BILL ANALYSIS �
AB 2514
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Date of Hearing: May 13, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 2514 (Pan) - As Amended: April 1, 2014
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Personal Income Tax Law: credit: rural health care
professionals
SUMMARY : Allows a personal income tax (PIT) credit to encourage
health care professionals to locate in medically underserved
areas of California. Specifically, this bill :
1)Contains the following legislative findings:
a) In order for all geographic areas of California to have
the opportunity for economic development, it is vital that
excellent health care be available throughout the state;
b) Payment of student loans is an incentive used by rural
communities and health care institutions to attract health
care professionals to practice; and,
c) It is the Legislature's intent to provide a tax credit
for the purpose of payment of student loans as an incentive
to encourage health care professionals to locate is
medically underserved areas of California.
2)Allows a credit, for taxable years beginning on or after
January 1, 2014, and before January 1, 2019, to a "qualified
taxpayer" based on the "qualified taxpayer's" "student loans".
3)Specifies that the credit amount shall be the lesser of the
following:
a) One-third of the balance due on the "qualified
taxpayer's" "student loans" as of January 1 of the taxable
year in which the credit is allowed; or,
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b) The total balance due on the "qualified taxpayer's"
"student loans" as of January 1 of the taxable year in
which the credit is allowed, minus the total amount of
credit allowed in previous taxable years.
4)Allows the credit for five consecutive taxable years.
5)Defines a "qualified taxpayer" as an individual who meets all
of the following conditions:
a) Is a dentist, physician, physician assistant, or
advanced practice nurse who is licensed or certified to
practice within California;
b) Resides and practices full-time, as defined, in a "rural
health care professional shortage area" and has committed
to residing and practicing in that area for at least three
years and up to five years pursuant to an agreement with
the State Department of Health Care Services; and,
c) Is a borrower on student loans under a recognized loan
program used for higher education opportunities resulting
in a degree that enables him or her to be licensed or
certified as a health care professional in California.
6)Defines a "student loan" as a student obligation note or other
debt evidencing a loan to any individual for higher education
purposes or for the purpose of consolidating or refinancing a
loan for higher education purposes, which is either:
a) A guaranteed student loan;
b) An educational loan; or,
c) A loan eligible for consolidation or refinancing under
the Higher Education Act of 1965, as amended (20 U.S.C.
Sec. 1070 et seq.).
7)Defines a "rural health care professional shortage area" as
any area of the state that:
a) Is not a metropolitan statistical area as described in
the publication "State and Metropolitan Area Data Book,"
2010, published by the United States Census Bureau; and,
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b) Is located 30 or more miles from the nearest hospital
containing 30 or more licensed beds.
8)Allows the credit only for those taxable years in which:
a) The qualified taxpayer is not delinquent on his or her
student loan payments;
b) The qualified taxpayer resides and practices in a rural
health care professional shortage area under an agreement
with the State Department of Health Care Services; and,
c) The qualified taxpayer's student loan has an outstanding
balance for at least a part of the taxable year.
9)Specifies that if the qualified taxpayer does not reside and
practice within a rural health care professional shortage area
during the period in which he or she was committed to reside
and practice in that area or pays his or her student loan in
full by means of any other loan repayment program, any
remaining unapplied credit shall be cancelled and any
previously applied credit for the taxable year in which the
move occurred, in which the practice ended, or in which the
loan was paid in full shall be recaptured, and the qualified
taxpayer shall be liable for any increase in tax attributable
to the recapture.
10)Requires the State Department of Health Care Services and the
Franchise Tax Board (FTB) to promulgate rules and regulations
as necessary to implement this credit.
11)Sunsets the credit provisions on December 1, 2019.
12)Takes immediate effect as a tax levy.
EXISTING LAW :
1)Allows various tax credits under the PIT Law. These credits
are generally designed to encourage socially beneficial
behavior or to provide relief to taxpayers who incur specified
expenses.
2)Allows individuals to deduct the interest paid on qualified
student loans, as specified.
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FISCAL EFFECT : The FTB estimates that this bill would reduce
General Fund revenues by $5 million in fiscal year (FY) 2014-15,
by $3.5 million in FY 2015-16, and by $3.8 million in FY
2016-17.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
The federal government has recognized a large number of
California communities as Health Professional Shortage
Areas (HPSA). These [HPSAs] have a deficiency of health
care professionals (medical in particular) able to serve
residents of their communities. In order for all regions
of California to have an opportunity for economic progress,
it is vital that comprehensive physician-led health care
services be made available.
AB 2514 would allow a tax credit to health care
professionals who practice in a health care professional
shortage area in a specified amount of the qualified
taxpayer's student loans. The legislation seeks to create
a tax credit for the purpose of repayment of student loans
as a financial incentive to encourage health care
professionals to practice in medically under-served regions
of the State.
2)Proponents of this bill note the following:
With the expansion of health care coverage under the
Affordable Care Act and California's existing physician
shortage, we must allocate the appropriate resources to
ensure that all Californians have access to world-class
health care. AB 2514 is an important step toward
increasing access to care for underserved communities.
