BILL ANALYSIS �
AB 1569
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Date of Hearing: May 21, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1569 (Rodriguez) - As Amended: May 15, 2014
Policy Committee: Revenue &
Taxation Vote: 7-0
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill creates a tax credit under both the personal income
tax and corporation tax laws, for tax years beginning on or
after January 1, 2016 and before January 1, 2020, equal to
$2,000 for each registered apprentice trained by the taxpayer in
the taxable year. In summary, this bill:
1)Defines a "registered apprentice" as an individual who
satisfies all of the following:
a) Is 16 years of age or older at the time of application
into the program.
b) Meets one of the following: (i) has not obtained a high
school diploma and is enrolled in high school or a General
Education Development test preparation program (GED
program); or (ii) has obtained a high school diploma or GED
credential while participating in the apprenticeship.
c) Is trained by the taxpayer through an apprenticeship
program.
2)Requires an "apprenticeship program" to be approved by the by
the Chief of the Division of Apprenticeship Standards in the
Department of Industrial Relations (DAS) and registered with
the Office of Apprenticeship at the US Department of Labor;
provided pursuant to an apprenticeship agreement under
California labor law; and consist of a minimum term of at
least 4,000 hours.
3)Requires DAS to establish procedures for applications and the
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verification, allocation, and certification of credits, and
provide ongoing information to the FTB with respect to the
taxpayers that received certificates.
4)Requires DAS to prepare an annual report on the apprenticeship
tax credit program for each of the five calendar years
beginning on January 1, 2017 and submit the report to the
Legislature on or before March 1 of the relevant calendar
year, beginning March 1, 2018.
5)Allows a taxpayer to carry forward the apprenticeship tax
credit up to five years or until the credit is exhausted.
6)Provides that any unused carryover of the apprenticeship tax
credits shall be canceled and any previously claimed credit
that reduced the taxpayer's tax shall be recaptured if the
training of a registered apprentice is terminated prior to the
completion of the apprenticeship program, subject to certain
exceptions.
7)Provides that any other deduction allowed for the taxpayer for
any amount paid or incurred in training a registered
apprentice as a trade or business expense shall reduce the
amount of the credit allowed under this program.
FISCAL EFFECT
1)Potentially significant costs to DAS and FTB to develop
processes and regulations to administer the program.
2)Estimated GF revenue decreases of $12 million, $28 million,
and $33 million in FY 2014-15, FY 2015-16, and FY 2016-17,
respectively.
COMMENTS
1) Purpose. According to the author, a significant number of
young adults are no longer involved in skills training, and
one way to reengage disconnected youth - those not enrolled in
school and not working - is through transitional programs that
prepare them for permanent employment. Apprenticeship
experiences give young people the opportunity to combine
wage-paying jobs with education and support services, helping
to prepare the apprentices for transition to adulthood and
participating members of the workforce.
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Proponents argue apprenticeships can be particularly important
tools for helping young people of color. They assert this
bill will incentivize employers to help young adults to gain
valuable skills and complete their high school education.
2) Tax Credits vs Investment in Training. Opponents argue that,
while the aim of promoting more apprentices is laudable, tax
credits are ill-suited to achieving it. They assert that
hiring credits have little track record of improving overall
hiring, and are not a cost-effective means of achieving hiring
goals. Instead, opponents claim California has a variety of
training funds that involve direct training and oversight for
the same purposes proposed in this bill, and that these
programs are more effective and could be strengthened through
direct investment. The Committee may wish to consider whether
increased funding to existing programs, such as the Employment
Training Panel (ETP), as discussed in comment 4 below, to
support and expand the existing apprenticeship programs, would
be a more efficient approach to achieving these goals.
3) National Registered Apprenticeship Program. The National
Apprenticeship Act of 1937 established a registered
apprenticeship system, creating a training model that combines
on-the-job learning, classroom instruction, and mentoring.
Apprentices earn a paycheck while in training and employers
are provided a valuable and competent workforce. Equally
important, the program offers career pathways leading to
industry recognized credentials, giving employers
opportunities to improve the competencies of their workers
while giving workers opportunities to acquire skills and
expertise, advance, and increase earnings.
Either the US Department of Labor or a State Apprenticeship
Agency 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. The
programs range from one to six years, and 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.
The Registered Apprenticeship is primarily funded by industry,
allowing the public sector to leverage investments made by the
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private sector. The US does not provide incentives to
potential sponsors to utilize Registered Apprenticeship
programs. According to a recent evaluation, participants in
Registered Apprenticeship programs had substantially higher
earnings than nonparticipants, and the social benefits of the
programs have important implications for states, regions, and
local communities. These benefits include 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.
4) California Apprenticeship Programs. 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. The majority of registered
apprenticeship programs are in building and construction
trades. However, there are significant numbers of apprentices
in training as barbers, cosmetologists, firefighters,
machinists, auto mechanics and public safety officers among
the DAS's more than 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
(known as related and supplementary instruction (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.
In March 2012, the ETP began funding apprenticeship training
through an Apprentice Training Pilot Program as a way to
supplement RSI funds. 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. In
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March 2013, the ETP revised its apprenticeship guidelines to
expand apprenticeship into new sectors such as healthcare.
Analysis Prepared by : Joel Tashjian / APPR. / (916) 319-2081