BILL ANALYSIS                                                                                                                                                                                                    �




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  SB 693                      HEARING:  1/15/14
          AUTHOR:  Correa                       FISCAL:  Yes
          VERSION:  1/8/14                      TAX LEVY:  Yes
          CONSULTANT:  Grinnell                 

                     INCOME TAXES: CREDITS: SCHOOL EXPENSES
          

          Enacts a tax credit for teachers incurring costs for  
          instructional materials.


                           Background and Existing Law  

          California provides various tax credits designed to provide  
          incentives for tax-payers that incur certain expenses, such  
          as child adoption, or to influence behavior, including  
          business practices and decisions, such as research and  
          development credits and Geographically Targeted Economic  
          Development Area credits.  The Legislature typically enacts  
          such tax incentives to encourage taxpayers to do something,  
          but for the tax credit, they would not otherwise do.

          California once allowed a teacher retention tax credit  
          teachers based upon the taxpayer's years of service as a  
          credentialed teacher (AB 2879, Jackson, 2009).  However,  
          the Legislature only allowed the credit for 2000, 2001, and  
          2003 taxable years, suspended it in 2002, and 2004 through  
          2006, before eventually repealing it in 2007 (SB 87,  
          Committee on Budget).  Teachers claimed $165 million in tax  
          credits in 2003.  

          Teachers may claim a deduction from income on their federal  
          income taxes of up to $250 for any unreimbursed expenses  
          paid or incurred for books, supplies, or computer equipment  
          used in the classroom. 


                                   Proposed Law  

          Senate Bill 693 enacts a teacher tax credit is equal to the  
          amount incurred for instructional materials, up to $250 per  
          year.  The bill defines educational expenses in a way  
          almost identical to the federal deduction.  Only teachers  




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          that work at least 900 hours in the school year as a  
          teacher, instructor, counselor, principal, or aide in a  
          school for kindergarten or any grades one through 12, and  
          only for the first three years of employment.

          Taxpayers may carry the credit over for four years.   
          Franchise Tax Board may make rules, guidelines, or  
          procedures necessary to implement it, but the bill provides  
          that the Administrative Procedures Act doesn't apply to any  
          rules FTB issues.  The measure sunsets both credits in  
          2019.  


                               State Revenue Impact
           
          According to Franchise Tax Board (FTB), the 1/6/14 version  
          of SB 693 results in revenue losses of $850 million in  
          2014-15 and 2015-16.  The estimate for the 1/8/14 version  
          is pending, but should be significantly reduced.


                                     Comments  

          1.   Purpose of the bill  .  According to the author, "Tax  
          relief for teachers who shoulder an extra weight in pursuit  
          of a public good has long been considered sound public  
          policy.  SB 693 allows K-12 teachers in their first three  
          years of consecutive service at public and private schools  
          to claim individual tax credits for the out-of-pocket  
          expenses of instructional materials and classroom supplies.  
           SB 693 would benefit all teachers regardless of the school  
          they teach in.  This legislation would provide tax relief  
          to teachers who dig into their own pockets to help their  
          students' K-12 learning needs."

          2.  Tradeoffs  .  While providing tax credits for teachers to  
          assist with expenses associated with educating the state's  
          children, SB 693 will result in revenue losses, which have  
          to paid for with higher taxes on others or reductions in  
          services.  The Committee may wish to consider whether the  
          foregone revenue resulting from SB 641's kind gesture to  
          teachers is worth the tradeoff of cuts in spending or taxes  
          on other activities that it necessitates.  

          3.   What's different  ?  As introduced, SB 693 enacted  
          credits for both low-income parents and guardians who incur  





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          educational expenses on behalf of their children, including  
          private school tuition.  1/6/14 amendments narrowed those  
          credits, and added an income exclusion as an alternative to  
          the credit.  1/8/14 amendments delete the parent credit and  
          exclusion, but leave the teacher credit.

                        Support and Opposition  (05/02/13)

           Support  :  California Catholic Conference; California  
          Association of Private School Organizations; California  
          State Firefighters Association; Concerned Women for America  
          of California; Orange Chamber of Commerce.

           Opposition  :  California Teachers Association.