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SB 974 Analysis

Even though SB 974 was held from today’s Assembly Jobs Committee hearing, the Jobs Committee has nevertheless published its analysis of the bill. It is an unusually long and detailed bill analysis and may be one of the most comprehensive things written about the program to date.

There is a lot of material there, so here are some of the highlights. Regarding the proposal to eliminate the TEA, the analysis provides the following perspective:

The high usage of the TEA designation is related to a number of factors. One of the most significant advantages of the TEA over qualifying an employee under the other criteria is the employer’s ability to more easily access the appropriate documentation for submitting the certificate application. As an example, to demonstrate that an employee qualifies as a resident of a TEA, an employer has the option of submitting a copy of the employee’s driver’s license or state identification card.

By contrast, in order to demonstrate that an employee qualifies for the other eligibility categories, employers have to ask employees to provide them with copies of sometimes very personal documents, such as bankruptcy documents, physician’s statements, letters from parole officers, and public assistance records. Some employers have voiced concerns about asking an employee questions regarding his or her personal history, as it could be perceived as violating the employee’s right to privacy.

Further clouding an accurate understanding of which employees are being advantaged by the program is the fact that an employer certifies an employee based on a single category of eligibility – not multiple categories of worker eligibility. This means that to the extent that an employee is living in a TEA, is a Vietnam Veteran, a member of a federally recognized tribe, was unemployed and receiving assistance at the local One-Stop Career Centers at the time of employment in a company located in an enterprise zone, the current data system only registers that employee meets one category of eligibility – most likely that being the employee lives in a TEA.

And regarding the proposal to require voucher applications to be filed within 28 days and received within 42 days:

SB 974 proposes to limit the time to apply and receive certification of the employee’s eligibility to 28 and 42 days, respectively. This alternative timeline is based on the federal Work Opportunity Tax Credit (WOTC) which has a 28-day timeline for submitting a certification application to the Employment Development Department (EDD).

The comparison of the state and federal programs is, however, not well matched. As an example, under the federal credit the business has no meaningful documentation requirement as is required under state law. The business is only required to ask a job applicant to sign a waiver that gives EDD permission to check on whether the employee’s background qualifies the employer for a hiring credit. EDD then has the responsibility for researching and verifying eligibility. Another difference between the two systems is that under the federal credit, submission of the certification application is free.

State law, however, permits the local zone and requires the state to charge a fee on every voucher. Local fees range from a nominal cost to $100 per certificate application. The state charges a fee of $8 per certificate application, however, pursuant to current budget discussions the fee is expected to be increased to $15 resulting in 100% of HCD costs associated with the program being covered. Given the level of fees per employee, some businesses choose to not apply for a certificate until they know that both the employee is eligible and that the credit is needed to apply to their tax return. Existing law allows tax payers, in general, to apply a hiring credit on an initial or amended return.

Another timing issue is that state law requires that an employee has worked at least 50% of the time in the zone during the year and that 90% of his/her work be directly related to the business’s trade in the zone. For companies with multiple locations or for an employee that works out of the office, it is not until the close of the tax year that eligibility can be established. Another related state law requires that employees be retained in the job for not less than nine months. These requirements suggest that employers are unable to know which employees can meet the qualifications for credit eligibility until the close of the calendar year.

The ease of the WOTC federal application process has perhaps also led to a very inefficient program, from an administrative standpoint. In 2009, 125,777 requests for certification were made to EDD; 43,223 certifications were issued and 50,292 were denied. Local enterprise zone administrators say that the state program, requiring both documentation and fees prior to submission of the certification application, results in a much higher certificate approval rate and less waste of staff time reviewing applications.

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