April 8, 2026 · Rev Tax · 19,835 words · 23 speakers · 277 segments
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, Mr. Chair. Good morning, Mr. Chair and members. Senate Bill 1277 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 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 roughly means that 7 million Californians are struggling to make ends meet. At the same time, the state ranks last in housing affordability, with the medium 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, Californians pay the highest gas taxes in the nation, often paying 50 to 60 cents more per gallon in the state gas taxes alone compared to drivers in other states. Energy costs are also 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 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 $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 efficient mechanism to provide broad-based relief without creating new ongoing state programs. I apologize. At a time when inflation and state-specific costs continue to outpace wage growth, this 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. SB 1277 may not solve every affordability challenge that we face but it a meaningful step forward to easing the burden and helping Californians stay afloat in an increasingly expensive state With me here to support SB 1277 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.
Will the Secretary call the roll? Senators McNerney.
Here.
McNerney, present.
Alvarado Gill.
Here.
Alvarado Gill, present.
Ashby.
Becker.
Here.
Becker, present.
Grayson.
Here.
Grayson, present.
Here. May I have a quorum?
Here. Chair and members of the committee, thank you for letting me be here. Lance Christensen of the California Policy Center. We're pleased to support SB 1277. California Policy Center doesn't often weigh in 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 government long enough to know how hard this is. But SB 1277 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 million 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've filled up recently. Californians pay the highest price in gas, even as we have some of the biggest reserves in the nation, just in our own backyard. 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 stretched 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 action. In fact, a recent study showed that 37% of 18- to 34-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 billion in wealth that's going to 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 unburdened costs. But SB 1277 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 thank the witness, and I'm going to call up any additional witnesses in favor of this bill. I'm also going to present in 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, Lian,
both in support. Thank you. Thank you so much. Any other members of the public wishing to speak in support Seeing none I like to invite any witnesses in opposition to this bill to come forward please Thank you so much We ask for your name your organization and you have two minutes to present Thank you so much. Good morning.
Danny Kando-Kaiser on behalf of the California Tax Reform Association in respectful opposition to SB 1277. California already has a very progressive income tax and provides substantial 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. All right. 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.
Thank you.
My name is Jen Druick. 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.
Syrah 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. Any more members of the public wishing to speak in opposition, please come forward. Seeing and hearing none, we'll bring the questions to the committee. Committee members, questions?
We'll do 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've had a hard time being able to reconcile between the benefit versus the cost. And of all the people, I would thoroughly invite 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 hardest hit by this and I 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 going to be very difficult today to support this in committee 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.
Senator?
Sure. Thank you. I do want to thank you for bringing this up. These are exactly the discussions we should be having. And as you know, a lot of our work here is tackling some of the major issues that you raised, housing costs, energy costs, insurance costs. I've got an insurance committee later today. we had to pass a 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 a lot of these areas and yeah, appreciate you very much representing folks in your community and really folks across the state who are suffering right now and I'm happy to engage in some broader conversation about tax reform as well I do appreciate some of the comments that were made here by the opposition in the sense of 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, potential mechanism in this bill, about the earned income tax credit and folks who don't claim the earned income tax credit. And how can we – it's sort of been a focus of my work and some others. How do we get more people to take that up? Because that was really – that is something that's meant to address people who are working and – but might not qualify for some of the – some programs. But they're working. They make sure it's enough. But this is – the earned income tax credit is a way to get them – give them a leg up. And I think this raises the point that, number one, we have to do a better job of promoting that, and number two, but it does raise some questions, I think, about the mechanisms in here. I mean, well, we did have budget surpluses. We did move forward and give a refund. I think we learned some stuff in that process, but that was also, I think, somewhat problematic in terms of the mechanism. And then did people recognize the card and understand, you know, what the process was and that this was not a spam email, that this was something that was actually valuable or mail, that this is something they should open and use in cash. So again, and I will also just echo the last concerns also around our schools. So much of our budget does go to education. And we're at a point now where hopefully the budget with some additional tax revenues can get close to balance this year without major cuts. But we're not in a position right now where we can do something like this without some other major cuts in other places. So 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 want to 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 need help to understand the opposition 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 states' high cost of living. Now, I'm an educator myself, and I will tell you right now, educators are the most underpaid, undervalued, an increasingly cost-burdened group of individuals in California. And God bless you that you have not given up on our 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 our own comptroller's office admits that 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 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 Erb Morgan streamlined $425 billion in potential cash burning fraud in California. If you were to take $425 billion and divide it between the 40 million 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? Burning cash in health care, in unemployment insurance, in homeless spending, in infrastructure. Homeless spending. We have spent over $24 billion dollars. In this, I have done the math. We have approximately 187,000 homeless individuals in California. If you divide $24 billion 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 an 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 hardworking, 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. 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 a laudable goal, but again, this is the stance that the entire board of CTRA takes.
