The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

This bill, for each taxable year beginning on or after January 1, 2019, and before January 1, 2026, would allow a credit against the taxes imposed under both laws to a qualified employer that qualifies for the federal Work Opportunity Tax Credit in an amount equal to 40% of the qualified first-year wages paid or incurred during the taxable year to a qualified employee who is a member of a targeted group, as defined in federal tax law. employer, as defined, in an amount equal to that allowed under the federal Work Opportunity Tax Credit, as modified. The bill would prohibit the credit from exceeding $2,400 per qualified employee per taxable year. The bill would make related declarations, and would require the Employment Development Department to prepare a specified report, related to the specific goals, purposes, and objectives, performance indicators, and data collection requirements for these credits.

This bill would take effect immediately as a tax levy.

The federal Workforce Innovation and Opportunity Act of 2014 provides for workforce investment activities, including activities in which states may participate. Existing law contains various programs for job training and employment development, including work incentive programs, as specified, and establishes local workforce development boards to perform duties related to the implementation and coordination of local workforce development activities.

This bill would add to those duties requirements to address the differing training needs of employers within the region based on size and legal structure of the business organization and to identify and promote strategies that sector strategies, career pathways, and earn-and-learn training models that support the training needs of emerging and dominant business types, new ways of working, as specified. By increasing the duties of the local workforce development board, board in conformance with federal law, this bill would impose a state-mandated local program.

The federal Workforce Innovation and Opportunity Act of 2014 provides for workforce investment activities, including activities in which states may participate. Existing law contains various programs for job training and employment development, including work incentive programs, as specified, and establishes local workforce development boards to perform duties related to the implementation and coordination of local workforce development activities.

This bill would add to those duties requirements to address the differing training needs of employers within the region based on size and legal structure of the business organization and to identify and promote strategies that support the training needs of emerging and dominant business types, as specified. By increasing the duties of the local workforce development board, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2017 - 2018 Regular Session

AB 916 (Quirk-Silva) - Income taxes: California work opportunity tax credit

This bill meets the criteria for referral to the Suspense File.

Bill Summary: AB 916 would enact a state Work Opportunity Tax Credit (WOTC).

Fiscal Impact: The Franchise Tax Board (FTB) estimates that the bill would result in General Fund revenue losses of $27 million in 2018-19, $70 million in 2019-20, and $75 million in 2020-21. FTB’s costs to implement the bill would be minor and absorbable.

The bill would also result in administrative costs to the Employment Development Department (EDD) to certify qualified individuals. These annual costs have yet to be determined, but are likely significant.

Background: Tax expenditure programs (TEPs) are special tax provisions that reduce the amount of revenues the “basic” tax system would otherwise generate in order to provide (1) benefits to certain groups of taxpayers, and/or (2) incentives to encourage certain types of behavior and activities, such as charitable giving. Specifically, current law provides for, among other things, various income and corporation tax credits and deductions, as well as exemptions from the sales and use tax. The Department of Finance (DOF) is required to publish a list of TEPs (currently totaling several hundred), which currently $61 billion annually.

Current federal tax law since 1994 allows employers to claim the WOTC against federal income taxes based on a percentage of qualified wages paid to an individual who is a member of a targeted group, including the following: (1) Temporary Assistance to Needy Families (TANF) recipients, (2) veterans receiving Food Stamps, or specified veterans with a service connected disability, (3) ex-felons hired no later than one year after conviction or release from prison, (4) Designated Community Residents, who are individuals between the ages of 18 and 40 on the hiring date who reside in a federal Empowerment Zone, or Rural Renewal County, (5) vocational rehabilitation referrals, including Ticket Holders with an individual work plan developed and implemented by an Employment Network, (6) summer youth ages 16 and 17 who reside in an Empowerment Zone, (7) Food Stamp recipients between the ages of 18 and 40 on the hiring date, (8) Supplemental Security Income (SSI) recipients, (9) Long-term family assistance recipients, and (10) Long-Term unemployment recipients.

Employers in the State have two ways to obtain the certification necessary under federal law to claim the WOTC. First, employers can obtain certification from EDD that the individual is a member of a targeted group on or before the day that person begins work. Second, employers can complete a pre-screening notice on or before the day the individual is offered employment, and submit such notice to EDD to request certification not later than 28 days after the individual begins work. Employers may not request certification on former employees who have been rehired; on the contrary, employees can only be certified the first time they were hired by the employer. California has never directly conformed to the federal WOTC. Instead, the State has allowed WOTC-eligible individuals to qualify employers for the enterprise zone hiring credit.

Specifically, taxpayers located in geographically targeted economic development areas, such as enterprise zones, local agency military base recovery areas, manufacturing enhancement areas, and targeted tax areas could claim a hiring credit for wages paid on or before January 1, 2014. The credit was equal to 50 percent of the wages paid to a qualified employee in the first year, with declining percentages the following four years, up to 150 percent of the minimum wage. Individuals on several forms of public assistance, including recipients of the federal WOTC, qualified employers for the credit.

Initially, the program resulted in annual revenue losses of less than $10 million. However, beginning in 1998, the credit’s costs began to significantly grow as accounting firms and tax credit consultants capitalized on the fact that, unlike the WOTC, taxpayers could receive a certification qualifying an employee for an enterprise zone hiring credit at any time. Thus, tax credit consultants would look through a company’s records to see if they could certify employees who currently work or previously worked for a taxpayer in an enterprise zone in past years. Then, the consultants would submit claims for refunds for previous taxes paid to FTB based on those certifications under California’s general four-year statute of limitations for amending past tax returns. Consultants marketed their services to taxpayers under contingency arrangements, such that the larger the amount of previous taxes paid received by the taxpayer, the larger the tax credit consultant’s compensation.

Because of its consistent failings to increase employment or decrease poverty within zones, and its rapidly escalating cost in foregone revenue to the State, the Legislature changed the tax program. Instead, it provided three new tax benefits:

• Tax credits for wages paid by taxpayers to qualified employees with barriers to employment within former enterprise zones, and other areas that suffer from high levels of poverty and unemployment, referred to as the New Employment Credit (NEC). The Legislature recently extended this credit through the 2025 taxable year.
• A sales and use tax exemption on purchases of manufacturing equipment made by taxpayers within specific North American Industrial Classification System codes, capped at $200 million annually per taxpayer, effective July 1, 2014. The Legislature expanded and extended the exemption as part of the agreement to extend the Global Warming Solutions Act.
• The California Competes Tax Credit, which authorizes the California Competes Tax Credit Committee to award various tax credits up to an annually capped amount to taxpayers who apply. The Legislature also recently extended this authority through taxable year 2029.

Under the NEC, taxpayers can claim credits against the Personal Income or Corporation Tax when they hire a qualified individual on or after January 1, 2014. Qualified full-time employees include previously unemployed persons, veterans, ex-offenders, low-income families with children; work at least an average of 35 hours per week; and meet other specified requirements. To claim the credit taxpayers must (1) pay qualified wages attributable to work performed by the qualified full-time employee in a designated geographic area, (2) receive a tentative credit reservation from FTB for that qualified full-time employee, and (3) certify each qualified employee annually.

