, 2012 that would authorize a new corporate or 
          income tax credit to include the following:
           Specific goals, purposes, and objectives that the tax credit 
            is designed to achieve.
           Detailed performance indicators to allow for measuring 
            achievement of stated goals.
           Annual data collection requirements to enable a determination 
            of whether the credit is meeting, exceeding, or failing to 
            meet the stated goals.
           A seven-year sunset of the credit provisions.
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                            Fiscal Impact (in thousands)

           Major Provisions         2011-12      2012-13       2013-14     Fund
           Future tax credit limitations     Unknown, potentially 
          significant increase in           General
                                 tax revenues to the extent that the bill 
          limits
                                 the duration of future tax expenditures
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          STAFF COMMENTS: 
          
          Existing state and federal laws provide various tax credits and 
          other tax benefits designed to provide relief for taxpayers who 
          incur certain expenses, such as those related to child adoption, 
          or to influence behavior, including business practices and 
          decisions by providing benefits such as research credits or 
          economic development area hiring credits.  These benefits 
          generally are designed to provide incentives for taxpayers to 
          perform various actions or activities that they may not 
          otherwise undertake.  Although the Department of Finance 
          annually reports to the Legislature on tax expenditures 
          exceeding $5 million annually, the data that is reported in 
          insufficient to measure whether the incentive of a tax credit is 
          successful in achieving a desired purpose or objective.  The 
          most recent report indicates that state tax expenditures 
          resulted in foregone revenues of $47 billion in 2010-11.  Staff 
          notes that tax credits may generally be enacted by a majority 
          vote of the Legislature, but repealing or applying a sunset to 
          an existing credit requires a 2/3 vote of the Legislature 








          SB 508 (Wolk)
          Page 3

          because doing so would result in an increase in tax revenues 
          (Section 3 of Article XIIA of the California Constitution).  

          SB 508 applies to tax expenditures enacted on or after January 
          1, 2012 by applying specified requirements to any new personal 
          income tax or corporate tax credits, including a mandatory 
          seven-year sunset.  Staff notes that this Legislature cannot 
          affirmatively bind future ones under County of Los Angeles v. 
          State of California (1984) 153 Cal.App.3d 568, 573.  SB 508 
          would therefore only apply contingently to future measures.  To 
          the extent a future Legislature honors the provisions of this 
          bill, however, 



          there could be unknown and potentially significant revenue gains 
          by limiting the duration of future tax expenditures.  

          The Franchise Tax Board estimates that bill does not have an 
          impact on revenue or the department because any impact would be 
          related to future legislation.  

          Staff notes that this bill is nearly identical to SB 1272 
          (Wolk), which was vetoed by Governor Schwarzenegger last year.  
          The veto message stated the following:

               I am returning Senate Bill 1272 without my signature.  
               While the sponsors seem intent on eliminating measures that 
               will generate jobs and stimulate the economy, the average 
               California taxpayer would probably be better served if the 
               Legislature were willing to automatically sunset every new 
               spending entitlement, program expansion and business 
               mandate after 7 years.