Sorry, we have one witness that has stepped forward, so thank you so much. So thank you for that response. And 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 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 respond to that I mean I assume that you know the argument could be made But again
you know, we're looking at critical services that are funded by the general fund in the state. So perhaps there is a balance, but we just really don't want to do any more harm to the general fund, especially when we're, you know, we're all looking at a historic, you know, budget deficit.
Absolutely. And, you know, I look at the budget deficit as well. And, you know, I'm just thinking, like, if we were to put our thumbs on where that $425 billion 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 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 cover the cost of living from month to month. It still baffles me. This question is for our author. you mentioned that this would be a cost relief for our constituents, and I see that 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, 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, but also more individuals on Medi-Cal 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 costs, 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 2022 middle class tax credit, and that is something that they are aware of. They don't need to be educated on. A lot of people in the state of California are 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 want to comment on your comments on fraud and waste and abuse and the estimates of billion in fraud what 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 and change, so roughly $560,000 on social media outreach, and that garnered them 14 followers. Well, that's roughly $40,000 of taxpayer 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 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 the committee?
Yes. Yeah, thanks. I do have to address the narrative we just heard because it's incredibly damaging to our state and incredibly unfair. The comments that were just made play into really a national campaign to somehow depict California as a place where lots of fraud is taking place. outrageous numbers, which we just heard, some 1.4 billion. I mean, just absolutely baseless, no evidence, 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 that we have to 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 125 million from healthcare of 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 really don't know what to say. It's just – I think it's just trying to play into a national narrative to paint the state in a bad light. And I think it's really unseemly 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 to 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 an alarming rate. It's estimated that his pardons across the two terms have denied $2 billion to victims of restitution, forfeiture and fines. He just pardoned one of the biggest hospice and health care fraudsters around who also had purpose. fraud in California. So anyway, just have to really push back on that narrative. Are there ways, you know, that I feel we could be spending money more efficiently and effectively in the state? Of course there are. Are there certain decisions that I personally disagree with? Yeah, 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 really just not right. 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, 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 that response, if you're still willing to give that response so that I can hear it as a committee member 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 question of a member of the audience. So I think there was an opportunity to make a 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 and no other member came forward. 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 seat my seat at the table to my colleague who can speak directly as she does represent directly the teachers.
I am the administrating lobbyist, contract lobbyist for the larger board. I would be happy to seat my time to her.
Thank you so much.
Please, the vice chair.
Thank you, the vice chair. Yes. Unfortunately, it's not about seating time. It's that we allow two witnesses 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 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 was the decision that she made to participate in that manner.
Madam Vice Chair, I'd like to call for a recess.
All right, we'll take a three-minute recess. 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 I ask you to come to the table to participate in the question and answer All right 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.
Thank you. Through the Vice Chair. Yes. Thank you, Senator, and thank you, Madam Vice Chair, for allowing me the time, and thank you, Senator Groh, 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 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 90 minimum guarantee. Teachers oppose bills that even would benefit them. So even like teacher tax credits, we oppose that because it's going to deduct the overall amount of Prop 98 dollars going to education. So I hope that that helps clarify your question.
Is that a clarify question for you? Yes, and I moved a question, moved previous question.
Thank you.
I am going to 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 the question.
You want to make a motion?
Second. I make a motion to move to the previous question.
Okay.
I'm going to 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.