Current law sets the credit amount at 35 percent of qualified wages, on wages between 150 percent and 350 percent of minimum wage, with the wage range increasing over time due to increases in the minimum wage rate. However, taxpayers must have a net increase in its total number of full-time employees working in California when compared to its base year based on annual full-time equivalents to claim the credit. Additionally, to claim the credit, a qualified taxpayer must be: (1) engaged in a trade or business within a designated geographic area, (2) not engaged in any excluded businesses, including temporary help services, retail trades, those primarily in food services, alcoholic beverage places, theater companies, dinner theaters, casinos, and casino hotels unless the business is considered a small business, and (3) not engaged in a sexually-oriented business.

When the Legislature enacted the credit, revenue estimates projected taxpayers would claim $22 million in NECs in 2014, and $69 million in 2015. However, final valid claims were two percent or less of initial estimates. Over these first two tax years the credit was available, FTB disallowed 83 percent of taxpayers who sought the credit, because of invalid claims. The Legislative Analyst’s Office has concluded that the NEC has been challenging or unappealing for businesses to use, and cites that the credits’ high wage threshold, small credit amount, complexity, uncertainty, and interaction with other credits contribute to low participation. The Governor proposed a California Hiring Credit to replace the NEC in his proposed 2018-19 Budget; however, the Legislature extended the NEC without substantive changes.

Proposed Law: This bill would enact a state WOTC in accordance with the federal WOTC as it read on January 1, 2018, with certain modifications. The credit would be in effect for taxable years 2019 through 2025. The bill’s state WOTC would differ from its federal counterpart in certain respects, including the following:

• Instead of allowing the credit based on 40 percent of qualified first-year wages per qualified employee per year up to limits that differ by category of qualified employee under the federal WOTC, the bill would limit the credit to a total of $2,400 per employee regardless of their eligibility category or taxable year, while maintain the same credit percentage (40 percent of qualified wages).
• Instead of allowing the credit to be generated based on any hours worked, the bill would not allow the credit to be generated for any qualified employee who has not yet worked 500 hours for the employer claiming the credit, and only would allow the credit to be based on wages paid above $5,000.
• The bill would not allow designated community residents, qualified summer youth employees, and veterans unemployed for only four weeks of the previous year, unlike the federal WOTC.
• The bill would not allow the credit to be generated based on wages paid beyond the first year of employment, as is this case with respect to the federal WOTC.

Taxpayers would be required to obtain a certification from EDD to claim the credit, but could claim the credit either in the taxable year in which it was obtained, or the subsequent one. Taxpayers would be able to carry forward the credit for the next nine taxable years, but could not claim business expense deductions for any wages paid that qualify for the credit.

The bill directs EDD to certify qualified individuals according to its criteria. Additionally, the measure would require (1) DOF estimate the total dollar amount of credits that will be claimed under the bill from 2018-19 until 2024-25, and (2) FTB to issue a report by March 1st of each year that includes (1) the total dollar amount of credits claimed, (2) a comparison of that amount to DOF’s estimate with respect to that fiscal year, (3) the number of tax returns claiming the credit, and (4) the number of qualified individuals represented on returns claiming the credit.

To measure its impact, the bill would direct EDD to prepare an annual report which must be posted on its website, including a letter from EDD to the Legislature that the report will be posted, showing: (1) the number of employers, based on employer IDs, who filed for certification, (2) the number and percentage of employees EDD grants certification, (3) the distribution of newly hired employees over the eight targeted groups, and (4) the distribution of employers and employees based on industry sectors.

The bill would repeal its provisions as of January 1, 2025, but continue to allow taxpayers to obtain credit who paid wages that otherwise would qualify when the credit was in place.

Staff Comments: Because the existing state’s NEC is severely underutilized due to the aforementioned limitations, this bill would create a state WOTC. However, this bill does not modify or propose to eliminate the existing credit. Thus, the marginal impact to state revenues from this bill would be the revenue losses scored by FTB, which amount to $75 million per year.

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2017 - 2018 Regular

Income taxes: California work opportunity tax credit

Enacts a state Work Opportunity Tax Credit (WOTC) largely based on the same credit contained in federal law.

Background

California law allows various income tax credits, deductions, and sales and use tax exemptions for taxpayers that incur certain expenses, such as child adoption, or to influence behavior, including business practices and decisions. The Legislature typically enacts such tax incentives to encourage taxpayers to do something that but for the tax incentive, they would otherwise not do. The Department of Finance (DOF) must annually publish a list of tax expenditures, currently totaling around $61 billion annually.

Work Opportunity Tax Credit. Enacted by Congress in 1994, the Internal Revenue Code allows employers to claim the Work Opportunity Tax Credit (WOTC) against federal income taxes based on a percentage of qualified wages paid to an individual who is a member of a targeted group. Federal law defines targeted groups as:

• Temporary Assistance to Needy Families (TANF) recipients.
• Veterans receiving Food Stamps, or those veterans with a service connected disability who:
  • Have a hiring date which is not more than one year after having been discharged or released from active duty, or
  • Have aggregate periods of unemployment during the one year period ending on the hiring date that equal or exceed six months.
• Ex-felons hired no later than one year after conviction or release from prison.
• Designated Community Residents, who are individuals between the ages of 18 and 40 on the hiring date who resides in a federal Empowerment Zone, or Rural Renewal County.
• Vocational rehabilitation referrals, including Ticket Holders with an individual work plan developed and implemented by an Employment Network.
• Summer youth ages 16 and 17 who reside in an Empowerment Zone.
• Food Stamp recipients between the ages of 18 and 40 on the hiring date.
• Supplemental Security Income (SSI) recipients.
• Long-term family assistance recipients.
• Long-Term unemployment recipients.

Employers in the state have two ways to obtain the certification necessary under federal law to claim the credit in California. First, the employer can obtain certification from the California Employment Development Department (EDD) that the individual is a member of a targeted group on or before the day the individual begins work. Second, the employer can complete a pre-screening notice on or before the day the individual is offered employment and submits such notice to EDD to request certification not later than 28 days after the individual begins work. Employers may not request certification on former employees who have been rehired; the employee can only be certified the first time he/she was hired by the employer.

California has never directly conformed to the WOTC. Instead, the state has allowed WOTC-eligible individuals to qualify employers for the enterprise zone hiring credit.

Enterprise Zones. Until 2014, taxpayers located in geographically targeted economic development areas, such as enterprise zones, local agency military base recovery areas, manufacturing enhancement areas, and targeted tax areas can claim a hiring credit for wages paid on or before January 1, 2014. The credit is equal to 50% of the wages paid to a qualified employee in the first year, 40% in the second year, 30% in the third year, 20% in the fourth year, and 10% in the fifth year, up to 150% of the minimum wage. Individuals on several forms of public assistance, including recipients of the Federal WOTC, qualified employers for the credit, among other categories.

At first, the program resulted in annual revenue losses of less than $10 million. However, beginning in 1998, the program’s costs began to significantly grow as an industrious cottage industry of accounting firms and tax credit consultants discovered its profit potential, because unlike WOTC, taxpayers could receive a certification qualifying an employee for an enterprise zone hiring credit at any time. Tax credit consultants would look through a company’s records to see if they can certify employees who currently work or previously worked for a taxpayer in an enterprise zone in past years, then submit claims for refunds for previous taxes paid to FTB based on those certifications under California’s general four year statute of limitations for amending past returns, a practice known as “retro-vouchering.” Consultants found that the pro-gram could be marketed to taxpayers under contingency arrangements, so that the larger the amount of previous taxes paid received by the taxpayer, the larger the tax credit consultant’s compensation.

