Assembly Standing Committee on Revenue and Taxation

All right. Oh okay. I think it's working here. So we're going to go and go ahead and get started. Good afternoon and welcome to the first regular hearing of the Assembly Committee on Revenue and Taxation for the 23 and 24 session. I want to start by welcoming our seven new Members to this Committee. I look forward to working with all of you as we consider bills under our jurisdiction.

Before we take up bills on the agenda today, we will actually not be voting on the Committee rules until one more person walks in, but that's the first thing we'll be doing. I do want to note that we're going to be reinstating a suspense file, and details about this process are spelled out in the Committee rules. And summary bills with a fiscal impact of plus or minus $150,000 will not be eligible immediately after their presentation and instead will be referred to a suspense file.

This will enable the Committee to holistically consider proposals before us and to better prioritize policy changes, which is especially important this year given the projected budget conditions. And luckily, it does look like we have a forum right now. So I am going to ask Ms. Highland to please call the roll.

[Roll call]. We have a quorum.

All right. We have a quorum. And now, hopefully you've all read the Committee rules. I would like to take up the adoption. Do I have a motion and a second? I'll make a motion. All right, we have a motion by Pacheco and who just made. Okay. Second by our co chair. And can we please have the vote?

[Roll call]. We have adopted the rule.

All right, very good. I want to remind everybody in the audience and the members of the public that the Committee is not accepting remote testimony. We are, however, accepting a written testimony through our portal. Please make sure to submit the letters at least one week prior to the Committee hearing in order for them to be reflected in the analysis. Finally, during bill presentations, we will take no more than two primary witnesses in support and two primary witnesses in opposition or with concerns.

These witnesses have two minutes each to provide their testimony. All subsequent witnesses should state their name, their organization, and their position on the Bill only. And with that, we will move to the first item on our agenda, AB 445 by Assembly Member Essayli. Good afternoon.

Good afternoon. Thank you.

Whenever you are ready.

Thank you. Madam Chair and members of the committee, I am pleased to present Assembly Bill 445 dealing with home equity theft. Assembly Bill 445 would require a tax defaulted property be offered for sale by auction before being offered to a nonprofit organization for purchase. This will allow owners who are losing their property because of unpaid taxes the chance to recover any equity they have built up in their home.

In a minority of states, if a property owner fails to pay or underpays their property taxes, the county or lienholder can eventually take the entire property along with the equity for a debt of just a few dollars. Thankfully, California is not one of those states.

However, there is a loophole in current law that allows public agencies, taxing agencies, and nonprofits to enter into an agreement to purchase tax-defaulted property by either submitting a request to purchase or by objecting to the sale of property scheduled for public and or sealed auction. The return of excess proceeds to the homeowner is not required in those cases. Most people do not intentionally fail to pay their taxes. Many people may miscalculate. They get sick or they experience unexpected financial hardship.

For example, low-income households and elderly homeowners on fixed incomes are at much higher risk of becoming delinquent on their property taxes, especially during times of economic uncertainty or when they get really large gas bills, as they did just a couple of months ago. The solution is simple. AB 445 proposes to protect property owners by requiring that tax. Defaulted properties must first be offered for sale by an auction before being offered to a nonprofit organization for purchase.

By doing so, the property owners facing foreclosure due to unpaid taxes will have an opportunity to recover the equity before it's sold. Here with me today to testify in support is Josh Polk with the Pacific Legal Foundation and Scott Kaufman with the Howard Jarvis Taxpayers Association. Thank you.

Good afternoon to the Assembly Committee on Revenue and Taxation. My name is Joshua Polk, and I'm an attorney at the Pacific Legal Foundation, one of the nation's most successful freedom-based litigation firms, and we've been litigating these issues for nearly 50 years, and we're currently working on our 15th, 16th and 17th wins at the US Supreme Court. One of those cases relates directly to the issue that we're talking about today. Equity theft, as described by the assemblyman, is unconstitutional.

Equity is the financial interest that someone has in their home once you've taken account of debt, such as tax debts, and that equity is just as much property as the land or building itself, and as such, the Fifth Amendment to the US Constitution prohibits the taking of this equity without just compensation given to the person from which this property is taken. And to its credit, California protects equity in ordinary tax sales. The default Chapter Seven sales preserves equity. But unfortunately, there is a loophole.

Chapter eight of the tax code allows a government body or public interest group to skip the public auction so there's no equity interest generated and simply purchase the property outright from the taxing agency, at which point they receive absolute title and the original property owner receives nothing. And that is regardless of the amount of the tax debt or how much the property is worth.

Closing this loophole legislatively, as you have the opportunity to do with AB 445 would not subject California counties to additional liability. In fact, it would do the opposite by curbing this wrong to take place in the future. Additionally, the Chapter Eight loophole - addressing the Chapter Eight loophole, excuse me, would also have a minimal impact on county officials because the default mechanism for collecting property taxes is currently constitutionally acceptable.

And ultimately, by eliminating potential equity, theft through the Chapter Eight loophole will make everyone whole, the taxpayers and the government agencies, without running afoul of the Constitution. Thank you very much for the opportunity to testify. I'm happy to answer any questions that you may have.

Thank you. And you're speaking also. Okay.

Hello, I'm Scott Kaufman with the Howard Drivers Taxpayers Association. Everything's pretty much been summed up, so I'll be very brief, and I'm just going to respond to two issues of concern that were put into the staff report. One was to our extension of the one-year claim to two years. I would say, as been mentioned, that people typically don't just stop paying their property taxes. There's a reason: economic hardship. Older homeowners, we see this very regularly.

