BILL ANALYSIS �
AB 1661
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Date of Hearing: April 28, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 1661 (Bonta) - As Amended: April 21, 2014
Majority vote. Fiscal committee.
SUBJECT : The Healthy Options for Everyone Act of 2014
SUMMARY : Establishes the Healthy Options for Everyone (HOPE)
Act of 2014 to authorize the creation of HOPE Incentive Zones
designed to increase the availability of fresh fruits and
vegetables, and other grown foods. Specifically, this bill :
1)Contains the following legislative findings:
a) The HOPE Act of 2014 provides cities, counties, and
cities and counties the ability to provide incentives for
businesses and individuals working within HOPE Incentive
Zones that can be tailored by local governments to fit
their unique needs.
b) These incentives are intended to reduce the tax burden
and costs of doing business within a HOPE Incentive Zone
which, in turn, will spur the creation of new businesses,
or the expansion of existing businesses, within the zone.
c) Incentives that will be available for individuals and
businesses working or doing business within a HOPE
Incentive Zone will include, but are not limited to:
i) A hiring tax credit;
ii) An expansion of the period for which a net operating
loss (NOL) may be carried over;
iii) A tax credit for low-income individuals employed
within a zone;
iv) Reductions in electricity rates;
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v) Assistance for developing sites within a zone; and,
vi) Low-interest loans for the installation and
maintenance of electricity and water services.
2)Authorizes a city, county, or city and county, after a public
hearing, to establish by ordinance a HOPE Incentive Zone
within its boundaries for the purpose of increasing the
availability of fresh fruits and vegetables, and other grown
foods.
3)Requires the establishing local government to analyze the
following factors within a geographic area when considering
whether to establish a HOPE Incentive Zone within that area:
a) Transportation;
b) Population density;
c) Income of population;
d) Whether the area qualifies as a "food desert" by the
United States Department of Agriculture;
e) Percentage of population that participates in food
assistance programs, including a free school lunch program;
f) Percentage of population with dietary-related illnesses;
and,
g) Neglected real property.
4)Authorizes a city, county, or city and county, after
establishing a HOPE Incentive Zone, to enact an ordinance to
create incentives for "qualified businesses" to conduct
business within the zone.
5)Defines a "qualified business" as a business "primarily"
engaged in the retail sale of canned food, dry goods, fresh
fruits and vegetables, and fresh meats, fish, and poultry.
6)Defines "primarily" as 80% or more.
7)Encourages cities and counties to issue annual permits at a
discounted rate to a farmers' market operating within a HOPE
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Incentive Zone.
8)Allows a credit, under both the Personal Income Tax (PIT) Law
and the Corporation Tax (CT) Law, equal to 20% of the gross
sales within a HOPE Incentive Zone of a "qualified taxpayer"
during the taxable year.
9)Defines a "qualified taxpayer" as a qualified business that
has primarily done business within a HOPE Incentive Zone
during the taxable year.
10)Provides that, for a NOL for any taxable year beginning on or
after January 1, 2015, in the case of a "qualified business"
the 20-year carryover period shall be increased to 25 taxable
years.
EXISTING LAW :
1)Authorizes a city, county, or city and county to establish by
ordinance an Urban Agriculture Incentive Zone within its
boundaries for the purpose of entering into contracts with
landowners, on a voluntary basis, for the use of vacant,
unimproved, or blighted lands for small-scale agricultural
use.
2)Allows various tax credits under both the PIT Law and the CT
Law. These credits are generally designed to encourage
socially beneficial behavior or to provide relief to taxpayers
who incur specified expenses.
3)Allows taxpayers to utilize NOLs and carryovers and carrybacks
of those losses for purposes of offsetting their tax
liabilities. For taxable years beginning on or after January
1, 2008, existing law allows NOLs to be carried over to each
of the 20 taxable years following the taxable year of the
loss.
FISCAL EFFECT : The Franchise Tax Board (FTB) revenue estimate
for this bill is pending.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
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This bill would allow cities and/or counties to opt into
incentives for grocery stores and other models of grocery
food vending for the purpose of increasing the availability
of healthy food options in [areas] within their districts
which have been classified as low food access areas or
federally defined as "food deserts."
Many of our most vulnerable communities which are
underserved by full-serviced grocery stores, suffer from an
extreme lack of fresh food access. These areas are known
as low-food access areas or "food deserts." As a result,
we see higher hospitalization rates for diabetes, heart
disease, and other diet-related illnesses in these
communities. Increases in obesity and diet-related
diseases are major public health problems. These problems
may be worse in low income communities because access to
affordable and nutritious foods is difficult. Previous
studies suggest that some areas and households have easier
access to fast food restaurants and convenience stores but
limited access to supermarkets. Limited access to
nutritious food and relatively easier access to less
nutritious food may be linked to poor diets and,
ultimately, to obesity and diet-related diseases.
Existing law provides no incentive for healthy and fresh
food vendors to move into food deserts. Without a change,
residents of these neighborhoods will continue to be
isolated from nutritious food resources and suffer negative
health outcomes.
2)Proponents of this bill note the following: "AB 1661 would
authorize a city, county, or city and county to establish by
ordinance a HOPE Incentive Zone for the purpose of
incentivizing increased access to fresh fruits and vegetables
and other grown foods within the zone. While the bill does
not allocate funding for this purpose, it allows the creation
of an incentive at the local level, such as a tax break for
small business, farmer's market, grocery, or other provider of
fresh foods to operate within the zone.
