Existing law, the California Global Warming Solutions Act of 2006, designates the State Air Resources Board as the state agency charged with monitoring and regulating sources of emissions of greenhouse gases. The act authorizes the state board to include in its regulation of those emissions the use of market-based compliance mechanisms. Existing law requires all moneys, except for fines and penalties, collected by the state board from the auction or sale of allowances as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund. Existing law continuously appropriates the annual proceeds of the fund to the various purposes.

This bill, in the 202526 fiscal year through the 203536 fiscal year, would transfer 1% of the annual proceeds of the Greenhouse Gas Reduction Fund, not to exceed $120,000,000 per fiscal year, to the California Compost Tax Credit Fund, which the bill would establish.

Existing law, the Personal Income Tax Law and the Corporation Tax Law, allow allows various credits against the taxes imposed by those laws.

This bill, for taxable years beginning on or after January 1, 2025, and before January 1, 2036, would allow a credit against those taxes for each taxable year to a qualified taxpayer in an amount equal to amounts paid or incurred during the taxable year for the application of compost on agricultural lands, ranchlands, or rangelands to improve soils, sequester carbon, and reduce greenhouse gas emissions. The bill would require the Department of Food and Agriculture to allocate the credits to qualified taxpayers through an application process, as specified, and would limit the aggregate amount of credits allocated per fiscal year to the amount appropriated from the Greenhouse Gas Reduction Fund to the California Compost Tax Credit Fund, minus specified distributions, as provided.

This bill would require the moneys from the California Compost Tax Credit Fund to be used for the purpose of refunding the General Fund for tax revenue lost due to the credits claimed and would continuously appropriate moneys in the fund to the Department of Food and Agriculture for refunds to qualified taxpayers whose credit exceeds their tax liability, as provided.

This bill would additionally continuously appropriate up to 20% of moneys in the California Compost Tax Credit Fund, not to exceed $24,000,000 per fiscal year, for existing composting infrastructure grant programs and existing healthy soils programs, as specified.

Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.

This bill would include additional information required for any bill authorizing a new tax expenditure.

This bill would also make findings and declarations related to a gift of public funds.

Existing law, the California Global Warming Solutions Act of 2006, designates the State Air Resources Board as the state agency charged with monitoring and regulating sources of emissions of greenhouse gases. The act authorizes the state board to include in its regulation of those emissions the use of market-based compliance mechanisms. Existing law requires all moneys, except for fines and penalties, collected by the state board from the auction or sale of allowances as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund. Existing law continuously appropriates the annual proceeds of the fund to the various purposes.

This bill, in the 202526 fiscal year through the 203536 fiscal year, would transfer 1% of the annual proceeds of the Greenhouse Gas Reduction Fund, not to exceed $120,000,000 per fiscal year, to the California Compost Tax Credit Fund, which the bill would establish.

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

This bill, for taxable years beginning on or after January 1, 2025, and before January 1, 2036, would allow a credit against those taxes for each taxable year to a qualified taxpayer in an amount equal to amounts paid or incurred during the taxable year for the application of compost on agricultural lands, ranchlands, or rangelands to improve soils, sequester carbon, and reduce greenhouse gas emissions. The bill would require the Department of Conservation Food and Agriculture to allocate the credits to qualified taxpayers through an application process, as specified, and would limit the aggregate amount of credits allocated per fiscal year to the amount appropriated from the Greenhouse Gas Reduction Fund to the California Compost Tax Credit Fund, minus specified distributions, as provided.

This bill would authorize the Department of Conservation to annually transfer require the moneys from the California Compost Tax Credit Fund to reimburse be used for the purpose of refunding the General Fund for tax revenue lost due to the credits claimed and would continuously appropriate moneys in the fund to the Department of Food and Agriculture for refunds to qualified taxpayers whose credit exceeds their tax liability, as provided.

This bill would additionally continuously appropriate up to 20% of moneys in the California Compost Tax Credit Fund, not to exceed $24,000,000 per fiscal year, for existing composting infrastructure grant programs and existing healthy soils programs, as specified.

Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.

This bill would include additional information required for any bill authorizing a new tax expenditure.

This bill would also make findings and declarations related to a gift of public funds.

Existing law, the California Global Warming Solutions Act of 2006, designates the State Air Resources Board as the state agency charged with monitoring and regulating sources of emissions of greenhouse gases. The act authorizes the state board to include in its regulation of those emissions the use of market-based compliance mechanisms. Existing law requires all moneys, except for fines and penalties, collected by the state board from the auction or sale of allowances as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund. Existing law continuously appropriates the annual proceeds of the fund to the various purposes.

This bill, in the 202526 fiscal year through the 203536 fiscal year, would transfer 1% of the annual proceeds of the Greenhouse Gas Reduction Fund, not to exceed $120,000,000 per fiscal year, to the California Compost Tax Credit Fund, which the bill would establish.

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

This bill, for taxable years beginning on or after January 1, 2025, and before January 1, 2036, would allow a credit against those taxes for each taxable year to a qualified taxpayer in an amount equal to amounts paid or incurred during the taxable year for the application of compost on agricultural lands, ranchlands, or rangelands to improve soils, sequester carbon, and reduce greenhouse gas emissions. The bill would require the Department of Conservation to allocate the credits to qualified taxpayers through an application process, as specified, and would limit the aggregate amount of credits allocated per fiscal year to the amount appropriated from the Greenhouse Gas Reduction Fund to the California Compost Tax Credit Fund, minus specified distributions, as provided.

This bill would authorize the Department of Conservation to annually transfer moneys from the California Compost Tax Credit Fund to reimburse the General Fund for tax revenue lost due to the credits claimed and would continuously appropriate moneys in the fund for refunds to qualified taxpayers whose credit exceeds their tax liability, as provided.

This bill would additionally continuously appropriate up to 20% of moneys in the California Compost Tax Credit Fund, not to exceed $24,000,000 per fiscal year, for composting infrastructure and existing healthy soils programs, as specified.

Existing law requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.

This bill would include additional information required for any bill authorizing a new tax expenditure.

This bill would also make findings and declarations related to a gift of public funds.

SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

SB 1135 (Limón) - Greenhouse Gas Reduction Fund: income taxes: credit

Bill Summary:

This bill would create a refundable tax credit to encourage composting activity in the state with the hope of diverting organic waste from landfills and reducing greenhouse gas emissions levels.

