Senate Standing Committee on Revenue and Taxation

The Committee on revenue and taxation will now come to order. We don't have a quorum quite yet, so we will have to begin as a subcommittee. And we have one of our presenters here ready to go. Senator Grove, would you like to begin your presentation?

Thank you, Mister Chair. Good morning, Mister Chair and Members. Senate bill twelve seventy seven establishes the California cost of living tax credit to help Californians cope with the state's persistently high cost of living. This tax credit is modeled after the sex a successful 2022 middle class tax refund, which provided direct relief to millions of Californians facing similar economic impacts. California residents are facing, a high cost of living crisis unlike anywhere in the nation.

California currently has the highest poverty rate in the nation at 20.4%, which is roughly means that 7,000,000 Californians are struggling to make ends meet. At the same time, the state ranks last in housing affordability, with the median home prices more than two and a half times the national average and rental costs more than 50% higher than the rest of the country.

In addition, Californias Californians pay the highest gas taxes in the nation, often paying 50 to 60¢ more per gallon in the state, in the state gas taxes alone compared to drivers in other states. Energy cost, are also raising, rising rapidly. According to the UC Berkeley's, Haas Energy Institute, electricity bills have increased nearly 40% over the last six years, with rates amongst the highest in the country.

The result is that many of individuals that call California their home have a California premium added to the cost of simply living in this state. Recent estimates show that the typical middle class family earning a $130,000 per year faces nearly $30,000 in additional annual cost compared to the national average. SB 1277 provides relief through a tax credit designed to offset the cost pressures that families are experiencing every day.

By delivering income based graduated support, this tax credit ensures that this assistance is directed to those that need it most. Importantly, this is an, an an efficient mechanism to provide broad based relief without creating new ongoing state programs.

Programs.

I apologize.

At a time when inflation and state specific costs continue to outpace, wage growth, this bills bill offers a practical and immediate way to support financial stability for millions of Californians. In my district and across the state, families are making difficult decisions, cutting back on essentials, delaying major purchases, and in some cases, considering leaving California altogether. In my district, people make choices between buying diapers or putting gas in their car to get to work.

SB1277 may not solve every affordability challenge that we face, but it's a meaningful step forward to easing the burden and helping Californians stay afloat increasingly in an increasingly expensive state. With me here to support SB1277 is Lance Christensen, the vice president of governmental affairs for the California Policy Center.

Let me interrupt for a minute to take a quorum call.

Absolutely, sir.

Would the secretary call the roll?

[Roll call]

Chair Members of the Committee, thank you for letting me be here. Lance Christensen, the California Policy Center. We're pleased to support SB1277. California Policy Center doesn't often wait into tax credit legislation. We're often focused on structural reform and reducing regulatory burden that drives up the cost for every Californian.

And all of you have been in the government long enough to know how hard this is. But SB1277 speaks to something we can all agree on, that families are being crushed by the cost of living in a state and they deserve relief and they deserve it now. California is the nation's highest supplemental poverty rate at 17.7%, meaning that nearly 7,000,000 of our neighbors are living in poverty, 5% above the national average.

A 2025 PPIC poll found that 51% of California's reported financial hardships due to rising prices among those earning less than $40,000 a year, and that number rises to 80%. On the price of gas, you all know this, you filled up recently.

Californians pay the highest price in gas, even as we have some of the biggest reserves in the nation Then we tax our fuel taxes. It's also backwards. These are not abstractions. These are working mothers and fathers, seniors on fixed incomes, and young families stretch to the breaking point that show up to our schools, our churches, and our food banks.

UC Berkeley's Policy Lab continues to accelerate this narrative that residents who left often as a last resort simply did because they could no longer afford to be here.

The people that can't leave are the ones that are most vulnerable, most in need, and most deserving of our action. In fact, a recent study showed that thirty per seven thirty seven percent of eighteen to thirty four year olds in the state are still living at home in California because they can't afford to live anywhere else in the state. Our estate also shows that from 2012 to 2023, California has lost over $382,000,000,000 of wealth that's from other states.

That's not counting the wealth that's moving out because of the recent proposal to tax that wealth. I'd like to fix all the problems in the state, the regulatory ones, the fees, the taxes, the unburden costs.

But SB1277 puts direct graduated relief into the hands of Californians who need it most and at that point I'm happy to answer any questions.

I think the witness and I'm gonna call up any additional witnesses in favor of this bill. I'm also going to, excuse myself, to present another committee and hand the gavel over to Vice Chair, Alvarado-Gill.

Thank you so much. We'll now open up for public comment of those who want to speak in support of this bill. Please, your name, your affiliation, and your position, please.

Clifton Wilson on behalf of the Fresno County Board of Supervisors, and then also on behalf of Tulare County Supervisors, Larry McCary and then Amy Shook, Lien, both in support. Thank you.

Thank you so much. Any other members of the public wishing to speak in support? Okay. Seeing none, I'd like to invite any witnesses in opposition to this bill to come forward, please. Thank you so much.

We'll ask for your name, your organization, and you have two minutes to present.

Good morning. Danny Kando-Kaiser on behalf of the California Tax Reform Association in respectful opposition to SB1277. California already has a very progressive income tax and provides credits for children, which allows many working families to remain off the income tax rolls. The brackets are also adjusted for inflation, so the income tax already has a built in cost of living adjustment and already provides the tax relief this bill calls for.

Historically, refundable credits have been difficult for the FTB to monitor since the payout of dollars encourages gaming of the tax system.

This bill will be extremely costly to the general fund and does not provide significant relief for the cost of living which the author is seeking. We respectfully ask for a no vote.

Thank you so much. Any other witnesses wishing to present? Okay. Alright. I'll now ask for members of the public that would like to come forward and show their, opposition to this bill your name, affiliation, and your position, please.

Michelle Warshaw, on behalf of the California Teachers Association, in respectful opposition.

Thank you.

Good morning. Gina Whipple, on behalf of CTA. Opposition.

Thank you.

Paula Merrigan, a constituent of Senator Grayson, and I also stand in opposition.

Alright. Thank you.

My name is Jen Drewick. I teach freshman seminar at Woodland High School in Yolo County and I rise in opposition. I'm a member of the California Teachers Association.

Thank you.

Anna Cordero, United States History teacher in San Luis Obispo, also a CTA member in opposition.

Thank you.

Sara Espinosa, transitional kindergarten teacher on behalf of California Teachers Association. I also rise in opposition.

Thank you.

Kevin Kung, chemistry teacher, Palisades Charter High School, member of California Teachers Association, also in opposition.

Thank you.

Jay Mason, teacher in Campbell, California, member of CTA, in opposition.

Thank you. Public wishing to speak in opposition, please come forward. Seeing and hearing none, we'll bring the questions to the committee. Committee members, questions? Senator Grace, Senator Grayson, please.

Thank you, Madam Chair. And, the author to be commended for always representing in a very vigorous way constituents and all those that are in California. Thank you for your effort here, a valiant effort, to try to provide relief at a time that, is of most importance. Every household is looking desperately for ways to save money. I look at this and I see the cost of it, but then I also look at the benefit of it and I try to weigh the two.

And I'm really trying to find I'm I've had a hard time being able to reconcile between the benefit versus the cost. And of all the people, I would thoroughly invite in a time for us to be able to get together and actually talk about tax reform in California. We all know we have a very volatile tax in California.

And I think one of the things that's hardest hit by this, and I've learned this the hard way by running my own tax credit bill, was that the ones that are hit hardest are the ones that we care about the most, and that is our schools.

And so I think, for me, it's gonna be very difficult today to support this in committee because because of the fact that I'm still trying to work through trying to reconcile how the cost and the benefit weigh out and become even.

But I do commend you for this value effort to try to provide relief, more relief to Californians, much needed relief, and, would be thoroughly, thrilled to have an opportunity to work with you moving on in the future on some, tax reforms.

Thank you, sir.

Thank you so much.

Okay. Alright. Senator?

Sure. Thank you. I I too wanna thank you for bringing this up in the these are exactly discussions we should be having. And as you know, you know, we we we are you know, a lot

of our work here is tackling, you know, some of the major issues that you raised in that you raised housing, costs, energy costs, insurance costs. I've got an insurance committee later today. We had a passive, you know, big utility rate reform bill last year, but I have another big one this year. There's still a lot of work to do on on a lot of these areas.

And, yeah, appreciate you very much representing folks in your community and and really folks across the state, you know, who who are suffering right now.

You know, I do and I'm happy to engage in in some broader conversation about tax reform as well. I I do appreciate some of the comments that were made here, you know, by the opposition in the sense of, you know, we do have a very progressive tax system as was mentioned. We have things like the child credit. We do have my favorite, the earned income tax credit.

I think there's some good discussion in the analysis, which also raised some kind of questions about the mechanism, you know, potential mechanism in this bill, about the earning income tax credit, folks who don't claim their earning income tax credit, and how can we it's sort of been a focus of of my work and some others, you know, how do we get more people to to to take that up because that was really that is something that's meant to address people who are working and, you know, but might not qualify for some of the the some programs, but, you know, they're they're working to make sure enough, but this is the earning income tax credit.

It's a a way to get them give them a leg up. And I think this raises the point that, number one, we have to do better job of promoting that. And number two, but it does raise some questions, I think, about the mechanisms in in here. I mean, what we did have budget surpluses, we did move forward and give a refund.

I think, you know, we learned some stuff in that process, but that was also, I think, somewhat problematic in terms of, the mechanism and did people recognize, the card and and understand, you know, the, you know, what the process was and that this was not a spam email, that this was something that was actually valued or mailed that this something they should open and and use in cash.

So I, I, I again and I, I, I will also just echo the last concerns also around our schools. So much of our budget does go to education and when we we're at a point now where, you know, hopefully, the budget with some additional tax revenues, you know, can get close to to balance this year without major cuts, but we're not in a position right now where we can do something like this without, without some other major cuts in other places.

So, you know, I too will probably have a difficult time supporting it today, but I do appreciate, you raising it in the discussion.

Thank you, sir.

Senator Grove, I wanna thank you for bringing this forward. According to your bill, you state that Californians are working harder than ever, yet many are falling behind simply because the cost of living continues to rise. I mean, nothing more simpler than that statement, and I don't think anybody in this room could refute that. I think we are feeling it at home, in our communities. We're seeing it in our local governments.

We even see it here at the state level. I am baffled right now why we have opposition to this bill. This is not a bill that creates a new program or a bureaucracy. It simply is returning money, a portion of taxpayer dollars to individuals to help offset that very cost pressure that organizations regularly emphasize. So I I I need help to understand the opposition from from our teachers in the room, and thank you for being here because this helps us have a very healthy debate.

Opposing this measure really I mean, it's intended to provide broad based refundable tax relief to Californians struggling with state's high cost of living. Now, I'm a an educator myself and I will tell you right now, educators are the most underpaid, undervalued, and increasingly cost burdened group of individuals in California. And God bless you that you have not given up on our pub public education system. But I'm baffled that you would oppose this bill knowing that many of your members themselves would benefit from this bill.