Older homeowners just start forgetting to pay, or someone falls on hard times, and they can't afford to pay. And so we feel that one year is just simply not enough. That's why we would allow for an extension to a second year. I would say in our original bill, we extended it to five years, which the tax collectors were not thrilled about. So after negotiations with them, we agreed to two years with the tax collectors.

And they have expressed a neutrality on this bill, and should they have any issues, we'd be happy to discuss it with them, but they've told us they're neutral. The second question was of the bill's timing. I would not say that this bill is premature. Should the court rule in favor of the plaintiff in Tyler v. Hennepin at the US Supreme Court, then next year, it will be too late to write this wrong while protecting. Writing this unconstitutional wrong while protecting the state from liability.

I ask for your aye vote at the appropriate time.

All right, thank you. Do we have anybody in opposition? Any witnesses in opposition? Oh, additional witnesses in support? Sorry, no additional witnesses in support. Do we have any witnesses in opposition? All right, no witnesses in opposition. Questions or comments from the committee?

I don't know if I'm allowed to ask a question. I believe it's going to be put in the suspense file, is my understanding. But from our viewpoint, there is no cost, I believe, to the taxpayer in this. In fact, I think it could actually increase tax revenue because the properties will be sold at fair market value, which presumably might generate more revenue for the state. So, I don't know how any of that works. I'm new. I just was going to throw that out there.

Should we take it?

Well, the suspense file essentially implies there's an increase or decrease in revenues.

All right, so according to the consultant, the suspense file is if there is an increase or a decrease in revenue of 150,000. So that's why it would be eligible for the suspense file.

Okay. Yeah, it might increase revenue.

All right. Would you like to make any closing remarks?

No, I just thank the committee for their time and attention.

All right, well, thank you very much. And without objection, this bill will be referred to our suspense file.

Thank you.

Thank you. All right, we have Mr. Gallagher up next. I'm sorry, Ms. Wilson, we're in file order, so hopefully you were sitting so patiently. All right. Up next is file item two, AB 59 by Assemblymember Gallagher. Good afternoon.

Good afternoon.

May begin whenever you're ready.

Well, thank you, Madam Chair. Always a pleasure to be in front of you. And this is an issue that we've seen many times in the last few sessions, but the idea of really finally getting a renter's tax credit here in California, hoping that this will be the year we're able to provide this much needed benefit to renters in California who are struggling. So AB 59 would increase the renters tax credit in California and raise income thresholds to reflect the rising rental prices.

Financial experts recommend that households spend no more than 30% of their income on rent. This ensures that enough money is left over for those other essential expenses. Unexpected or emergency financial burdens and financial planning goals. In California, where almost half of households are rentals, this goal is becoming increasingly difficult to attain. As you all know too well and can imagine, California is home to some of the most expensive rental markets in the country.

Due to the high cost of housing in the state, it is not uncommon for residents to spend a significant portion of their income on housing. For example, in Oakland, where the average monthly rent is $4,430, the annual household income would need to be $177,000 to meet the 30% goal. In fact, more than half of California's renters are cost burdened, spending over 30% of their income on rent. Current law provides a non refundable renters tax credit of $120 for joint filers making $98,440 or less, or $60 for individual filers making $49,220 or less.

Obviously, this is woefully inadequate, so we'd like to remedy that. AB 59 will do just that and raise these income tax credits. So would ask for your support for this measure when you ultimately come for a vote on this.

Thank you. Do you have any witnesses in support?

I do not.

Anybody in the audience in support?

Tony Bui, with the California Apartment Association n support of the bill. Thank you.

Thank you.

Madam Chair Member Samantha Corbin with the California Tax Reform Association. We won't take formal positions until the 15th of this month, so we're almost there. You can hear me say that a couple of times today. Very much agree with the intent of the author that there is a lot of folks in the state who could use some relief, do have concerns about the current construction in the bill as well as overall cost pressures, and look forward to having that conversation. Thank you.

All right. Thank you. Any witnesses in opposition? Questions of the Committee? I have a question. So if you just increase the current amounts by inflation, you're getting a number much lower than the number that you are requesting. Can you explain how you came up with the number you settled on?

Well, inflation adjusted amounts would be approximately $525 and $260. It's far below the proposed increase. Right. So just increasing the credit to inflation adjusted amounts would be insufficient. So that's why we're trying to see if we could do better than that.

Okay.

Obviously, a lot of negotiations going forward. Certainly. And I'll just say we definitely want to work with all the different opposition to try and figure out what is the sweet spot here, I guess. But I think for most renters, we need something much better than what we got. Right

And I think. What is the total General Fund cost? Is it 4 or 5 billion?

I don't have that in front of me right now.

But are you asking for a budget allocation also corresponding to this request?

We will be.

Okay. All right. Well, Mr. Gallagher, would you like to close?

Well, I just like to ask for your support when it comes for a vote. I know you guys aren't voting today, but certainly I think this is a much needed benefit that many of our renters in California need during these times. So I just ask for your aye vote when the time comes.

Really appreciate that. And without objection, this bill will be referred to our suspense file.

Thank you.

Thank you very much. Next up, we have. Sorry, Ms. Wilson. Almost. Mr. Ramos. File item five, AB 46.

And you may begin whenever you are ready.

Thank you, Madam Chair and Members. California currently is the only state to tax the pay of military retirees. AB 46 focuses on our armed services and seeks to extend a state benefit for retired veterans here in the State of California. Additionally, this bill also exempts survivor benefits from being taxed in California. This exemption is to begin upon retirement and will last for 10 years until 2034.

AB 46 focuses on honoring those who dedicated their lives to serving our country, strengthening and attracting a skilled workforce, which in turn strengthens state tax revenue. Today you will be hearing from two witnesses, Steve Vancil, Vice President of the Solano county chapter of the Military Officers Association of America, and Sue Story, whose husband, Dennis, is a Vietnam War veteran who served in the United States Air Force for over 22 years.