All right, 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 of blanketly opposing all tax credits. And I wonder, to our witness, Mr. Christensen, you're also an educator. You also come from the educator's 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? What is it getting out of it? Really? This year, we're going to spend about one hundred forty nine billion dollars, the highest level we've ever spent. And our enrollment and ADA has declined steadily in California for public schools. So we're spending more dollars on fewer students and anything. The results for education at this point in time are pretty flat lined 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 in House Resolution 1, the President of the 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 opting to 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 Groff 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 and moving on in the process.
Thank you. 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 the government was functioning. 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 controller'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 medium 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 a functioning government. So I want to 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. He denied the motion. 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 tax credit, the 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. My office just helped constituents that lost their rental property because it had gone up an additional $600 a month, $600 a month to people who make minimum wages, 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. All right, we'll now move to a motion. All right, Senator, we're going to 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. Thank you. Thank you. Thank you, Madam Chair. All right. I do see some other authors here in the room going in file order. Let's see. I didn't see. Oh, got it. Okay, item number four, Senate Bill 1287. Senator Ruttado.
Good morning. Thank you, Madam Chair and members. I'm here to present 1287. I want to start off by thanking the Chair and the Committee Consultant for all the incredible work that was done on this bill, and I will gladly be accepting the Committee's proposed amendments outlined in the analysis. SB 1287 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, right movement and 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 million annually, if fully utilized, these investments are expected to generate new economic activity, increase 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 and Wyoming and Ken Beard, president of the California Short-Line Rail Association. And we also have Justin Bentas with Mickelson & Company available to answer any technical questions related to tax credits.
I think the Senator and witnesses may proceed.
Is it on? Okay, there we go. Mr. 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 Ysidro, where we go into Mexico. I want to thank the senator for bringing this bill forward. I also want to thank her staff and members of the committee staff for all their help and robust questions and debate on how we arrived at this final project and for the amendments that are presented. As the senator said, short-line railroads, we're 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 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 Short Line Railroad Improvement Plan that was published in 2019. I do want to point out the short lines in the state operate, generally produce less revenue than the Starbucks in 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 this state accomplish some really important transportation goals. Many of the short-line 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 this bill and a further public-private partnership.
Would you please wrap up your presentation?
Yes. In short, this bill creates a targeted performance-based 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, I would urge an aye vote as committee, and thank you, Senator, for bringing this bill forward.
Good morning, Mr. Chairman, Madam Vice Chair, and the members of the committee. My name is Kenan 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 20 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 I partners after they had been neglected and maintenance had been deferred for many years. These railroads have brought new life to these branch lines. Today, they continue to require significant investment to remain safe, reliable, and economically viable. Short lines typically spend more than 85% of their revenue on the operating of the railroads. That leaves very little for improvements, such as rail improvements, bridge upgrades, and safety. Bills like Senate Bill 1287 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 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 Shortline railroads are vital to California rural communities and agriculture. All major ports in California are served by shortline railroads. In addition, shortline railroads connect disadvantaged communities to the National Freight Rail Network. Shortline railroads operate transloads 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 thank the witnesses. Are there any other witnesses in support? Would you please state your name, organization, and your support level?
Clifton Wilson on behalf of the Pacific Merchants 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 Attraction Company in Modesto, California, and we support this bill and ask for your support as well. Thank you. Good morning. Justin Bentis with Mickelson & Company. We support the bill. Good morning. Kenan Beard with Sierra Northern Railway, Director of Government Affairs, and we also support this bill. Good morning. Dennis Albionni, California Grain and Feed Association, Association of California Ag Farmers. We support. Thank you. Good morning. Good morning. Jesse Uguy Tafa with the San Joaquin Valley Railroad, and we support this bill. Javier Arias, California Northern Railroad. I will 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. Danny 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 long-standing 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 push 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, oppose.
Anna Cordero, 8th grade history teacher in San Luis Obispo County and CTA member, respectfully oppose.
Kevin Kong, member of the California Teachers Association, teacher in Los Angeles, and I oppose.
Hi my name is Sarah Espinosa, I am a teacher in Los Angeles, member of CTA and I oppose.
My name is Jen Druick, 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 and their respectful positions We now turn to the committee Any committee members wish to speak on the bill
Seeing none, Senator, I want to thank you for bringing forward the bill. Shortline railroads link communities to the national rail system. They say 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 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, SB1407 by Senator Archuleta. Thank you for coming to our committee, and please proceed. And I welcome the treasurer to the committee as well.