High cost regions where housing, transportation, and basic necessities continue to rise.

We don't refute this. We don't refute that this is happening right now in our state. At the same time, where we have clear exposure to the rampant fraud in California from our own state controller's office. One of the California top communication officials just admitted to that audits are not being done in California. Constituents have trusted us with stewards of taxpayer dollars, but yet the our own comptroller's office admits that a 100% fraud exists.

So if we're going to lower the cost of living and you're going to oppose a bill that helps taxpayer relief, then by God, help us ensure that these tax audits are being done. Help us ensure that this rampant fraud in California that has been quoted as existing, that we address that. Oppose the fraud in California. Don't oppose the tax relief back to our constituents. James O'Keefe, independent journalist, just broke the news on a video stating the obvious from an insider, from a whistleblower here in California.

When the Comptroller is responsible the Comptroller is responsible for issuing payments and tax refunds, managing our state bank accounts, and ensuring that our bills are paid, if someone from that office is admitting that fraud exists, we have to question that. We are the fourth largest economy in the world, yet the cost of living burdens to our constituents are pushing families to the edge. Sometimes that edge is moving away. Sometimes that edge is giving up on life.

Sometimes that edge is deciding not to bring life into this world, or not to start a business, or not to go to school, to high school, or to college.

I'm baffled by the opposition to this bill. Financial executive Herb Morgan streamlined 425,000,000,000 in potential cash burning fraud in California. If you were to take 425,000,000,000 and divide it between the 40,000,000 plus members of California, constituents of California. Do the math because I'm not a math expert. How much money do you think we would write a check to each Californian?

Okay? Burning cash in healthcare, in unemployment insurance, in homeless spending, in infrastructure, homeless spending. We have spent over $24,000,000,000 and this I have done the math. We have approximately 187,000 homeless individuals in California. You divide 24,000,000,000 by 187,000 for the teachers in the room.

Bring out your calculators. Because for each homeless individual, we could have put a down payment on the median cost of a home in California, 10. We could have bought them a brand new vehicle. And if you want electric vehicle, buy them a brand new electric vehicle. And we would still have enough money to put into their savings account.

That is how much money we have spent in California to help homeless individuals. But yet, we are looking at a bill to help the hard working, low income, middle class, working class families just like you teachers in the room, with a tax credit to put money back into your pocket, which translates on paying your higher energy costs, putting gas into your tank, putting food back onto your table. I'm baffled. So my question is to our witness that is opposing.

Please help me to understand why teachers would be opposed to this bill.

Thank you for your comments, Vice Chair. I would simply answer on behalf of the teachers as well as the other, labor groups that represent, the Board Members of the California Tax Reform Association. Again, we are a progressive tax organization, and we are always looking for ways to help the state that do not also impact the general fund. The those those impacts trickle down to everyone in the state just as we share your concerns wholeheartedly. You know, we're looking at local jurisdictions, the state, the counties.

The general fund supplies critical services to all of our service workers, our teachers, our firefighters, our nurses. So it's, you know, it's a laudable goal, but again, this is this is a stance that the the entire board of CTRA takes.

Sorry. We have one witness's step forward. So thank you so much. So thank you for that response and you know California we have stood with our teachers, our nurses, our first responders with our union workers. That is the fabric of our labor organizations here in California.

And don't you think if we were to help push forward this bill that that would put more money into their pockets that they can then offset the offset the cost of dues and other contributions? Because if the cost of living is going up, those dues and contributions are still continuing to happen. So now the percentage of those dues and contribution, it becomes larger as the cost of living goes up as well. Would you agree that? I mean, it makes economic sense.

I can't respond to that. I mean, I assume that the argument could be made. But again, we're looking at critical services that are funded by the general fund in the state. So perhaps perhaps there is a balance, but we we just really don't wanna do any more harm to the general fund especially Yes. When we're we're, you know, we're all looking at a historic, you know, budget deficit.

Absolutely. And, you know, I I look at the budget deficit as well and, you know, I'm just thinking, like, if if we were to put our thumbs on where that 425,000,000,000 potential fraud in California is, that would be so much more money to put towards salaries, towards the members that you represent, towards benefits, putting more money into the classrooms to help our students thrive and learn.

I agree with your points, and I think that there is an innate structural deficit in how we spend money in California. We are the fourth largest economy, fourth only to the whole United Nation United States Of America, Germany, and China. And the fact that we have more money than most countries in the world, and we are struggling right now to ensure that our teachers, nurses, and first responders have enough money in their bank accounts to cop to cover the cost of living from month to month.

It still baffles me. This question is for for our author. You mentioned that this would be a cost relief for our constituents and I see that you rep a lot of organizations that are supporting this are from your direct district. Can you speak a little bit to the impact on the high cost of living to those who are growing our food, feed or feeding the world, those who live in rural communities where they may have to travel far distances to go to work?

Like, what's the disparity between rural communities and urban, and how would your bill help to impact that?

Thank you, Madam Chair, for the question. The district that I represent has more millionaires per capita capita, but also more individuals on medical per capita compared to other places in the state. We're a very diverse state. This bill would bring immediate relief to teachers, that still struggle with the cost of living. It would bring immediate relief to farm workers.

It would bring immediately relief to fast food workers, restaurant workers, hospitality individuals, individuals that do hotel services and hotel cleaning, anybody who works two to three jobs to try to just put food on the table. California has the highest housing and transportation cost, the utilities, insurance, if you can even find insurance to purchase, food and groceries, and taxes.

And so this was modeled, like I said in my opening statement, after a very successful program because we did look at the program on the earned income tax credit that people don't use, but they are, using the twenty twenty two middle class tax credit. And that is something that they are aware of. They don't need to be educated on.

The a lot of people in the state of California are taking advantage of taking advantage of this program, and we modeled it specifically after that to bring relief to individuals. This does not allow these tax credits to take place by individuals who are high income earners. This is strictly the lowest socioeconomic disadvantaged communities that we all serve in every one of our districts. And it was just to bring some type of relief to the high cost of, expenses in the state of California.

I wanna comment on your comments on fraud and waste and abuse and the estimates of one point, you know, dollars 4,000,000,000 in fraud, what's going on with our hospices.

If that money was, recouped and brought back to the general fund, I think we could address a lot of issues that the opposition has. Just yesterday in another committee, the state librarian was under, in the education budget sub one. The Chair was questioning the state librarian along with myself, and they spent $560,000 $557,000 in change, so roughly $560,000 on social media outreach, and that garnered them 14 followers. Well, that's roughly $40,000 of tax payer money per follower.

So I think that if we did things right in the state government, we'd have additional resources to provide for those who provide educational opportunities for our children and do a really good job taking care of them.

I I am kind of puzzled by their opposition because it does benefit teachers as well. And I think most teachers would appreciate the opportunity to have the tax credit. Thank you for your question.

Thank you. Any further questions or comments from committee? Yes.

Yeah. Thanks. I I do have to address the narrative we just heard because it's it's it's incredibly damaging to our straight to our state and and incredibly unfair. The comments that were just made play into really a national campaign to somehow, depict California as this as a, you know, place where lots of fraud has taken place. Outrageous numbers, which we just heard, some 1,400,000,000.

I mean, just absolutely baseless, no evidence, and and just incredibly damaging when we throw those kinds of numbers around. And I think people members here should know better than to do that. We sit in these committees. We know every we have five budget committees here in the Senate. We have five budget committees in the assembly.

We go through every line of the budget. Everything is public. We have hearings on every topic. Are there people are there bad people who commit fraud in California? Yes.

And we're finding them. We have the spend years building the most comprehensive hospice fraud enforcement efforts in the country. There are bad people in other states. I just googled quickly, found, the attorney general in Texas was very proud. He found a 125,000,000 from health care fraudsters in 2025 alone.

So, apparently, a lot of fraud in Texas. So is there fraud? Yeah. There is fraud. Of course.

And it's our job, and the governor and our team and our agencies are doing a tremendous job of finding that fraud, tracking it down, putting people in prison. And to imply otherwise is really just I I really don't know what to say.

It it's just I think it's just trying to play into a a national narrative to paint the state in a bad light, and I think it's really unseemly for for those of us in legislature who know better, who get to pour over every line of the budget, to indicate in some way, and and to, you know, toss around and kind of feed into these, just really lies that are being spoken about our state. So I just have to just push back very vigorously on that.

And I will say also, you know, it doesn't help that our president, president Trump, has been pardoning fraudsters at a alarming rate.

It's estimated that his pardons across the two terms have denied $2,000,000,000 victim to victims of restitution, forfeiture, and fines. He just pardoned one of the biggest hospice and health care fraudsters around who also had perpetrated fraud in California. So, anyway, just have to really push back on that narrative. Are there ways, you know you know, that I feel we could be spending money more efficiently and effectively in the state? Of course, there are.

There's certain decisions that I personally disagree with. Yeah. Of of course. But, you know, that's what we do in this body. We debate and sometimes we win, sometimes we lose.

But to imply that there's a massive fraud is is really just not right. And I have to push back on that narrative.

Senator Grayson?

Thank you, Madam Vice Chair. I would also like to push back on this narrative that is I'm as as some would struggle at the opposition, I'm struggling at the narrative and how it fits in to what this bill actually does. This bill does not address the efficiency and effectiveness of a government. What this bill addresses is a tax credit that directly impacts the funding of education, which are children that we immensely care about here in California.

And so with that, I would like to hear from, the opposition that did step to the mic and was denied the opportunity to be able to respond.

I would like to ask if, if that response if, you're still willing to give that response so that I can hear it as a committee member through the through the Vice Chair.

I'm sorry, but I did ask for witnesses in opposition, and she did not present as a witness in opposition. So I don't think that I can, grant that request to make a a question of a member of the audience. So I think there was an opportunity

for that.

Request as a committee member to hear, directly from this particular individual on why, why, this bill does not fit the best interest of California through the Vice Chair.

Again, we did make a call for witnesses in opposition. You get two, and they come forward. I made the call twice, So I think if you would like to ask the witness that is here present, I think we can possibly get an answer.

I'm more than happy to see, my seat at the table to my colleague who can speak directly as she does represent directly the teachers. I I am the the administrating lobbyist contract lobbyist for the larger, board. I would be happy to cede my time to her.

Thank you so much.

Please the Vice Chair.

to

the Vice Chair.

Appreciate that

Yes. Unfortunately, it's not about ceding time. It's that we allowed two witness in support and two witnesses in opposition, and then we call them forward. And then when I call for members of the public, people come to the microphone as members of the public. So what I

would like to point of order.

I'm sorry. I'm still still explaining. So we had I made the call to have witnesses to come forward and at no time did her or any other members come forward. I did ask for members of the audience to come forward to speak in opposition, and those who are able to speak in opposition can give their name, their affiliation, and their position only. So that's what that was the decision that she made to participate in that manner.

Madam Vice Chair, I'd like to call for a recess.

Alright. We'll take a three minute recess.

Alright. We'll take a three minute recess.

We'll resume in thirty seconds.