Thank you. We'll listen to the first witness.

Assemblymember Ramos, I want to thank you very much for introducing AB 46. This bill is foremost about helping California. It is about increasing our 21st century workforce and filling over 60,000 high skilled vacancies. The United States military is one of the world's most diverse and tech savvy workforces. Active duty service members are stationed here more than any other state. California has most of the assigned military personnel. We have the most to gain by having them stay. Military retirees and their families add to our workforce.

They fill vacancies in healthcare, teaching and childcare. But instead, we are losing military retirees. The problem? We are the only state that fully taxes military federal military retiree pay. California is losing military retirees at an increasing rate now 10 times greater than the general population. I have personally experienced this accelerated loss as an employer who supervised about 60 military retirees and the majority were enlisted retirees. This year, military retiree and service pay will bring in $4.8 billion federal dollars into California's economy.

But Virginia is expected to cross the $7 billion threshold. Texas and Florida are nearing $8 billion of income. Other states are gaining federal dollars at our expense. I'm on a committee that monitors sales tax from my city. I don't believe that the legislative analysis has fully considered the extra added income tax, sales tax, and property taxes from military families that remain in California. This increased local tax from the bill greatly helps our counties and cities. The bill helps our school districts and hospitals.

The solution, AB 46, increases California's overall tax revenue. It improves our workforce and strengthens our communities. The survivor's benefit plan is an important part of this bill for military families. SBP is paid for by the retiree through pay check deductions. And with that, I'd like to introduce Sue Story. My partner, who is a gold star surviving spouse and receives SBP pay. Please hear her story about her military family that stayed in California.

First, I'd like to introduce you to my husband. This is Master Sergeant Dennis Story. My name is Sue Story, a resident of Roseville, California, a surviving spouse of Master Sergeant Dennis Lee story. And I received survivor benefit plan. I am representing the gold star wives of surviving spouses of California. My hero served 22 years, two months, and 13 days. And, yes, we counted every one of them serving in the United States Air Force, being deployed twice, earning him the Vietnam Service Medal.

I also served our country, but I didn't wear a uniform. When Dennis retired at 41 years old from the military, we decided to return to California so that our children could get to know their grandparents and their family here. Family means a lot to us. Soon after returning, I started school to obtain my degree in teaching, and Dennis fulfilled his dream to become a broadcast engineer. He continued working for almost 29 years before Agent Orange took his life.

We paid 8% of his military retirement for over 29 years so that I could receive 55% of his retirement, which is my SBP. When he was sick, I asked him if he had any regrets for volunteering to be deployed. He stated, no regrets. My son in law also joined the army and was deployed to Afghanistan when his service ended. They returned also to California and completed his education to become an occupational therapist.

Currently, he's working in Sunnyville as an occupational therapist in a nursing home, and my daughter became a phlebotomist. We are a family of military members from my grandfather, my father, my husband, son in law, and even my grandchildren. By me receiving my credentials and my husband getting his dream job as a broadcast engineer gave us the opportunity to live near family and enjoy this beautiful state. I pray you consider passing AB 46, and I'm open to any questions you may have. Thank you for the opportunity to speak to you.

Thank you very much for joining us here today. Do we have any other witnesses in support?

Ramona Chavez, US Air Force, 23 years, Alameda County. Please support AB 46.

Nicole Wordelman, on behalf of San Bernardino county in support.

I'm Fred Jaffin, retired naval officer and a resident of a Member of many veterans service organization and also a Committee Member of the Alameda County Veterans Affairs Commission. And I support this bill, and we need to support people that are here that have testified before you. Madam Chairman.

Hello. Melissa Washington, Navy veteran, also married to a retired marine. And also we support AB 46, on behalf of all women veterans who've proudly served here in the State of California, thank you.

Rochelle Arnold. I'm the Sacramento County Veteran Service officer representing the California Association of County Veteran Service officers. I'm also retired Air Force and I support AB 46.

Hi, my name is Regina Spillane. I'm a Navy veteran and I also work for the Veterans Administration and I definitely support this. Thank you.

Good afternoon, chair Members. My name is Seth Reeb with Reeb government relations, representing American Legion, Department of California and Vets, Department of California, California State Commanders, Veterans Council and the Vietnam Veterans of America, California State Council, all in support. Thank you.

George Marsh, Marine Corps Veterans Association. On behalf of the Marine Corps Veterans Association, we support this bill.

Ryan Cox, retired disabled combat vet. I support Steve Jambroni, also disabled veteran, retired, and I support this belt.

Steve Jambroni, also disabled veteran, retired, and I support this bill.

Lynn Snyder, enthusiastically support AB 46 on behalf of all my brothers and sisters in veteran services.

All right, any witnesses in opposition?

Madam Chair and Members, Samantha Corbin with the California Tax Reform Association. Again, we won't have positions out until March 15, but do have concerns about the close to a quarter billion dollar cost pressures on the General Fund over the next three years. Thank you.

Thank you. Do we have any questions from the committee? Comments?

Not a question, just a comment. Today and every day. Just want to thank everyone that is here and thank you for your service.

I had a couple of questions and I'm not sure which of your experts might be able to answer. The first is that my understanding is that most states already offer an exemption. Is that correct or is it all states? All of them.

Every other state offers at least some exemption. 38 states offer full exemption. There are 11 that offer partial exemption, and many of those on partial exemption are on a path to potentially full exemption.

All right. And obviously, I was chair of the Vets Committee before, and I'm very supportive of this bill. You don't have a problem in vets. You don't have a problem in revenue tax. The bill has passed through those committees, but it seems that the roadblock is appropriations. So have you considered maybe this same bill ended in appropriations last year? Have you considered something that might lower the cost but at least get us moving in the right direction, like a partial exemption?