Fiscal Impact:

• Reduction in funds available in the Greenhouse Gas Reduction Fund (GRRF) by up to $120 million each year for the next ten years by using the money to fund the tax credit created by the bill.
• The Franchise Tax Board (FTB) estimates that the amount of tax credit that would be claimed under this bill would total $60 million in 2025-26, and $130 million in 2026-27. FTB notes, however, that the bill would require funds to be transferred from the California Compost Tax Credit Fund to the General Fund; thus, the net impact of the proposed credit on the General Fund would be zero. FTB’s costs to implement the bill have yet to be identified.
• The California Department of Food and Agriculture (CDFA) estimates ongoing costs of $407,086 for years one and two, in addition to 8% of the available GRRF funds to cover CDFA and/or other departments administrative expenses and indirect costs in awarding and managing hundreds of grants.
• The California Air Resources Board (ARB) estimates ongoing costs of about $440,000 annually (GGRF) to lead coordination efforts with CDFA to ensure new regulations align with existing GGRF reporting requirements, serve as a subject matter expert on compost production and standardization, collaborate with relevant agencies, develop program and project-level tracking and reporting, and develop procedures and processes, among other things.

Background:

Organic waste. Organic waste includes materials primarily comprised of carbon, such as food scraps, food-soiled paper, paper products, green material, landscape and pruning waste, organic textiles and carpets, and wood waste. According to the Department of Resources Recycling and Recovery (CalRecycle), California generates 23 million tons of organic waste every year. As it decomposes in landfills, organic waste emits methane, a powerful GHG that is 84 times more potent than carbon dioxide over a 20-year timeframe. Organic waste in landfills is responsible for 20% of methane emissions in the state.

Organic waste diversion goals. Senate Bill 1383 (Lara, Chapter 395, Statutes of 2016) established targets to reduce the amount of organic waste sent to landfills by 50% by 2020 and 75% by 2025, with 2014 serving as the baseline. The state has acknowledged it failed to meet the 2020 target and the Little Hoover Commission determined in 2023 that the state is not on track to meet the 2025 target. California will need to divert around 18 million tons of organic waste from landfills to meet SB 1383’s 2025 goal, 9.6 million tons of which would need to be composted.

Composting as a pathway to meet organic waste diversion goals. Composting is the process of controlled aerobic decomposition of organic material such as leaves, twigs, grass clippings, and food scraps. Finished compost is a soil amendment with a wide variety of nutrients, micronutrients, and organic matter, all of which can benefit the soil. While there are several options for diverting organic materials from landfill disposal, CalRecycle expects composting and anaerobic digestion facilities to manage the bulk of this waste. In other words, recycling organic waste into compost represents a key strategy for meeting the SB 1383 goals.

Compost in agriculture. One way to utilize compost is for agricultural purposes. Several studies have shown that spreading compost on agricultural lands can benefit farmers and ranchers by increasing crop yields, boosting the nutrient content of produced food, decreasing irrigation costs by increasing the water holding capacity of the soil, reducing the need for expensive synthetic fertilizers and pesticides, and increasing the soil’s carbon storage capacity, especially if the compost is coupled with cover crops. Recognizing the benefits of this practice, AB 1045 (Irwin, Chapter 596, Statutes of 2015) directed the California Environmental Protection Agency (CalEPA) to promote a goal of reducing at least five million metric tons of GHG emissions per year through the development and application of compost on working lands, including agricultural lands.

Barriers to using compost in agriculture. According to CalRecycle, composters sell 65% of their compost to the agriculture industry. A 2018 UC Davis study indicated there is additional interest in using compost in agriculture if barriers to using it can be addressed. For many farmers, the cost of utilizing compost is prohibitive as transporting and spreading compost costs can double the price. Contaminated compost is also a problem for farmers and ranchers, especially compost derived from urban organic waste. This compost can be contaminated with plastic and glass.

Financial incentives to use compost in agriculture. California’s Natural and Working Lands Climate Smart Strategy, released in 2022, recommends providing financial incentives to increase adoption of compost practices amongst large and medium scale California farmers. The state currently provides financial incentives for this practice through the Healthy Soils Program at the California Department of Food and Agriculture (CDFA), helping to reduce the cost. This practice has been popular under the Healthy Soils Program: according to one 2020 study prepared by the California Climate and Agriculture Network, nearly three-quarters of the agricultural projects that received grants from this program included compost applications. Other eligible activities include mulching, herbaceous and wood plantings, cover cropping, and no/reduced tillage.

Greenhouse Gas Reduction Fund. GGRF is the repository for revenues generated from the sale of cap-and-trade allowances. According to the Legislative Analyst’s Office (LAO), in recent years, cap-and-trade auctions have raised between $3 billion and $4.3 billion per year. Multiple factors influence revenues, including interest in purchasing allowances from outside investors, confidence in the longevity of the program, and the balance of supply versus demand for allowances, making it difficult to predict with certainty how much revenue will be generated for GGRF in a given year.

GGRF spending requirements. The Legislature has established a number of requirements and priorities for how GGRF moneys can be spent. Existing law requires GGRF moneys to be used to facilitate the achievement of GHG emissions reductions in the state. Additionally, at least 35% of GGRF expenditures must benefit “priority populations.” Existing law also establishes nonbinding appropriations priorities for GGRF moneys, including for sustainable agricultural practices that promote transitions to clean technology, water efficiency, and improved air quality.

Further, many spending requirements originating in various Budget Acts established a number of standard annual GGRF appropriations. The table below, comprised of information prepared by the LAO, displays the programs and associated amounts stipulated in statute for annual GGRF appropriations. About 65% of annual GGRF revenues are dedicated to these statutory spending requirements.

After accounting for these statutory spending commitments, the remaining annual GGRF revenues are available for the state to spend on other activities, at its discretion. Past discretionary expenditures have focused on low-carbon transportation programs, community-based air protection, and agriculture programs.

Proposed Law:

This bill would create a refundable tax credit to encourage composting activity in the state with the hope of diverting organic waste from landfills and reducing greenhouse gas emissions levels. Specifically, this bill would:

1. Establish the California Compost Tax Credit Fund in the State Treasury;
2. Transfer 1% of annual GGRF proceeds, not to exceed $120 million per fiscal year (FY) from FY 2025-26 through FY 2035-36, to the California Compost Tax Credit Fund;
3. Direct CDFA to distribute money in the California Compost Tax Credit Fund to:
   1. Reimburse the state’s General Fund for the tax credits authorized by the bill;
   2. Continuously appropriate money to pay refunds to qualified taxpayers for the tax credits authorized by the bill.
   3. Continuously appropriate up to 20% of money (up to $24 million per FY), split (with an unspecified percentage) between:
      1. Composting infrastructure, in coordination with CalRecycle; and
      2. Existing healthy soils programs administered by CDFA or the Wildlife Conservation Board.
   4. Authorize credits against the personal income tax and the corporation tax for taxable years from 2025 through 2035, equal to amounts paid or incurred for qualified expenditures related to the application of compost on agricultural lands, ranchlands, or rangelands to improve soils, sequester carbon, and reduce GHG emissions;
   5. Require CDFA to develop eligibility guidelines, application procedures, and credit allocation criteria, among others;
   6. Require CDFA to prioritize and allocate larger credit amounts to taxpayers whose projects have local or federal matching funds, are located in economically disadvantaged communities, are multi-benefit water conservation projects, and sequester the most carbon per acre;
   7. Make legislative findings and declarations regarding Section 41 of the Revenue and Taxation Code; and
   8. Repeal the program on December 1, 2036.

