BILL ANALYSIS �
AB 1569
Page A
Date of Hearing: May 5, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 1569 (Rodriguez) - As Amended: April 29, 2014
Majority vote. Tax levy.
SUBJECT : Income taxes: credits: apprenticeships.
SUMMARY : Provides a temporary tax credit of $2,000, under both
the Personal Income Tax (PIT) and the Corporation Tax (CT) laws,
for each registered apprentice trained by the taxpayer in the
taxable year. Specifically, this bill :
1)Allows a tax credit to a taxpayer, for each taxable year
beginning on or after January 1, 2016, and before January 1,
2020, in an amount equal to $2,000 for each registered
apprentice trained by the taxpayer in the taxable year.
2)Defines a "registered apprentice" as an individual who meets
all of the following requirements:
a) Is 16 years of age or older at the time of application
into the program;
b) Has not obtained a high school diploma and is enrolled
in high school or a General Education Development test
preparation program (GED program), or is currently enrolled
and completes the GED program while participating in the
apprenticeship; and
c) Is trained by the taxpayer through an apprenticeship
program, as specified.
3)Requires an apprenticeship program to meet all of the
following conditions:
i) It must be approved by the Chief of the Division of
Apprenticeship Standards in the Department of Industrial
Relations (the "DAS"), pursuant to Chapter 4 (commencing
with Section 3070) of Division 3 of the Labor Code and be
AB 1569
Page B
registered with the Office of Apprenticeship at the
United States (U.S.) Department of Labor;
ii) It must be provided pursuant to an apprenticeship
agreement as described in Section 3077 of the Labor Code
(LC); and,
iii) The minimum term in hours for the apprenticeship
program must be 4,000 hours.
4)Specifies that the apprenticeship tax credit is allowed only
if the taxpayer has received a certificate from the DAS.
5)Requires the taxpayer claiming the apprenticeship tax credit
to obtain a certificate for each taxable year and provide a
copy of the certificate to the Franchise Tax Board (FTB) upon
request.
6)Requires the DAS to do all of the following:
a) Establish a procedure for taxpayers, in the form and
manner jointly prescribed by the DAS and FTB, to apply and
receive a certificate;
b) Verify that the taxpayer is training an individual who
meets the requirements of a registered apprentice during
the taxable year, as provided;
c) Provide the taxpayer with a certificate for the
registered apprentice;
d) Provide the FTB with a list of the names of taxpayers
that received certificates and the names of registered
apprentices. The list may also contain other information
included on the certificates;
e) Inform the FTB if the DAS has knowledge that the
training of a registered apprentice is terminated prior to
the completion of the apprenticeship program, after the
taxpayer has received a certificate.
f) Prepare a report on the apprenticeship tax credit for
each of the five calendar years beginning on January 1,
2017, and before January 1, 2022, and include in the report
all of the following information:
AB 1569
Page C
i) The number of companies or businesses taking
advantage of the apprenticeship income tax credit;
ii) The number of apprentices participating in the
apprenticeship programs and the number of apprentices who
completed an apprenticeship program that was the basis of
the apprenticeship tax credit;
iii) The number of apprentices hired by the taxpayer
after the apprenticeship training was completed for which
the taxpayer was allowed a credit for training that
apprentice;
iv) Information on the employment status of individuals
who have completed an apprenticeship to the extent the
information is available; and,
v) The fiscal impact of the apprenticeship tax credits.
g) Submit an annual report on the apprenticeship tax
credits to the Assembly and Senate Appropriations
Committees, the Assembly Committee on Revenue and Taxation,
and the Senate Governance and Finance Committee on or
before March 1 of the calendar year, commencing with March
1, 2018.
7)Authorizes the DAS, in consultation with the FTB, to adopt
rules and regulations as reasonably necessary to effectuate
the implementation of the apprenticeship tax credit.
8)Authorizes the FTB to prescribe rules, guidelines, or
procedures necessary or appropriate to carry out the purposes
of the apprenticeship tax credit provisions.
9)Requires the FTB to provide DAS with any information necessary
to prepare the reports on the apprenticeship tax credit, as
specified.
10)Allows a taxpayer to carry forward the apprenticeship tax
credit to the following tax year, and succeeding four years,
if necessary, until the credit is exhausted.
11)Provides that any unused carryover of the apprenticeship tax
credits shall be canceled and any previously claimed credit
AB 1569
Page D
that reduced the taxpayer's tax shall be recaptured, as
specified, if the training of a registered apprentice is
terminated prior to the completion of the apprenticeship
program, unless any of the following applies:
a) The registered apprentice voluntarily leaves the
apprenticeship program;
b) The registered apprentice, before the completion of the
apprenticeship program, becomes disabled and unable to
perform, as specified, unless that disability is removed
prior to the close of the apprenticeship program and the
taxpayer fails to offer reinstatement to the program for
that apprentice;
c) The training of a registered apprentice was terminated
due to the apprentice's misconduct, as defined in Section
1256-30 to 1256-43, inclusive, of Title 22 of the
California Code of Regulations; or,
d) The training of a registered apprentice was terminated
due to a substantial reduction in the trade or business
operations of the taxpayer.