Okay. We will now call the Committee of Revenue and Taxation back from recess. Thank you so much to my colleagues and to our author for caucusing. Upon the request of the author, we are going to allow another witness in opposition to come forward.

So whoever... Thank you. So we'll ask you to come to the table to participate in the question and answer. And thank you, Senator Grove, for your flexibility. Now, Members of the Committee, I open up for questions. Senator Grayson.

Thank you, Madam Vice Chair. I would just like to hear your response as you were going to give it previously before we had an issue. So with that, if you would proceed, through the Vice Chair.

Yes. Thank you, Senator. And thank you, Madam Vice Chair, for allowing me the time. And thank you, Senator Grove, for allowing me to come up to just help answer the questions and clarify why the California Teachers Association is in opposition to the bill respectfully.

This isn't specific to the Senator's bill and the work that she's trying to accomplish through this bill. CTA blanketly opposes all tax credits and tax deductions because we're looking at the larger picture of the general fund.

And so if in our letter for this committee, we have like a long list on both sides of the aisle of bills that CTA opposes specifically because anything that's taking a tax credit or tax deduction, it's reducing the overall general fund and as we know about 40% of that goes to the Proposition 98 minimum guarantee.

Teachers oppose bills that even would benefit them. So even like teacher tax credits, we oppose that because it's gonna deduct the overall amount of Prop 98 dollars going to education. So I hope that that helps clarify your question.

Does that clarify question for you?

Yes. And I moved a question, moved previous question.

Thank you. I am gonna follow-up with a few more questions.

Which means we go immediately to a vote.

Okay. Are you making a motion?

No. I just moved to question. You wanna make a motion? I make a motion to move to the previous question.

Okay. I'm gonna continue with my questions, if that's possible.

Let's seek parliament procedure. Yes. I make the motion with a request for a previous question.

Alright. So we'll proceed with questions. Thank you so much. So I am familiar with Prop 98, and I'm familiar with CTA's position blanketly opposing all tax credits. And I wonder to our witness, Mr. Christensen, you're also an educator. You also come from the educators world. Do you agree with this perspective? Disagree with this perspective? What does it look like in real life?

No doubt that we need to have a conversation about tax credits and how they impact the general fund, and of course there would be an impact there. The question is how much is California spending education and what is it getting out of it really. This year we're going to spend about $149 billion, the highest level we've ever spent, and our enrollments and ADA has declined steadily in California for our public schools.

So we're spending more dollars on fewer students, and if anything the results for education at this point in time are pretty much flat line and have not recovered beyond the pre COVID pandemic. So if this body really wants to talk about the impact of education funding, we can have that conversation.

But again, this tax credit bill is to really reinforce the ability for families to have the funds necessary to keep their families in the schools so those kids can benefit from the education. If they leave the state, then again, we only exacerbate the situation.

I'll point out one more thing too that this legislature for some reason has ignored last year and House Resolution 1, the President of United States signed a bill that will allow for federal tax credit scholarships to come to California.

That money could be funding public school students, and yet, so far, the governor's not opt into that program. That could yield upwards of $3 billion a year to public school students if they wanted to.

And that's a tax credit that wouldn't impact one penny out of the general fund or Proposition 98. I'd like to see the legislature address that issue. Right now, Senator Grove has a very simple request to deal with a tax credit that help working families. And for that reason we think that it's worthy of actual vote moving on in the process.

Thank you. Any other comments or questions from anyone either in opposition or support before we close out the Q and A part portion of this meeting?

Nothing additional for me, but happy to answer any questions.

Thank you. Thank you so much. Okay. So, there is a motion still to be addressed. Before I do that, I just want to acknowledge the healthy debate here from committee.

I don't think if audits were happening in California, we would then be able to identify yes or no. Is fraud happening? And we wouldn't need tax credits if governor, if the government was functioning. Right? We have a lot of money in California, fourth largest economy in the world.

But I cannot deny that the top communications official for our Comptroller's Office readily admitted that 100% fraud exists. So we have to give some pause when within our own government there are whistleblowers that are exposing us to questions. These are eyebrow raising questions. Right? When the median home value in California is 855,000 roughly, affordability in California is threatened.

For me, this is a very serious issue. And I would say again, you know, we would not have to have tax credit bills if we were functioning government. So I wanna thank our witnesses both in opposition and in support for being here today. And then we'll bring it back to committee for a motion.

Madam Chair, permission to close?

Yes. Let me just recognize the motion from Senator Grayson. No motion? Okay. We'll allow Senator Grove to close.

Thank you for the vigorous debate. I was here to present SB 1277, which gave a middle class tax credit that was very successful. This bill was this tax credit cost of living tax credit was modeled after the middle class tax credit because we do face extraordinary expenses in the state of California, and we should do everything we can to provide relief, for the individuals who are really struggling to exist in our state. We have a more homeless population.

We my office just helped constituents that were lost their rental property because it had gone up an additional $600 a month. $600 a month of people who make minimum wage is a substantial amount of money. And so I was just trying to help them with this issue as an example of a constituent like I think many of us have in our districts. And I appreciate the debate, and I would respectfully ask for an aye vote.

Thank you, Senator Grove. Alright. We'll now move to a motion. Alright. Senator, we're gonna put your bill on call as we do not have a motion right now to give other Members of the Committee opportunity to weigh in. Alright. Thank you.

Thank you, Madam Chair.

Alright. I do see some other authors here in the room, going in file order. See, I don't see... Oh, got it. Got it. Okay. Item number four, Senate Bill 1287, Senator Hurtado.

Good morning. Thank you, madam chair, members. I'm here to present 1287. I wanna start off by thanking the chair and the committee consultant for all the incredible work that was done on this bill. And I would I will gladly be accepting committee's proposed amendments outlined in the analysis.

SB1287 creates a modest targeted tax credit to encourage private investment in short line railroad infrastructure, improving track, strengthening bridges, reducing emissions and improving safety and reliability across California's short line rail network. This proposal is grounded in prior state work. The concept was identified in Caltrans 2019 short line rail improvement plan, aligning with our broader goals around climate, freight movement and the sustainable infrastructure. I do want to make clear this is not a handout. This is a public private partnership.

Rail operators must make the investment first to qualify for the credit. And while the program is capped at 18,000,000 annually, if fully utilized, these investments are expected to generate new economic activity, increased property values and ultimately grow state and local tax revenues. And more importantly, it's going to make sure that food gets to all of our tables. That's the importance of short line rails in the State of California.

And with me today, I have Ross Lane from Genesee in Wyoming and Ken Beard, President of the California Short Line Rail Association.

And we also have Justin Bentas with Mickelson and Company available to answer any technical questions related to tax credits.

I thank the Senator and witnesses may proceed.

Is it on? Okay. There we go. Mister chairman, madam vice chair, members of the committee, thank you very much. For the record, my name is Ross Lane.

I represent Genesee & Wyoming. We own, operate, or lease six small freight railroads in the state of California, really from the border at Oregon all the way down to San Isidro where we go into Mexico. I wanna thank the Senator for bringing this bill forward. I also wanna thank her staff and members of the committee staff for all their help and robust questions and debate on in how we arrived at this final product and for the excuse me, for the amendments that are presented.

As the Senator said, shortline railroads were the county and dirt roads in California to the national freight rail network.

We connect small ports, inland ports, small businesses, manufacturers to the National Freight Rail Network. If we didn't exist, freight shippers and consumers would pay more to ship their goods, and they would pay more to purchase their goods in in stores. We would also pay an even higher price in terms of worse air quality in the state and overcrowded public roads. Small railroads like the San Joaquin Valley that operates, in the Senator's District, we mirror the local economy in which we operate.

So on any given day, a California short line could be moving wine, televisions, fertilizer, lumber products to build more affordable housing in the state, and agricultural products to feed Californians.

This bill is about modernizing short line railroads, a critical but often overlooked segment of our transportation network. As the Senator mentioned, this concept, the concept of a tax credit, was outlined in the Caltrans Shortline Railroad Improvement Plan that was published in 2019. I do wanna point out the short lines in the state operate generally produce less revenue than the Starbucks and the Sacramento Airport on any given year.

And so the revenue that they produce to be able to reinvest back into their railroads just doesn't exist without a robust public private partnership that helps the state accomplish some really important transportation goals. Many of the shoreline railroads because of their prior ownership structure, they operate safely today, but they do so largely at low speeds, 10 miles per hour in many cases.

And as I mentioned, they don't produce enough revenue to reinvest back into the railroads to move at greater speeds and accommodate more traffic. But reducing emissions, preparing the railroads for the effects of climate change, and increasing freight capacity in the state are all positive consequences of of this bill and a further public private partnership. Would you please wrap up your presentation? Yes. In short, this bill creates a targeted performance space tax credit program to incentivize private investment.

We provided a benefit cost analysis using very conservative members to committee staff, showing that this bill does pay for itself. Respectfully, it would urge an aye vote as committee, and thank you, Senator, for bringing this bill forward.

Good morning, mister chairman, madam vice chair, and the members of the committee. My name is Kennan Beard. I'm the president of the Sierra Northern Railway with operations throughout the state of California, including in the district of madam vice chair. Today, I'm representing the California Short Line Railroad Association. I've been the president of that association for the last twenty years, and I represent more than 25 short lines operating within the state of California.

Short lines are the first mile and last mile of the rail freight network. We connect all of the small towns and cities to the national network. We handle over 25% of the originating and terminating freight by rail in the state of California. Many of these lines were purchased from our class one partners after they had been neglected and

maintenance have been deferred for many years. Economically viable. Short lines typically spend more than 85% of their operating of their revenue on the operating of the railroads. That leaves very little for improvements, such as rail improvements, bridge upgrades, and and safety. Bills like Senate bill twelve eighty seven will allow short lines to stretch every dollar further, improving safety, increasing efficiency, and enabling adoption of cleaner technology such as zero emission and low emission locomotives.

Freight rail is the safest form of ground transportation in The United States. Railroads can move one ton of freight 500 miles on a single gallon of diesel. That's three to four times more distance than a truck and creating 75% less greenhouse emissions. Every freight car ship takes three to four trucks off of our California roadways, reducing wear and tear and congestion. Short line railroads are vital to California's rural communities and agriculture.

All major ports in California are served by shoreline railroads. In addition, shoreline railroads connect disadvantaged communities to the national freight rail network. Shoreline railroads operate trans loads and inland ports, enabling small communities to have access to clean, efficient rail transportation. For these reasons, I respectfully ask for your support of SB 1287. Thank you.

I think the witnesses are there any other witnesses in support? Would please state your name, organization, and your support level.

Clifton Wilson on behalf of the Pacific Merchant Shipping Association in support and just wanted to thank you for the bill.

Good morning. I'm Tracy Alves. I'm with Modesto and Empire Traction Company, Modesto, California, and we support this bill and ask for your support as well. Thank you.

Good morning. Justin Bentus with Mickelson and Company. We support the bill.

Good morning. Dennis Albiani, California Grain and Feed Association, Association of California Ag Farmers we support. Thank you.