Related Legislation:

SB 1191 (Padilla) would adopt the federal gross income exclusion for any payment made for the purchase of certain energy credits.

SB 1301 (Becker, 2021) would have created a tax credit for purchases of certain tangible personal property used in manufacturing of specified clean energy products. The bill did not pass out of the Assembly Revenue and Taxation Committee.

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SENATE COMMITTEE ON REVENUE AND TAXATION

Senator Steven Glazer, Chair

2023 - 2024 Regular

Greenhouse Gas Reduction Fund: income taxes: credit

Creates a refundable tax credit to encourage composting activity in the state with the hope of diverting organic waste from landfills and reducing greenhouse gas emissions levels.

Background

Organic waste & diversion goals. Organic waste includes materials primarily comprised of carbon, such as food scraps, food-soiled paper, paper products, green material, landscape and pruning waste, organic textiles and carpets, and wood waste. According to the Department of Resources Recycling and Recovery (CalRecycle), California generates 23 million tons of organic waste every year. As it decomposes in landfills, organic waste emits methane, a powerful greenhouse gas (GHG) that is 84 times more potent than carbon dioxide over a 20-year timeframe. Organic waste in landfills is responsible for 20% of methane emissions in the state.

SB 1383 (Lara, 2016) established targets to reduce the amount of organic waste sent to landfills by 50% by 2020 and 75% by 2025, with 2014 serving as the baseline year. The state did not meet the 2020 target and the Little Hoover Commission determined in 2023 California is not on track to meet the 2025 target. California will need to divert around 18 million tons of organic waste from landfills to meet SB 1383’s 2025 goal, 9.6 million tons of which would need to be composted.

Let’s just compost it. Composting is the process of controlled aerobic decomposition of organic material such as leaves, twigs, grass clippings, and food scraps. Finished compost is a soil amendment with a wide variety of nutrients, micronutrients, and organic matter, all of which can benefit the soil. While there are several options for diverting organic materials from landfill disposal, recycling organic waste into compost represents a key strategy for meeting the SB 1383 goals.

Several studies have shown that spreading compost on agricultural lands can benefit farmers and ranchers by increasing crop yields, boosting the nutrient content of produced food, decreasing irrigation costs by increasing the water holding capacity of the soil, reducing the need for expensive synthetic fertilizers and pesticides, and increasing the soil’s carbon storage capacity. AB 1045 (Irwin, 2015) directed the California Environmental Protection Agency (CalEPA) to promote a goal of reducing at least five million metric tons of GHG emissions per year by applying compost to working lands, including agricultural lands.

So, if it’s so great, what’s the hold-up? According to CalRecycle, 65% of the state’s compost is sold to the agriculture industry. For many farmers, the cost of using compost can be prohibitive when they factor in having to transport it to and spread it on their lands – something that can actually double the price of the product.

Beyond the cost is the issue of contamination – compost derived from urban organic waste can be contaminated with plastic, glass and other non-compost friendly products.

Money, money, money. California’s Natural and Working Lands Climate Smart Strategy, released in 2022, recommends providing financial incentives to increase adoption of compost practices amongst large- and medium-scale California farmers. The state already provides some financial incentives for this practice through the Healthy Soils Program at the California Department of Food and Agriculture (CDFA) – according to one 2020 study prepared by the California Climate and Agriculture Network, nearly 75% of the agricultural projects that received grants from this program included compost applications

California’s Greenhouse Gas Reduction Fund (GGRF) is a popular piggy bank. The GGRF is where the money generated from the sale of the state’s cap-and-trade allowances is deposited and according to the Legislative Analyst’s Office (LAO), cap-and-trade auctions have raised between $3 billion and $4.3 billion per year.

The Legislature has established a number of requirements and priorities for how GGRF moneys can be spent. The law requires GGRF funds to be used to reduce GHG emissions in the state and at least 35% of the GGRF spending has to benefit “priority populations.” The law establishes nonbinding appropriations priorities for GGRF funds, including using the money for sustainable agricultural practices that promote transitions to clean technology, water efficiency, and improved air quality.

Over the years, state Budget Acts have established a number of standard annual GGRF appropriations to the point where now, according to the LAO, about 65% of annual GGRF funds are dedicated to these statutory spending requirements:

Program Appropriation

• High Speed Rail 25% of money deposited each year.
• Affordable Housing &

Sustainable Communities 20% of money deposited each year.

• Transit & Intercity Rail 1 10% of money deposited each year.
• Low Carbon Transit Operations 5% of money deposited each year.
• Healthy & Resilient Forests $200 million each year.
• Safe & Affordable Drinking Water $130 million each year.
• Manufacturing Tax Credit $70-$90 million each year.
• State Responsibility Area backfill $70-$90 million each year.

The author wants to create a tax incentive for agricultural and other entities to utilize more compost on their lands, which she also hopes will lead to the production of higher quality compost and a reduction in GHG levels in California.