12)Takes effect immediately as a tax levy.
EXISTING LAW allows various tax credits designed to influence
taxpayer behavior or to provide tax relief for taxpayers who
incur certain expenses. These credits are created to
incentivize taxpayers to engage in certain activities that
taxpayers may not undertake in the absence of the credit.
FISCAL EFFECT : Unknown
COMMENTS :
1)The Author's Statement . The author provided the following
statement in support of this bill:
"An alarmingly large number of young adults have disconnected
from traditional education or skills training pathways. One
of the best ways to reengage disconnected youth, those not
enrolled in school and not working, is through transitional
programs that prepare them for permanent employment by
combining wage-paying jobs with education and support
AB 1569
Page E
services. We need to provide young people planning to enter
the workforce with the opportunities to gain additional skills
through educational, training, and work experiences, which are
a critical component of preparing youth for transition to
adulthood and into the workforce."
2)Arguments in Support . The proponents argue that this bill
"can be an important tool to reduce the horrendous
unemployment rate among youth, particularly among youth of
color." They assert that this bill encourage employers to give
young job seekers "a chance" and encourage youth "to complete
their high school education."
3)Arguments in Opposition . The opponents state that, while the
aim of "promoting Californians to retain more apprentices is a
worthy one," accomplishing it through a tax credit is unsound.
The opponents argue that hiring credits "simply have no track
record of accomplishing their aim, and certainly no track
record of doing so cost-effectively compared to alternatives."
Finally, the opponents assert that California has a variety of
training funds "which involve direct subsidy for training and
oversight for those purposes" and that, if those programs
"need to be strengthened, we should do so directly, not
through the use of tax credits."
4)What Does this Bill Do ? This bill proposes to create an
income tax credit for five taxable years - from January 1,
2016, until January 1, 2020 - for employers who have
established an eligible apprenticeship program approved by the
DAS and is registered with the Office of Apprenticeship at
the U.S. Department of Labor. Thus, this bill would subsidize
the cost of training youth at the work-site, up to $2,000
annually per each registered apprentice trained by the
taxpayer. Only specified individuals who are 16 years of age
or older would qualify as "registered apprentices."
Generally, an individual must be enrolled in high school or a
GED test preparation program. In order to claim the
apprenticeship tax credit, a taxpayer must receive a
certificate from the DAS for each taxable year in which the
taxpayer intends to claim the credit. The taxpayer must
ensure that a registered apprentice completes the training
program; otherwise the credit claimed by the taxpayer may be
subject to recapture. However, the recapture provisions will
not apply in the case where a registered apprentice left the
program voluntarily; was unable to perform, as required by the
AB 1569
Page F
program, due to acquired disability; or was terminated for
misconduct or due to a substantial reduction in the trade or
business operations of the taxpayer.
5)Annual Reporting . This bill would require the DAS to prepare
an annual report regarding the effectiveness of the
apprenticeship tax credit, including the number of companies
and apprentices participating in the program, the number of
apprentices hired after the apprenticeship, and the fiscal
impact of the apprenticeship tax credit, among other types of
information. The annual report will be delivered to the
Legislature for review.
6)Disconnected Youth . According to the report<1> released by
Measure America, a project of the Social Science Research
Council, one in every seven Americans between the ages of 16
and 24 (or about 5.8 million young people in the country) is
neither working nor is in school. The highest rate of youth
disconnection among the countries most populous 25 metro areas
was found in the Inland Empire: nearly one in every five young
people, or 117,000 of approximately 620,000 teens and young
adults. The national disconnection rate was 14.6%.
Among the factors associated with youth disconnection are high
rates of poverty and unemployment, low levels of educational
attainment, and high rates of disconnection identified over a
decade ago. While youth disconnection is a complex problem
with no easy solution, the new approaches identified by the
U.S. Department of Labor show great promise. The key
component of the overall strategy is a focus on job readiness
and training. Apprenticeship programs allow people to obtain
on-the-job experience and move into gainful employment.
According to the U.S. Department of Labor, some 37,000 program
sponsors signed for the Registered Apprenticeship program in
the United States, representing over one-quarter million
employers, industries and companies. The training programs
serve a diverse population, including minorities, women,
youth, and dislocated workers.
7)The 21st Century Registered Apprenticeship Program . The
National Apprenticeship Act of 1937 (also known as the
Fitzgerald Act) established the national Registered
Apprenticeship system offering a training model for diverse
---------------------------
<1> "Halve the Gap by 2030: Youth Disconnection in America's
Cities."
