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California business tax breaks would have to prove effectiveness

SACRAMENTO Calif. (Reuters) – Tax credits aimed at persuading businesses to locate in California would be subject to detailed performance reviews to make sure they are boosting the state’s economy under a bill passed on Tuesday by the Legislature.

The bill, which will now go to Democratic Governor Jerry Brown, aims to measure the effectiveness of tax credits. The issue is in the public eye at a time of controversy over proposals to grant nearly $1 billion in tax relief to entertainment and aerospace businesses.

“Who among us in investing our personal dollars would not have a goal in mind and plan to review the investment to see if it’s meeting the goal?” said state Senator Mark Leno, a Democrat from San Francisco and the bill’s author. “You would call any personal investor who didn’t minimally attend to that a fool.”

The bill requires new tax credits offered by the most populous U.S. state to include specific measurable goals such as the number of jobs created by its recipients or the boost that their presence in the state gives the economy.

It comes as the California State Legislature is set to debate a proposed $400 million annual tax credit for the entertainment industry and just days after a nearly $500 million tax credit was offered to persuade aerospace companies to build the next generation of stealth fighter planes in the state.

According to Leno, California already offers companies $47 billion in tax relief every year with no way of measuring the success of the state’s investment. It’s important to do so, he said, because by reducing a corporation’s tax bill, the state is essentially cutting revenue that could otherwise be used for needed programs and services.

“It’s an expenditure of taxpayer dollars,” he said of the tax credits, adding that it ought to be measured.

A similar bill was passed by the Legislature two years ago, but vetoed by Brown, a centrist Democrat who has worked to bring business to the notoriously expensive state, at times supporting programs offering tax credits.

In his veto message, Brown said he opposed a provision that would have forced tax credits to automatically expire 10 years after they were granted.

That provision was removed from the latest bill, Leno said.

Brown has not commented on the measure.


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