Proposed Law

Senate Bill 1135:

• Establishes the California Compost Tax Credit Fund in the State Treasury;
• Transfers 1% of annual GGRF proceeds, not to exceed $120 million per fiscal year (FY) from FY 2025-26 through FY 2035-36, to the California Compost Tax Credit Fund;
• Direct CDFA to distribute money in the California Compost Tax Credit Fund to:
  • Reimburse the state’s General Fund for the tax credits authorized by the bill;
  • Continuously appropriate money to pay refunds to qualified taxpayers for the tax credits authorized by the bill.
  • Continuously appropriate up to 20% of money (up to $24 million per FY), split (with an unspecified percentage) between:
    • Composting infrastructure, in coordination with CalRecycle; and
    • Existing healthy soils programs administered by CDFA or the Wildlife Conservation Board.
    • Authorizes credits against the personal income tax and the corporation tax for taxable years from 2025 through 2035, equal to amounts paid or incurred for qualified expenditures related to the application of compost on agricultural lands, ranchlands, or rangelands to improve soils, sequester carbon, and reduce GHG emissions;
    • Defines a “qualified taxpayer” as a business entity that has been awarded a tax credit under this bill by CDFA;
    • Defines a “qualified expenditure” as one that pays a qualified taxpayer to apply compost on agricultural lands, ranchlands, or rangelands to improve soils, sequester carbon, and reduce greenhouse gas emissions;
    • Requires CDFA to develop eligibility guidelines, application procedures, and credit allocation criteria, among others;
    • Requires CDFA to “consider” prioritizing and allocating larger credit amounts to taxpayers whose projects have local or federal matching funds, are located in economically disadvantaged communities, are multi-benefit water conservation projects, or sequester the most carbon per acre;
    • Is a refundable tax credit payable from the GGRF;
    • Makes legislative findings and declarations regarding Section 41 of the Revenue and Taxation Code; and
    • Repeals the program on December 1, 2036.

State Revenue Impact

Reduces funds available in the GGRF by up to $120 million each year for the next ten years by using the money to fund the tax credit created by the bill.

Comments

1. Purpose of the bill. According to the author, “California produces nearly half of the fruits and vegetables consumed in this country. Unfortunately, high levels of agricultural production can lead to overworked and degraded soils. Applying compost to the land improves the ability of soil to hold nutrients and rebuilds the health of the ground. Compost application on agricultural lands is a beneficial practice as it repairs soil health, increases carbon sequestration in the soil, and reduces overall carbon in the atmosphere, aiding in the fight against climate change.

“This bill would establish a tax credit for California farmers, ranchers, and landowners who employ farming practices that maximize carbon sequestration through the utilization of compost on natural and working lands. This proposal continuously appropriates 1% of the Greenhouse Gas Reduction Fund to a new fund, the California Compost Tax Credit Fund, not to exceed $120 million annually for 10 years, to fully pay for the tax credit.”

2. Incentive or reward? One debate even older than the one over whether the designated hitter rule has been good for baseball is whether tax credits actually create incentives for behavior or reward activity that would take place even absent the existence of the credit.

California has a mandate to reduce the amount of organic material it sends to landfills, CalRecycle notes composting is one of the most effective and popular ways to divert organic materials away from landfills, and landowners report it’s good for their soil and crops. So, with all of that going for it, is the tax credit proposed by this bill actually necessary?

On the other hand, supporters of the bill point out the high cost of transporting compost and the often times lack of “quality compost” demonstrate there is a need for a bill to drive down (via a tax subsidy) the cost of transportation and drive up the incentive to produce high-grade compost.

3. Not your father’s tax credit. Unlike many tax credits where the recipient does the functional equivalent of checking the box to show they have taken a particular action to qualify for the credit, the tax credit created by this bill gives CDFA the authority to decide who will receive it.

SB 1135 requires CDFA to develop guidelines that include requirements a project has to meet to be eligible to receive the credit, establish a process for people to apply for the credit, and establish criteria for awarding credits. Significantly, the bill directs CDFA to “consider” allocating larger credits to applicants who also have local or federal matching funds, are located in economically disadvantaged communities, are multi-benefit water conservation projects, or sequester the most carbon per acre as determined by regulation.

However, “considering” doing something is not the same as actually “doing” something. As such, the Committee may wish to consider requiring CDFA to prioritize applications based on the factors noted above, not just to “consider” prioritizing them in that fashion.

4. Imposing another spending requirement on the GGRF. As noted in the “Background” section, about $3-$4.3 billion is general deposited in the GGRF each year following the auctioning of cap-and-trade credits and more than 65% of that funding has already been legislatively earmarked for specific programs.

This bill takes another slice of the GGRF pie – up to $120 million a year for ten years – and allocates it to fund the tax credit created by this bill. Regardless of the merits of the program created by SB 1135, it’s worth considering how much more the Legislature would like to lock up GGRF funding and how the program created by this bill may compare to other composting or healthy soil initiatives the Legislature is funding through other programs.

5. Credit v. grant, film at 11:00. This bill requires CDFA to review applications for the tax credit created by the measure and award credits based on certain criteria. This is an approach that should guarantee the most bang for the taxpayer buck. On the other hand, since CDFA will be reviewing and prioritizing applications before awarding tax credits, it’s not clear why it wouldn’t be more appropriate and administratively less complex to simply run this as a grant program and not a tax credit program.

6. Section 41 compliance. Section 41 of the Revenue and Taxation Code requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve and detailed performance indicators, along with data collection and reporting requirements (SB 1335, Leno, 2014).

To satisfy these requirements, SB 1135 states its goal, purpose, and objective is to help achieve the goal of net-zero GHG emissions through carbon sequestration in soils on working lands and to financially assist ranchers and farmers with composting practices that sequester carbon. The bill declares the detailed performance indicators for the Legislature to use in determining whether the credits meet the goals, purposes, and objectives established by CDFA must include certain factors, such as acreage of land and the number of ranchers and farmers involved in the credit program, as well as the annual GHG reduction of the credits.

7. Speed dating, committee style. The Senate Rules Committee double-referred this measure to the Senate Natural Resources & Water Committee, where it was approved on an 11-0 vote on April 9th, and then to Senate Revenue & Taxation Committee.

Support and Opposition

(4/19/24)

Support: California Association of Winegrape Growers (Co-Sponsor)
People, Food and Land Foundation (Co-Sponsor)
Almond Alliance of California
California Chamber of Commerce
California Compost Coalition
California Environmental Voters (formerly CLCV)
California Farm Bureau
Californians Against Waste
Family Winemakers of California
Organic Fertilizer Association of California
Resource Recovery Coalition of California
Wine Institute

Opposition: None submitted.

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SENATE COMMITTEE ON NATURAL RESOURCES AND WATER

Senator Dave Min, Chair

2023 - 2024 Regular

Bill No: SB 1135 Hearing Date: April 9, 2024

Subject: Greenhouse Gas Reduction Fund: income taxes: credit

SUMMARY

This bill would authorize credits against the personal income tax and the corporation tax for qualified expenditures related to the application of compost on agricultural lands, ranchlands, or rangelands to improve soils, sequester carbon, and reduce greenhouse gas (GHG) emissions, as specified. The bill would transfer up to $120 million per fiscal year (FY) from the Greenhouse Gas Reduction Fund (GGRF) to a California Compost Tax Credit Fund from FY 2025-26 through FY 2035-36 to reimburse the General Fund (GF) for losses incurred as a result of these credits and to pay tax refunds. Also, the bill would continuously appropriate up to $24 million per FY from the California Compost Tax Credit Fund for composting infrastructure and existing healthy soils programs, as specified.