Yes. Thank you, Mr. Chair and committee members. Thank you so much for having me here today with my esteemed State Treasurer, Vanna Ma. And I would like to again thank you all. And 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 want to thank state treasurer Fianna Ma for co-sponsoring the bill and joining us here today. Veterans all over California are struggling as we've heard earlier this morning. Individuals struggling but 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 Fianna Ma as my counterpart and co-sponsor in the Assembly Assemblymember Shiavo 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. This bill will exempt a veterans military retirement pay as well as a surviving spouse's benefits payment from state taxes. For too long our veterans have been faced with a difficult decision. Stay in this beautiful state of California while struggling to make ends meet while rising costs of living or more or to a state that financially 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 got to stop that This bill is also a labor 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 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 January 31, 2023, about 127,000 military retirees in California received a total monthly payments of over 362 million dollars 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 receive total monthly payments of just over 39 million or about 468 million 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 40s, generating new state and local tax revenues. those second careers as a retire through second careers a retiree household can contribute 50 thousand to a hundred thousand dollars 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 20 years more likely are going to 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 Mr. Chair for allowing me to make that adjustment in our negotiations. I've heard from far too many veterans, my brothers and sisters who I've served with as a veteran, that it's 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 a 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 exception, 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 of Yenema and Admiral Boone Who will be testifying this morning? And I think 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, Mr. 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.
All right. Thank you. Thank you, Mr. Chair. So State Treasurer Fiona Ma, over the past eight years, I'm the banker taking over $3 trillion, 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 Revin 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, L.A. County, and even Yuba. County. And the average retirement 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, you know spending sales taxes and other revenues here in the state And it creating jobs We have VA hospitals We have over 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 community. My name is David Boone. I am President and 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 earned significantly more taxable income that could be taxed if they stayed in California Retaining veterans would also serve to bolster our struggling workforce 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 jumpstart 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 Kuda I'm a 30-year army veteran retired I am also the leader of the veterans of foreign wars for California and I represent and serve over 1.6 million veterans. I am highly in favor of this bill. Please, I ask for a vote of yes. Hi everyone, my name is Norma Christensen. I'm a member of VFW Post 67. I'm a 34-year Army veteran. I support SB 47. I did write a note. Hopefully I can read it really quickly. As an honorary retiree, this is beneficial to my family and federal veterans. We are seeing an exodus of veterans to other states because they do not take the military retirement. I personally know four of my veteran friends who have moved to other states because of that benefit. Let's help 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 Tamara Fleury. 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 and members. My name is Seth Reed with Reed Government Relations, representing American Legion, Department of California, AMVETS, Department of California, California State Commanders Veterans Council, Military Officers Association of America, and the Vietnam Veterans of America. Thank you. MR. Good morning, committee. My name is Jerry Rogers. I'm a 26-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 Druick, teacher at Woodland High School in Yolo County. As an 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, member of CTA, and I rise in opposition.
Any other witnesses in opposition? I'm saying one.
Danny Kandokaiser on behalf of the California Tax Reform Association and 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. Thank you, Senator. I appreciate your leadership on this topic. We've had many discussions about 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 do want to 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 so we don't bust the budget but also do we give the veterans the support they need to remain in California. Senator would you like to close? Thank you Mr. 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 going to let them go? Are we going to 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 20 years are now going to 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 $100,000 and more, it's going to 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 going to keep you in California. Mr. Scherer, thank you, and I urge an aye vote.
Well, I thank the senator for that closing. We've had a motion. Would the secretary please call the roll? Motion is due pass as amended to the Committee on Military and Veterans Affairs. Senators McNerney.
Aye.
McNerney, aye. Colorado Gill. Aye. Colorado Gill, aye. Ashby, Becker, Grayson, 2-0. 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 6. SB 1348, Senator Gonzalez. I'm sorry, SB 1349. Proceed and ready. Thank you.
