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LAO flags fiscal tradeoffs of curtailing Cal Competes tax‑credit recycling; pot has grown to roughly $650 million
Summary
LAO told the Senate subcommittee that the Cal Competes tax credit program has built a recycled balance of about $650 million, and that disallowing credit recycling could modestly boost state revenues in out‑years but would limit GoBiz's ability to make large awards in years with many high‑value applications.
The Legislative Analyst's Office presented analysis of the California Competes tax credit program, explaining how unused and recaptured credits have accumulated and what would happen if the Legislature disallowed recycling those credits.
LAO told the subcommittee the statutory allocation is $180 million per year, but GoBiz has been awarding on average about $210 million in commitments when including recycled balances. Because many credits are recaptured or underutilized, those credits roll into a recycled balance that LAO estimated at roughly $650 million in the current fiscal year.
LAO produced a preliminary fiscal scenario for the committee that assumed recycling was disallowed beginning in the budget year. The office estimated that disallowing recycling entirely would produce only minimal revenue gains in the first few years due to lags between allocation and claims, then potentially raise ongoing revenues by about $20–25 million per year in out years under their assumptions. LAO and Finance both noted that the estimate depends on assumptions about future recapture rates, macroeconomic conditions and GoBiz's award behavior.
LAO and members described tradeoffs: allowing recycling creates a large available balance that gives GoBiz flexibility to award large packages in years when a sizable, high‑value project surfaces; disallowing recycling reduces that capacity and could constrain awards in years the state would otherwise choose to make large, strategic commitments. GoBiz said the surplus is useful in years with many good applications and that the office typically applies a careful, material‑factor standard in awarding credits.
The subcommittee did not adopt a policy change at the hearing and asked staff for follow‑up analysis on the fiscal and policy tradeoffs.
