|Budget Issue:||Request for $279,000 in General Fund dollars to promote the jobs tax credit for small businesses|
|Program:||Secretary for Business, Transportation, and Housing|
|Finding or Recommendation:||Reject the Governor’s request for $279,000 in General Fund dollars to fund one staff and consultant services for outreach and technical assistance to small businesses for the state’s jobs tax credit. Our analysis finds that certain state departments and other entities that assist small businesses already provide similar efforts and as a result, providing additional funding for outreach for this tax credit would likely be duplicative.|
Background. The state engages in a variety of efforts to promote the development and success of small businesses in California. For example, the mission of the Small Business Advocate within the Governor’s Office of Economic Development (GoED) is to advocate for small business and provide small business owners with information needed to succeed in the California marketplace. Certain state departments also assist small businesses. For example, the Department of General Services and the Department of Transportation both host statewide small business councils that provide forums for small business trade associations to comment and provide feedback on state policies and practices that impact small businesses. The state also provides funding to the California Small Business Development Center Program, which is a non-profit organization that provides management assistance to current and prospective small business owners. Finally, the state provides various tax incentives for small businesses, such as the tax credit described below.
New Jobs Tax Credit Not Having Intended Impact. One example of a state tax incentive is the tax credit, created by Chapter 17, Statutes of 2009 (SBx3 15, Calderon). This legislation intends to encourage small businesses to hire more employees by providing a tax credit of $3,000 for each full-time employee hired by a business with 20 or fewer employees. Despite the legislation providing $400 million for this purpose, only $50 million in credits have been claimed by small business owners as of the end of April 2011. This appears to have raised concerns about the ability of this credit to achieve its intended goal.
Governor’s May Revision Proposes Funding for Promotion of Credit. In its 2011-12 May Revision, the administration proposes to better ensure the use of this tax credit by 1) increasing its value to $4,000 per new hire, 2) expanding the number of eligible recipients to include businesses with 50 or fewer employees, and 3) improving the marketing of the tax credit. The budget proposed for the marketing effort uses $79,000 in General Fund dollars to pay for one staff within the Business, Transportation, and Housing Agency and $200,000 for consultant services.
Analysis. The state has resources dedicated to the development and assistance of small businesses in California as well as other entities as we described above. Moreover, according to GoED the Small Business Advocate is working to coordinate many of the state’s efforts relating to small businesses. A coordinated effort using the state’s various existing small business resources could enable the state to more effectively promote this tax credit within existing resources. As a result, it is unlikely that dedicating more resources to the promotion of this credit would significantly increase its utilization.
LAO Recommendation. We recommend that the Legislature reject the Governor’s request for $279,000 in General Fund dollars to fund one staff and consultant services for outreach and technical assistance to ensure small businesses are aware of the availability and requirements for the state’s Jobs Tax Credit. Our analysis finds that certain state departments and other entities that assist small businesses already provide similar efforts and, as a result, providing additional funding for outreach for this tax credit would likely be duplicative.