BACKGROUND AND EXISTING LAW

Background:

Organic waste. Organic waste includes materials primarily comprised of carbon, such as food scraps, food-soiled paper, paper products, green material, landscape and pruning waste, organic textiles and carpets, and wood waste. According to the Department of Resources Recycling and Recovery (CalRecycle), California generates 23 million tons of organic waste every year. As it decomposes in landfills, organic waste emits methane, a powerful GHG that is 84 times more potent than carbon dioxide over a 20-year timeframe. Organic waste in landfills is responsible for 20% of methane emissions in the state.

Organic waste diversion goals. Senate Bill 1383 (Lara, Chapter 395, Statutes of 2016) established targets to reduce the amount of organic waste sent to landfills by 50% by 2020 and 75% by 2025, with 2014 serving as the baseline. The state has acknowledged it failed to meet the 2020 target and the Little Hoover Commission determined in 2023 that the state is not on track to meet the 2025 target. California will need to divert around 18 million tons of organic waste from landfills to meet SB 1383’s 2025 goal, 9.6 million tons of which would need to be composted.

Composting as a pathway to meet organic waste diversion goals. Composting is the process of controlled aerobic decomposition of organic material such as leaves, twigs, grass clippings, and food scraps. Finished compost is a soil amendment with a wide variety of nutrients, micronutrients, and organic matter, all of which can benefit the soil. While there are several options for diverting organic materials from landfill disposal, CalRecycle expects composting and anaerobic digestion facilities to manage the bulk of this waste. In other words, recycling organic waste into compost represents a key strategy for meeting the SB 1383 goals.

Compost in agriculture. One way to utilize compost is for agricultural purposes. Several studies have shown that spreading compost on agricultural lands can benefit farmers and ranchers by increasing crop yields, boosting the nutrient content of produced food, decreasing irrigation costs by increasing the water holding capacity of the soil, reducing the need for expensive synthetic fertilizers and pesticides, and increasing the soil’s carbon storage capacity, especially if the compost is coupled with cover crops. Recognizing the benefits of this practice, AB 1045 (Irwin, Chapter 596, Statutes of 2015) directed the California Environmental Protection Agency (CalEPA) to promote a goal of reducing at least five million metric tons of GHG emissions per year through the development and application of compost on working lands, including agricultural lands.

Barriers to using compost in agriculture. According to CalRecycle, composters sell 65% of their compost to the agriculture industry. A 2018 UC Davis study indicated there is additional interest in using compost in agriculture if barriers to using it can be addressed. For many farmers, the cost of utilizing compost is prohibitive as transporting and spreading compost costs can double the price. Contaminated compost is also a problem for farmers and ranchers, especially compost derived from urban organic waste. This compost can be contaminated with plastic and glass.

Financial incentives to use compost in agriculture. California’s Natural and Working Lands Climate Smart Strategy, released in 2022, recommends providing financial incentives to increase adoption of compost practices amongst large and medium scale California farmers. The state currently provides financial incentives for this practice through the Healthy Soils Program at the California Department of Food and Agriculture (CDFA), helping to reduce the cost. This practice has been popular under the Healthy Soils Program: according to one 2020 study prepared by the California Climate and Agriculture Network, nearly three-quarters of the agricultural projects that received grants from this program included compost applications. Other eligible activities include mulching, herbaceous and wood plantings, cover cropping, and no/reduced tillage.

Greenhouse Gas Reduction Fund. GGRF is the repository for revenues generated from the sale of cap-and-trade allowances. According to the Legislative Analyst’s Office (LAO), in recent years, cap-and-trade auctions have raised between $3 billion and $4.3 billion per year. Multiple factors influence revenues, including interest in purchasing allowances from outside investors, confidence in the longevity of the program, and the balance of supply versus demand for allowances, making it difficult to predict with certainty how much revenue will be generated for GGRF in a given year.

GGRF spending requirements. The Legislature has established a number of requirements and priorities for how GGRF moneys can be spent. Existing law requires GGRF moneys to be used to facilitate the achievement of GHG emissions reductions in the state. Additionally, at least 35% of GGRF expenditures must benefit “priority populations.” Existing law also establishes nonbinding appropriations priorities for GGRF moneys, including for sustainable agricultural practices that promote transitions to clean technology, water efficiency, and improved air quality.

Further, many spending requirements originating in various Budget Acts established a number of standard annual GGRF appropriations. The table below, comprised of information prepared by the LAO, displays the programs and associated amounts stipulated in statute for annual GGRF appropriations. About 65% of annual GGRF revenues are dedicated to these statutory spending requirements.

After accounting for these statutory spending commitments, the remaining annual GGRF revenues are available for the state to spend on other activities, at its discretion. Past discretionary expenditures have focused on low-carbon transportation programs, community-based air protection, and agriculture programs.

Existing law:

1. Establishes a policy of the state to achieve net zero GHG emissions as soon as possible, but no later than 2045, and to achieve and maintain net negative GHG emissions thereafter. Health and Safety Code (HSC) §38562.2.
2. Establishes targets to reduce the level of statewide landfill disposal of organic waste by 50% of the 2014 level by 2020 and by 75% of the 2014 level by 2025. HSC §39730.6.
3. Directs CalEPA to develop and implement policies to aid in diverting organic waste from landfills by promoting the use of agricultural, forestry, and urban organic waste as a feedstock for compost and by promoting the appropriate use of that compost throughout the state to improve the state’s soil organic matter. Public Resources Code (PRC) §42649.87.
4. Directs CalEPA to promote a goal of reducing at least five million metric tons of GHG emissions per year through the development and application of compost on working lands, including agricultural lands. PRC §42649.87.
5. Directs the California Natural Resources Agency (CNRA) to determine an ambitious range of targets for natural carbon sequestration that reduce GHG emissions for 2030, 2038, and 2045. “Natural carbon sequestration” means actions undertaken on natural and working lands to remove and provide storage of atmospheric GHGs in vegetation and soil; this may include compost application. HSC §38561.5.
6. Establishes the GGRF, which receives funding from the auction or sale of allowances pursuant to the cap-and-trade program. Government Code (GOV) §16428.8.
7. Continuously appropriates more than half the GGRF’s annual proceeds for specified purposes, including 35% for transit, affordable housing, and sustainable communities; 25% for high speed rail; up to $130 million for safe and affordable drinking water, as specified; and $200 million per year for healthy forest, fire prevention, and fuel reduction programs and projects. HSC §39719.
8. Establishes the Department of Conservation (DOC) in CNRA under the control of the director. PRC §601.
   1. Establishes, or provides authority to establish, programs at DOC (or at other agencies in partnership with DOC) to conserve agricultural lands and prevent their conversion to other uses, including the California Farmland Conservancy Program and the Sustainable Agricultural Lands Conservation Program under the Affordable Housing and Sustainable Communities Program. PRC §§10200 et seq. and PRC §§75200 et seq., respectively.
   2. Appropriates funding to DOC to implement projects or develop plans that are consistent with the state’s Natural and Working Lands Climate Smart Strategy and Pathways to 30x30 California strategy. This program is known as the Climate Smart Land Management Program. Chapter 249, Statutes of 2022.
9. Establishes CDFA under the control of the secretary. Food and Agriculture Code (FAC) §101 and §102.
   1. Directs CDFA to establish and oversee a Healthy Soils Program, which seeks to optimize climate benefits while supporting the economic viability of California agriculture. FAC §569.
10. Establishes CalRecycle in CalEPA under the control of a director. PRC §40440.
    1. Directs CalRecycle, upon appropriation, to administer a grant program to promote in-state development of infrastructure, food waste prevention, or other projects to reduce organic waste, sort and aggregate or process organic and other recyclable materials into new, value-added products, or divert items from disposal through enhanced reuse opportunities. PRC §42999.
11. Establishes a Personal Income Tax and various corporation taxes, including the Corporation Franchise Tax and the Corporation Income Tax. Revenue and Taxation Code (RTC) §§17001 et seq. and RTC §§23001 et seq., respectively.

PROPOSED LAW

This bill would:

1. Establish the California Compost Tax Credit Fund in the State Treasury.
2. Transfer one percent of annual GGRF proceeds, not to exceed $120 million per FY, from FY 2025-26 through FY 2035-36, to the California Compost Tax Credit Fund.
3. Direct DOC to distribute moneys in the California Compost Tax Credit Fund for the following purposes:
   1. Annually reimburse the GF for the tax revenue lost due to the tax credits authorized by the bill, as estimated by the Department of Finance.
   2. Continuously appropriate moneys in the fund to pay refunds to qualified taxpayers for the tax credits authorized by the bill.
   3. Continuously appropriate up to 20% of moneys in the fund, up to $24 million per FY, for the following:
      1. Composting infrastructure, in coordination with CalRecycle.
      2. Existing healthy soils programs administered by CDFA or the Wildlife Conservation Board.
4. Authorize credits against the personal income tax and the corporation tax for taxable years from 2025 through 2035, equal to amounts paid or incurred for qualified expenditures related to the application of compost on agricultural lands, ranchlands, or rangelands to improve soils, sequester carbon, and reduce GHG emissions, as specified. Further:
   1. Define terms, including “qualified taxpayer” and “qualified expenditure.”
   2. Prescribe rules and requirements for the administration of this tax credit, including by directing DOC to establish eligibility guidelines, application procedures, and credit allocation criteria, among others.
   3. For the personal income tax credit:
      1. Declare the goals, purposes, and objectives are to help achieve the goal of net-zero GHG emissions through carbon sequestration in soils on working lands and to financially assist ranchers and farmers with composting practices that sequester carbon.
      2. Declare that detailed performance indicators for the Legislature to use in determining whether the credits meet the goals, purposes, and objectives established by DOC must include certain indicators, such as acreage of land and the number of ranchers and farmers involved in the credit program; and the annual GHG reduction of the credits.
   4. Repeal these authorities as of December 1, 2036.
5. Make a finding regarding how the credits authorized by this bill serve a public purpose and do not constitute a gift of public funds, as specified.

ARGUMENTS IN SUPPORT

According to the author, “California produces nearly half of the fruits and vegetables consumed in this country. Unfortunately, high levels of agricultural production can lead to overworked and degraded soils. Applying compost to the land improves the ability of soil to hold nutrients and rebuilds the health of the ground. Compost application on agricultural lands is a beneficial practice as it repairs soil health, increases carbon sequestration in the soil, and reduces overall carbon in the atmosphere, aiding in the fight against climate change.

This bill would establish a tax credit for California farmers, ranchers, and landowners who employ farming practices that maximize carbon sequestration through the utilization of compost on natural and working lands. This proposal continuously appropriates 1% of the [GGRF] to a new fund, the California Compost Tax Credit Fund, not to exceed $120 million annually for 10 years, to fully pay for the tax credit.”

According to California Environmental Voters, “Cities and counties are seeking ways to divert organic waste from landfills. Producing compost is one of the most practical and beneficial methods to safely divert organic waste. However, it is expensive to produce, transport, and apply compost to land. The cost and availability of high-quality compost can be a significant barrier for farmers, ranchers, and landowners to apply compost to range and farmlands. This bill provides an economic incentive to utilize the practice by providing a tax credit to cover costs associated with composting.”

ARGUMENTS IN OPPOSITION

None received.

COMMENTS

Dual referral. This bill is referred to this Committee and the Senate Revenue and Taxation Committee. Elements of the bill under the latter Committee’s jurisdiction will be discussed before that Committee and are included here for completeness and context only.

Does compost merit a continuous GGRF appropriation? The Legislature has already set aside around 65% of annual GGRF revenues for certain programs. This bill would add a new continuous appropriation of one percent of the GGRF’s annual proceeds, up to $120 million per FY, for 10 years to pay for tax credits related to the application of compost on agricultural lands to improve soils, sequester carbon, and reduce GHG emissions.

As noted in the Background, applying compost to agricultural lands can confer many benefits, including reducing GHG emissions, sequestering carbon, and improving soil health and water retention. Utilizing compost in this manner also helps the state to meet its organic waste diversion goals by providing a pathway to recycle that waste. That said, there are many programs and activities that the Legislature could prioritize for a continuous appropriation of GGRF. In the natural and working lands sector alone, there are many actions the state could incentivize that provide a similarly wide range of benefits for the climate, people, the environment, and the economy, including improving forest and watershed health, restoring riparian areas and wetlands, and expanding urban green space and forests. There are, of course, many other programs and activities outside of this sector that also could be worthy of a continuous GGRF appropriation, such as energy programs that provide direct GHG emissions reductions.