Good afternoon, Mr. Chairman members. I want to 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's Office to do a review of our state's greatest tax expenditures. California spends approximately $94 billion 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 a more comprehensive fashion. I know there's a ton of reports, but we want this to be more comprehensive. So beginning in 2014, SB 1335 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, tax credits created before 2014 do not have to adhere to that standard. So it leaves gaps in the information. And so 1349 directs the 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-Kaiser 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 2025-2026, the Department of Finance estimated about $94 billion 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 $5.6 billion from schools. For every $1 billion 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. I'm Danny Kando-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 tax system that will improve equity while providing a stable and fair tax base for the state and local government And for those reasons we are a 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, 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 thank 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, Mr. Chair, committee members, Aaliyah Griffin with the American Federation of State County Municipal Employees, a proud co-sponsor of this bill, in support. I'm Arian Adam Chikova, a 24-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 Truffaut with the League of California Cities in support.
Paula Merrigan, CTA member, Castor 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 17-year 8th grade history teacher, rise in support.
I'm Kevin Kung, CTA member, been a teacher for 28 years, chemistry teachers in Los Angeles
at Palisades Charter High School and I support. Alan Blanchard, CTA member, 33 year teacher, Woodshop in Hanford and I rise in support.
Jay Mason, 19-year music teacher from Dublin, also a constituent of the chair, rising in support of this measure.
I'm Bandle Chansey. I've been teaching elementary in Long Beach for over 25 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.
Brittany Ward, elementary teacher in Twin Rivers Unified School District and part of California Teachers Association, and I'm in support of 1349. Nico Vaccaro, special education teacher in the Thomas Unified School District and a CTA member. I'm in support of this bill.
Syrah Espinosa, seven-year transitional kindergarten teacher, a member of CTA, and I rise in support.
Jonathan Gardner taught physics for 18 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 Druick I an 18 teacher in Woodland and a member of the California Teachers Association rising in support I thank 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, you know, 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 asks 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 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 not able to do what we're
asking them in this bill? No, not at all. 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. So this is in addition to, not removing it from the review board to the LAO, but
providing in addition to? We're asking the LAO to conduct the analysis 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.
All right. Thank you.
Senator Gonzalez, thank you for bringing this forward. we always need to look at how we're using 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 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, Mr. Chair. We're happy to continue working with you and certainly take those amendments in the next committee. I'm happy to support your bill.
Senator, would you like to close?
I just want to 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? Do we not? The bill is now on call. Thank you. I thank the witnesses and I thank the senator. What do we have? We have a bill, file item 1, SB 974, which is consideration for consent. Do we have a motion by Senator Ciarto? Do we have a motion? So moved. Moved? Okay, will the Secretary call the roll? The motion is due passed to the Committee on Appropriations. Senators McNerney.
Aye.
McNerney, Aye.
Alvarado Gill.
Aye. Alvarado Gill, Aye. Ashby, Becker, Grayson, 2-0. The consent calendar is on 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, and two of my own.
Thank you, Senator McNerney.
With your permission, file order, can we call file item number two?
Senate Bill 1078 by Arthur Laird?
Yes.
Okay, so presenting on behalf of Senator Laird, thank you to Senator McNerney. We will hear now Senate Bill 1078. Thank you. Good morning, Vice Chair and committee members. Today I'm presenting Senate Bill 1078 on behalf of Senator Laird. Senate Bill 1078 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 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 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 1.5%. 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 DeSempre, please proceed. Welcome, Supervisor. You'll have a few minutes to present. Thank you. Thank you to the vice chair and members today. I'm Kim DeSempre. 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 1078, 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 million 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 H.R. 1. 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 the 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 43% 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 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 cents of every property tax dollar. We've lost $6 million due to online sales tax and distribution centers, and we have $80 million 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 County of Santa Cruz. Thank you. Thank you so much. 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 medical managed care plan serving Santa Cruz County in strong support Thank you so much All right Any other witnesses in opposition Please come forward All right. Seeing none. Members of the public wishing to express their opposition to this bill. Please come forward. Hearing and seeing none. We'll bring questions back to the committee.
I don't have any questions, but I do have a comment to your witness. It'll be brief. I currently see that the 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 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 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 HR1.
I'm sorry to hear that. Thank you for being here.
Yeah, thank you. Senator, would you like to close?