We continue to be in dialogue with appropriations staff and Committee. We think some of the sunset clauses that are there might add to some of that discussion that's there. So we anticipate having further discussions with the Appropriations Committee once we're out of this Committee and well on our way.

Okay. And I would say, the other thing is it's always helpful to try to secure a budget allocation. So we're going to have a lot of pressures on the state budget this year and a lot of uncertainty because of the late collection date. So I would encourage, you know, work all angles to make sure that we can get that this passed in California this year.

Thank you for that advice.

All right, well, thank you very much, Mr. Ramos. Would you like to close?

Thank you, Madam Chair. And thank you to my witnesses who talk from firsthand experience and when the appropriate time would ask for your aye vote in honoring America's veterans.

All right. Without objection, this Bill will be referred to our suspense file. Thank you very much. All right, Mr. Gipson. AB 543. And you may start whenever you're ready.

Thank you very much, Madam Chair and Members. Thank you for allowing me to present Assembly Bill 543, which seeks to extend a long-standing partial tax exemption for marine fuel that has been in effect for the past two decades. Our ports are our economic engine here in the State of California and is essential to our citizens. In my district and across the state, these jobs are essential to families that depends on the wages from these high-paying union jobs.

If the exemption, and I just want to touch bases. If this exemption doesn't go through for this extension, potentially California will lose thousands, thousands of Californians, families could be devastated by this particular effect. This tax structure supports the state's economy, our publicly owned seaport union jobs, and ultimately increase state and local tax revenue. To reinstate this exemption, it is not a hit. And I want to repeat, it is not a hit on our budget.

It actually increases revenues through encouraging continuous, robust sales, which is supported by recent economic studies that have taken place. I also note that I want to let the Committee know I accept the Committee's amendments to help strengthen this Bill. Assembly Bill 543 would extend this exemption for five years. Taxes would still be levied for fuel purchase and consumers and consume in its borders. Additionally, we will work with the Committee to include amendments that will comply to RevenueTax Code Section 41.

With me here today. I don't know where they are. Oh, there they are. I couldn't be a good leader if there's no one following me. So please have a seat and join me. With me are individuals who will self-introduce, the International Organization of Master Mate and Pilot, as well as the Inland Boatmen Union who will self-introduce. And thank you very much for your testimony and support of 543.

Thank you. Good afternoon, Madam Chair. Am I supposed to talk now?

I'm sorry?

Are we supposed to give our.

Oh, yes, please.

Thought maybe I was jumping the gun. Sorry. Good afternoon, Madam Chair, Members of the Committee. My name is JB Davis. I'm here representing the men and women of the Inland Boatmen's Union. Our union is asking you to please support AB 543. The IBU is the marine division of the International Longshore and Warehousmen's Union. IBU members crew workboats up and down the California coast.

The Members of the IBU are hardworking, middle-class people, and some of our jobs depend on the sales and use tax exemption for marine fuels. AB 543 would extend the current sales and use tax exemption for marine fuels purchased in state but consumed by common carriers outside California waters after the vessel's first out-of-state destination. Taxes levied for the fuel purchased and consumed within state boundaries will not be impacted.

Marine fuels is a very competitive market and international in nature, meaning there are many options where ships can fuel. Ships can simply bypass California ports. They can offload and onload cargo and refuel elsewhere, refusing to pay an additional tax of up to 10 and a quarter percent that is not imposed in any other states or countries. Keeping a business in state is a win for both the maritime industry and the state's budget.

For the past three decades, sales and use taxes have not been imposed, with two limited and damaging exceptions, in 1991 and 2003. When the exemptions were allowed to expire in 2003, state and local government revenues fell by over $11 million. The resulting steep decline in fuel sales resulted in heavy job losses. When the exemption was reinstated, the next legislative session, the industry rebounded and the jobs came back.

In order to stave off the loss of good middle-class jobs, the IBU again asks you to please support AB 543.

Thank you. Next speaker.

Thank you, Madam Chair, and thank you, everybody here. And first, I just want to thank everybody here for their service to our great state. I really appreciate it and thanks for the opportunity to speak here today. My name is Antonio Malfitano, and I am a union representative with the International Organization of Master Mates and Pilots, United Inland Group, Pacific Maritime region. It's a separate division from our international group that primarily focuses on inland work, tug, and barge companies.

We represent about 500 professional U.S. merchant mariners up and down the coast of California, ranging from, about 500 members in California alone, ranging from deckhands all the way up to captains. So I am here today in support of extending the marine fuel tax exemption in California and to give testimony on my personal experience of this critical Bill and the devastating impact it had and will have within the industry and to our surrounding communities if the marine fuel tax is not extended or eliminated entirely. Quick.

Really quick. Not to waste anybody's time. I was born and raised in this beautiful State of California. I'm a proud Angelino, born and raised in a small town called San Pedro, District 15, and where still to this day I reside. And San Pedro is a small town on the waterfront of LA that was built on the backbone of the many hardworking men and women who immigrated over from all parts of the world to work in the fishing and maritime industries.

Many came over with nothing but a dream and a desire to provide for their families. And still to this day, you will find these relatives and these relatives of these settlers who continue to work within these ports, myself being one of them. The impact on the community when the marine fuel tax was not extended was a nightmare for our community. Vessels ceased to come to the poor bunkering, causing a huge spiral to the bottom.

And many of these mariners were laid off and had nowhere else to turn to. The other companies that were facing the same dilemma. So there was really nowhere for them to go because these other companies were facing either closures or layoff as well. And with the decline in bunkering with oil refineries and other such positions, there was vast employment there, either. So they were just stuck with nowhere to go. And living in the area, the rumors and talks that flooded the community was very overwhelming.