Because of its consistent failings to increase employment or decrease poverty within zones, and its rapidly escalating cost in foregone revenue to the state, the Legislature repealed the past geographically targeted economic development area as well as legal provisions allowing designations of the areas (AB 93, Committee on Budget, 2013). The Legislature instead provided three new tax benefits (SB 90, Galgiani, 2013):

• Tax credits for wages paid by taxpayers to qualified employees with barriers to employment within former enterprise zones, and other areas that suffer from high levels of poverty and unemployment, sometimes called the “New Employment Credit” or NEC. The Legislature recently extended this credit through the 2025 taxable year (SB 855, Committee on Budget and Fiscal Review, 2018).
• A sales and use tax exemption on purchases of manufacturing equipment made by taxpayers within specific North American Industrial Classification System codes, capped at $200 million annually per taxpayer, effective July 1, 2014. The Legislature expanded and extended the exemption as part of the agreement to extend the Global Warming Solutions Act (AB 398, Garcia).
• The California Competes Tax Credit, which authorizes the California Competes Tax Credit Committee to award various tax credits up to an annually capped amount to taxpayers who apply. The Legislature also recently extended this authority through the 2029 taxable year in SB 855.

The New Employment Credit. Under the NEC, taxpayers can claim credits against the Personal Income or Corporation Tax when they hire a qualified individual on or after January 1, 2014. Qualified full-time employees include previously unemployed persons, veterans, ex-offenders, low-income families with children; work at least an average of 35 hours per week; and meet other specified requirements. To claim the credit taxpayers must

• Pay qualified wages attributable to work performed by the qualified full-time employee in a designated geographic area.
• Receive a tentative credit reservation from the Franchise Tax Board (FTB) for that qualified full-time employee.
• Certify each qualified employee annually.

State law sets the amount of credit at 35 percent of qualified wages, on wages between 150 percent and 350 percent of minimum wage, with the wage range increasing over time due to increases in the minimum wage rate. However, taxpayers must have a net increase in its total number of full-time employees working in California when compared to its base year based on annual full-time equivalents to claim the credit. Additionally, to claim the credit, a qualified taxpayer must be:

• Engaged in a trade or business within a designated geographic area.
• Not engaged in any excluded businesses, including temporary help services, retail trades, those primarily in food services, alcoholic beverage places, theater companies, dinner theaters, casinos, and casino hotels unless the business is considered a small business.
• Not engaged in a sexually-oriented business.

When the Legislature enacted AB 93 and SB 90, revenue estimates projected taxpayers would claim $22 million in NECs in the 2014 taxable year, and $69 million in the 2015 taxable year. However, final valid claims were $340,822 in 2014 (two percent of the initial estimate) and $693,323 in 2015 (one percent of the initial estimate). Over these first two tax years the credit was available, at least 1,829 taxpayers claimed the credit, but FTB determined that 83 percent of the claims were invalid. The Legislative Analyst’s Office states that these results suggest that the existing tax credit has been challenging or unappealing for businesses to use, and cites that the credits’ high wage threshold, small credit amount, complexity, uncertainty, and interaction with other credits contribute to low participation. While the Governor proposed a California Hiring Credit to replace the NEC in his proposed 2018-19 Budget, the Legislature extended the NEC without substantive changes when it enacted the Budget.

Arguing that the existing credit is severely underutilized due to numerous limitations, the author wants to instead create a state WOTC.

Proposed Law

Assembly Bill 916 enacts a state Work Opportunity Tax Credit in accordance with the federal WOTC as it read on January 1, 2018, with several modifications. The credit would commence in the 2019 taxable year, and end in the 2025 taxable year. AB 916’s state WOTC differs from the federal WOTC in several key respects, such as:

• Instead of allowing the credit based on 40% of qualified first-year wages per qualified employee per year up to limits that differ by category of qualified employee under the federal WOTC, the bill limits the credit to a total of $2,400 per employee regardless of their eligibility category or taxable year, while maintain the same credit percentage (40% of qualified wages),
• Instead of allowing the credit to be generated based on any hours worked, the measure does not allow the credit to be generated for any qualified employee who has not yet worked 500 hours for the employer claiming the credit, and only allows the credit to be based on wages paid above $5,000,
• AB 916 does not allow designated community residents, qualified summer youth employees, and veterans unemployed for only four weeks of the previous year, unlike the federal WOTC, and
• The bill does not allow the credit to be generated based on wages paid beyond the first year of employment, which is this case for the federal WOTC.

Taxpayers must obtain a certification from EDD to claim the credit, but can claim the credit either in the taxable year in which they obtain the credit, or the subsequent one. Taxpayers may carry forward the credit for the next nine taxable years. Taxpayers cannot claim business expense deductions for any wages paid that qualify for the credit.

The bill directs EDD to certify qualified individuals according to its criteria. Additionally, the measure requires the Department of Finance to estimate the total dollar amount of credits that will be claimed under the bill with respect to each taxable year from the 2018-19 fiscal year until the 2024-25 fiscal year. AB 916 also provides that FTB must issue a report by March 1^st of each year that includes:

• The total dollar amount of credits claimed,
• A comparison of that amount to DOF’s estimate with respect to that fiscal year,
• The number of tax returns claiming the credit, and
• The number of qualified individuals represented on returns claiming the credit.

To satisfy the requirements of Revenue and Taxation Code §41, as added by SB 1335 (Leno, 2014), AB 916 states that its purpose is to encourage employers to hire individuals from targeted groups that face systemic barriers to employment. To measure its impact, the bill directs EDD to prepare an annual report which must be posted on its website, including a letter from EDD to the Legislature that the report will be posted, showing:

• The number of employers, based on employer IDs, who filed for certification,
• The number and percentage of employees EDD grants certification,
• The distribution of newly hired employees over the eight targeted groups, and
• The distribution of employers and employees based on industry sectors.

AB 916 repeals its provisions as of January 1, 2025, while continuing to allow taxpayers to obtain credit who paid wages that otherwise qualify when the credit was in place. The measure also includes technical provisions necessary to implement a state WOTC based on federal law, as well as legislative findings and declarations supporting its purposes.

State Revenue Impact

Pending.

Comments

1. Purpose of the bill. According to the author, “While the California economy ranks as the 5th largest in the world, this prosperity has bypassed significant numbers of individuals who routinely face systemic barriers to employment. When AB 916 is chaptered, the California WOTC will provide a cost-effective and targeted tax credit to employers who hire individuals from these groups. Funding for the credit has already been negotiated through the 2018-19 state budget process, which included trailer bill language to extend the existing New Hire Tax Credit for five years. This new California WOTC is better designed and will prove to be a more practical tax credit. California already receives nearly $2.4 million annually to certify that employees qualify under the federal WOTC. AB 916 leverages these dollars, as well as encourages employers to retain workers longer. According to a 2014 study by Professor Peter Cappelli at the Wharton School of the University of Pennsylvania, the state of California conservatively saves over $108 million in contributions toward TANF, SNAP, and Medicaid each year as a result of the federal WOTC. By adopting a state WOTC, California would further its goal of inclusive economic growth, including the upward mobility of individuals with barriers to employment by helping them move from welfare to work.”