Yes. This is a local measure, and Senator Laird is the 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 1078, author Laird, Senator McNerney presenting in lieu of, and we are looking for a motion. Okay. Seeing none, I think we're going to put that on call and we'll move forward with your next bill. So item number eight, Senate Bill 1120.
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. CalCompetes 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 CalCompetes 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 million available in incentives this year that have not been used. Some of the industries that could benefit from this include fusion energy, and I'm kind of 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 and support are Dan Kosenbauer
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. Welcome both. You each have two minutes to present. Thank you. Good morning, Vice Chair and members. My name is Dan Kostenbatter. 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. CalCompetes 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 CalCompetes 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 CalCompetes credits, the credits are essentially inaccessible to them. SB 1120 fixes the CalCompetes design issue with a targeted reform. It lets companies in strategic industries elect to make their CalCompetes 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 CalCompetes credits will help them get there. CalCompetes 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 a refundable CalCompetes credits. In closing, we respectfully request your aye vote. Thank you. Thank you. 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, CalCompetes 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 investments can 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, improves 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, a San Diego-based entity that's involved in nuclear fusion development. We look forward to working strongly in support with Senator McNerney on SB 1120. Thank you. Philip Herrera, Herrera & Company, representing my semiconductor clients in full support. Chair, Senators, Dean Grafiel with Capital Advocacy, here on behalf of the California Life Sciences in support of SB 1120. Thank you. Thank you. Ryan McCarthy on behalf of Lucid Motors in strong support. Thank you. All right. And I'll 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 opposition? All right. We'll bring it back to committee. Any questions from committee? All right. 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 want to continue to do that. Companies that are startups have great potential and should be able to take advantage of CalCompetes, 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. Can we please call the roll? Motion is due pass as amended to the Committee on Appropriations. Senators McNerney?
Aye.
McNerney, aye.
Overado Gill?
Aye. Overado Gill, aye.
Ashby?
Aye.
Ashby, aye.
Becker, Grayson, 3-0. All right. 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. Okay.
Thank you.
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 Vice Chair and members of the Committee, Bill 1275 will provide a federal tax break for Californians when they buy a new or used vehicle. Now, the motivation is that the bill The innovation for this bill is that 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 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 billion 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 providing incentives for taxpayers to buy a new car, or in this case, a used car, for some distributors. Be careful here. Any clues to score? SB 1275 eliminates the 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 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 would go to the state's general 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 Californians' federal tax burden by up to $250 million annually. Joining us today is a technical witness who is neither support or opposition, is Chas Alamo, Principal and Financial Policy Analyst for the LAO. Welcome Chas.
Mr. Alamo will provide brief comments after support and opposition testimony and can answer questions from the committee. I would also be accepting committee's suggested amendments.
Thank you.
All right. So we do have two witnesses forward, and I'm first going to call for those in support, and then I'll do the technical. Any witnesses in support of this bill, please come forward. Key witnesses. Witnesses or a member of the public? Not a key witness. Okay. Give me one moment. 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 Scholler on behalf of Carvana. We don't have a formal position on the bill, but want to thank the author and the committee for the amendment. Okay. So would you say you're neutral? Yes. Okay. All right. Any witnesses in opposition of this bill, please come forward to testify. 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's office here as a technical witness for this bill Senator McNerney reached out to our office last fall and inquired about ideas to address the state affordability challenges and specifically ideas that would address that challenge through a mechanism by reducing federal income taxes paid by California 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 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 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 itemize. We think that the share of car purchasers that itemize is probably somewhat higher than that. And as the senator mentioned in his opening remarks, our informal sort of initial analysis suggests this might save California taxpayers about $250 million 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 all right 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 all right senator would you like to
close. Yes, thank you for hearing the bill. I thank the LAO for getting involved here. And basically, we want to 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 due pass as amended to the Committee on Transportation.
Senators McNerney. Aye.
McNerney, aye. Over at O'Gill.
Ashby? Ashby aye. Becker? Aye. Becker aye. Grayson? Aye. Grayson aye. 4-0.