Good morning. Kennen Beard with Sierra Northern Railway, Director of Government Affairs and we also support this Bill.

Good morning. Jesse Uguaitafo with the San Joaquin Valley Railroad, and we support this bill.

Javier Arias, California Northern Railroad. I always support this bill.

Thank you. Are there any lead witnesses in opposition of this bill? Please come forward to the microphone. You'll have two minutes as a lead witness.

Good morning. Dani Kando-Kaiser on behalf of the California Tax Reform Association in respectful opposition. We appreciate that this measure is capped and is allocated by the Department of Transportation.

But we do not believe that the use of tax credits is the appropriate way to further the development of short line railroads. Rather, consistent with CTRA's longstanding views, a direct grant program authorized through the budget process is less complex and likely to be much more helpful. We ask for a no vote. Thank you.

I thank the opposition lead witness. Any other witnesses in opposition? Please approach the microphone, your name, your organization, and your position. Thank you.

Michelle Warshaw, California Teachers Association, respectfully oppose.

Paula Merrigan, California Teachers Association, teacher in Castro Valley, opposed.

Anna Cordero, 8th grade history teacher in San Luis Obispo County and CTA member, respectfully oppose.

Kevin Kung, a member of the California Teachers Association, a teacher in Los Angeles, and I oppose.

Hi. My name is Sarah Espinoza. I am a teacher in Los Angeles, a member of CTA, and I oppose.

My name is Jen Drewek. I teach in Woodland High School in Yolo County. I'm a member of the California Teachers Association, rising in opposition.

Jonathan Gardner. I'm a physics teacher in Pasadena, a member of CTA, and I rise in opposition.

Jay Mason, teacher in Campbell, California and living in Dublin, California. I am opposing.

I thank the witnesses in their respectful positions. We now turn to the committee. Any Committee Members wish to speak on the bill? Seeing none. Senator, I wanna thank you for bringing forward the bill. Short line railroads link communities to the national rail system.

They save farmers, ports, and countless other businesses, reliable rail service is what is vital to the state's economic growth. The bill can also help reduce truck traffic, which is a concern if you live in a congested area. It also means less carbon emissions and and fewer road repairs. Are you accepting the committee amendments?

Yes.

Okay. And with that, I am happy to support your bill. Please, would you like to close?

I respectfully ask for an aye vote.

I thank the Senator. Do we have a motion on the bill? The bill will be on call. Thank you, Senator. Now I will move to item, file item number 7, SB 147 by Senator Archuleta. Archuleta, thank you for coming to our committee, and please proceed. And I welcome the Treasurer to the committee as well.

Yes. Thank you, mister chair and committee members. Thank you so much for having me here today with my esteemed state treasurer, Fiona Ma. And, I would like to again thank you all. I'd also like to thank the committee and especially the chair for working with me, and I do accept your recommendations and your amendments, making the cap at 80,000.

And I appreciate the time and effort chair has given me, to negotiate that number, and I do appreciate it. And, again, I'd like to thank the entire committee. I also wanna thank state treasurer Fiona Ma for cosponsoring the bill and joining us here today. Veterans all over California are struggling as we've heard earlier this morning. Individuals struggling.

Well, veterans are also struggling with the high cost of living. Veterans want to live in this wonderful state, but they too are feeling the squeeze of current economic conditions, which is why as chair of the Senate Committee on Military and Veterans Affairs, I partnered with state's treasurer, Fiona Ma, as my counterpart and cosponsor in the assembly, assembly member, Schiavo, to introduce Senate Bill 1407. Senate Bill 1407 is an opportunity to serve those who have served our country.

It is a message to California that veterans here who are serving, and when they come back, they are not to be forgotten. It will this bill will exempt a veteran's military retirement pay as well as surviving spouse's benefits payment from state taxes.

For too long, our veterans have been faced with difficult decision. Stay in this beautiful state of California while struggling to make ends meet, while rising costs of living or more to a state that financially is incentivizes them to join their labor force and feed their federal dollars, retirement funds and benefits to the other state. We are losing our veterans to other states. We've gotta stop that.

This bill is also a labor oriented bill to make sure that the labor stays here, our veterans stay here, their experience stays here.

So between 2010 and '22, California lost over 24,000 military retirees. Think of the experience and the knowledge they've had and they've taken to other states. As the retention challenges grow, we must recognize that physical policy plays a long term decisions in the families of these veterans. Keeping veterans in California must be a priority. We ask our veterans, please, please allow us to work with you and keep you in California.

As of 01/31/2023, about 127,000 military retirees in California received a total monthly payments of over $362,000,000 and about $4.3 billion annually from the United States Department of Defense. They're able to take that with them or they can stay here. About 25,000 survivors in California received total monthly payments of just over $39,000,000 or about $468,000,000 annually. We need to keep that in California. This is money that would otherwise enter our local economies, fund businesses, create jobs, generate sales tax, but most importantly, support our economy in California.

California's current tax structure discourages long term service and drives away mid career leaders, weakening our state's ability to meet homeland defense, wildfire disaster response, and civil opportunities and missions. Additionally, over 810,000 national security jobs depend on our ability to attract and keep highly skilled military retirees, many of whom embark on second civilian careers in their early forties, generating new state and local tax revenues.

Those second careers as a retire through second careers of retiree, household can contribute $50,000 to a $100,000 in taxable income annually aside from their federal retirement if we keep them here in California. You'll hear just how much retirees could contribute to the state if they retain and remain their status here in California as Californians, keeping their careers, keeping their experience here in our beautiful state.

I know people out there may be thinking, well, we just passed the $20,000 exemption for our veterans, but it's just not enough.

Veterans, those who served their country for over twenty years, more likely are gonna go ahead and think twice once we make this adjustment. This bill is a combination of countless veterans and families telling us just it's just not enough. We need to increase that. And I thank you, mister chair, for allowing me to make that adjustment in our negotiation. I've heard from far too many veterans, my brothers and sisters who I've served with as a veteran that it has become too expensive to live here in California.

And again, that $20,000 isn't enough, and that's why I appreciate your adjustment so deeply. In fact, I received a call from surviving spouse who said that she relied on the benefits for her care, her health care, and long term care at her center. She said even with the $20,000, it's just not enough. She can't afford to stay much longer. So she too is supportive and acknowledges the fact that the chair has taken that leadership role in working with us.

Sadly, in her story, it's not an exemption, but it's a norm. It isn't about revenue loss in the state, but it's about how we can help our veterans stay in California and contribute to our great state. How can we do more? Let's listen to our veterans. How can we do more?

Let's keep our veterans here, and let's give them the opportunity to thrive and grow and participate in our economy in California, not somewhere else. We could make up those losses, in second careers, industry growth, and various additional benefits veterans bring to the state. Again, veterans have given up so much. Let's take care of them. Let's honor them.

Let's give them the entire amount that we've negotiated, the $80,000. It is our turn to keep them housed, fed, and most importantly, keeping them in California. This bill keeps revenues in California. It keeps industries, and their knowledge and skills in California, and it keeps jobs in California, high paying jobs.

This exemption that we're requesting is the way to go, the way to honor our veterans. So again, I'd like to thank the chair and the committee for working with me, and again, I accept the amendment. And I thank you again, and, I would especially like to thank our state treasurer Fiona Ma and Admiral Boone who will be testifying this morning. And I thank our men and women in uniform who are serving and those who have served.

And in the audience, we do have veterans, and I'd like to acknowledge them.

Would I like to have the veterans please stand up? Thank you so much, veterans, men and women who serve this country. Thank you. Thank you, mister chair, for allowing me to speak.

Well, thank you, Senator, for bringing that forward. I will now recognize the witnesses. State treasurer, I usually limit people to two minutes, but I'll give you a little extra time if you wish

Okay, alright. Thank you. Thank you, mister chair. So state treasurer, Fiona Ma, over the past eight years, I'm the banker taking over $3,000,000,000,000 issue all the bonds in the state of California and fund and finance everything from affordable housing, schools, hospitals, public transportation, and the like. So very focused on, the revenues, generating revenues, creating economic development here.

And instead of fighting over the crumbs, I'm always focused on expanding the pie. And I think this bill, I heard the discussion. I used to sit on the rev and tax committee when I was in the legislature. You know, I heard the arguments, but I think this is a little bit bigger than just a tax credit or tax incentive bill. California is losing our military retirees at a disproportionate rate compared to other states partly because of the high cost of living.

We have anywhere between 34 to 44 active military installations here in California, and they are all over the state. Most of them are in San Diego, but we have, military personnel in the Inland Empire, Northern California, Ventura, Santa Barbara County, Central Valley, LA County, and even Yuba County. And the average retirement is for these folks is $38,000. It is not a lot of money. However, like the Senator said, many of them do embark on a second career.

Many of them that have a spouse, they are working, their kids are going to school, they are buying houses, spending sales taxes and other revenues here in the state. And it's creating jobs. We have VA hospitals. We have over a 100 outpatient clinics, eight VA hospitals, 100 outpatient clinics that are all employing just civilians as well. They're spending a lot of money.

They are starting startups. And we just went to a press conference about two weeks ago in San Diego. And so many of the folks that were there, they really thanked us, for bringing this bill up. I think we're only four states out of 50 that do not exempt retired military pay. And so when they do retire, many of them think about moving out of the state.

But with this benefit, I think it would encourage them to stay here in the state and create more economic development. And these budgets, these numbers are very static. They're not dynamic. They don't take into consideration all of the ripple effects of everybody staying here, contributing, paying their taxes. We need to keep people here, especially military retirees who are trained.

They're professionals and who best to stand up when we have emergency situations because they are trained, they're committed, and, they would be excellent assets for the state of California to help protect lives and, property here when we have emergencies. Thank you.

Good morning. Honorable chair and madam vice chair, members of the committee. My name is David Boone. I am president CEO of San Diego Military Advisory Council, a nonprofit whose mission is to advocate, inform, and connect the military, veterans, and their families with industry, community, and elected officials. Today, I'm here to advocate for Senate Bill 1407, which provides for a full tax exemption on military retirement pay and survivor benefit pay.

Since 2000, California's population of military retirees has fallen by 27%, while the greater U. S. Military retiree population has actually increased by 17%. Meanwhile, Texas, Florida, Virginia, Georgia, and North Carolina are all growing in their veteran population, and all of those states have favorable pension and property tax policies. Until last year, California was the only state in the union that fully taxed military retirement pay, and currently, 38 other states offer full tax exemption.

The other states have figured it out. We are currently one of 12 states that don't offer the full tax exemption. In 2025, the governor inserted through the budget process a tax exemption on up to $20,000 of military retirement pension, which we were grateful for. However, the income caps on eligibility were very limiting, excluding even moderate earners who are most likely to bring greater second career personal and business tax revenues to the state.

We need to further advance this progress by eliminating barriers for veterans to stay California. The average military retirement pay, as Fiona Ma stated, is $38,000 annually. Most veterans who retire from the military move on to second careers, and most have working spouses. So together, with these second careers, they earn significantly more taxable income that could be taxed if they stayed in California. Retaining veterans would also serve to bolster our struggling workforce

Excuse me would the witness please wrap up?