2. Effective? Tax benefits directed for specific purposes generally do two things. First, they reward behavior that would have occurred without the subsidy, providing a windfall benefit for firms who would’ve hired individuals with barriers to employment anyway. In these instances, the state receives no marginal benefit, and transfers wealth from purposes it would otherwise spend money on for government purposes to the firm. Second, the bill will cause taxpayers to choose to hire an individual with a barrier to employment instead of an applicant without one, thereby providing the individual with employment, and potentially resulting in public savings from no longer having to provide public assistance to the individual. A successful tax benefit’s gains exceed its losses, but no tax expenditure has yet conclusively demonstrated that its benefits outweigh its costs. Additionally, AB 916 mostly conforms to the federal WOTC. As a result, the credit will only be effective to the extent that an employer does not find the federal credit sufficient; instead, a state credit is also necessary to induce him or her to hire the individual with the barrier employment instead of someone without one. The Committee may wish to consider AB 916’’s effectiveness as a tool to boost employment for hard-to-hire individuals.

3. Of free lunches. When the Legislature enacts a tax benefit, it doesn’t put money into an account. Instead, the Legislature either enacts uncapped tax expenditures by defining the qualified taxpayers and costs eligible for the tax benefit, or capped and allocated ones, where it sets the maximum amount of tax credits, designates an administrative agency to allocate them, and then designs an allocation process. In either case, DOF subtracts the estimated revenue losses from tax benefits from future revenue estimates. In this case, the initial revenue estimate of a $22 million annual revenue loss for AB 93 and SB 90 assumed that more taxpayers would claim the credit the NEC than actually have. However, taxpayers not claiming the credit in amounts that meet or exceed initial estimates does not mean that unspent money is sitting in an account; instead, underutilized tax benefits provide the Legislature additional funds to spend on public services in the annual Budget Act.

4. Assessing performance. The goal of the WOTC is not to create new jobs; instead, its purpose is to effectively subsidize employers to hire individuals from targeted groups with barriers to employment instead of others who do not face similar challenges. While few reviews of the WOTC exist, a 2011 paper from Peter Cappelli of the University of Pennsylvania’s Wharton School of Economics indicates that existing evidence shows the federal WOTC’s effect is positive for members of targeted groups, including a higher probability of obtaining employment, length of employment, wages, and tenure. Cappelli writes that while the targeted wage subsidies appear to be most effective, and the program itself is cost-effective, the increase in the probability of getting employed due to WOTC is relatively modest, among other findings. However, Cappelli does not assess the potential costs and benefits of a state WOTC counterpart, and states that employers who use the WOTC program have adjusted their hiring and employment practices for targeted individuals, which suggests that a state WOTC may reward behavior that is already taking place.

5. Scope. In recent years, the Legislature has generally restricted new tax benefits to specific industries, instead of making them applicable for general purposes. While the California Competes Tax credit is available to most businesses, an applicant must demonstrate its ability to create jobs in this state that might not otherwise be created. The California Alternative Energy and Alternative Transportation Financing Authority’s Sales and Use Tax Exclusion program is only available to renewable energy technology manufacturers, advanced manufacturers, and firms engaged in processing recycled feedstock. The general state Sales and Use Tax Exemption only applies to firms engaged in certain kinds of businesses like manufacturing and research and development, which the Legislature recently expanded to include property used in electricity generation, production, storage, or distribution of electric power. The NEC cannot be claimed by taxpayers who are engaged in temporary help services, retail trade, food service, alcoholic beverage places, theater companies, dinner theaters, casinos, and casino hotels unless the business is considered a small business. AB 916 allows the state WOTC for any kind of business, so long as they provide unemployment insurance. When a hard to hire individual obtains employment, and successfully completes the 500 hour requirement necessary to claim the credit, the employer, the employee, and the public benefits; however, the Committee may wish to consider whether AB 916’s scope is consistent with its economic development goals.

6. Trouble ahead? Currently, the federal WOTC is set to expire on December 31, 2019. In recent years, Congressional support for the WOTC has been unclear. Congress has allowed WOTC authorization to lapse, and then retroactively reauthorized it. The version of federal tax reform bill approved by the House of Representatives last year would have repealed the credit, but ended up not being part of the measure signed by President Trump. Because EDD’s current WOTC responsibilities are federally funded and governed, the Legislature would likely have to assume funding and governing any state WOTC program if the federal counterpart expires.

7. Better together? Currently, AB 916 does not require an employer to obtain the federal credit to claim the state WOTC, which would more effectively target the credit to employers, and ensure that all state credits meet federal requirements.

8. Gut and amend. When approved by the Assembly, AB 916 previously related to workforce development and career training. On July 5^th, the author deleted those provisions, and inserted provisions to create a state WOTC.

Assembly Actions

Not relevant to this version of the bill.

Support and Opposition

(8/6/18)

Support: Aero OpCo, LLC; BrightView Holdings, Inc.; California Association for Microenterprise Opportunity; California Hispanic Chamber of Commerce; California Workforce Association; Coalition for Small and Disabled Veteran Businesses; Ensign Services; Gold’s Gym; In-N-Out Burgers; National Employment Opportunity Network; National Federation of Independent Business; Securitas Security Services; Small Business California; the Cheesecake Factory, Inc.

Opposition: Unknown.

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Date of Hearing: April 25, 2017

ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY

Sharon Quirk-Silva, Chair

ABPCA Bill Id:AB 916 (

Author:Quirk-Silva) – As Introduced Ver:February 16, 2017

SUBJECT: Workforce development: local workforce development board

SUMMARY: Expands the areas in which the local workforce boards are required to serve as a regional and local leader of innovative policies and best practices to include:

1. The training needs of employers who have different size businesses and who are organized under different legal structures.
2. Identifying and promoting strategies that support training needs of emerging and dominant business types, including worker cooperatives, social enterprises, and sole proprietorships.

EXISTING LAW:

1. Encourages state and local workforce development boards to collaborate with other public and private institutions to better align resources across workforce, training, education, and social service delivery systems and build a well-articulated workforce investment system. In undertaking this work, state and local boards are authorized to support workforce investment programs and services that consider the needs of employers and businesses of all sizes, including large, medium, small, and microenterprises, when setting priorities, investing resources, and adopting practices.
2. Requires the California Workforce Development Board (CWDB) to assist the Governor in promoting the development of a well-educated and highly skilled 21st century workforce, which includes recommending adult and dislocated worker training policies and investments that offer a variety of career opportunities while upgrading the skills of California’s workforce. These may include training policies and investments pertaining to:
   1. Occupational skills training, including training for nontraditional employment;
   2. On-the-job training;
   3. Programs that combine workplace training with related instruction, which may include cooperative education programs;
   4. Training programs operated by the private sector;
   5. Skills upgrading and retraining;
   6. Entrepreneurial training;
   7. Incumbent worker training, as specified;
   8. Transitional jobs, as defined;
   9. Job readiness training provided in combination with other specified services described in (a) through (h) above;
   10. Adult education and literacy activities provided in combination with services described in any of subparagraphs (a) to (g), inclusive; and
   11. Customized training conducted with a commitment by an employer or group of employers to employ an individual upon successful completion of the training.
3. Requires local workforce development boards to lead efforts to engage with a diverse range of employers and with entities in the region involved to do the following:
   1. Promote business representation, particularly representatives with optimal policymaking or hiring authority from employers whose employment opportunities reflect existing and emerging employment opportunities in the region, on the local board.
   2. Develop effective linkages, including the use of intermediaries, with employers in the region to support employer utilization of the local workforce development system and to support local workforce investment activities.
   3. Ensure that workforce investment activities meet the needs of employers and support economic growth in the region, by enhancing communication, coordination, and collaboration among employers, economic development entities, and service providers.
   4. Develop and implement proven or promising strategies for meeting the employment and skill needs of workers and employers, like the establishment of industry and sector partnerships, that provide the skilled workforce needed by employers in the region, and that expand employment and career advancement opportunities for workforce development system participants in in-demand industry sectors or occupations.
   5. With representatives of secondary and postsecondary education programs, lead efforts in the local area to develop and implement career pathways within the local area by aligning the employment, training, education, and supportive services that are needed by adults and youth, particularly individuals with barriers to employment.
4. Requires the local workforce development board to lead efforts in the local area to accomplish both of the following:
   1. Identify and promote proven and promising strategies and initiatives for meeting the needs of employers, and workers and jobseekers, including individuals with barriers to employment, in the local workforce development system, as specified.
   2. Identify and disseminate information on proven and promising practices carried out in other local areas for meeting these needs.