Okay. And we have all members here, so that bill is out. 4-0. Thank you, Senator. Okay Give our chair a moment to come back and we will review the work that we done in this committee We're still waiting for file item 5, SB 1314. In the meanwhile, we can go ahead and bring out bills that are on call for the vote. Secretary, will you please proceed? This is file item number one. This is the consent calendar. And to clarify, motion is to adopt the consent calendar that is going to health. Current vote is 2-0. Chair and Vice Chair both voting aye.
Senator Ashby.
Aye. Ashby, aye. Becker? Aye. Becker, aye. Grayson? Aye. Grayson, aye. 5-0. Consent calendar is adopted. The consent calendar is adopted. Now moving on to file item 2. So move the item. Will the secretary call the roll? Motion is due pass. Senators McNerney? Aye. McNerney, aye.
Alvarado Gill? No. Alvarado Gill, no. Ashby? Aye. Ashby, aye. Becker? Aye.
Becker, aye.
Grayson?
Aye.
Grayson, aye.
4-1. The bill is out. 4-1, the bill is out. We will now move to file item 3, SB 1277. Secretary, please call the roll. I think I need to make a motion. Oh, yes. Do we hear a motion? I move. Okay. Will the Secretary now please call the roll? Motion is due passed to the Committee on Appropriations. Senators McNerney?
No.
McNerney, no. Alredo-Gill?
Aye.
Alredo-Gill, aye. Ashby? No. Ashby, no. Becker?
No.
Becker, no. Grayson?
No.
Grayson, no. 1 to 4. Chair, respectfully, I'd like to ask for reconsideration of Senate Bill 1277. Well, that bill fails. And is there an objection to granting reconsideration? Seeing none and hearing none, reconsideration is granted. Now moving on to file item 4, SB 1287. and Huardo? Do we now have a motion? Secretary, please call the roll. Motion is due pass as amended to the Committee on Transportation. Senators McNerney? Aye.
McNerney, aye.
Olredo-Gill? Aye.
Olredo-Gill, aye.
Ashby? Aye. Ashby, aye. Becker? Aye.
Becker, aye.
Grayson? Aye.
Grayson, aye. 5-0.
5-0. The bill is out. Moving on to file item 6, SB 1349. Gonzalez, do I have a motion? I move. So moved. Please call the roll. Motion is due. Pass is amended to the Committee on Governmental Organization. Senators McNerney.
Aye.
McNerney, aye.
Alvarado Gill.
No. Alvarado Gill, no. Ashby. Aye. Ashby, aye.
Becker.
Aye. Becker, aye.
Grayson? Aye. Grayson, aye.
4-1. 4-1, the bill is out. Moving on to file item 7, SB 1407, Archuleta Do we have a motion We already have a motion Thank you Vice Chair for that Please call the roll This is file item number 7 SB 1407 by Senator Archuleta Motion is due pass as amended to the Committee on Military and Veterans Affairs. Current vote is 2-0. Chair and Vice Chair voting aye. Senators Ashby. Ashby, aye. Becker? Aye. Becker, aye. Grayson? Aye. Grayson, aye. 5-0. Okay. And now file item 8, SB 1120 by McNerney. Do we have a motion? Oh, we don't need a motion. We've already had that. Okay, please call the roll on file item 8. This is file item number 8, SB 1120 by Senator McNerney. Motion is due passed as amended to the Committee on Appropriations. Current vote is 3-0. Chair and Vice Chair voting aye. Senators Becker?
Aye.
Becker, aye. Grayson?
Aye.
Grayson, aye. 5-0. The bill is out. The committee will now go into recess and tell Senator Minjavar can... The committee will now reconvene. Senator Mindjavar is here and ready and able to present her bill. This is file item 5, SB 1314. Senator Mindjavar, please present when ready.