AB 1569
Page G
industry sectors, which combines on-the-job learning,
classroom instruction, and mentoring.<2> Apprentices earn a
paycheck while in training and employers are assured of a
valuable and competent workforce. Equally important, the
program offers "a career pathways leading to industry
recognized credentials, giving employers an avenue to elevate
the competencies of their workers, and giving workers and
their families opportunities for advancement and increased
earnings as skills and expertise are acquired."<3>
Either the U.S. Department of Labor's Office of Apprenticeship
or a State Apprenticeship Agency approved by the Secretary of
Labor for federal purposes administers the National
Apprenticeship Act. However, the program is sponsored by an
individual business or an employer association and may be
partnered with a labor organization through a collective
bargaining agreement. Sponsors identify the minimum
qualifications and credentials to apply. Those programs range
from one to six years, with an average of four years. For
each year of the apprenticeship, the apprentice will normally
receive 2,000 hours of on-the-job training and a recommended
minimum of 144 hours of related classroom instructions.<4>
The Registered Apprenticeship is primarily funded by industry,
allowing the opportunity for the public sector "to leverage
the significant investments made by the private sector in this
industry-driven model." The U.S. does not provide incentives
to potential sponsors to utilized Registered Apprenticeship
program.<5> According to a recent evaluation, the social
benefits of Registered Apprenticeship are much larger than the
social cost, where participants had substantially higher
earnings than did nonparticipants.<6> According the Report,
the net social benefits of the Registered Apprenticeship
---------------------------
<2> 21st Century Registered Apprenticeship: Outeducate,
Outbuild, Outinnovate, A shared Vision for Increasing
Opportunity, Innovation, and Competitiveness for American
Workers and Employers, Report from the Secretary of Labor's
Advisory Committee on Apprenticeship, January 2013 (the
"Report").
<3> Id., p. 4
<4> Id., p. 13
<5> Id., p.10
<6> An Effectiveness Assessment and Cost-benefit Analysis of
Registered Apprenticeship in 10 states, Mathematica Policy
Research.
AB 1569
Page H
Program have important implications for states, regions, and
local communities - enhanced worker productivity and skill
levels, increased worker earnings, a larger revenue base, and
reduced utilization of government-provided assistance, such as
unemployment compensation and food stamps.
8)California Apprenticeship Programs . Apprenticeship in
California dates back to the Shelly-Maloney Apprenticeship
Labor Standards Act of 1939. Currently, California has the
largest apprenticeship system in the nation. Apprenticeship
programs are offered in occupations that meet specific
state-approved standards, registered with and approved by the
DAS. There are over 800 apprenticeable occupations in
California across a variety of industry sectors. The bulk of
registered apprenticeship programs are in the construction
sector - at present, about two-thirds of California's
apprentices are in training in building and construction
trades occupations. However, there are significant numbers of
apprentices in training as barbers, cosmetologists,
firefighters, machinists, auto mechanics and public safety
officers among the DAS's over 600 approved apprenticeship
program sponsors.
Generally, wages and benefits are paid to registered apprentices
by employers participating in the apprenticeship programs, but
apprenticeship program educational funding (RSI or "Montoya
Funds") are appropriated annually in the State Budget Act from
Proposition 98 funds. The appropriations are made to the
California Department of Education (CDE) and the California
Community College Chancellor's Office. The funds are then
disbursed to high school districts, Regional Occupational
Centers and Programs, and community college districts that
contract with apprenticeship program sponsors. The CDE
supports approximately 35 regional and occupational centers
offering apprenticeship programs for a specified length of
time, usually three to five years, and include on-the-job
training and classroom related and supplemental instruction.
AB 1569
Page I
In March 2012, the Employment Training Panel<7> (ETP) began
funding apprenticeship training through an Apprentice Training
Pilot Program as a way to supplement RSI funds.<8> The Pilot
funds RSI at the rate of $13 per hour and is capped at 154
hours per individual apprentice. Only DASapproved
apprenticeship programs are eligible to apply. Apprenticeship
training may stand alone, or be combined with
preapprenticeship and journeyman training. As its March 2013
meeting, the ETP revised its apprenticeship guidelines to
expan9)d apprenticeship into new sectors, such as
healthcare.<9>
10)Will the Proposed Tax Credit Increase Apprentice Enrollment ?