FISCAL EFFECT: Unknown

POLICY FRAMEWORK:

Demographic and economic shifts are giving rise to new forms of business development and new types of working relationships between owners, employees, contractors, and other businesses. These changes require a reassessment of what it means to prepare a workforce. As a national leader in innovation, including high tech businesses and social enterprises, California has a natural advantage in finding a successful path forward.

AB 916 calls on local workforce development boards to engage within their regions on the important workforce development question of the evolving nature of work and what that means for training models and skill attainment. The analysis includes information on the continued growth of the economy and how it impacts employment and entrepreneurship, including sole proprietorships, social entrepreneurship, workers' cooperatives, benefit corporations, and other new forms of business. The analysis also discusses WIOA and its 10-year workforce goals. Comment 8 includes information regarding amendments.

COMMENTS:

1. The California Economy in the Future: As California continues to transition from the recession, businesses and workers face an economy comprised of highly integrated industry sectors that are also more geographically dispersed. Advances in technology and processes are occurring more rapidly, resulting in competitiveness being increasingly defined in terms of speed, flexibility, specialization, and innovation.

Economists have identified nine key trends (see chart below) that are anticipated to significantly influence the U.S. and California economies. Collectively, these trends place new and demanding challenges on California's training and workforce system.

Advances in information technology, advanced manufacturing, expanded logistical networks, and the need to have more environmentally sustainable products are just a few of the new workplace realities. The nature of work is also substantially changing such that new skill sets, including the ability to continually upgrade ones’ skill set, are necessary to be successful. Even entry-level workers will be expected to have soft-skills, such as the ability to work in teams, actively listen, communicate effectively with co-workers and bosses, and be able to negotiate workplace needs in a positive manner. Unlike hard skills, which are about a person's ability to perform a certain task or activity, soft skills provide foundational tools that allow workers to learn and advance in the state's continually evolving workplace environment. The lack of soft-skills is one of the most common challenges employers mention when talking about hiring employees who are new to the workforce.

The modern economy has also given rise to a growing need for smaller businesses because of their ability to provide innovative technologies and help other businesses access global markets. As discussed in a later comment, small businesses have become an important workplace entry point for individuals of color, including millennials. While vital economic players, small businesses and entrepreneurs also face unique challenges in competing in an increasingly global and interconnected marketplace. Programs and regulations which may have been designed to serve large companies will need to be retooled to better serve the nearly 90% of businesses that have less than 20 employees. These small and adaptable businesses will have an inherent advantage in the post-recession economy, provided they are able to obtain the skillsets necessary to run a successful business and have access to appropriately trained workers.

Changes in the workplace are also impacted by the competitiveness of the regional economies in which they and their customers are located. The economic foundation of many of California's strong regional economies are innovation-based industry clusters which have the ability to support high-paying jobs, lucrative career ladders, and longer term job stability. Research shows that there are specific characteristics that support the rise and success of these industry clusters, including proximity to high quality universities, research labs, businesses within the same industry, and attracting a critical mass of skilled workers are all important components.

All these changes are occurring at the same time that California and the U.S. confront the social, cultural, and economic impacts of demographic change. The U.S. Census Bureau projects that by 2043 a majority of the U.S. population will be comprised of people of color. In 2014, people of color were already the majority in California, Hawaii, New Mexico, and Texas, with another nine states close to 50%. The growing diversity within the workforce also represents a significant generational shift of the predominantly white baby boomers rapidly aging-out of workplace.

1. Millennials – Driving further changes in the Workplace: In 2014, Millennials surpassed Gen Xers (age 35 to 50 in 2015) as representing the largest component of the U.S. labor force. This shift is particularly significant, as the Gen Xers only overtook the Baby Boomers as the largest cohort in the labor force in 2012. Prior to 2012, baby boomers presented the largest group.

Related to these generational shifts is the rise of diversity in the workplace. Pew Research Institute estimates that there are 76 million Millennials in the US, using the definition of individuals born between 1981 and 1998. Approximately 44% of Millennials are of a race or ethnic group other than non-Hispanic whites and 20% of Millennials have at least one immigrant parent.

Millennials also have a closer relationship and understanding of electronics and information technologies, having grown up in an online and socially networked environment. Pew Research estimates that Millennials have the highest average number of Facebook friends, with the average of 250 friends vs. Generation X of 200.

Contrary to public perception, research by Pew found that millennials are just as likely to stick with their employers as their older counterparts during the same age period. Among the college educated, Millennials have a longer track record with their employers. As a group, Millennials in the US also have a higher level of education than the prior generation with 38% of Millennial men and 46% of Millennial women having at least a bachelor's degree.

Millennials are very interested in new forms of entrepreneurship, which often include social components. According to on study, 94% of Millennials are interested in putting their skills to work to benefit a cause and more than 50% wanted their employer to have more programs engineered for giving back.

Another report stated that 88% of college students believe that entrepreneurship education is vital and 54% of the Millennials planned to start their own business in 2016. Millennials, however, face many challenges to reaching their employment and entrepreneurship goals. College debt appears to be a leading impediment for would-be entrepreneurs, as is the lack of entrepreneurship resources addressing the unique needs Millennials. One study reported that 74% of college students having no access to entrepreneurship resources on campus. Of those Millennials who did start their own business,

23% say they started a business as a result of employment.

1. The Role of Small Businesses within the California Economy: California's dominance in many economic areas is based, in part, on the significant role small businesses play in the state's $2.4 trillion economy. Two separate studies, one by the U.S. Census Bureau and another by the Kaufman Foundation, found that net job growth was strongest among businesses with less than 20 employees. Among other advantages, small businesses are crucial in the state's international competitiveness and are an important means for dispersing the positive economic impacts of trade within the California economy.

Sole proprietorships comprise the single largest component of businesses in California, 3.1 million out of an estimated 4 million firms in 2014, representing over $162 billion in revenues with the highest number of businesses (over 539,000) in the professional, scientific, and technical services industry sector.

Excluding sole proprietorships, businesses with less than 20 employees comprise over 87% of all businesses and employ approximately 18% of all workers. Businesses with less than 100 employees represent 97% of all businesses and employ 31% of the workforce. These non-employer and small employer firms create jobs, generate taxes, support important industry sectors, and revitalize communities. Since the recession, these businesses have become increasingly important because of their ability to be more flexible and adaptive to both foreign and domestic market needs.