Yes, sir.

Workforce shortfalls, provide our trades with quality people, infuse federal dollars for health care and educational benefits, and jump start the innovation and tech sectors. Thank you very much, and I'm happy to answer any questions.

I think the witnesses are there any other witnesses in opposition? I mean, in support, would like to show their support. Please give your name, your organization, and your support.

My name is David Kuta. I'm a thirty year army veteran, retired. I am also the leader of the Veterans of Foreign Wars for California, and I represent and serve over 1,600,000 veterans. I am highly in favor of this bill. Please, I ask for a vote of yes.

Hi, everyone. My name's Norma Christensen.. I'm a member of VFW Post 67. I'm a thirty four year army veteran. I support SB 47.

I did write a note. Hopefully, I can read it really quickly. As an RA retiree, this is beneficial to my family and federal veterans. We are seeing exodus of veterans to other states because if they do not tax the military retirement. I personally know four of my veteran friends who have moved to other states because of that benefit.

Let's help our veteran out our veterans in our state. This is also beneficial to our local communities with more income to spend on our local businesses. Thank you for your time.

Hi. I'm Tamar Fluri. I am a combat veteran from Iraq and I reside in North Island and I support this bill.

Good morning, chair members. Yolanda Benson representing the California Association of County Veterans Service Officers in very strong support. Thank you for the support from the treasurer and thank you to the author. Thank you.

Clifton Wilson on behalf of the Shasta County Board of Supervisors in support. Thank you.

Good morning, chair members. My name is Seth Reeb with Reeb Government Relations representing American Legion Department of California, AMBETS Department of California, California State Commanders Veterans Council, Military Officers Association of America, and the Vietnam Veterans of America. Thank you.

Good morning, committee. My name is Jerry Rogers. I'm a twenty six year military, retiree. And as I move from semi retirement into permanent retirement, I want you to know that I appreciate your efforts as I make this decision to leave this state and join other veterans in other states, but I would love to stay in the state that I adopted. I would love to stay here.

And this bill would allow me to do that, I'm sure. So I appreciate your efforts. Thank you.

Any other witnesses in support? Seeing none, are there any witnesses in opposition? Any major witnesses in opposition? Any witnesses at all in opposition?

Michelle Warshaw, California Teachers Association, respectful opposition.

Jen Drewick, teacher at Woodland High School in Yolo County, is a active professional in a taxpayer funded industry. I respectfully rise in opposition to this bill.

Good morning. Gina Whipple, with the California Teachers Association. I oppose.

Jonathan Gardner, physics teacher in Pasadena, a member of CTA and I rise in opposition.

Any other witnesses in opposition? Seeing one.

Danielle Kanda Kaiser on behalf of the California Tax Reform Association in respectful opposition.

Thank you. Thank the witnesses. And with that, I will see if any committee members would like to...

...move the bill when appropriate.

Thank you. Thank you, Senator. I appreciate your leadership on this topic. We've had many discussions about the how we can improve the lives of veterans in the state of California, and you're certainly showing strong leadership.

It's very well appreciated across the state. And I can see how you're passionate about this issue and how the veterans appreciate your passion. We mean we would do wanna keep our military veterans here in California. It's very important. Their contributions to our state and the economy are greater than we appreciate.

I proudly supported the exclusion last year because the benefits went to veterans of moderate incomes, and you have accepted all the committee amendments. I certainly appreciate your willingness to negotiate. I'm supporting the bill today with the understanding that you will continue to work on the right sizing of the exclusion. Yes. So we don't bust the budget, but also that we give the veterans the support they need to to remain in California.

Senator, would you like to close?

Thank you, mister chair, and thank you committee members, for your support. And I would like to express my appreciation to the teachers, who are in the room because many of them are veterans, and I thank them for their service. But this is something that is touching all our lives. California, across the board, up and down the state where we have 31 military bases, and our men and women right now are looking to California. Are we going to keep them?

Are we gonna let them go? Are we gonna give them the opportunity to thrive in California and participate with the economy that we heard, the fourth largest economy? The ability to participate, the technology that they're bringing to the table is immense. And, yes, we're dealing with AI in the future, but we're dealing with economy that needs this experience. And these men and women that retired after twenty years are now gonna say, I'm raising my family.

I'm keeping them here, school age, keeping them here in California. And our future of income that may go as high as a $100,000 and more, it's gonna be here in California. So I think we're sending a message, a symbolic message, not just economic but a symbolic message that the men and women who are serving, they can return home to California. And those that are here, God bless you for your service. Welcome home because we're gonna keep you in California.

Mister Chair, thank you, and I urge an aye vote.

Well, thank you, Senator for that closing. We've had a motion. Would the secretary please call the roll?

Motion is do passes amended to the committee on military and veterans affairs.

[roll call]

[roll call]

[roll call]

The bill is now on call. Thank you, Treasurer, and thank you for your comments. Thank you.

Thank you.

We now will move to file item six, SB 1348. Senator Gonzales. 39. I'm sorry. SB 1349.

Proceed when ready.

Thank you. And good afternoon, mister chair and members. I wanna, begin by accepting the committee amendment and would like to thank the committee staff for their excellent work. I really appreciate the analysis. And I'm looking forward to continuing the work together to ensure the bill meets its intent.

And I'm here to present SB 1349, which directs the legislative analyst office to do a review of our state's greatest tax expenditures. California spends approximately $94,000,000,000 annually through over 100 different tax expenditures, including tax credits, deductions, sales tax exemptions, as we know. And we have little insight into whether they are actually working, in more in a more comprehensive fashion. I know there's a ton of reports, but we want this to be more comprehensive.

So beginning in 2014, SB1335 required every new tax credit to define its goals and metrics to define if we met those goals.

And while the Department of Finance tracks the cost of these programs, Cox credits created before 2014 do not have to adhere to that standard. So it leaves gaps in the information. And so 1349 directs LAO to conduct an analysis of those major expenditures that cost our state billions of dollars evaluating these programs on hard metrics including job creation, environmental impact, social benefits, and much more.

And, testifying in support of the bill today, I have Michelle Warshaw on behalf of the California Teachers Association, as well as Danny Kando Kizer on behalf of the California Tax Reform Association, and I respectfully ask for an aye vote.

Good morning, chair and vice chair. My name is Michelle Warshaw. I'm here on behalf of the California Teachers Association. As the Senator shared in twenty twenty five, twenty twenty six, the Department of Finance estimated about $94,000,000,000 loss in general fund revenue due to existing tax expenditures. This is revenue that would have otherwise gone to the general fund, which we know approximately 40% of that goes to schools with the proposition 98 minimum guarantee.

It's important to note that once tax credits are passed with a simple majority with the legislature, it actually takes a two thirds vote to repeal them. This bill directs the LAO to evaluate the costs and benefits of existing tax expenditures, as well as make recommendations to the

legislature. Tax expenditures before 2014 were not required to include performance measurement standards. That means that these tax credits, which amount to billions of dollars, are not having the kind of level of accountability needed to know whether or not they're meeting their intended purpose and goals. The California state budget is in a crisis. In addition to the structural deficit, the January budget proposes to take $5,600,000,000 from schools.

For every $1,000,000,000 reduction to education funding statewide, there could be up to 9,600 fewer educators in our school. The legislature needs to look at all revenue options to help stabilize the budget and prevent cuts in the future. SB 1349 is one of those options. CTA is urging your eye on this measure. Thank you.

Good morning, chair and members. Danny Kandel Kaiser again with the California Tax Reform Association. California Tax Reform Association is a nonprofit organization of labor, public health, education, and public interest groups, which advocates for the fair taxes in a healthy public sector. Our goal is to seek progressive reform in California's tax system that will improve equity while providing a stable and fair tax base for the state of state and local government. And for those reasons, we are strong supporter of this bill.

Our tax system, as my colleague has, outlined, is unbalanced. Again, it takes only a majority to pass a new tax break and two thirds to repeal it. As a result, there are many gaps in the tax system which go unreviewed and end up with unanticipated results with huge losses to education and the budget. This bill will help us review these gaps and holes in the tax system, which have unknown benefits and known losses.

The least we can do is provide some in-depth examination of these losses and maybe despite the unbalanced nature of the system promote fairness and generate revenues where appropriate.

We urge your aye vote.

I think the witnesses, the major witnesses in support any other witnesses wish to identify their support. Please give your name, your organization and your support.

Good morning, mister chair, committee members. Alia Griffing with the American Federation of State County Municipal Employees, a proud cosponsor of this bill, in support.

I'm Arianne Adam Chikova, a twenty four year veteran high school Spanish teacher in San Mateo County, and I am a member of CTA, and I strongly support this bill. Thank you.

Good morning. Ben Trevoh with the League of California Cities in support.

Paula Merrigan, CTA member, Castro Valley Teachers Association we support.

Good morning. Emma Jungwirth on behalf of the California State Association of Counties in support. Thank you.

Anna Cordero, CTA member and seventeen year, eighth grade history teacher of RISE in support.

I'm Kevin Kung, CTA member. Been a teacher for twenty eight years, chemistry teachers in Los Angeles at Palsy Charter High School and I support.

Alan Blanchard, CTA member, thirty three year teacher, Woodshop in Hanford and I rise in support.

Jay Mason, nineteen year music teacher, from Dublin, also, constituent of the chair, rising in support of this measure.

I'm Bandel Chancy. I've been teaching elementary in Long Beach for over twenty five years. I am a California Teachers Association member and I'm in support of SB 1349.

Good morning. Gina Whipple with California Teachers Association. I support.

Britney Ward, elementary teacher in Twin Rivers Unified School District and part of California Teachers Association and I'm in support of thirteen forty nine.

Nico Vaccaro, special education teacher, Natomas Unified School District and a CTA member. I'm in support of this bill.

Sarah Espinosa, seven year transitional kindergarten teacher, a member of CTA and I rise in support.

Jonathan Gardner, taught for physics for eighteen years in Pasadena, and I'm a member of CTA, and I rise in support.

My name is Kimberly Gunter. I'm a CTA member and a constituent of Senator Ashby. I teach second grade in the Twin Rivers Unified School District and I support this bill. Thank you

. My name is Jen Drewick. I'm an eighteen year teacher in Woodland and a member of the California Teachers Association rising in support.

I think the witnesses do we have any major witnesses in opposition? Seeing none, do we have any witnesses at all in opposition? Seeing none, I will turn to the committee. Do we have any committee members that wish to speak? Recognize?

Yes. Chair to the chair. Thank you to the author for bringing forward a very strong bill to support our labor movement. To all of you in the audience, you have such a champion in Senator Gonzalez. And this bill is just a reflection of her championing your cause.

My question is simple. Just a question to understand seek to understand. Previously, this type of analysis would have been done through the California Tax Expenditure Review Board. Can you help me understand why we're moving it from the review board to the legislative analyst office and why that benefits taxpayers?