Many states and local communities have been actively
"innovating 'on the ground,' incubating and scaling strategies
and models that highlight Registered Apprenticeship's critical
role in meeting complex 21st century workforce needs."<10>
Some states enacted business tax credits and employed
utilization agreements, project labor agreements and other
strategies to expand Registered Apprenticeship.<11> Several
states, including Arkansas, Connecticut, Michigan, Missouri,
Rhode Island and Virginia, have established Youth
Apprenticeship Tax Credit programs. In July 2000, the
---------------------------
<7> There are several workforce development programs in
California; they are primarily administered through the Labor
and Workforce Development Agency and the California Community
College System. One of the largest programs of its kind in the
nation is the Employment Training Panel (ETP), a business- and
labor-supported state agency that funds job skill development
initiatives that have good pay potential. The ETP provides
customized training to new and current workers of California
employers, particularly those facing out-of-state competition.
One source of funding is provided by an assessment of one tenth
of 1% of unemployment insurance wages paid by every private,
for-profit employer in California, as well as some non-profits
amounting to no more than $7 per covered employee per year.
<8> "Apprenticeship as a Critical Component of an "Earn and
Learn" Job Training Strategy in California," White Paper
produced on behalf of the California Workforce Investment Board
by the Interagency Working Group on 'Earn and Learn' Job
Training Strategies and Apprenticeship in California, December
2012.
<9> Employment Training Panel, 2013-14 Strategic Plan, p.16.
<10> The Report, p. 21.
<11> Ibid.
AB 1569
Page J
National Conference of State Legislatures (NCSL) reviewed
school-to-career apprenticeship tax credit programs. The NCSL
found that most states lacked sufficient data to analyze their
credit's impact on apprenticeship enrollment. However, the
State of Arkansas showed a 10% increase in the number of
apprentices after the passage of the tax credit.
Although well intentioned, this bill represents an attempt to
use the tax code to accomplish a public policy objective that
could be addressed through direct outlay of state funds. As
noted by the California Budget Project, nearly two-thirds of
the projected 2020 labor force is already past high-school
age, and meeting the needs of working adults requires changes
in the areas that include financial aid policies; supportive
services, such as child care and transportation; new
approaches to teaching and curriculum design; and flexibility
in the scheduling of classes. (California Budget Project,
Mapping California's Workforce Development System: A guide to
Workforce Development Programs in California, 2009.) It was
also suggested that one promising strategy for addressing both
the needs of workers and employers is employment and training
programs that target a specific industry and work to meet its
local labor market needs. (Id.). Would a stand-alone tax
credit be sufficient to improve the state's workforce and to
ensure that the state's workers have the skills needed to
compete in the global marketplace? The Committee may wish to
consider whether an increased funding to the ETP to support
and expand the existing apprenticeship programs would be a
more efficient approach to achieve these goals.
11)Credit vs. Deduction . Existing law already provides a tax
incentive, in the form of a deduction for business expenses,
for wages and benefits paid to employees. A tax credit is
more valuable because it lowers the tax liability
dollar-for-dollar. A deduction decreases the taxpayer's
income, so the value of a deduction depends on one's tax
bracket. For example, if a taxpayer is in the 25% bracket, a
$1,000 deduction would lower the taxpayer's tax bill by $250.
In contrast, a $1,000 credit decreases the tax liability by
the full $1,000, regardless of the tax bracket. Thus, the
value of a tax credit is the same, regardless of the tax rate
and, therefore, it is generally more appealing to taxpayers.
As such, this bill would greatly benefit taxpayers willing to
contribute to the Fund. In fact, the credit proposed by this
bill may be so great that it may incentivize employers to hire
AB 1569
Page K
an apprentice instead of an employee. Would this bill
potentially result in the increased number of apprentices at
the expense of full-time employees? The Committee may wish to
consider whether the total amount of apprenticeship credit
available to an employer or all employers in any given taxable
year should be limited.
12)"Double Dipping" ? This bill would allow a qualified taxpayer
a double benefit: first, a deduction and then a credit for
the same qualified business expenses. Generally, a credit is
allowed in lieu of a deduction in order to eliminate multiple
tax benefits for the same item or expense. The Committee may
wish to consider amending this bill to disallow this double
tax benefit and to deny a deduction for wages and benefits
paid to apprentices for which the credit is claimed.
13)Suggested Technical Amendments .
a) AMENDMENT 1:
On page 3, delete lines 16 to 20, inclusive, and insert:
(2) Meets one of the following requirement:
(A) Has not obtained a high school diploma and is enrolled in
high school or a General Education Development test
preparation program.
(B) Has obtained a high school diploma or General Education
Development credential while participating in the
apprenticeship program.
b) AMENDMENT 2:
On page 5, delete lines 39 and 40, on page 6, delete lines 1
to 3, inclusive, and insert:
(2) Meets one of the following requirement:
(A) Has not obtained a high school diploma and is enrolled in
high school or a General Education Development test
preparation program.
(B) Has obtained a high school diploma or General Education
Development credential while participating in the
AB 1569
Page L
apprenticeship program.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
California Tax Reform Association
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098