Stories of marriages and relationships that were struggling that eventually led to divorce. People lost their homes and children were torn away from their friends and their relatives, taken out of private schools. It was just devastating and just crushed our community. It was horrible. And as of today, the impact of this tax bill can still be felt by many in our communities. And it is my opinion that we have yet to see it ever recover. It has yet to recover.

And these stories of this time in my life, when you're in the wheelhouses and around you, it sounds like an old town fable of, like, the ghost that comes out every five years. And it's like an old story and the horror story that we hear. And I'm here today to just say, it's up to us people and surrounding people. We got to put this ghost back in the grave. That's what we got to do.

So I'm here in support of extending or permanently removing the fuel tax exempt. I'm in support of AB 543. And I thank you for your time, and God bless. Thank you.

All right, thank you. Do we have any other speakers in support?

Madam Chair Members Andrew Antwih with Shaw Yoder Antwih Schmelzer and Lange. On behalf of the Pacific Merchant Shipping Association, we support.

Tobias Wilkin with the California Taxpayers Association in support of the Bill also.

All right. Thank you. Do we have any witnesses in opposition? Right. Can you state, or does anybody know how other states tax bunker fuel?

To my knowledge, they don't.

They don't. And do other states have tax incentives? The story you're telling is it makes a very good argument for continuing this, obviously, because we don't want the refueling to go to other states. So that's really our other states trying to attract this business was really my.

Oh, absolutely. Absolutely.

Madam Chair and Members, our client, PMSA, commissioned the economic study that the author referred to. And to our knowledge, there's no other states that impose this tax or have an exemption this way that serves as an incentive. And ships basically have software that allows them to bypass locations where, if they're, where they're fueled, they would pay the higher tax. And it's just a matter of planning your course.

So they would just avoid these ports and these bursts and kind of use their large reserves of fuel to hit another destination that has a lower tax rate.

Right. We have a question from Ms. Petrie-Norris.

Thank you, Madam Chair. And someone, I think, kind of picking up on the train of thought that you had begun. There's been a high and, I think, increasing level of scrutiny on our tax expenditure policies as the state. We had a hearing, the chair convened a hearing a couple of weeks ago on this, and as you may be aware, there's billions and billions and billions of dollars in various tax credits, tax expenditures.

Some of them certainly seem important for incentivizing behavior that we want to see and in encouraging economic growth. And then some of them seem like they're kind of giveaways, right?

And it's the job of this Committee to distinguish between the two. I think that the arguments that you made in your remarks were very compelling. I think it would be really helpful if the Committee, and perhaps we've gotten it and I just haven't seen it. I think if we could see that additional analysis, I think that would also be helpful because I know in the Committee analysis it says that CDTFA anticipates a revenue loss, a modest one, but a revenue loss.

I think if that's just a partial analysis, it's really important for us to be able to elevate the work that you've done so that we can have an integrated picture of the economic impact as we are weighing this against other potential tax expenditures and credits.

Sure. If it pleases the Committee, we'll be more than happy to get that research and submit it to each one of your offices. If there's any follow-up, please don't hesitate to reach out.

Great. Thank you.

You're very welcome.

All right, any other comments or questions from the Committee? Mr. Gibson, you may wrap it up.

Again, thank you very much for allowing me to even present this Bill, Assembly Bill 543. We think this is a good policy moving forward, as the witness has already articulated. The ghosts. I chair the Select Committee on the ports, and certainly, the ports is California's economic engine, and we have great partners. We want to make sure that we don't lose any ability to continue to keep California as a fourth-world economy.

And by doing this partial tax exemption, extending the sunset to it, we believe that it helps California and it also keeps people moving forward in this area. And I'm just going to close on this note. Former state Senator Phineas Banning. Communities are named after Phineas Banning, who's responsible for the port of Los Angeles.

And so I don't know if he was referring to him as being a ghost because he's been dead a long time, but nonetheless, this is something that I really believe that the Committee, and really love the Committee to support it when the time comes. So thank you very much for allowing me to present this Bill.

All right, thank you. And with that objection, this bill will be referred to our suspense file. We are now at file item four, AB 514. Mr. Joe Patterson.

Thank you very much. The AC is not working. It's going to be hot summers in here, I suppose, once the party gets started. Good afternoon, Madam Chair and Members. Happy Monday. AB 514 will provide for an annual income refundable income tax credit of $1500 to individuals who adopt retired police dogs and that have served for a particular length of time. First, I'd like to point out the nice analysis pointed out a couple of things that I wanted to say I'd be happy to take.

One is that to ensure the credit doesn't exceed the tax liability of the person claiming the credit, and then also happy to limit the credit to dogs that serve California agencies. Prior to joining the California State Assembly, I served six years as the treasurer of the Rockland Public Safety foundation. And as a part of that, we purchased canines for the Rockland City of Rockland, which eventually once goes to the Rockland Police Department.

And when we were doing that, we really considered the whole life of the canine. And to my surprise. A lot of agencies choose not to have canines because it's not just the training and the expense and things like that, but once the dog is done with service, obviously they want to make sure that somebody can adopt the dog and its life will continue beyond that.

And as you can imagine, the rigorous training, actually, I was kind of surprised with the amount of training that these canines go through. And it's rigorous. And once they get out of their service, the expense of the medical bills and the food and things like that, it's not uncommon. And actually, it's quite common for the bills to be $3,000 for surgery, $500 a month for food, up to. But I mean, really, we're talking about $250 a month for food and things like that.

And so we really want to incentivize departments to use these non lethal tools to help, obviously, find people. We found missing people with our canines, and we don't want to be a hindrance as a state. So I want to mention, too, that this bill is extremely limited. It's only for a five year period, and that if the data doesn't back it up, obviously we wouldn't continue to do it. But one of the biggest benefits, it's one of the cheapest pieces of legislation that you'll consider today.