Yes. Thank you and I appreciate the accolades. Happy to be a labor supporter, always very happy to support our teachers. Yes, I think as been mentioned, the reports that have been put out there, I don't think are comprehensive enough.

And so as it lines out, you know, specifically, it asked for a description of the legislative intent, a brief description of the beneficiaries, a list of comparable federal tax benefits and more robust understanding of the difference between the state tax credit and the federal tax credit, a total reduction Prop 98 funds due to each tax expenditure, a long term analysis outlining the true beneficiaries versus intended beneficiaries, jobs created.

So there's a more robust comprehensive plan that we would like for this for this specific bill that would it would hopefully provide more information. But if there's any other additional information that my witnesses would like to provide, I'd be happy to hear from them.

And just in follow-up, in addition, would are we are we saying that the California Tax Expenditure Review Board is not capable or are not able to do what we're asking them in this bill?

No. Not at all.

Okay. I just think that the LAO, we've provided the LAO an opportunity as well to provide another scope. And I think having it in different places also helps as well. But

So this is in addition to not not removing removing it from the re re board to the LAO, but providing an addition to?

We're asking the the LAO to conduct the analysis on this on these tax credits. Okay. Above a billion dollars.

Yeah. I mean, just to add on to what the Senator shared, the LAO really has the knowledge and expertise to be able to provide that kind of in-depth information and recommendations to the legislature on how to move forward based off of their analysis of the tax expenditures. They did a report recently that compared options for raising taxes and lowering taxes.

I think that's a good example of just their level of expertise for really looking into, our tax system and what kind of information that they can provide.

Okay. Alright. Thank you.

Senator Gonzalez, thank you for bringing this forward. We always need to look at how we're using our our revenues and expenditures to benefit the state. Your presentation, it's appropriate, I agree that we ask the LAO to assess the state's major tax expenditures when seeking to reduce the state's structural deficit. The LAO does very excellent work and I expect they will do the same here as your bill requires. And you have accepted the committee amendments.

I appreciate that.

Thank you.

You did indicate that you may amend the bill before it's heard in appropriations. And are you committed to working with this committee as your bill moves forward?

Absolutely. And I really appreciate the work that the committee consultants have provided as well as you, mister chair. We're happy to continue working with you and certainly take those amendments and

Very good. Committee. I'm happy to support your bill. Senator, would you like to close?

I just wanna say thank you. I respectfully ask for an aye vote. I think the taxpayers certainly deserve this extra scrutiny on these dollars. Thank you.

Thank you. Do we have a motion? The bill is now on call. Thank you. Thank you, witnesses.

I thank you, Senator. What do we have?

I thank you, Senator. What do we have?

[Roll Call]

The consent calendar is also now on call. The committee will now take a two minute recess. The committee will now reconvene. The chair has three bills to, present. One on behalf of Senator Laird who is out, in, and two of my own.

Thank you, Senator McNerney. With your with your permission file order, can we call file item number two? And that's Senate bill one zero seven eight by Arthur Laird. Yes. Okay. So presenting on behalf of Senator Laird. Thank you to Senator McNeerney. We will hear now Senate Bill 1078.

Thank you. Good morning, vice chair and committee members. Today, I'm presenting Senate bill ten seventy eight on behalf of Senator Laird. Senate bill ten seventy eight will allow Santa Cruz County voters to decide, if combined local tax rate limits should be raised above 2% to fund essential services in their community. With the severe and ongoing federal cuts, communities across the state are struggling to maintain access to critical safety, safety net services including urgent health care, food assistance, housing, and other important programs.

In order to mitigate the loss in federal funding and ensure county residents can continue to asset access needed services, the county plans to put a measure on the ballot on November for a temporary five year transaction and use tax of one half percent. However, there are cities within Santa Cruz County that already have a tax rate above or at or above 2%. So the county cannot go to voters without statutory exemption.

SB 1078 will provide that transaction and use tax up of up to half a percent imposed by Santa Cruz County is not considered for purposes of the 2% combined tax rate limit. This is not a tax increase.

SB 1078 allows the county to go to the voters. Here to testify in support of Santa Cruz County, a supervisor Kim DeSempra. Please proceed.

Welcome supervisor. You'll have eight minutes to present.

Thank you. Thank you to the vice chair and members today. I'm Kim DeSerpa. I'm representing 2nd District in the county of Santa Cruz on the board of supervisors. I'm also a medical social worker so somewhat of a content expert in health care.

I am here today to ask for your aye vote on Senate Bill ten seventy eight, Senator Laird's measure that would allow our Board of Supervisors to approve placing a measure before the voters this November to temporarily increase our sales and use tax rate by half a percent, generating just under $30,000,000 a year over a five year period.

We, like other communities across the state, are struggling to maintain access to critical health care hospital and food assistance services in light of these significant reductions by the Federal Government included in HR1. And we have heard loud and clear that the state will not be able to completely backfill these losses, leaving our local hospitals, clinics and other supportive services at risk of severe cuts.

We have a rural health care system currently on the ropes, and federally qualified health care centers which are at risk at this time. The County Of Santa Cruz is a safety net for those communities that are traditionally the most disproportionately impacted by budget reductions.

SB 1078 offers the opportunity to continue to protect those in our communities who need the most assistance. I would note that 83,000 people in the county are enrolled in Medi Cal. Nearly forty three percent of births in the county are covered by Medi Cal. 40,000 or more people will likely lose access to their insurance.

People will continue to have cancer, strokes, sepsis, neurological disorders, and other significant health care needs and the need for life saving health care and medication and the costs for this can simply cannot be borne by our health care systems alone.

31,000 residents receive CalFresh benefits every month and more than 20,000 households rely on food assistance. These figures illustrate the scale of services that help residents meet basic needs and maintain stability in a high cost region. We are the second smallest county in the state. We have inadequate general fund revenue based on proposition 13. We only get to keep 13.4¢ of every property tax dollar.

We've lost $6,000,000 due to online sales tax and distribution centers and we have $80,000,000 in unreimbursed FEMA disaster bills. We greatly appreciate Senator Laird's leadership on this important measure and I respectfully request your aye vote on SB 1078 on behalf of the city County Of Santa Cruz. Thank you.

Thank you so much. Alright. At this point, we will ask those in support of this measure to come forward. Name, affiliation, and position, please.

Good morning, madam vice chair and members. Trent Smith on behalf of the Central California Alliance for Health, which is the publicly managed Medi Cal managed care plan serving Santa Cruz County in strong support.

Thank you so much. Alright. Any other witnesses in opposition please come forward? Alright. Seeing none, members of the public wishing to express their opposition to this bill please come forward.

Okay. Hearing and seeing none, we'll bring questions back to the committee. I I I don't have any questions, but I do have a a comment to your witness. It'll be brief. I currently see that County Of Santa Cruz has a 9.5% tax currently, which is the maximum allowed before coming to the legislature. Are you foreseeing that if given the opportunity to bring this to the voters in November, that this is a ballot measure that would pass? Is there any data on that?

I'm I don't know actually what the data is, but we have a county that has a lot of compassion for people that are vulnerable. We have many behavioral health, people that use behavioral health services which will also lose those services if they cannot be sufficiently on Medicaid. So it's a it's a big deal in our county. They've passed similar measures in the past, and I think this one will pass too given that it's temporary and specifically related to our health care systems.

We have a hospital that is right now in danger of closing and we have federal clinics that will likely shut down if we cannot backfill some of these losses from HR 1.

I'm sorry to hear that. Thank you for being here today.

Senator, would you like to close?

Yeah. Thank you.

Yes. This is a a local measure and Senator Laird is a champion for the district. With that, I would, please ask, for an aye vote.

Thank you so much. We are on item number two, Senate Bill one zero seven eight, author Laird, Senator McNearney presenting in lieu of, and we're looking for a motion. Okay. Seeing none, I think we're gonna put that on call and we'll move forward with your next bill. Item number eight, Senate Bill one one two zero.

Senator McNerney, when you're ready.

Allowing the witnesses, supporting witnesses to situate themselves. Thank you, Vice Chair and Committee Members. I will be accepting committee staff proposed amendments. SB 1120 will extend the California Competes Tax Credit Program through 2035 and allow credits to be refundable for certain strategic industries. Again, this California Competes Tax Credit is in place.

We just want to extend it to 2035. Cal Competes is one of the main drivers for bringing new businesses to California and keeping existing ones here. Applicants work with the Governor's Office of Business and Economic Development, GO-Biz, to develop and invest in job creation within the state.

GO-Biz then reviews applications in a competitive process to demand awardees, to determine the awardees, excuse me, and can withdraw awards if companies do not follow through with their commitments.

However, lack of refundability of Cal Competes makes the tax credits lose its incentive effect for startups that yet have to make a profit and have no tax liability. Due to companies not being able to fully monetize their awarded credit, the program has over $900 million available in incentives this year that have not been used.

Some of the industries that could benefit from this include fusion energy, something I'm kinda partial to, quantum technology, critical minerals, semiconductors, solar batteries, and zero emission vehicles. SB 1120 will allow the program to reach its full potential and bring good paying jobs and key investments to California.

Here to testify in support are Dan Kostenbauder. He's Vice President of the Tax Policy and General Counsel for Silicon Valley Leadership Group. Welcome. Elizabeth Esquivel, Vice President of Government Relations for the California Manufacturing and Technology Association.

Okay. Welcome both. You each have two minutes to present.

Thank you. Good morning, Vice Chair and Members. My name is Dan Kostenbauder. I'm Vice President for Tax Policy and General Counsel for Silicon Valley Leadership Group. The leadership group represents some of California's most innovative employers.

Cal Competes is one of California's most effective economic development tools. Two independent studies confirmed that this program actually passes tests that many tax credits fail. Cal Competes creates jobs that would not exist without it, and it has multiplier effects that can lift entire communities.

However, one aspect of the program design severely limits its full potential. Many companies that have earned Cal Competes credits are pre revenue or pre profit startups from fusion energy, quantum computing, biotech semiconductors, or zero emission vehicles.

Because such companies have no tax liability against which to use Cal Compete's credits, the credits are essentially inaccessible to them. SB 1120 fixes the Cal Compete's design issue with a targeted reform. It lets companies in strategic industries elect to make their Cal Compete's credits refundable. This is not new spending.

It is unlocking capital that has already been authorized and is sitting idle. These companies, when they reach profitability, will generate substantial tax revenue and high wage employment for decades. Refundable Cal Competes credits will help them get there.

Cal Competes already has rigorous accountability. A competitive application, negotiated agreements, milestone requirements, and recapture provisions. Only companies that have already met their milestones will be eligible for refundable Cal Competes credits. In closing, we respectfully request your aye vote.

Elizabeth Esquivel with the California Manufacturers and Technology Association, representing 45,000 companies and their 1.2 million employees here in strong support of SB 1120. As was mentioned, Cal Competes is one of California's most effective and accountable economic development tools.

Awards are competitive, tied to job creation, wages, and investment, and subject to recapture if companies don't deliver. Analysis has shown that this does drive real growth and strong economic local benefits. But right now the program is not reaching its full potential.