"AB 1661 recognizes that increased availability and access to
healthy foods changes the food environment, helping to make
the healthy choice the easy choice."
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3)Committee Staff Comments:
a) What is a "tax expenditure" ? Existing law provides
various credits, deductions, exclusions, and exemptions for
particular taxpayer groups. In the late 1960s, U.S.
Treasury officials began arguing that these features of the
tax law should be referred to as "expenditures," since they
are generally enacted to accomplish some governmental
purpose and there is a determinable cost associated with
each (in the form of foregone revenues).
b) How is a tax expenditure different from a direct
expenditure ? As the Department of Finance notes in its
annual Tax Expenditure Report, there are several key
differences between tax expenditures and direct
expenditures. First, tax expenditures are reviewed less
frequently than direct expenditures once they are put in
place. This can offer taxpayers greater economic
certainty, but it can also result in tax expenditures
remaining a part of the tax code without demonstrating any
public benefit. Second, there is generally no control over
the amount of revenue losses associated with any given tax
expenditure. Finally, it should also be noted that, once
enacted, it takes a two-thirds vote to rescind an existing
tax expenditure absent a sunset date. This effectively
results in a "one-way ratchet" whereby tax expenditures can
be conferred by majority vote, but cannot be rescinded,
irrespective of their efficacy, without a supermajority
vote.
c) What would this bill do ? This bill authorizes a city or
county to establish by ordinance a HOPE Incentive Zone
within its boundaries, with the goal of increasing the
availability of fresh fruits and vegetables, and other
grown foods. After establishing such a zone, a city or
county would then be authorized to enact an ordinance
creating incentives for "qualified businesses" to conduct
business within the zone. A "qualified business", in turn,
is defined as a business primarily engaged in the retail
sale of canned food, dry goods, fresh fruits and
vegetables, and fresh meats, fish, and poultry.
At present, this bill provides two specific zone-related
tax incentives. First, this bill allows an income tax
credit equal to 20% of a qualified taxpayer's gross sales
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within a HOPE Incentive Zone during the taxable year. A
qualified taxpayer is defined as a qualified business that
has primarily done business within a zone during the
taxable year. Second, this bill provides that, for a NOL
for any taxable year beginning on or after January 1, 2015,
in the case of a qualified business, the 20-year carryover
period shall be increased to 25 taxable years.
d) Should this bill require some "buy-in" from local
governments ? As noted above, this bill authorizes any city
or county to establish a HOPE Incentive Zone within its
boundaries. While this bill directs local governments to
analyze a host of factors when considering whether to
establish such a zone, it appears to vest local governments
with unfettered discretion in designating a particular
zone's size and location. Indeed, this bill would
ostensibly allow a city or county to declare all land
within its boundaries as included within a zone. In fact,
as the bill is currently structured, there would be no
incentive not to take such action. While the bill
authorizes local governments to enact zone-specific
incentives, the only two incentives spelled out are the
income tax credit and the preferable NOL treatment provided
by the state. Associated revenue losses would, in turn, be
borne exclusively by the state's General Fund. Thus,
cities and counties would be able to confer these
preferential tax benefits to qualified businesses within
their jurisdictions without necessarily incurring any
expense at the local level. The Committee may wish to
consider whether local governments should be required to
provide some form of meaningful local buy-in as part of a
zone's creation.
e) Additional clarification on the number and duration of
zones would be helpful : In its current form, this bill
places no limitation on the aggregate number of zones that
could be established statewide. Moreover, this bill
provides no time-limits on a zone's duration. This raises
a number of questions. Namely, would zones exist in
perpetuity once established? Could local governments
rescind an existing zone's designation and, if so, on what
basis? Would local governments be provided a meaningful
opportunity to gauge the success of a zone after a certain
period of time? Moreover, what metrics would be used to
determine whether the incentives being provided are having
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their intended impact?
f) What exactly are we incentivizing ? This bill provides
two tax incentives to qualified businesses operating within
a zone. It would appear that this bill applies to both
qualified businesses already established within a zone and
those that relocate or open in a zone. Typically, tax
incentives are provided to encourage behavior or business
decisions that may not have been undertaken absent the
incentive. Thus, the Committee may wish to consider
whether to limit this bill's tax incentives to businesses
that relocate or open in a zone after its designation.
g) Absence of a sunset date : In its current form, this
bill's proposed tax expenditures lack automatic sunset
provisions. This Committee has a longstanding policy
favoring the inclusion of sunset dates to allow the
Legislature periodically to review the efficacy and cost of
such programs. The author may wish to consider the
addition of appropriate sunset provisions.
h) Additional administrative issues : Committee staff has
identified additional administrative issues with this bill,
ranging from the definition of a "qualified business" to
the intended scope and application of the income tax
credit. Committee staff is available to work with the
author's office to address these and any other issues that
may subsequently be identified.
i) Double-referral : A previous version of this bill was
heard by the Assembly Committee on Local Government on
April 9, 2014, and passed out of that committee on a vote
of 9 to 0. For additional discussion of this bill, please
refer to the Assembly Committee on Local Government's
analysis.
REGISTERED SUPPORT / OPPOSITION :
Support
California Food Policy Advocates
Opposition
None on file
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Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098