BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1269 HEARING: 5/9/12
AUTHOR: Fuller FISCAL: Yes
VERSION: 2/23/12 TAX LEVY: Yes
CONSULTANT: Phan
HIGHWAY MAINTENANCE CREDIT
Allows a 50% tax credit for maintenance and roadside
enhancement of a section of state highway.
Background and Existing Law
The California Department of Transportation (Caltrans) is
responsible for repairing and maintaining 15,000 miles of
California's highways. Besides repaving roads, some of
Caltran's road maintenance activities include removing
litter, planting and establishing trees or wildflowers,
erasing graffiti, and controlling vegetation.
To include public participation in roadside maintenance,
Caltrans runs the Adopt-A-Highway (AAH) Program.
Established in 1989, the AAH Program allows the public to
help maintain sections of CA highways by performing certain
approved activities. Individuals, groups, or corporations
that wish to adopt a highway apply for a permit. If
approved, the individuals, groups, or corporations maintain
the highway or hire a contractor to perform the
maintenance. Participants can erect a sign on the highway
that recognizes they adopted that highway section. From
July 2009 to June 2010, program participants collected
nearly 16,741 cubic yards of litter, saving California
taxpayers $11,280,000.
Although road use continues to increase, road maintenance
revenue has not increased at an equivalent rate. The LAO
estimates that Caltrans needs $6.3 billion annually to meet
its road repair needs but currently receives only about
$1.5 billion per year. Because of the road maintenance
backlog and ongoing budget constraints, Caltrans has not
been able to respond to all problem areas that require
maintenance.
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Proposed Law
Senate Bill 1269 allows a maintenance and roadside
enhancement credit against the personal income tax equal to
50 percent of the qualified amount for each taxable year
beginning on or after January 1, 2013, and before January
1, 2017.
"Qualified amount" means both the amount the taxpayer paid
or incurred, and the value of materials, equipment, and
services the taxpayer donated, for maintenance or roadside
enhancement of a section of highway during the taxable
year. The value of materials and equipment means the
deductible amount allowed under federal law relating to
charitable contributions. The value of services donated is
less than or equal to the hourly rate of labor determined
by the Department of Transportation for maintenance and
roadside enhancement. Services donated do not include
services for which the taxpayer received compensation.
The credit is subject to the same verification requirements
as outlined in federal law relating to charitable
contributions. The credit amount allowed is not considered
a compensation for services. If the credit exceeds the net
tax, the excess may be carried over to reduce the net tax
in the following year, and the six succeeding years, or
until the credit is exhausted.
Corporation tax follows the same guidelines as the
maintenance and roadside enhancement tax credit for
personal income tax, except the qualified amount excludes
the value of services donated.
The Franchise Tax Board (FTB) must report to the
Legislature on the utilization of the credit on or before
January 1, 2016. SB 1269 is a tax levy and, if approved,
goes into effect immediately.
State Revenue Impact
According to the FTB, revenue losses resulting from SB 1269
are estimated to be $2.3 million in 2012-13, $19 million in
2013-14, $22 million in 2014-15, and $23 million in
2015-16.
SB 1269 - 2/23/12 - Page 3
Comments
1. Purpose of the bill . Some highway areas, such as those
with vegetation overgrowth, can be dangerous for drivers.
A highway maintenance and roadside enhancement tax credit
encourages more people to participate in the AAH Program.
More people donating their time, service, money, and
equipment to highway maintenance saves taxpayers' money.
Local sponsors can provide more responsive and effective
highway maintenance than the state because they know local
driving conditions and needs. Because adequate road
maintenance benefits the public at large, not just the
entity contributing to its maintenance, donors should
receive a tax credit for their generosity. More private
participation in highway maintenance can help ease
Caltran's workload and lower its costs. In addition, SB
1269 will decrease damages from inadequate highway
maintenance, reducing potential costs from claims against
the state. This bill will provide an overall cost savings
to the state, by reducing Caltrans' costs and the potential
for future lawsuits related to improper highway
maintenance.
2. Unnecessary . According to Caltrans, there is no need
to encourage more participation in the AAH Program, which
already has a surplus of participants and long waiting
lists in certain popular areas. Tax credits are intended
to create incentives for taxpayers to perform various
actions or activities that they may not otherwise perform.