As the author noted, utilization has declined significantly and there are now over 900 million in unused or recaptured credits, and a key reason is structural. These credits are not refundable. That means many companies, especially manufacturers and startups making large long term investments, can't fully use them when they need them most.

For manufacturers, this matters. Facility siting and expansion decisions are highly competitive, and companies are comparing California to other states offering more flexible, monetizable incentives. When California incentives can't be used, we lose out on jobs and investment.

SB 1120 provides a targeted fix by allowing refundable credits for strategic industries like semiconductors, batteries, and advanced energy sectors that are core to California's manufacturing base and future growth. California already has taken this approach successfully with the film tax credit to remain competitive.

And SB 1120 applies that same logic to industries that are critical to our economic future. The bill strengthens a proven program, improve its effectiveness, and helps California attract and retain high quality manufacturing jobs. We respectfully urge your aye vote. Thank you.

Thank you so much. We'll now invite members of the public in support of this bill to come forward with your name, affiliation, and position only, please.

Good morning, Madam Chair and Members. Brian White on behalf of General Atomics, San Diego based entity that's involved in nuclear fusion development. We look forward to working. Strongly support Senator McNerney and SB 1120. Thank you.

Phillip Herrera, Herrera and Company, representing my semiconductor clients in full support.

Chair, Senators. Dean Grafilo with Capitol Advocacy here on behalf of the California Life Sciences in support of SB 1120. Thank you.

Ryan McCarthy on behalf of Lucid Motors in strong support.

Thank you. Alright. I'll now invite main witnesses in opposition to come forward and share their side. Seeing and hearing none. Any members of the public that would like to come forward and express their opinion, their opposition? Alright. I will bring it back to committee. Any questions from committee? Alright. We have a motion to move the bill. No questions here. Senator, would you like to close?

Yes. Thank you, Vice Chair. Basically, California is an innovation economy, and we wanna continue to do that. Companies that are startups have great potential and should be able to take advantage of Cal Competes, but they don't have any revenue and you can't take a tax credit against non revenue. So this is a real opportunity for startups to get into the game here in California. With that, I will ask for an aye vote.

Thank you so much, Senator McNerney. We have a motion. Moved by Senator Ashby. May you please call the roll?

Motion is do pass as amended to the Committee on Appropriations. [Roll Call] 3-0.

Alright. We'll put that bill on call. Thank you, Senator McNerney, and we'll keep moving down the file. I think you have one more with us. File number 9, Senate Bill 1275.

Well, this is I have to say this is one of my favorite bills this year, SB 1275. Madam chair, madam vice chair, and members of the committee, bill SB 1275 will provide a federal tax break for Californians when they buy a new or used vehicle.

Now the motivation for this bill is that, the California spends significantly more, money to the Federal Government than we get in return, and how can we, benefit California by sending a little bit less of that money to the Federal Government, in 20 in in SB 1275. This is an innovative approach, to help address that problem. As you may know, again, California is a donor state.

During the past decade, California residents paid about $29,000,000,000 more in federal taxes than the state received in return, and that was the largest imbalance in the nation when not considering the COVID spending. SB 1275 is a creative solution to help solve the donor state problem by also also providing incentives for taxpayers to buy a new car or in this case, a used car for some for some distributors.

Used car?

Be careful here.

Includes used car?

Yes. SB 1275 eliminates the general general fund portion of the state sales tax on motor vehicles for five years and replaces it with a one time addition to the vehicle license fee of the same amount that can be deducted from federal taxes. So for example, if the state tax sales tax on a car or truck purchase is 2,000, that amount would be converted to a one time vehicle license fee that consumers would pay on on the day of purchase.

Now this 2,000 fee will go to the states to your fund just as the state's sales tax, but those who itemize federal tax deductions would also be potentially able to reduce their income taxes. According to an informal analysis by the legislative analyst office, SB 1275 could reduce Californian's federal tax burden by up to $250,000,000 annually.

Joining us today is a technical witness who is neither support and opposition is Chas Alamo, principal and financial policy analyst for the LAO. Welcome, Chas. Mister Alamo will provide brief comments after and after support and opposition testimony and can answer questions from the committee. I would also be accepting committee's suggested amendments.

Thank you. Alright. So we do have two witnesses forward and I'm first gonna call for those in Any witnesses in support of this bill, please come forward. Key witnesses. Any witnesses or a member of the public?

I'd like a witness.

Okay. Give me one moment. Any so no witnesses in support? Excellent. Okay.

Members of the public in support of this bill, please come forward, and thank you. Sorry about that.

No. No problem. Craig Schoeller on behalf of Carvana. We don't have a formal position on the bill, but wanna thank the author and the committee for the amendment.

Okay. So would you say you're neutral?

Yes.

Okay. Alright. Any, witnesses in opposition of this bill, please come forward to testify. Okay. Members of the public that are in opposition.

Okay. We'll now take neutral's testimony. We have two witnesses forward. You'll each have two minutes to present. Thank you.

Good morning, madam vice chair, members of the committee. My name is Chaz Alamo. I'm the income tax analyst at the state's legislative analyst office here in, as a technical witness, for this bill. Senator McNerney reached out to our office last fall and inquired about ideas to address the state's affordability challenges and specifically ideas that would address that challenge through a mechanism by reducing federal income taxes paid by California's taxpayers. The state has a track record of these types of changes.

The most substantial policy that this committee would obviously be familiar with is the elective pass through entity tax, which allows individuals with business income to pay that income through their business corporation tax rather than the individual income tax and thereby not be subject to the federal limitation on the state and local tax deduction.

So when we were thinking about the senator's request, we needed to identify an area where taxpayers made a large tax payment that was currently a sales tax, but could instead be an ad valorem property tax. And the largest, most obvious first example for us was the purchase of vehicles, which is obviously an a large outlay for taxpayers with a large sales tax component associated with that outlay.

By instead of collecting the sales tax portion, on the the purchase of a vehicle, if the state were to instead collect the exact same amount unnoticeable to the taxpayer in an ad valorem VLF. That ad valorem VLF is then eligible to be deducted from the taxpayer's federal income taxes.

This would only affect Californians who itemize their federal income taxes. About 15% of all Californians itemized. We think that the the share of car purchasers that itemize is probably somewhat higher than that. And as the Senator mentioned in in his opening remarks, our informal sort of initial analysis suggests this might save California taxpayers about $250,000,000 per year. Again, to emphasize the motivation of the proposal is to make a policy change that for the taxpayer, they may not even recognize or notice.

So their sort of experience when purchasing a new car is only subtly changed. They might not even recognize it but rather would provide them this tax deduction opportunity that they do not have under current law. Thank you. Happy to stay for questions that the committee may have.

Okay. Alright. Thank you so much. So any questions? Thank you so much.

Any questions from committee for our author or witnesses? Okay. We have a motion to move the bill. Any other questions before we take the motion? Alright.

Senator, would you like to close?

Yes. Thank you for hearing the bill. I thank the LAO for getting involved here. And, basically, we wanna find ways to send less money to Washington. This is one of the ways we can do that.

So with that, I will ask for an aye vote.

Alright. We have a motion from Senator Ashby. Please call the roll.

Motion is do passes amended to the Committee on Transportation. Senators McNerney. Aye. McNerney, aye. Alvarado-Gil.

Ashby? Aye. Ashby, aye. Becker?

Aye.

Becker, aye. Grayson?

Aye.

Grayson, aye. 40.

Okay. And we have all members here so that bill is out four to zero. Thank you, Senator. Okay. Give our chair a moment to come back and we will review work that we've done this committee.

We're still waiting for file item five, SB 1314. And in the meanwhile, we can go ahead and bring out bills who are on call for the vote. Secretary, will you please proceed?

[Roll Call]

The bill is out. The committee will now go into recess until Senator Menjivar can ...

The committee will now reconvene. Senator Menjivar is here and ready, and able to present her bill. This is file item five, SB 1314. Senator Menjivar, please present when ready.

Thank you, mister chair. I apologize, y'all. It was a spicy bill in EQ that I had to be part of. I did not add the spice. Okay.

Hi. Good afternoon. Yes. I'm here to present SB 1314. As a state, we are confronting a youth drug crisis, from the surge in vaping among teens to the reason recent rise of nitrous oxide use, commonly known as whippets.

It doesn't help when, at the same time, we're seeing several reports from local enforcement buzzed across the state, highlighting how certain bad actors smoke shops, have been caught selling illicit substances, as well as selling to minors. In fact, just in 2025 alone, fourteen point two percent of tobacco retailers, which includes smoke shops, liquor stores, gas stations, convenience stores, deli markets, and supermarkets in the state, were caught selling to minors and young adults.

And I mentioned young adults because, if you didn't know, I just learned, that we now have a a age requirement of 21 to use tobacco products. When I was 18, we were allowed to, but it's different now. Out of them, out of all of the ones that I've just mentioned, tobacco smoke shops in particular had a higher violation rate of twenty eight point five percent statewide, in terms of violation, selling to minors.

These bad actors are taking advantage of an existing gap in our state law that does not distinguish between just tobacco smoke shops and other entities like grocery stores, gas stations, and so forth. To address this, my bill is asking to pull out smoke shops and tobaccos from the statewide definition of tobacco retailers, to place additional re regulations on their operations to safeguard communities. Because right now, unfortunately, some of these shops are located, a lot of them, near youth sensitive centers like schools and daycare centers.

I don't know about you. It's a thing that comes up a lot in my district alone, where in a middle school, you have smoke shops surrounding said middle school, but you won't have a library, you won't have other youth centers, but those are the abundant things they see on their way to school. This accessibility of minors, due to their close proximity to youth center locations, is incredibly alarming, which is why my bill is looking to do a couple of things.

First, we wanna create, like I mentioned, a statewide definition for smoke shops whose primary business is the self tomato tobacco products, that must adhere to the requirements of this bill. It would impose a default sensitive use buffer of 600 feet for schools and day care centers, effective of July 1st 2027, and will prohibit the prohibit these said entities from selling whippets, nitrous oxide, or any paraphernalia associated with that; they shouldn't be selling them in the first place. It will also authorize it, authorize CDPH and CDTFA to develop additional regulations, should they need for operation of smoke shops. Allow doesn't require. And will also preserve local control by allowing local governments, if they think the 600 feet is not strong enough, they can go above that, they just cannot go below the 600 feet.

And we're also aligning this bill with the Stop Tobacco Access to Kids Enforcement act, which includes provisions that allow CDTFA to suspend or revoke tobacco licenses who apply after a violation to this bill. Lastly, I want to flag that I appreciate the committee's feedback on this bill, and while no amendments were provided by the committee, some suggested things to work on were provided. And I have, I have taken that, and will put them into consideration.

A couple of things that were suggested is to remove the provision on giving authority to CDPH and CDTFA on doing additional regulations, and, and then ensuring that we're being specific on questions of grandfathering versus prohibition of renewals, and, of course, the workload.

So those things have been taken into consideration that I will be working on moving forward. Mister chair, here to testify, I'd like to now turn over to two witnesses.