So we should just go ahead and move it past the suspense file and right on to the next committee. And with that, I happy to take any questions.

All right. Do you have any additional witnesses?

Well, I was actually going to bring somebody with a canine, but knew that this was going right to suspense, although I'm advocating for it not to.

Well, I have some people lined up to speak in support.

Well, there's one supporter.

There's one supporter. He's a familiar one, usually not in this committee, though.

I think this was broken when I got here. Madam Chair. Madam Chair, Corey Salzillo, on behalf of the California State Sheriff's Association, happy to be here in support of the bill. Thank you.

Thank you. All right.

Samantha Corbin with the California Tax Reform Association. So nice to see you in Committee, Assembly Member. I'll be sure once after March 15 we develop our position to tweet it at you. We do have concerns about the construction of the measure as well as its utility. We'll be following up after that time. Thank you.

Thank you.

She's canceled.

Do we have any more witnesses in opposition? All right. Questions or comments from the committee? Ms. Baines.

Just a question. What determines retirement of a police dog?

Well, the bill has, based on the length of time? That's a good question. Our agency had a policy based on actually when medical bills got so expensive, but they usually range for about three to five years that they will have them. But I believe it's up to every agency to make that determination between agents. It is. And we would purchase a new dog about every five years for the police permit.

Does the dog decide or do we decide?

Well, yeah, no, the dog will definitely tell you when it's ready to retire. Thank you.

All right. Mr. Patterson, would you like to close? Oh, I'm sorry. Assemblymember Petrie-Norris.

Thank you, Madam Chair. So I just wanted to pull, it's a question that the Committee analysis raised as well, which is whether this is an incentive or a reward. So again, with any kind of tax incentive, there's always a problem of kind of. It's the free writer problem. Right. So, like, how many of these people would have done x in the absence of that incentive? And is the incentive enough to actually get the behavior that you want? Is it just a free rider situation?

So I guess. What are your thoughts on that? It seems like these dogs are already getting adopted. So is this an incentive or is this a reward?

Well, fortunately, I read the analysis. Yeah, we consider that. I think, as the analysis points out, the vast majority of these canines are adopted by their handler once they're done with their service. But as I indicated earlier, is that some agencies are choosing not to get canines in the first place because of who's going to want to adopt it and accumulate that expense once the canine is done with its service.

Because when they're done with their service, they're not the young dog puppy that they used to be. They are older. They are often experiencing, especially because the type of breeds, hip dysplasia and things like that, it's more of to incentivize cities to get it in the first place because the people who will adopt them will get this credit, and then it'll make people feel more comfortable to get it.

I do actually think $1,500 credit is pretty substantial to consider getting these docs and feeling more comfort level to adopt them once they're out of service.

So you are saying that insufficient pool of willing adopters is one of the challenges?

Okay.

Absolutely.

So I have a question, and as a dog owner, I know we all get attached to our dogs, and I know with officers they get attached also with their canines. And I know you mentioned typically when a canine retires, it's typically their handler that will then take ownership of the dog.

Yeah.

So my question is, are we seeing a high rate of dogs on which the handler does not want to take ownership, or are we seeing a situation where now dogs are being placed in another home or in shelter? Do we have any data as to that?

Well, thank you for asking that question. Again. I think you're right that the majority of the dogs are adopted by the handler at the end of the day, but we want to make sure that dogs are actually becoming of service for police departments in the first place. Of course, I don't have data on what cities are choosing not to have canines or a lesser amount of canines because people aren't adopting the dogs. Sort of the opportunity cost of not being able to adopt after the fact.

But I'll tell you just from my experience, again, having been through three of these purchases in the past, we definitely would consider the ability of somebody to actually adopt the dog before we went out and purchased one, because it is a lifelong commitment, as you know, for having a dog. And if an agency, especially a smaller agency, is unable to fulfill that commitment, they're not going to get a dog in the first place.

Thank you. All right, well, thank you so much. And without objection, we are going to be.

I object. I'm just going to close.

Oh, I'm sorry, you get to close so you could try to talk me into. It's still going on. This is suspenseful, but please feel free.

Well, thank you very much. I appreciate. I just ask that you don't make me owe for two on my bills out of committee. So with that, once it gets off suspense, that's what I'm rooting for. Thank you.

Thank you, Patterson.

All right. Without objection. zero, yeah, without objection. Go to suspense. All right. And we have the very patient Assemblymember Wilson up next, file item six, AB 321. You may start whenever you're ready.

Well, good afternoon, Madam Chair and Members. It is a pleasure to be before this Committee. This is my first time before Rev. and Tax.

I am pleased to present AB 321 which will establish a new exemption from the state portion of the self and use tax for the purchase of zero emission ferries by public transit agencies such as Long Beach Transit, WETA, and Golden Gate Ferry through 2029, after the committee amendments. And thank you for those. This will reduce the cost to deploy zero emission ferries and to help them comply with California Air Resources Board, affectionately known as CARB, Commercial Harbor Craft regulation, also known as CHC.

CARB recently approved amendments to CHC regulations that require public transit agencies to deploy zero emission ferries by 2026 when California's public transit ferry operators face impending impeding transit operation funding shortfalls due to the pandemic's impact on partnerships. This bill would provide capital outlay cost savings, allowing additional funding to be maintained for transit operations.

Exempting zero emission ferries purchased by public agencies from state sales and use tax is estimated to save California public transit ferry operators millions of dollars, and it will help us reach California's greenhouse gas reduction goals. My witness, Lauren Galardi with the Water Emergency Transportation Authority, which I referred to as WETA before, is here to provide testimony.