1. The 2012 Survey of Business Owners: In August 2015, the U.S. Department of Census published initial data from the 2012 Survey of Business Owners. The last survey was made in 2007. While the data significantly trails real-time, it is the most comprehensive source for tracking trends in entrepreneurship, including ownership by women and individuals of color.

Chart 2, shows selected data from the 2012 Survey of Small Business Owners. Among other findings, the data shows a 27.5% increase in women-owned businesses between 2007 and 2012, as compared to a 7.9% increase in businesses owned by men and a -45.8% decrease in firms owned equally by men and women. Women-owned businesses also experienced the greatest increase in the number of people they employed and wages paid.

States with the highest percentage of women-owned firms included District of Columbia, Georgia, Maryland, New Mexico, and Florida. Delaware, Alaska, North Dakota, Maine, and New Jersey were the states where women-owned firms collected the highest amount of receipts.

Women entrepreneurs, according to the Ewing Marion Kauffman Foundation, have unique skill sets, which both set them apart from other business owners and make them successful entrepreneurs. Among other things, the Kauffman Foundation states that women entrepreneurs have a more nuanced understanding of businesses risk/reward profile. Women are more comfortable with financial risks, but more sensitive about risks that may seem foolhardy. The Kauffman Foundation also believes that there is a correlation between a rise in women entrepreneurs and increased business returns and payout ratios.

In California, business ownership by women was up 13.7%, which was the highest among states with the largest number of women-owned businesses. In Texas, women-owned businesses were up 8.7%; Florida, 8.18%; New York, 7.3%; and Illinois, 4.23%. California also had the highest number of Hispanic and Asian American women-owned firms. For businesses owned by Black women, Georgia had the largest number of firms, California had the fifth largest number.

Chart 3 shows additional information from the 2012 Survey of Business Owners relative to race and ethnicity. The largest percentage changes in business ownership were by Hispanic women, where the number of firms grew by 87.3% between 2007 and from 20012. As a comparison, male Hispanic-owned firms grew by 39.3%.

1. Workforce Innovation Opportunity Act and California Workforce Board: Enacted in 2014, WIOA provides states with federal funding for job training and employment investment activities and programs, including work incentive and employment training outreach programs. Distribution of the funds is based on a set formula which includes specified economic and demographic data and flows to the state through three primary programs: Adult, Youth, and Dislocated Worker.

California's workforce development funding from the U.S. Department of Labor has declined over the years from a high of $630 million in 2000-01 to $411 million in 2012-13. Federal law dictates that 85% of Adult and Youth formula funds, and 60% of Dislocated Worker formula funds, are distributed to local workforce development boards. Funding for the state's discretionary activities is derived from the 15% discretionary funds.

California received approximately $421.6 million for program year 2016-17, with $358.4 million being allocated to local workforce development boards to provide services for adults, laid-off workers, and youth, and $63.2 million remaining at the state-level for program oversight and discretionary programs.

California's WIOA dollars are overseen by the 49-member CWDB, of which 51% of the members represent the private sector, as required by federal law. The CWDB has 22.9 authorized positions and is currently led by Executive Director Tim Rainey. In 2008, a Green Collar Jobs Council was established to address the workforce development needs of the emerging clean and green economy.

Among its primary duties, the CWD provides guidance to local workforce boards and is responsible for the development of a unified, strategic plan to coordinate various education, training, and employment programs that result in an integrated workforce development system that supports economic development. The plan is required to be updated at least every 2 years in order to address the state’s changing economic, demographic, and workplace needs.

The CWD submitted its first plan under WIOA to the U.S. Labor Department in 2016, which set three policy objectives: Fostering "demand-driven skills attainment"; enabling upward mobility for all Californians; and aligning, coordinating, and integrating programs and services. These objectives support the accomplishment of the state goals (2017 to 2027) of producing a million "middle-skill" industry-valued and recognized postsecondary credentials, while also doubling the number of people enrolled in apprenticeship programs.

There are 49 local workforce development boards that plan for and oversee the workforce system at the local and regional levels. Local workforce boards are comprised of a range of workforce stakeholders, a majority of which are required to be representatives from business. Each local workforce development board has one or more One-Stop Career Centers, called American Job Centers under WIOA, which provide access to career information, counseling, and funding for education, training, and supportive services.

On March 15, 2017, the local workforce boards submitted regional plans that brought together local and regional level data on the workforce needs, skills gaps, and initiatives that are designed to address those needs, including benchmarks. A priority for the state, regional, and local plans is serving individuals who face employment barriers. In the following years, state funding through WIOA will be modified by the U.S. Department of Labor, based on the ability of the state to meet these goals.

1. The Rise of New Forms of Business: Driven by economic and social conditions and priorities, the 21^st Century has seen plethora of new and innovative business models. While some of the business models are not entirely new, like cooperatives, the ways in which the model is being applied has evolved to reflect current market realities and owner/worker interests. Entrepreneurship has been embraced by nonprofits, craftspeople, and social enterprises. Another key difference in today's emerging economy from the later part of the 20^th Century is scale. The US is seeing a significant rise in the use of innovative entrepreneur-based models and some cities and regions are leveraging these new forms of business within their core economic strategies.

In 2014, the New York City (NYC) Council earmarked $1.2 million for Worker Cooperative Business Development Initiative. A worker-owned cooperative is where member-owners invest in and own the business together, share the enterprise’s profits, and generally operating through a democratic process, with each member having one vote. According to one study, there are over 300 worker-owned cooperatives in the U.S. operating in a diverse range of industries. The goal, according to the director of the NYC Network of Worker Cooperatives, was to create an economy that uses entrepreneurship to protect and preserve local jobs, provide flexible working hours, and pay higher wages. The NYC Council added another $2.1 million in 2016 and another $2.2 million 2017. According to the 2016 annual report, the initiative helped to launch 27 worker cooperatives, supported another 49 worker cooperatives with business assistance (totally 280 worker-owners), and engaged with 2,164 entrepreneurs who were interested in about converting their business into a worker cooperative.

One report suggests that worker cooperatives are and will continue to be especially effective among immigrant communities and women of color. This finding is consistent with the 2012 US Census Survey of Business Owners and the reported rise of women entrepreneurs, especially women of color. Not all worker cooperatives are small. The largest Worker Cooperative in the US is Cooperative Home Care Associates, which has over 2,000 worker-owners.

Worker-cooperatives are also being used to address the retirement needs of older small business owners, and as a strategy to strengthen smaller business who have to compete with national chains. As a group of owners, they are sometimes intrinsically better able to adapt and respond to changing market conditions.

Other cities also have worker cooperative initiatives, including Cleveland, which was launched Evergreen Cooperatives in 2008, focused on creating living wage jobs in low-income neighborhoods. Evergreen supports green businesses, including a laundry facility which operates out of a LEED Gold Certified facility. Other worker cooperatives have been developed in Baltimore, Oakland, and Detroit. Most recently, Austin passed a cooperative business ordinance, which will, according to reports, play a key role in the City's economic development strategy, especially in lower income areas including food deserts.

Worker cooperatives aren't the only new form of business California is encountering. The state has established a new legal structure, a Social Benefit Corporation, which is intended to give companies greater flexibility to combine profitability with broader social or environmental purposes. The state has also approved grant funding that will be exclusively used for competitive awards for social enterprises using social innovation financing models to address homelessness and workforce training for the formerly incarcerated. While not initially successful, the Legislature approved legislation to expand the small business procurement incentive to employment social enterprises who would use the state contract as an opportunity to hire and train individuals who face barriers to employment.

