Senate Standing Committee on Revenue and Taxation

The Committee on Revenue and Taxation will come to order. Let's establish a quorum. Secretary, please call the roll.

[roll call]

We have a quorum. We will now hear from our first witness, Senator Padilla. Welcome. You may present your bill at your convenience.

Thank you very much, Mister chairman and members. Thank you for your patience. I'm pleased to present SB 420, which ensures that organizations tied to private immigration detention centers cannot claim charitable tax status and be exempted from local property taxes solely because they are organized nonprofits. For years, as you know, nonprofits have been supported through the California welfare exemption for the valuable work that they do to benefit local communities.

Unfortunately, a recent investigation in my district revealed that the Brawley Community Foundation, a nonprofit organization that owns an ICE detention facility in Imperial County, avoided paying at least $6,000,000 in property taxes through California's welfare exemption.

Although the foundation claims to support community development, create jobs in a high unemployment region, and reduce strain on government agencies, much of its activity and revenue are connected to the Imperial Regional Detention Facility, which is off operated for profit by a private prison contractor. Under this current administration's enforcement policies, this facility operates with poor conditions, solitary confinement, inadequate medical care, which has resulted in at least two in custody deaths.

Subsidizing these facilities with charitable tax exemptions at the expense of local schools and local services betrays the community that this nonprofit alleges to serve. This bill closes that loophole in our rev and taxation code by preventing organizations connected to immigration detention or deportation efforts from qualifying for charitable property tax exemptions in the future. This bill protects taxpayers from having to subsidize these detention operations, which are operated solely for profit.

This bill passed in the Assembly with broad bipartisan support. I'm joined today by Jennifer Fearing on behalf of the California Association of Nonprofits.

The first witness may proceed.

Thank you. Good afternoon, Chair McNerney and members. Jennifer Fearing on behalf of Cal Nonprofits in support of Senate bill 420. Cal Nonprofits, as you know, is a statewide policy alliance of more than 10,000 organizations and the voice of California's nonprofit community. The California welfare exemption is meant for charitable nonprofits, but the case at hand is enabling a taxpayer subsidy of at least $6,000,000 associated with operating as the landlord for an ICE detention center.

As our CEO, Jeff Green, observed in the KPBS report regarding the Brawley Community Foundation's ties to this facility, quote, that does not, to me, sound like a charitable purpose. Abusing the tax code in this manner is harmful to the nonprofit sector. Our sector relies heavily on public trust and the understanding that tax exemptions are granted in exchange for genuine public benefit. When a charitable designation is used to shield multimillion dollar private prison contractors from local property taxes, it degrades the public's confidence in legitimate nonprofits.

And by siphoning away millions of dollars of property taxes under the guise of charity, these operations directly deprive local municipal budgets, public schools, and community infrastructure of vital funding.

This forces actual community force focused organizations to stretch even thinner to fill the gaps. SB 420 clarifies existing law to declare that a property is not considered exempt when any part of it operates as a detention center run by a for profit company. Without SB 420's reform, taxpayers may continue subsidizing ICE detention facilities through reduced property taxes.

We see SB 420 as a necessary common sense fix to protect the integrity of California's welfare exemption and ensure public resources are reserved for actual public good. We thank the Senator for introducing this legislation, and Count On Profits is in strong support.

We urge your yes vote.

I think, Jennifer. Thank you for that testimony. Are there any members of the public that wish to offer their support for this bill? If so, please state your name and your organization.

Thank you, Mister Chair. Members, Robert Grossklauser with the California Assessors Association in support.

Thank you. Any other members of the public? Are there any primary witnesses in opposition? Seeing none, are there any members of the public that wish to voice their opposition? Seeing none, I will ask members of the committee, for comments or questions.

Motion. The vice Chair is recognized.

Thank you. Wanna just lay the groundwork that I do not agree with tax exemptions for nonprofits operating ice detention facilities. I think that is problematic. Looking at this bill, I have to cite the investigation by KPBS, which really did open up the the faults, if you will, in current law. However, the BOE initially questioned the Brawley Community Foundation and said and qualified them for the welfare exemption because its subsidiary was created to construct and operate the facility, which was argued to constitute a public good.

So by the BOE approving the foundation's application 2015, it seems that that allowed the Imperial County assessor to grant the welfare exemption ten years ago. So now, here we are ten years ahead. We have a better understanding of the impact of that law. You call it a loophole. I call it a translation.

Exceptional job with legislation in Imperial County. And I want to support this bill, but I do want to lay kind of the my concern. My concern is retroactive punitive action. Right? We have an organization that for ten years has been grounded this exemption.