Good afternoon, chair Irwin and Committee Members. My name is Lauren Galardi from the San Francisco Bay Area Water Emergency Transportation Authority. I call it WETA because it's too long.

We operate San Francisco Bay ferry services. We're a public regional public transit agency tasked with operating and expanding ferry service in the San Francisco Bay and also for coordinating the water transit response to regional emergencies. We carry over 3 million passengers annually utilizing a fleet of 16 high speed passenger only vessels, and we currently serve the cities of Alameda, Oakland, Richmond, San Francisco, South San Francisco and Vallejo.

We are a co-sponsor of AB 321 and I join you today to urge your support for this important bill. This proposed tax sales tax exemption would assist the state's public ferry operators in transitioning to zero emission technology and reduce the cost to comply with CARB's commercial harbor craft regulations.

For background CARB's recent amendments to the CHC regulations went into effect on January 1 of this year, and they require that short run ferries, which are routes under three nautical miles, be 100% zero emissions starting January 1st, 2026. In addition, they also require ferries to upgrade to tier four engines as well as installation of a diesel particulate filter.

This will be a costly transition for public agencies and will require additional state support to achieve to achieve, excuse me, there are currently three public transit ferry operators in the state impacted by these CHC regulations and by this bill, with a total of 27 vessels. Long Beach Transit has four vessels, WETA has 16 vessels, and Golden Gate ferry has seven vessels.

As these agencies develop plans to comply with CARB CHC regulations, exempting zero emission vessels from the state sales tax will save precious public funds and incentivize operators to choose a zero emission pathway at an accelerated rate, pushing the maritime industry to advance this technology. WETA currently has an aggressive schedule to transition to zero emissions, with 90 emission vessels scheduled for delivery between FY 26 and FY 33.

If this bill was approved the estimated savings for WETA would be in the range of nine to $10 million over that time frame. These savings could be used to purchase additional zero emission vessels to provide even greater emission reductions for the state in 2019 and 2022. Similar bills, AB 784 and AB 2622 were passed to provide public transit bus operators with this same sales tax exemption for the purchase of zero emission buses.

Through this bill, WETA is proposing to make this same benefit available for public transit ferry operators. Again, I urge your support for AB 321. At the appropriate time. Thank you for your consideration, and I'm happy to answer any questions. Thank you.

Good afternoon, it's Steve Wallach. I'm after the Golden Gate Bridge Highway Transportation District, also in support of this bill. Golden Gate Bridge also operates ferries as well as bus service between Marino and Sonoma and San Francisco. Several years ago, the Air Resources Board passed the innovative clean transit rule that required all transit buses to convert to zero emission by certain deadlines. Just this year, with the passage of the enactment of the commercial harbor craft rule, we're also required to transition our ferries.

In order to do that, it takes multiple funding sources. It's not just done with federal funds or TRSP funds and LC top funds, but it's a combination of all those. This bill is one of those pieces that are critical to that, much like with the buses, the exemption that's in place for that, it helps piece that money that funds together in order to meet those mandates. And this is another piece of that effort to try and finance those cleaner technologies.

All right. Thank you very much. Do we have any other witnesses support?

Thank you.

Hello, Michaela Elder, on behalf of Cal Start with EEC. Also in strong support of Assemblymember Wilson's Bill. Thank you.

All right, do we have any witnesses in opposition, in questions or comments from the Committee? All right then, Ms. Wilson. Assembly Member.

Somebody has to jump in for Bell. Quirk. We missed Bell.

Okay.

I just want to ask a question that's raised pretty pointedly, I think, in the analysis. So the analysis notes that the Administration of partial SUT exemptions can be very complicated and often kind of just fraught and riddled with errors, I believe, okay.

The analysis states the state could increase the allocation to the STA program by an amount equivalent to the revenue loss associated with this exemption, which would fulfill the goal of this Bill to help with the increased cost to eligible operators resulting from the CHC regulations without further complicating Administration, because it's really sort of more of a subsidy than it is an incentive. So there's different ways in which you could implement it.

So why would we take the SUT exemption approach rather than approaching it in that way which might be less apt to be riddled with errors?

The state Trans assistance formula is a formula allocation to all transit operators. So if you took the amount of money that this Bill would maybe cost, that would benefit the transit operators and increase STA allocation by that amount, it's going to get proportionally allocated to all operators, not just ferry operators. So we just get a small piece of that. While, yes, transit operators across the state need operating funds. And I would definitely encourage you to increase that amount.

This is not a way to kind of get to that incentive for offsetting the cost of zero mission ferries. You'd have to increase it by five times as much in order to get the same benefit. I mean just five times off the top of my head, but it would be significantly more because it's allocated by formula each region, each operator gets a share of STA that goes out by population, and a half of it goes out by fairbox, by ridership.

And so Sac RT would get a piece of that. You know, everybody-

Cut it. Yeah, and I don't know enough about STA, so it's not granular enough, you're saying, to administer the program in the way that you would.

No, it would not target the three operators with the 27 varies. It would not do that. Would not. Would do that. So it would be an allocation. They would receive a portion of the allocation, but the intention is particularly for these zero emission vessels to have the same incentive, so to speak, or same subsidy that the buses, the current buses, zero emission buses to.

Wouldn't you be able to direct a budget allocation just to these ferries?

We did do a budget allocation as well.

Okay, thank you. Anybody else? All right. Well, thank you very much. And without. zero, yes. You've been waiting so long all afternoon. I'm sure you would like to make a closing statement, too.

I recognize that. And thank you for the advanced notification of it. Going to suspense. And that is the order of the day. But just noting when it does come out for a decision, we would hope that there'd be an aye vote from the Committee. We think this is really important, not only in support of these ferries, but also in support of our climate goals.