Thank you, Mr. Chair. I apologize, y'all. There 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 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 bust 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, 14.2% of tobacco retailers, which include 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 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 28.5% 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 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'll 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 want to create, like I mentioned, a statewide definition for smoke shops whose primary business is the self-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 daycare centers, effective of July 1st, 2027, and will 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 CDPH and CDTFA to develop additional regulations should they need for operation of smoke shops. Allow doesn't require. And we'll 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'll also align this bill with the Stop Tobacco Access to Kids Enforcement Act, which includes provisions that allow a 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 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 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. Mr. 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 are 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 a very high level of nicotine very quickly and very discreetly. While California has been a leader, like I said, 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 all seen them They different than regular retailers of nicotine products like grocery stores or gas stations as the smoke shop 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 6 a.m. to 10 p.m. 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 asks 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, CalCities 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 in neighborhoods surrounding schools has been associated with increased smoking rates, and one-third of all tobacco sales take place within 1,000 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 child care. 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, SB 1314 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, Knox is frequently diverted for recreational use due to its low cost and accessibility. While California law prohibits recreational purposes, Knox is commonly available in smoke shops and other retail establishments where it's sold for 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, CalCities 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 SB 1314 and respectfully ask for your aye vote.
Thank the witnesses. Do we have any members of the public who wish to voice their support? Please state your name and organization.
Yes good afternoon Mr Chair and members Amy O 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 Narcotic 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'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 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? Mr. Becker, Senator Becker, are you recognized?
Yeah, I think that's a really important topic and a really important bill. We had an issue with the smoke shop attempt to open right across my district office, right kind of between our sort of K-3 and 4A schools, and there was a lot of concern by the community. There was, I forget the exact mechanism, but there was sort of various ways. They hadn't followed any of the proper sort of procedures, and so that one was able to be denied. But having had kids who are recently teenagers, you know, I've also seen the risks that were outlined and discussed. And, yeah, just kind of going through this with our very recently across from our district office, we sort of saw the need for more tools. So I appreciate this bill. Look forward to supporting it. I'll move it when appropriate.
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 children thrive. And I think about what you said, and I'm visualizing 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 12th grade that we also include those TKs because I think that's a big push for us child care advocates, and I know that you're 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 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 phrase is, to clarify to say license or renewal is issued. So it's upon any permitting renewal for that location, potentially then at that point they could no longer be in that location if they within the 600 buffer zone of a sensitive receptor As it stands right now it still vague working out those details Okay.
And I think that, you know, this is a good opportunity to say, yes, you know, 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 the 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 civil penalties. I'm always afraid that when we push on the legal market, the illicit market gets more power punches to provide product. So I guess my question is in terms of foreseeing 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 assessed?
Well, first I'll talk about the 600 fee. The 600 fee we got from matching to current buffer zones like vices like cannabis, that's also at the 600 fee part. And then the money goes into the existing fund that's called the Stake Act. I mentioned that in the beginning, that is 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 money goes to that agency?
They currently oversee that fund right now.
Okay. So the potential penalties would go into that fund for the Department of Public Health to utilize?
Yes.
Does your bill specifically identify what programs we would like to institute there? Because 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 costs of penalties at the local level.
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. All right. So I won't be able to support today, but I am going to 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'm thinking they're going to be some of the organizations that are going to 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, illicit actors would rather just pay the fines and keep on going because the amount of money that made is astronomical. So just kind of looking at that full cycle of where those civil penalties are going to 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 enforcement.
Well, on a lot of these civil penalties, we do have programs in our office, like with cannabis, where we receive funds to prosecute the cases. So that would be helpful if we have further, especially because a lot of those types of crimes are prosecuted. Well, they're investigated by local law enforcement, 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 I would agree with that. I think if we have a pot of money from these civil penalties that is then eligible for direct payment to local jurisdictions, because, again, 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 some jurisdictions are more aggressive attacking this issue than others. And so having an incentive to kind of build those task force if they're not already in existence, or to further fund those tax forces so we can prosecute, because I think that would also be a deterrent to the criminal element to say, you know, we're closing down operations in Riverside County, for example. So that some of my advice for this bill
Senator Mindjavar, you have been and are a very strong advocate for health care in California, and especially with regard to the youth. That's very deeply appreciated. And I just want to 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, Mr. 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. Very good. Okay. Do we have a motion? So moved. The bill is moved. Please call the roll. Motion is due pass to the Committee on Health. Senators McNerney.
Aye.
McNerney, aye.
Alvarado Gill.
Ashby. Aye. Ashby, aye.
Becker.
Aye.
Becker, aye.
Grayson? Aye. Grayson, aye. 4-0. Thank you. 4-0. The bill is out. With that, the committee will now come to an end. The committee hearing will now come to an end.