Can we can we use language or remove language to this bill that would make it more proactive and less punitive in this retroactive state? Because that's my general question.

Mister Mister chairman, Senator, thank you for the question.

I I would just respond by saying the bill is not punitive or retroactive and that it corrects I mean, I would argue based on the record here that we've been uncovered in part because of media attention and investigation, that that determination by the OE was probably in error, that there was a reversal between staff and Board decision making under their current rules, and then that also was something that led to some erroneous decision making on the part of the local assessor.

So I just I just think going forward, you know, we wanna make sure that we're clear in statute that this is nonqualifying. And these are not this is not the kind of public benefit for which the exemption was designed.

K. Is the intent of this bill to close the detention facility or to protect the tax dollars that are currently not being collected for this purpose?

Mister chairman, so the question of the detention facilities viability and operations is a question that has to do with its for profit health and its contracts with the Federal Government. I am you know? And and that is separate a separate question from this bill. This bill does not address that. It is the bill addresses whether or not going forward these types of facilities are appropriately qualified for this exemption.

In your experience, do you believe that there are more of these exemptions throughout the state of California, or is this an isolated incident? What what are your what's your your gut tell you on this?

I can't speak to that personally, Senator.

I don't have personal knowledge about an inventory of of possible violations or inconsistencies with current law that are undertaken or exploited by current nonprofits, but I can tell you that given that, a, this seemed pretty egregious to the tune of 6 plus million dollars in tax relief given the nature of the enterprise and the operation, and secondarily, the fact that it was and there was an extensive investigation in the press that you cited and that it exists in my district.

I think those things are are what, you know, brought my attention to it, certainly.

Yeah. I I think that's fair. For your witness, you know, you have a wide knowledge about the nonprofits here in California, and I think, you know, the majority of them do do a lot of good. Are you seeing this as an isolated incident? Or are you seeing this as, kind of a trend that the the law, forgave

for

the past five years, or ten years, I can say?

Well, I think we were relatively shocked, by the call we got from KPBS alerting us to this, and you heard our kind of unequivocal statement by our CEO. He can immediately question the charitable purpose of this. I'm it is not in my fourteen years of working for account nonprofits come to my attention that there are, an abundance of similar, and I would it may be slightly broader.

I'm not aware of any that are doing kind of ICE detention work in this strange kind of nonprofit cover for a for profit sort of arrangement. I don't we don't think that there's widespread, or even much, reason to question the welfare exemption in the way that it is typically claimed and applied.

This is an egregious circumstance.

So I think for me, this is an example of how democracy is supposed to work. The people of California expose a wrong, and it become it's investigated publicly. We question whether there's decisions that were made by elected bodies in the past that impact the current state, Vibacious and experienced representative from the district says, yes, this is a problem that I can solve and brings it forth the body. What are we? Four days before the end of session.

I typically do not like gutting the bends. But I think the word for me that really hit was egregious. I think, an an egregious wrong, that creates a stain for nonprofits. I am a huge champion of nonprofits, and I believe that we they need to exist, and coexist, I think is the word this week, with with public and and private entities. I I am shocked about this.

I think for me, my concern is gonna be the retroactivity. However, we're not a court of law. This is about tax and revenue and taxation. So I am gonna support the bill where I otherwise would would lay off. But I think the egregious nature of this really relies on us having a a consensus here on the board.

So thank you.

The vice Chair yields back. No other comments. Senator Padilla, thank you. Oh. Oh, I'm sorry.

Thank you, Senator.

Well, I I think the the author, and I agree with the comments of the vice Chair, that this is the the responsibility of elected officials to, right wrongs that are, obvious in their districts. It's unacceptable that the tax authorities would, believe prisons used to enforce the president's immigration policies are charitable. That's that's a that's a I don't know if it's a misnomer or on, but it it doesn't work with me.

Thankful, thankfully, the voters in your district have someone that that is diligent and cares about this and and took quick action. And I thank you for allowing me to be a co author.

I am happy to support your bill. And I heard a a motion earlier, so I think we're ready, for a vote. Senator, would you like to close?

Respectfully ask for a nay vote.

Thank you. So, secretary, will please call the roll.

Motion is that the Assembly amendments be concurred in. Senators McNerney? Aye. McNerney, aye. Alvarado-Gil?

Aye. Alvarado-Gil, aye. Ashby Becker?

Aye.

Becker, aye. Grayson? Aye. Grayson, aye. Four zero.

The vote is four zero zero. The bill is out. And with that, the the committee will now, come to adjourn.