1. Background on Social Enterprises: The social enterprise model combines entrepreneurial activity with a social purpose. Because they prioritize social impact over the need to maximize profit for owners or shareholders, a growing number of public entities are looking into how the model could be used in their community to tackle what had previously been considered intractable problems.

To date, much of the work has been at the pilot level, but outcomes seem to be promising. One study by Mathematica, a U.S. based research firm, looked at the outcomes from seven social enterprise programs assisting 282 workers. As part of the same study, Mathematica also undertook a comparative analysis of workforce outcomes for 154 social enterprise workers and 37 eligible workers who were not hired at a social enterprise. According to the report, the results suggest that “social enterprises may help workers gain employment and move toward economic self-sufficiency and life stability; however, the impact-study results are inconclusive, in part because of the small samples.”

Another recent study by Social Ventures in Australia, found that social enterprises have demonstrated that they can create jobs for people excluded from the mainstream workforce, particularly the long-term unemployed, and showed that this equity outcome is also efficient, as government investment in the creation of businesses is returned via taxation revenue, and savings in social security expenditure. These findings are similar to the Mathematica study, which also found that the percentage of total income from government transfers decreased from 71 to 24% and that total monthly income for the workers increased by 91%.

The European Union regularly measures the economic impact of this evolving area of businesses development and reports that the "social economy" employs over 11 million people in the EU, accounting for 6% of total employment.

1. Amendments: Staff understands the author will be requesting that the Committee adopted the following amendments.
   1. Add sole proprietorship to the list of workforce investment programs and services the state and local workforce board may consider when determining the needs of employers and businesses of all sizes. The list currently includes large, medium, small and microenterprises.
   2. Deletes sole proprietorship provisions in two different sections, which were added by the bill.
   3. Replace the language related to training needs of emerging business types by inserting the following: "Identify and promote sector strategies, career pathways, and earn-and-learn training models, that support new ways of working, including, but not limited to, programs and investments that meet the needs of social benefit corporations, worker cooperatives, and social enterprises."
2. Related Legislation: Below is a list of related bills.
   1. AB 285 (Brown) Scope of Practice for the California Workforce Investment Board: This bill would have required the California Workforce Investment Board to make recommendations and provide technical assistance on entrepreneurial training opportunities that could be made available through local workforce investment boards. The bill would have also deleted certain required duties of the California Workforce Investment Board and made changes to the definition of microenterprise. Status: Vetoed by the Governor, 2013. Small businesses and entrepreneurial training was included in later legislation.
   2. AB 1270 (E. Garcia) California Workforce Innovation and Opportunity Act: This bill aligns California statute with the new requirements of the federal Workforce Innovation and Opportunity Act of 2014. The bill sets the foundation for policy changes in 2016 through SB 45 (Mendoza). Status: Signed by the Governor, Chapter 94, Statutes of 2015.
   3. AB 1837 (Atkins) Social Innovation Financing to Address Recidivism: This bill establishes the Social Innovation Financing Program, administered by the Board of State and Community Corrections, which provided grants to three counties for the purpose of utilizing pay-for-success contracts to reduce recidivism. Status: Signed by the Governor, Chapter 802, Statutes of 2014.
   4. SB 9 (Price) Office of Social Innovation and Entrepreneurship Development: This bill would have established the Office of Social Innovation and Entrepreneurship Development within the Office of the Governor to establish partnerships with government agencies, private investors, nonprofit organizations, and for-profit service providers to facilitate the use of social impact bonds, as defined, to address social service needs. Status: Died in Senate Committee on Governance and Finance, 2013.
   5. SB 593 (Lieu) Social Impact Partnerships Pilot Program: This bill would have established the Social Impact Partnership pilot program and authorizes the Governor to solicit applications for the establishment of new social impact partnerships with private entities in order to address significant social issues including, but not limited to, child abuse, job preparedness for youth, and high recidivism rates among the state's prison population. These partnerships are to be formalized through a pay-for-success contract, which sets the evaluation metrics, quality standards, and timelines. If the conditions of the pay-for-success contract are not met, the state pays nothing. Status: Vetoed by the Governor, 2014.
   6. SB 1219 (Hancock) State Procurement and Employment Social Enterprises: This bill establishes a new procurement preference for employment social enterprises under the Small Business Procurement and Contract Act, as specified. Status: Vetoed by the Governor, 2016.
   7. SB 201 (DeSaulnier) Corporate Flexibility Act of 2011: This bill establishes a new corporate form intended to give companies in California greater flexibility to combine profitability with broader social or environmental purposes. In 2014, DeSaulnier authored legislation to rename this act the Social Purpose Corporations Act (Chapter 694, Statutes of 2014). Status: Signed by the Governor, Chapter 740, Statutes of 2011.

REGISTERED SUPPORT / OPPOSITION:

Support

None on File

Opposition

None on File

Analysis Prepared by: Toni Symonds / J., E.D., & E. /

SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS

Senator Steven Bradford, Chair

2017 - 2018 Regular

Bill No: AB 916 Hearing Date: June 28, 2017

Subject: Workforce development: career training and business needs

KEY ISSUE

Should the Legislature require local workforce development boards to identify and promote various sector strategies, programs, and training models for “new ways of working”?

ANALYSIS

Existing law

1. Establishes the California Workforce Development Board (CWDB), whose members are appointed by the Governor and are representative of the areas of business, labor, public education, higher education, economic development, youth activities, employment and training, as well as the Legislature (Unemployment Insurance Code §14011 and §14012).
2. States that the CWDB assists the Governor in the development, oversight, and continuous improvement of California’s workforce investment system, including Local Workforce Development Boards (LWDBs) and their alignment to the needs of the economy and the workforce (Unemployment Insurance Code §14010 and §14013).
3. Mandates that the CWDB assist the Governor in enabling the use of career pathways to provide individuals, including those with barriers to employment, with workforce investment activities, education, and supportive services in order to enter or retain employment (Unemployment Insurance Code §14013).
4. Encourages state and local workforce development boards to collaborate with other public and private institutions to align resources better across workforce, training, education, and social service delivery systems and build a well-articulated workforce investment system. Such efforts may include considering the needs of employers and businesses of all sizes, including large, medium, small, and microenterprises, when setting priorities, investing resources, and adopting practices (Unemployment Insurance Code §14000).
5. Requires LWDBs to lead efforts in the local area to identify and promote proven and promising strategies and initiatives for meeting the needs of employers, and workers and jobseekers, including individuals with barriers to employment, in the local workforce development system, while also spreading and sharing information on proven and promising practices carried out in other local areas for meeting such needs (Unemployment Insurance Code §14206).

Existing federal law

1. Establishes the Workforce Innovation and Opportunity Act (WIOA) of 2014 in order to help job seekers access employment, education, training, and support services to succeed in the labor market and to match employers with skilled workers. WIOA coordinates employment and training services for adults, dislocated workers, and youth through grants to states that are implemented at the state and local level.
2. Requires that WIOA, among other things, provide workforce investment activities, through statewide and local workforce development systems, that increase the employment, retention, and earnings of participants, and increase the attainment of recognized postsecondary credentials by participants, and as a result, improve the quality of the workforce, reduce welfare dependency, increase economic self-sufficiency.