AB 2514 would improve access to health care for patients in
underserved communities by providing tax credits for the
purpose of student loan repayment for health care
professionals who practice within medically underserved
regions of California. This program will help meet the
serious need for physicians to serve the growing number of
newly insured and Medi-Cal patients.
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3)Opponents of this bill note the following:
CTRA supports the aim of reducing student loans in exchange
for duty practicing medicine in rural areas, but we are
concerned that this bill provides a potentially very large
tax credit for many medical professionals who will earn
substantial [amounts] of money over their lifetime and take
out large loans for medical school accordingly, in exchange
for relatively short duty in rural areas.
Instead, CTRA suggests amending the bill to provide for
some substantial limitations on the amount of debt that may
be eliminated, commensurate with the differential of income
from working in a rural area. CTRA also believes there
would be a more direct way of eliminating some student
debt, since some of this activity will take place in any
case at [a] cost to the state.
4)The FTB notes the following implementation concerns in its
staff analysis of this bill:
a) Because this bill fails to specify otherwise, the FTB
would be subject to the rulemaking procedures required
under the Administrative Procedures Act. Because this bill
is specifically operative for taxable years beginning on or
after January 1, 2014, following these rulemaking
procedures may delay the bill's immediate implementation.
b) This bill requires that, in order to claim the credit, a
qualified taxpayer must not be delinquent on his or her
student loan payments. It is unclear to FTB staff how the
FTB would know whether a taxpayer is delinquent or not.
Thus, the FTB recommends appropriate amendments to "clarify
that documentation be provided to the FTB when the
qualified taxpayer claims the credit."
c) This bill fails to specify the details that must be
included in the agreement to practice and reside in a rural
health care shortage area or when and how often the
agreement must be updated. Thus, the FTB recommends
amending this bill to provide additional clarity on these
issues.
d) This bill's recapture provisions are inconsistent with
those contained in the PIT Law. As such, the FTB has
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suggested appropriate amendments for internal consistency.
5)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). This bill, in
turn, would enact a new tax expenditure program in the form
of a PIT credit designed to encourage health care
professionals to locate in medically underserved areas of
California.
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) Implementation and policy concerns : A number of
implementation and policy concerns have been identified
with this bill's current language. Committee staff is
available to work with the author's office on these and any
other concerns that may be identified. These include:
i) Double dipping ? Because some taxpayers can
currently deduct student loan interest, this bill would
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allow certain taxpayers to claim multiple tax benefits
for the same item of expense. The Committee may wish to
consider appropriate amendments requiring that the credit
be taken in lieu of any available deduction.
ii) When do we get started ? This bill requires a
qualified taxpayer to reside and practice full-time in a
rural health care professional shortage area.
"Full-time," in turn, is defined as at least 20 hours per
week on average for 180 days in the first taxable year in
which a credit is allowed. If this bill were enacted in
late September or early October of this year, there would
not be 180 working days left in the 2014 calendar year.
Thus, this credit would only apply, if at all, to those
health care professionals already living and working in a
shortage area. Tax credits are typically enacted,
however, to incentivize rather than to reward behavior.
Thus, the Committee may wish to consider amending this
bill to apply to taxable years beginning on or after
January 1, 2015.
iii) What loans are covered ? Currently, this bill
requires a qualified taxpayer to have student loans used
for "higher education opportunities" resulting in a
degree enabling him or her to practice as a health care
professional in this state. Thus, it is unclear to
Committee staff whether this bill would apply to loans
incurred solely for professional (e.g., medical)
education, or whether it would also apply to
undergraduate loans that arguably also "resulted" in a
degree enabling health care practice. Thus, the
Committee may wish to consider appropriate amendments
clarifying the scope of the student loans covered by the
credit.
iv) Establishing the right incentive : This bill's goal
of attracting health care professionals to medically
underserved areas is highly laudable. This bill seeks to
accomplish this goal by providing a generous credit to
those health care professionals who commit to work and
reside in such areas. By basing the credit on the
taxpayer's outstanding student loan balance, however,
this bill might inadvertently discourage the accelerated
payment of student loans. For example, if a doctor had
outstanding student loans of $100,000 on January 1, 2015,
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the doctor would be eligible for a credit of $33,333 for
that year. However, there would be little incentive to
apply this anticipated tax savings to the outstanding
loan amount. By doing so, the doctor would be decreasing
his or her loan balance by a significant amount, creating
a smaller balance upon which to calculate the credit in
future years. Thus, the Committee may wish to consider
some alternative incentive structure.
REGISTERED SUPPORT / OPPOSITION :
Support
Union of American Physicians and Dentists (co-sponsor)
American Federation of State, County and Municipal Employees,
AFL-CIO
Association of California Healthcare Districts
California Arthritis Foundation Council
California Chapter of the American College of Emergency
Physicians
California Rheumatology Alliance
Rural County Representatives of California
11 individuals
Opposition
California Tax Reform Association
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098