All right, thank you very much, Ms. Wilson. And without objection, this Bill will be referred to suspense. And now our final agenda, item seven. And this is AB 314 by Assemblymember Patterson. And we will be having a vote at the end of this presentation, so don't leave yet, or you'll have to come back.

And you'll miss the opportunity of making this unanimous. Thank you, Madam Chair Members. First, I am accepting the Committee's amendments. Do appreciate the Committee and staff working with us on these technical clarifications. It does help the Bill, AB 3114, is extending the sunset for five years on a sales and use tax exemption that allows commercial trucks and trailers to be purchased from California dealers tax free without additional burdensome requirements.

And it also brings parity to the law by simply clarifying that used trailers also qualify for this provision, in addition to new and remanufactured trailers. So when I brought the original Bill, AB 321, before the Committee in 2019, for a commercial truck purchased in California to qualify as interstate commerce for tax purposes, it had to meet two qualifications.

It must be out of the state more than 51% of the time, and the vehicle must make its initial trip with a load into the state, even if it was purchased in California. Mandating this unnecessary inbound trip requirement increased traffic congestion, pollution, wear and tear on the roads, and it did discourage buyers from purchasing their commercial trucks in California. AB 3114 ensures now that both commercial trucks and trailers will continue to be exempt from the inbound trip requirement.

Chris Shimoda with the California Trucking Association is here to testify in support. Thank you.

Good afternoon, chair Irwin and Committee Members. Chris Shimoda with the California Trucking Association. So, as the Assembly Member stated, equipment purchased for use in interstate commerce has long been exempt from sales and use tax, but required that the equipment first be used out of state. In 2019, AB 321 repealed the out of state first use requirement for new trucks, which has reduced unnecessary out of state shipments by truck dealers in the associated fuel, greenhouse gases and roadware.

This provision sunsets next year the Legislative Analyst, as noted in the Committee analysis, was tasked with assessing the provision's impact and found that it could not quantify any fiscal impact associated with AB 321. If the sunset were to lapse, no additional tax revenue would accrue to the state or local government, as out of state shipments would simply resume. AB 314 extends this sunset provision to 2029 and would add use trailers to the section as new trailers are already exempt from the first use requirement.

AB 314 will benefit air quality, reduce congestion by reducing unnecessary truck trips by dealers, and keep California's truck dealers competitive in an increasingly difficult operating environment. For example, starting next year, for the first time in over 30 years, California will enforce a California only emission standard for new trucks sold in the state, which will put our truck dealerships at a great competitive disadvantage versus dealers in neighboring states. For these reasons, we are proud to support AB 314 and thank Assemblymember Patterson for his continued leadership.

All right, thank you. Do we have any other witnesses in support? We've emptied out the room. Witnesses in opposition. Questions or comments from the Committee? All right, Mr. Valencia, thank you.

Mr. Patterson, thank you for bringing this Bill forward. Do we have a sense, and I know it states in the information that the LEO will track these moving forward, but do we have a sense historically of how many used trailers and semi trailers or have been historically sold in California?

I do not have those statistics now.

So no sense of what it's been like on an annual basis prior to this.

I can give you an example of what the Bill has done to make California truck dealers more competitive, and we are actually seeing increased sales as a result. This original Bill was brought to me by the Fresno Truck center. This is one of the largest truck dealerships in the State of California, and the bottom line here is, as has been stated, the value in the Bill is that it reduces the air quality, the wear and tear on the roads saves both buyers and dealers time when purchasing or selling commercial vehicles, and it has demonstrated improved competitiveness for California truck dealers in particular, and I have personal knowledge of it in Fresno.

The family that owns the company are friends of mine and actually brought the idea to me at the time. It has worked well and asking for your aye vote.

Wonderful. Thank you. And just one more question. So then let's say, just for example's sake, a new trailer is sold, then resold in California as a used trailer. It would be exempt twice because it's purchased new and then purchased used again in California.

Correct.

Thank you. All right, we are going to be voting on this today because the impact is less than $150,000. So do you agree to the amendment?

Yes, absolutely.

And then generally, we do like to have an LAO report to quantify how successful the Bill is, but there was difficulty. The LAO did have difficulty quantifying what was happening with this. So certainly I don't think that we need to go through that effort again. So we are also recommending that there's no requirement for an LAO report the next time. All right, well, would you like to close?

Mr. Patterson, I respectfully ask for your aye vote. And by the way, I will be glad to provide some direct information with respect to Fresno truck center and how before the Bill and after the Bill improved their competitiveness and also brought the reductions in the air pollution and the trip miles and all of that. And so ask for your aye vote and thank you.

All right. Yes. And I will be recommending an aye vote. So do I have a motion? In a second. So that was a motion by Assemblymember Grayson and a second by. Oh, you know, the three of you over there. I couldn't hear. All right. Assemblymember Ta. And a second by. Assemblymember Petrie-Norris. Can I have the vote, please? And the motion. I'm sorry. Is do pass as amended to appropriations on AB 314.

[Roll Call]

All right, motion passes nine to zero. Thank you, everybody. All right. And we will hold the roll open for five minutes for add ons.

You can, but it's not recorded anywhere, so if you'd like to be on the Committee rules for add on. Grayson.

Would you like to add on for the rules? Yes. All right.

On the Committee rules. [Roll Call]

[chatter]

Excuse me. Item number seven, AB 3114. The motion is do pass submitted to appropriations. The Bill has passed. [Roll Call]

That's it? Yes. Everything else is on suspense.

All right. And our last Committee Member, the co chair, is here.

On AB 314. The Bill has passed its do pass, as amended to appropriations. Wallace, aye.

Committee rules? He was here. He was here. All right, so that's it.

Okay. And with that, this Committee meeting is adjourned.