This Bill

1. Encourages workforce investment programs and services to consider the training needs of employers who have different-sized businesses and who are organized under varying legal structures, to identify and promote strategies that support the training needs of certain business types, including worker cooperatives, social enterprises, and sole proprietorships.

1. Requires LWDBs to lead efforts to identify and promote sector strategies, career pathways, and earn-and-learn training models that are meant to support “new ways of working”, including, but not limited to, programs and investments that meet the needs of social benefit corporations, worker cooperatives, and social enterprises.

COMMENTS

1. The 2016-2020 Workforce Development State Plan

In order to implement its workforce development priorities in a manner consistent with WIOA, the CWDB develops its “State Plan”, which is a comprehensive and strategic workforce development plan, with three policy objectives in mind. These objectives affect both state-level policy and administrative practices across programs as well as local policy and service delivery:

• 1. Fostering “demand-driven skills attainment.” Workforce and education programs need to align program content with the state’s industry sector needs so as to provide California’s employers and businesses with the skilled workforce necessary to compete in the global economy.
  2. Enabling upward mobility for all Californians, including populations with barriers to employment. Workforce and education programs need to be accessible for all Californians and ensure that everyone has access to a marketable set of skills, and is able to access the level of education necessary to get a good job that ensures both long-term economic self-sufficiency and economic security.
  3. Aligning, coordinating, and integrating programs and services to economize limited resources to achieve scale and impact, while also providing the right services to clients (WIOA enrollees), based on each client’s particular and potentially unique needs, including any needs for skills-development.

2. Local Workforce Development Boards and the Promotion of “New Ways of Working”

The intent of this bill is to add a requirement that LWDBs lead efforts in the local area to “Identify and promote sector strategies, career pathways, and earn-and-learn training models that support new ways of working, including, but not limited to, programs and investments that meet the needs of social benefit corporations, worker cooperatives, and social enterprises.” The bill also encourages workforce investment programs to consider the training needs of sole proprietorships, among other business types.

The context of this language is to find ways to support “new ways of working” based on the changing nature of business and its ownership. In reading the language above, several questions emerge pertaining to the nature of these goals and the means to accomplish them.

• 1. What does “new ways of working” mean as it is used here? What specifically does the author have in mind regarding goals that need support?
  2. One of the State Plan’s central priorities is to provide for clients’ (WIOA enrollees) particular and potentially unique needs, including any needs for skills-development. Therefore is it necessary to focus on the needs of these business owners rather than the training needs of individuals enrolled in WIOA programs?
  3. Does the type of work in these businesses differ from work in other fields to such an extent that unique training is needed? For example, does the work of someone employed in a large business performing administrative tasks, such as filing or answering phones, vary greatly from someone performing administrative tasks in a sole proprietorship?

3. Need for this bill?

According to the author, demographic and economic shifts are giving rise to new forms of business development and new types of working relationships between owners, employees, contractors, and other businesses. As a national leader in innovation, including high tech businesses and social enterprises, California has a natural advantage in finding a successful path forward. The author believes that these changes require a reassessment of what it means to prepare a workforce.

The author states that in 2014, Millennials became the largest cohort within the U.S. workforce. Millennials, as a group, also tend to be entrepreneurial and comfortable with utilizing technology as a means of commerce and social interaction. As Millennials and others in the workforce seek employment, they are increasingly interested in business forms that blend community values with revenue generation, including public benefit corporations, social enterprises, and worker cooperatives.

4. Proponent Arguments:

According to proponents, AB 916 calls on local workforce development boards to engage within their regions on the important workforce development question of the evolving nature of work and what that means for training models and skill attainment. Sole proprietors and social enterprises are two of those paths, as well as the rise of independent workers who are creating their own jobs.

5. Opponent Arguments:

None received.

6. Prior Legislation:

AB 285 (Brown), 2013, Vetoed, would have required the California Workforce Investment Board to make recommendations and provide technical assistance on entrepreneurial training opportunities that could be made available through local workforce investment boards. The bill would have also deleted certain required duties of the California Workforce Investment Board and made changes to the definition of microenterprise.

Governor Brown’s Veto Message:

This bill, like SB 118, deals with the California Workforce Investment Board and various aspects of job training. Unlike SB 118, it is overly prescriptive in the way it directs the Board to provide technical assistance for entrepreneurial training and to make recommendations. I believe this unduly infringes on the Board's authority and discretion.

SUPPORT

California Association for Micro Enterprise Opportunity

OPPOSITION

None on file.

-- END --

Date of Hearing: May 17, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 916

Author:(Quirk-Silva) – As Amended Ver:May 2, 2017

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill encourages local workforce boards to serve as a regional and local leader of innovative policies by adding a new requirement to identify sector strategies and training models. Specifically, this bill:

1. Encourages workforce investment programs and services to consider the training needs of employers who have different size businesses and who are organized under different legal structures, and to identify and promote strategies that support training needs of emerging and dominant business types, including worker cooperatives, social enterprises, and sole proprietorships.
2. Add sole proprietorship to the list of workforce investment programs and services the state and local workforce boards may consider when determining the needs of employers and businesses of all sizes.
3. Requires local workforce boards to identify and promote sector strategies, career pathways, and earn-and-learn training models that support new ways of working, including, but not limited to, programs and investments that meet the needs of social benefit corporations, worker cooperatives, and social enterprises.

FISCAL EFFECT:

No additional state costs. This bill conforms to federal law; therefore, no additional local reimbursable mandated costs are incurred.

COMMENTS:

1. Background. Enacted in 2014, WIOA provides states with federal funding for job training and employment investment activities and programs, including work incentive and employment training outreach programs. The distribution of funds is based on a set formula which includes specified economic and demographic data and flows to the state through three primary programs: Adult, Youth, and Dislocated Worker. California received approximately $421.6 million for program year 2016-17, with $358.4 million being allocated to local workforce development boards to provide services for adults, laid-off workers, and youth, and $63.2 million remaining at the state-level for program oversight and discretionary programs.

California's WIOA dollars are overseen by the 49-member California Workforce Development Board (CWDB), of which 51% of the members represent the private sector, as required by federal law. The CWDB has 22.9 authorized positions. In 2008, a Green Collar Jobs Council was established to address the workforce development needs of the emerging clean and green economy.

Among its primary duties, the CWDB provides guidance to local workforce boards and is responsible for the development of a unified, strategic plan to coordinate various education, training, and employment programs that result in an integrated workforce development system that supports economic development. The plan is required to be updated at least every two years in order to address the state’s changing economic, demographic, and workplace needs.

California’s 21^st century business models rely on new and innovative business models. While some of the business models are not entirely new, like cooperatives, the ways in which the model is being applied has evolved to reflect current market realities and owner/worker interests. Entrepreneurship has been embraced by nonprofits, craftspeople, and social enterprises. Another key difference in today's emerging economy from the later part of the 20^th Century is scale. The US is seeing a significant rise in the use of innovative entrepreneur-based models and some cities and regions are leveraging these new forms of business within their core economic strategies.

1. Related Legislation. AB 285 (Brown), of the 2013-14 Legislative Session, would have required the California Workforce Investment Board to make recommendations and provide technical assistance on entrepreneurial training opportunities that could be made available through local workforce investment boards. The bill would have also deleted certain required duties of the California Workforce Investment Board and made changes to the definition of microenterprise. Status: Vetoed by the Governor, because he viewed it as overly prescriptive.

Analysis Prepared by: Daisy Gonzales / APPR. / (916) 319-2081