After calculating a taxpayer's tax liability, the
government applies the tax credit to reduce the tax
liability. This credit goes to those who would have
contributed to the AAH program even without the tax credit,
so it decreases state revenue without changing many
people's behavior. California already grants many tax
credits for a variety of reasons. The Committee may wish
to consider whether this tax credit, which will cost the
state several millions of dollars, is the best way to
encourage public participation and relieve Caltran's burden
of highway and roadside maintenance.
3. Double claims . This bill allows individuals to receive
tax credits for both the "amount paid or incurred by the
taxpayer" and the "value of materials, equipment, and
services donated by the taxpayer" during the taxable year
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for maintenance and roadside enhancement. Under this
language, a taxpayer can claim one cost twice. For
example, a taxpayer can claim he paid $100 for a piece of
equipment under the first provision, and then claim the
value of that piece of equipment again under the second
provision. The FTB fears that although the tax credit is
supposed to be 50% of the qualified amount, this ability to
double claim the same item allows taxpayers to receive a
tax credit worth 100% of the qualified amount. The
Committee may wish to consider amending the language to
prevent the double-counting.
4. Implementation costs . SB 1269 involves the
administration of two state agencies: the FTB and Caltrans.
This bill requires the FTB to create a new form or
worksheet to be developed and coded for this new roadside
maintenance tax credit. Although there is no estimate of
FTB's costs stemming from this bill, FTB states this new
tax credit will not be burdensome to administer because it
has the resources and its staff is trained to incorporate
the administration of new tax credits.
Caltrans, in contrast, has expressed some concerns. SB
1269 does not change the AAH Program's regulations or
administrative process, but it does require Caltrans to
verify to the FTB the dollar amount of the service or
equipment the donor donated. Currently, Caltrans does not
keep track of donor expenses. This bill requires Caltrans
to perform a function it is not currently doing, which will
result in new costs from hiring and training staff on the
verification procedure. An increase in the number of AAH
participants also demands Caltrans to hire more staff to
handle the application and administration upsurge, further
raising its costs.
5. Definition . This bill and the code sections it
references do not define what "maintenance and roadside
enhancement" means. Without a definition, a taxpayer can
perform any service and argue it is an activity that
qualifies for a tax credit. The Committee may wish to
consider amending the bill to define "maintenance and
roadside enhancement" as "litter and graffiti removal,
planting and establishing trees or wildflowers, and
controlling vegetation."
6. Equipment . Caltrans asserts that under the AAH
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program, donors may volunteer to do a cleanup activity
themselves or hire a contractor whom Caltrans has approved
to do the service. Donors are not allowed to donate
equipment because Caltrans' equipment must meet strict
safety standards to ensure participants' safety. The
Committee may wish to consider deleting the provision that
taxpayers may receive a tax credit for equipment they
donate to Caltrans.
7. Tax credit for services . This bill allows for
individuals to receive a tax credit on the value of the
service they donate for highway maintenance. However,
individuals who volunteer for other causes, such as working
at a food bank or cleaning up beaches, do not receive a tax
credit for their service. The Committee may wish to
consider whether this bill creates a slippery slope for
other charitable causes to request a tax credit for their
volunteer times as well.
In addition, this bill allows individuals to receive a
credit on the value of the service they provide to highway
maintenance and roadside enhancement, but does not offer
the same option for corporations. The Committee may wish
to consider whether corporations can donate their service
to the AAH program, and if so, whether they should be
allowed a tax credit for donating their service.
8. Technical amendment . Section 170 of the Internal
Revenue Code relating to charitable corporations outlines
the verification process required by this bill. Section
170 is long and has many provisions. For clarity on the
verification process of this credit, the Committee may wish
to consider citing that the verification process is
stipulated in Section 170 f(8) (relating to verification of
qualified amounts between $250 and $500) and Section 170
f(12) (relating to verification of qualified amounts
greater than $500).
9. Related Legislation . AB 1057 (Cogdill, 2002) also
proposed a tax credit for highway maintenance and roadside
enhancement. AB 1057 passed out of the Assembly
Transportation Committee with a vote of 19-0. It
subsequently died in the Revenue and Taxation Committee.
Support and Opposition (5/3/12)
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Support : Unknown.
Opposition : Unknown.