A continuous appropriation is a reflection of the Legislature’s values and priorities. It also limits the flexibility of future Legislatures to adjust spending based on new priorities and budget conditions. A key question for this Committee is why should the Legislature prioritize compost application on agricultural lands for a continuous GGRF appropriation, particularly when compost application is already funded under the Healthy Soils Program?

One way to assess this is to evaluate whether compost application on agricultural lands fits into existing priorities for GGRF. Originally, AB 32 (Núñez, Chapter 488, Statutes of 2006) required that GGRF be spent on activities that reduce GHG emissions. AB 398 (Eduardo Garcia, Chapter 135, Statutes of 2017) removed this requirement and instead adopted seven priorities for GGRF appropriations, including sustainable agricultural practices and short-lived climate pollutants. Compost application could fit into both of these priorities.

Another way to assess this would be to compare the cost effectiveness of compost application on agricultural lands with that of other actions that reduce GHG emissions. While the State Air Resources Board (ARB) reports annually on the cost-effectiveness of GGRF programs, measured in dollars spent per metric ton of CO₂ equivalents (mtCO₂e) reduced, it does not report this information for specific activities within programs. For example, ARB reports a cost effectiveness of $107/mtCO₂e for the Healthy Soils Program, but it does not report this metric for the compost application practice. Staff could not find an estimate or report for compost application elsewhere. It likely varies from place to place given the variability in costs to produce, transport, and apply compost, which also comes in varying degrees of quality and from multiple sources.

For general reference, however, according to ARB’s estimates, GGRF-funded programs vary widely in their cost effectiveness, ranging from $9 to $164,000 per ton of carbon reduced, with most programs reducing emissions at a cost of between $150 and $2,000 per ton. The table below presents the cost effectiveness of a few GGRF-funded programs that fund nature-based solutions, including the Healthy Soils Program, sorted by cost. Note that the CalRecycle program listed in the table funds more than just compost application; it funds the creation, improvement, or expansion of community composting sites.

The question of whether the Legislature should prioritize compost application for a continuous GGRF appropriation is particularly relevant given the state’s budget deficit and because the Senate recently reviewed the GGRF’s condition and uses in a joint oversight hearing of the Environmental Quality Committee and the Budget and Fiscal Review Subcommittee No. 2 on February 13, 2024. The background for that hearing noted the following:

“Considering the present state of the [cap-and-trade] program (upwards of $4 billion of revenue in recent years) and the potential for that amount to increase (due to program changes being contemplated), the Legislature should look hard at where the money raised is going. Do the statutory continuous appropriations reflect present values and priorities? Given the impacts higher cap-and-trade compliance costs may have on consumers, how can GGRF [moneys] support equity?”

Given these considerations, the Committee may wish to ask the author why compost application on agricultural lands merits a continuous appropriation from the GGRF.

Should this bill move forward, the Senate Appropriations Committee may wish to consider whether the proposed amount of the continuous appropriation – $120 million per FY – reflects the need for and interest in this practice.

Other continuous appropriations. This bill also would continuously appropriate up to 20% of moneys in the California Compost Tax Credit Fund, created by the bill and funded with GGRF moneys, up to $24 million dollars per FY, for composting infrastructure and existing healthy soils programs at CDFA and WCB. Aspects of this provision are discussed further below, however, similar to the question above, the Committee may wish to ask the author why these programs merit a continuous appropriation from this proposed fund, which essentially functions as continuous GGRF appropriation.

Should this bill move forward, the Senate Appropriations Committee may wish to consider whether the proposed amount of the continuous appropriation – up to $24 million per FY – reflects the need for and interest in these purposes and programs.

Composting infrastructure. According to a 2020 CalRecycle report, while organics recycling and recovery infrastructure is growing, significant expansion is necessary to provide the recycling capacity needed to meet the SB 1383 organic waste disposal reduction goals. While not all of the organics targeted under SB 1383 will be composted, composting facilities represent a significant part of the infrastructure required to meet these ambitious targets. For reference, CalRecycle’s 2020 report projects that composting facilities in the state will have the capacity to process an additional 5.3 million tons of organic waste by 2025 but would need to process 9.6 million tons of organic waste by this time to meet SB 1383’s organic waste diversion goals.

According to a 2019 report prepared by CalRecycle, composters will need significant incentives, from processing contracts to other financing mechanisms, to make the necessary investments in infrastructure to meet the SB 1383 goals. It is worth noting that the state has already created programs to expand organic waste recycling infrastructure. In particular, SB 862 (Committee on Budget and Fiscal Review, Chapter 36, Statutes of 2014) created loan and grant programs at CalRecycle to promote in-state development of infrastructure to process organics and other recyclable materials into new value-added products. As of 2020, the state had funded $140 million in grants and loans for organic waste infrastructure.

This bill would create a continuous appropriation for composting infrastructure by continuously appropriating up to 20% of the moneys in the California Compost Tax Credit Fund, up to $24 million per FY, for composting infrastructure, among other purposes.

Committee amendments. The Committee may wish to consider the following amendments:

• Make CDFA the lead agency to develop and implement the tax credit program. The bill tasks DOC as the lead, but DOC lacks expertise related to compost. CDFA, however, has this expertise as it relates to agricultural lands and administers the state’s primary program to incentivize this practice. See Amendment 1 and conforming change in Amendment 2.
• Remove DOC’s authority proposed by the bill to allocate funding to programs administered by other agencies at its discretion. This provision would give the Legislature’s power of the purse to DOC. It would be inappropriate for DOC to decide funding amounts for programs administered by other agencies. See Amendment 2 and other conforming changes in Amendment 1.
• Clarify the continuous appropriations for composting infrastructure and existing healthy soils programs. This bill would direct DOC to distribute a continuous appropriation for composting infrastructure, in coordination with CalRecycle, and for existing healthy soils programs administered by CDFA and WCB. First, DOC does not have expertise to administer a composting infrastructure program. Also, the bill does not provide any specificity regarding this proposed program. Instead, the Committee may wish to amend the bill to directly appropriate an unspecified percentage of the continuous appropriation to CalRecycle for the Community Composting for Green Spaces Grant Program. Should this bill move forward, the Senate Appropriations Committee may wish to consider how much to appropriate to this program.

Further, WCB does not administer a healthy soils program, as suggested by the bill. Instead, the Committee may wish to amend the bill to directly appropriate an unspecified percentage of the continuous appropriation to CDFA for the Healthy Soils Program. Should this bill move forward, the Senate Appropriations Committee may wish to consider how much to appropriate to this program. See Amendment 2.

