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Other Budget Issues

Last Updated: 5/22/2015
Budget Issue: Implementation and administration costs for proposed EITC
Program: Franchise Tax Board
Finding or Recommendation: Adopt budget bill language and supplemental reporting language to monitor EITC program implementation.
Further Detail

We discuss the Governor's proposal for a new state earned income tax credit (EITC) here on our website. Below, we discuss certain budget issues related to the EITC for the Franchise Tax Board (FTB) specifically.

FTB Would Administer New State EITC Program. The administration’s May proposal for a refundable state EITC includes $22 million and 98 positions—of which, 24 position-equivalents are for temporary help—for the Franchise Tax Board (FTB) to implement and administer the new tax program. Of this total amount, $13.4 million is for changes to the ongoing Enterprise Data to Revenue (EDR) project. Given that this would be a new program, the implementation, outreach, and administration costs are somewhat uncertain. The administration’s proposal is a reasonable template, however the eventual needs of the program could evolve during implementation.

Legislative Action Could Affect Cost of State Operations. Should the Legislature modify the Governor’s proposal, state operations costs could be somewhat affected. The Legislature will want to consider such FTB budgeting issues to the extent it modifies the Governor's EITC proposal.

LAO Recommendations. The funding required for the necessary changes to the EDR project will ultimately depend on (1) further analysis of the work to be done to implement the refundable EITC, (2) the impacts on the ongoing EDR deliverables, and (3) negotiations with the vendor. We recommend the Legislature add the following provision to item 7730-001-0001:

9. On or before August 31, 2015, the Franchise Tax Board shall notify the Joint Legislative Budget Committee of the amount of funds appropriated in schedule (1) of this item required for necessary system changes to support the Earned Income Tax Credit program. Any funds provided to support additional vendor costs associated with changes in the Enterprise Data to Revenue project as a result of implementation of the Earned Income Tax Credit that are not expressly used for that purpose shall revert to the General Fund.

Given the importance of implementing the EITC by the beginning of the next calendar year, we also recommend the Legislature adopt supplemental report language requesting a status update on the implementation of the EITC program by January 10, 2016.

LAO Contact: Brian Weatherford.