Good morning. My name is Ivy Fitzpatrick. I'm a chief deputy district attorney with the Riverside County District Attorney's Office. Today, I'm testifying in support on this measure on behalf of the California District Attorney's Association. As a prosecutor, and also as a mother of a 21 year old and a 20 year old, I have definitely seen the impact of youth access to nicotine products and devices.

Nicotine, as we all know, is a highly addictive substance, and, as we know, it affects youth even more. They're much more prone to addiction with their, young brains. While our efforts to curtail tobacco and vaping in this state has shown some success, in fact, California has been a leader in that regard, there's still a lot more to do, especially as we're seeing a rise in, those nicotine pouches amongst minors.

Those pouches deliver very high level of nicotine very quickly and very discreetly. While California has been a leader, like I said, that the bill builds on those successes by taking important steps to establish some baseline operational requirements for smoke shops, and by strengthening the enforcement mechanisms that we have in place. So first, the bill draws a state level distinction between smoke shops, as the Senator mentioned, and other nicotine retailers. Smoke shops are different. We've all seen them.

They're different than regular retailers of nicotine products, like grocery stores or gas stations, as the smoke shops' primary business is exactly what that says, smoke. Tobacco, nicotine, vaping products, related paraphernalia. Second, SB 1314 would prohibit those smoke shops from operating within 600 feet of a school or a daycare center, restrict the sales between 6AM to 10PM. Restricting those shops, there's one near where I live as well, that's fairly close to a school., so restricting those smoke shops away from where youth congregate, especially right after school there, will provide another meaningful step, towards curtailing nicotine addiction in our youth.

Finally, the bill authorizes enforcement actions and license consequences for violations of these provisions, providing some meaningful tools to ensure there's some compliance. So CDA proudly supports this bill and respectfully ask for your aye vote. Thank you, honorable chair.

Good afternoon chair and members. Caroline Grinder on behalf of the League of California Cities. Proud to support SB 1314. For years, Cal Cities has advocated for policies that would limit the ability of minors to obtain tobacco and illegal tobacco products. According to the American Lung Association, density of tobacco retailers and neighborhoods surrounding schools has been associated with increased smoking rates, and one third of all tobacco sales take place within a thousand feet of schools.

To reduce the illegal sales of tobacco products to minors, and to prevent youth from getting addicted to tobacco products, many cities in California have restricted the location of tobacco near schools. As of 2023, we know of at least 100 municipalities that have adopted ordinances to restrict the location of tobacco retailers within certain distances of youth populated areas, such as schools and childcare.

SB 1314 would build on that momentum, creating a new statewide standard of 600 feet while allowing for flexibility for local governments to enact even greater distance requirements. Additionally, SB1314 would prohibit the sale of nitrous oxide, commonly referred to as NOx or whippets, in smoke shops. Over the last several years, we've seen an alarming rise in the recreational use of NOx, particularly among teenagers and youth.

We know, despite its legitimate uses in medical, dental, and culinary contexts, Nox is frequently diverted for recreational use due to its low cost and accessibility. Our California law prohibits recreational purposes, and Nox is commonly available in smoke shops and other retail establishments, where it's sold with little regard for the health risks that it poses to our children and youth.

We know of approximately 20 cities that have passed ordinances prohibiting the sale of nitrous oxide to date, including the cities of Anaheim, Arcadia, Fresno, and San Jose, just to name a few. SB 1314 would address the proliferation of these illegal sales by prohibiting the sale of nitrous oxide at our smoke shops.

This will allow cities and the state to ensure that it's being sold to those allowed to purchase it under existing law, and hopefully will help reduce some of the recreational misuse we've seen in our communities.

And then lastly, Cal Cities does support legislation that increases state oversight of state issued license to sell tobacco products. We support efforts to encourage CDPH and CDTFA to develop additional regulations to oversee those smoke shops, to address deficiencies in existing law, and curtail the sale of illicit products. So for those reasons, we're pleased to support SB1314 and respectfully ask for your aye vote.

Thank the witnesses. Do we have any members of the public wish to voice their support? Please state your name and organization.

Yes. Good afternoon, Mr. Chair and members. Amy O'Gorman Jenkins here on behalf of the Orange County Board of Supervisors in strong support, as well as the California Cannabis Operators Association also in support. Thank you.

Good morning, Mr. Chair. Ryan Sherman with California and Narcotics Officers Association in strong support of the bill. Thank you.

Hello again, Kim Deserpa, Second District Supervisor, County of Santa Cruz. I wrote my own ordinance to ban the sale of nitrous oxide in the unincorporated area in our county. This is a huge problem. We have multiple smoke shops when our enforcement went in.

They they're not selling any tobacco at all. It was walls and walls of tanks of nitrous oxide, and they weren't keeping any records, and they were supposed to be keeping records. This needs to be banned. Thank you for this bill. This is great. I'm in strong support.

Thank you. Do we have any any witnesses in opposition? Any members of the public, wish to voice their opposition? We will now turn to the committee. Any members of the committee?

Mister Becker Senator Becker, are you recognized?

Yeah. I think that it is a really important topic and really important bill. We had issue in the smoke shop tend to be open right across from my district office, right, kind of between our, our sort of k three and, and four eight schools. And, there was a whole lot of concern by the community.

They, there was, I forget the exact mechanism, but there were sort of various way, you know, they they hadn't followed any of the proper sort of procedures, and so that one was able to be, you know, denied. But having had kids who were recently teenagers, you know, I've also see the risks in, in, in that were, that were outlined and discussed.

And and yeah. But just kinda going through this with our very recently across from our district offices. We sort of solve the the need for more tools. So I appreciate this bill and look forward supporting it. I'll move it when appropriate.

The Vice Chair is recognized.

Yes. Thank you. Thank you to the author for making a grand attempt to curtail this crisis that we have of tobacco products available to young people, particularly around schools. Putting my educator hat on, anything that will help our, our children thrive. And I think about what you said, and I'm visualizing, you know, walking to school or getting off the bus and walking by these smoke shops.

The question I have around your bill is really around clarity. So California, we've made a grand push for universal transitional kindergarten, TK. And I don't see it explicitly in this bill, and I would just encourage you, as we define preschools and we define kindergarten through twelfth grade, that we also include those TKs because I think that's a big push for us childcare advocates, and I know that you're one, one of those.

The other question that I have is what happens to existing smoke shops that are already within that sphere? What are some of the potential consequences that they are facing with your bill?

A great question. That's one of the questions that the, the consultants even brought up with us because the language of the bill is a little bit vague right now. And it was a little bit with intention, just to have a little bit more time to clarify. Some of the options that we're looking right now is the grandfathering thing. There's a potential that we could do, I think the, the phrase is to clarify to say license or renewal is issued. So it's upon any permanent renewal for that location, potentially then at that point, they can no longer be in that, in that location if they're within the 600 buffer zone of a sensitive receptor. As it stands right now, it's still vague, working out those details.

Okay. And I think that, you know, this is a good opportunity to say, yes, you know, the, the intent is there. However, you know, how many thousands of smoke shops are already within that buffer zone. I'm sure there's some data about how you chose the 600 feet, so I think that would be helpful.

I mean, I represent a lot of small rural communities, but one of our Central Valley cities, Modesto, have been very active in closing down smoke shops, not just for the sale of illicit items, as was reported by our district attorney from City of Riverside, thank you for being here, County of Riverside. I think, you know, this is essentially sending a message to those illicit operators that we are watching and that we are going to be imposing, operators that we are watching and that we are going to be imposing civil penalties. I'm always afraid that when we make when we push on the legal market, the illicit market gets more power punches to to provide product. So I guess my question is in terms of foreseeing the the impact of the illicit market, trying to find other ways to get tobacco products to our kids.

These civil penalties that you outlined, the 1,000, 2,000, 3,000, 10,000 potentially, 20,000, where is that money going to, once the civil penalty is is assessed?

Oh, well, first, I'll talk about the 600 feet. The 600 feet we got from matching to current buffer zones like vices like cannabis, that's also at the, at the 600 feet part. And then the money goes into the existing fund that's called the Stake Act. I mentioned that in the beginning, that is the in my close almost. That is called the Stop Tobacco Access to Kids Enforcement. So it allows this fund should there be penalties to go into that fund that currently exists right now.

And in your bill, it says that the State Department of Public Health would oversee that fund. So is that where the they the money goes to that agency?

They currently oversee that fund right now.

Okay. So, so the, the potential penalties would go into that fund for the Department of Public Health to utilize.

Yes

Okay. Does your bill specifically identify what programs we would like to institute there? Because I, I'm all for prevention and education, and I think our Department of Public Health has a real uphill battle with tobacco products, which have been making huge gains since the time that I was in high school. But I'm also looking at the increased cost of penalties at the local level. Right?

Yeah. So we don't add any additional programming or grant opportunities that exist in the STAKE fund right now. We can definitely look at it. It's not in my bill. It's designated. It only says that it just goes into the existing fund.

Okay. Alright. So I, I won't be able to support today, but I am gonna continue to watch this bill because I really like the intent. I'd love to see how we are also fully funding law enforcement at the local level because I, I, I'm thinking they're gonna be some of the organizations that are gonna be looking into identifying these bad actors and then, you know, investigating and then moving to prosecution.

So just some clarity because it's a lot of civil penalties and I know in the illicit market of cannabis, for example, you know, illicit actors would rather just pay the fines and keep on going because the amount of money is that made is astronomical.

So just kind of looking at that full cycle of of where those civil penalties are gonna go and how they're being utilized.

Ivy, I don't know if you have anything on the DA's perspective in terms of that information.

Well, on a lot of these civil penalties, we do have programs in our office like with cannabis where we receive grant funds to prosecute the cases. So that would be helpful

Right

if we have further, especially because a lot of those types of crimes are prosecuted well, they're investigated by, local law enforcement like but in our office, we are primary investigation for a lot of those in a task force situation. So it would be nice like cannabis or other, regulatory task forces.

We receive grant money to prosecute those cases.

Yeah. Yeah. And, and I would agree with that. I think if we have a, a pot of money from these civil penalties that is then eligible for, for direct payment to local jurisdictions. Because again, I, I, I don't know the numbers of how many smoke shops are in which counties and which one would need it most.

But I do know that, that some jurisdictions are more aggressive attacking this issue than others. And so having an incentive to kind of build those task forces, if they're not already in existence, or to further fund those task forces so we can prosecute. Because I think that would also be a deterrent to the criminal element to say, you know, you know, we're, we're closing down operations in Riverside County, for example. So that's, that's some of my, my advice.

Thank you, Senator.

Any other member of the commitee? That being the case,

Senator Menjivar, you have been and are a very strong advocate for health care in California, and especially with regard to youth. That's very deeply appreciated. And I just wanna confirm that you're committed to working with the committee as the bill moves forward.

Absolutely. Yeah.

Thank you. With that, I'm happy to support your bill.

Appreciate it. Thank you, mister chair. A colleague is just asking for an aye vote to provide reasonable guardrails to the existing drug crisis we're seeing with our youth.