• Correct a fund reference. In Section 1, the bill establishes the California Compost Tax Credit Fund to pay for the proposed tax credits’ refunds, among other purposes. Sections 2 and 3 of the bill, however, direct the Controller to pay these refunds from GGRF. Instead, the Committee may wish to amend the bill to direct the Controller to pay for the refunds from the California Compost Tax Credit Fund created by the bill. See Amendment 3.

This bill is a work in progress. Should the bill move forward, the Committee may wish to direct Committee staff to continue working with the author to ensure the bill addresses the following:

• Protecting the state’s investment. In a grant program, there are often mechanisms in the grant agreement to ensure and protect the state’s investment over a specified period of time, including beyond the term of the grant agreement, and options to recover the state’s funding if those investments are damaged or lost. It is conceivable under the proposed tax credit program that a landowner could claim tax credits one year for compost application and then take action in later years that undoes the benefits of the project. Or, that landowner could sell the property in a later year and the new landowner could take action that undoes the benefit. Who would be financial responsible for the state’s lost investment? How will this bill address these issues? Further, how would the state monitor these investments over time and enforce any breaches?
• Impact of tax credit vs grant program. One reason for this bill is an assumption that offering tax credits for compost application on agricultural lands may lead to wider adoption of this practice than via grants under the Healthy Soils Program. This bill includes a requirement that the LAO report on the effectiveness of the income tax credit, including the acreage of compost application. Should the bill move forward, the author may wish to consider expanding this requirement to include an assessment of the corporation tax credit and to compare the impacts of the tax credits versus the impacts of the Healthy Soils Program.
  

Related legislation.

AB 2346 (Lee, 2024) would authorize local jurisdictions to count towards specified procurement targets, compost produced and procured from specified compost operations, as defined. This bill is pending before the Assembly Natural Resources Committee.

SB 1046 (Laird, 2024) would require CalRecycle to prepare and certify, by January 1, 2027, a program environmental impact report (PEIR) that would streamline the process with which jurisdictions can develop and site green material composting operations, as defined, for processing organic waste, as specified. This bill is pending before the Senate Appropriations Committee.

AB 408 (Wilson, 2023) would enact a new bond act which would, among other things, make $200 million available to CalRecycle for grants to support increased diversion of organics from combustion or landfill disposal to composting facilities, including composting facilities with the capacity to remove glass and plastic contamination from organic waste so that the composted organic waste can be safely applied to agricultural lands. This bill was held on the suspense file in the Assembly Appropriations Committee.

AB 1236 (Lackey, 2019) would have required CalRecycle to prepare a PEIR for organic waste composting facilities on or before January 1, 2023. This bill was held on the suspense file in the Senate Appropriations Committee.

AB 1981 (Limón, Chapter 633, Statutes of 2018) adds the Department of Forestry and Fire Protection (CalFire) to the list of entities CalEPA must coordinate with regarding organic waste diversion policies. This bill also requires CalEPA and CDFA to assess the state’s progress in meeting organic waste diversion goals.

AB 2411 (McCarty, Chapter 238, Statutes of 2018) requires the Department of General Services (DGS) and CalRecycle to maintain specifications for the purchase of compost by the state and allows CalRecycle to develop a program to increase the use of compost products in agriculture applications. This bill also requires CalFire, the Department of Parks and Recreation, and DGS to initiate programs to restore public lands using compost wherever possible.

SB 1383 (Lara, Chapter 395, Statutes of 2016) establishes targets to reduce the amount of organic waste sent to landfills by 50% by 2020 and 75% by 2025.

AB 1045 (Irwin, Chapter 596, Statutes of 2015) directs CalEPA to promote a goal of reducing at least five million metric tons of GHG emissions per year through the development and application of compost on working lands, including agricultural lands.

SB 862 (Committee on Budget and Fiscal Review, Chapter 36, Statutes of 2014) creates loan and grant programs at CalRecycle to promote in-state development of infrastructure to process organics and other recyclable materials into new value-added products. 

AB 1826 (Chesbro, Chapter 727, Statutes of 2014) requires generators of organic waste to arrange for recycling services for that material.

SUGGESTED AMENDMENTS

AMENDMENT 1: Amend Sections 2 and 3 of the bill to replace references to the Department of Conservation with the Department of Food and Agriculture and make other conforming changes.

AMENDMENT 2: Amend Section 1 of the bill as follows:

39719. (b)(5) A) In the 2025–26 fiscal year through the 2035-36 fiscal year, 1 percent of the annual proceeds of the fund per fiscal year, not to exceed one hundred twenty million dollars ($120,000,000) per fiscal year, shall be annually transferred to the California Compost Tax Credit Fund, which is hereby established in the State Treasury, for the following purposes: of this paragraph.

(B) The Department of Conservation shall distribute moneys in the California Compost Tax Credit Fund for the following purposes:

(i) Annually transfer to the General Fund in an amount equal to the amount of (A) To refund the General Fund for the tax revenue lost due to credits claimed pursuant to Sections 17052.9 and 23605 of the Revenue and Taxation Code, as estimated annually by the Department of Finance.

(ii) (B) Notwithstanding Section 13340 of the Government Code, moneys in the fund are hereby continuously appropriated to the Department of Food and Agriculture in the amount necessary to pay refunds to qualified taxpayers pursuant to Sections 17052.9 and 23605 of the Revenue and Taxation Code.

(iii) (C) Notwithstanding Section 13340 of the Government Code, up to 20 percent of moneys in the fund, not to exceed twenty-four million dollars per fiscal year ($24,000,000), is hereby continuously appropriated for composting infrastructure, in coordination with the Department of Resources Recycling and Recovery, or for existing healthy soils programs administered by the Department of Food and Agriculture or the Wildlife Conservation Board the following purposes:

(i) _percent of the funding provided for in this subparagraph to the Department of Resources Recycling and Recovery for the Community Composting for Green Spaces Grant Program of the grant program established pursuant to Section 42999 of the Public Resources Code.

(ii) _percent of the funding provided for in this subparagraph to the Department of Food and Agriculture for the Healthy Soils Program established pursuant to Section 569 of the Food and Agriculture Code.

AMENDMENT 3: Amend Sections 2 and 3 of the bill to replace a reference to the GGRF with the California Compost Tax Credit Fund to pay for refunds under the proposed tax credits.

SUPPORT

California Association of Winegrape Growers (co-sponsor)

People, Land and Food Foundation (co-sponsor)

Almond Alliance of California

California Chamber of Commerce

California Compost Coalition

California Environmental Voters (formerly CLCV)

California Farm Bureau Federation

Californians Against Waste

Family Winemakers of California

Wine Institute

OPPOSITION

None received.

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