Labor and Employment

WorkNotes

WorkNotes provides state legislators and legislative staff with information about workforce development.
July 2000

Tax Credits: A Tie that Binds Business and Youth
A Workforce Development Reform Action Plan
DOL's Premier Workforce Conference - Jett*Con 2000

Tax Credits: A Tie that Binds Business and Youth

Little is known about the effectiveness of targeted tax credits. Too often the number of recipients and amount credited are not tracked, resulting in only anecdotal proof of their success. Business tax credits for involvement in youth apprenticeships and other school-to-career activities started to spring up in states across the country in the mid to late '90s. As you can see from the state surveys, Arkansas, Colorado, Connecticut, Florida, Illinois, Iowa, Michigan and New Mexico all have varying types of credits for an array of activities. Some questions gleaned from the states' experiences may be:

Is there a mechanism to track the success of the tax credit program?

If small and large businesses are to benefit from the credit is it structured with their barriers and needs in mind?

Are there ample connections between the single program and the school-to-work and business communities?

The following surveys were completed through statute searches, summaries and phone interviews.

Arkansas' Youth Apprenticeship Program

During its 1995 session, the Arkansas legislature passed a corporate income tax credit for employers who hired U.S. Bureau of Apprenticeship and Training (BAT) registered apprentices. The credit totaled 10 percent of the wages earned by the youth apprentice or $2,000, whichever was less. The first year the credit was in place, registered apprenticeships jumped twofold, according to Kenneth Lamkin, who runs the BAT program in Arkansas. Over the past three years, participation has leveled off. Today, the credit's net impact is estimated to be 10 percent higher than precredit years. In 1999, 80 employers received state tax credits totaling around $90,000. Most participating businesses are small manufacturing operations, with a sprinkling of larger corporations. Lamkin says each employer has about three to four apprentices. Other impressions Lamkin had was that students involved in the apprenticeship program improved their grades and usually went on to some form of postsecondary education. He said most apprentices come through Arkansas' school-to-work program, called 'career opportunities,' since four out of seven career pathways have a related registered apprenticeship.

The 1995 tax credit only allows occupations that have registered programs with the U.S. Department of Labor to receive the credit. When the banking industry wanted to groom apprentices and take advantage of the same credit, they lobbied the legislature to change the statute to include work-based learning programs of high quality and standards. In 1997, the legislature designated the Department of Workforce Education to review and approve state-registered apprenticeships based on standards and program designs that are nationally recognized by the occupation's industry. As a result of the stringent requirements tied to attaining state approval of an apprenticeship program, only the banking industry has since taken advantage of the change in the law. Two different banks have applied for the credit and four or five students are currently apprentices, according to Mary Ellen Koettel of the Office of Career and Technical Education within the Department of Workforce Education.

Colorado's Tax Credit for Investing in STC

The Colorado legislature enacted a business tax credit for investing in school-to-careers that took effect in January 1997. The credit equals 10 percent of the total qualified investment (wages, workers' compensation insurance, unemployment insurance and training expenses) in a qualified school-to-career program. The program must integrate curricula with job training and encourage placement of students in jobs or internships that will teach them new skills and improve their school performance. The program must also be approved by the school district, the community college state board, the state higher education board or the division of private occupational schools. If the credit exceeds the business' tax liability, the credit can be carried forward for up to five years.

Unfortunately, Colorado doesn't have any hard numbers on participation or on the dollar figure credited back to businesses. Although there is a specific box on the corporate tax form for the credit, it is not flagged for tracking by the department. A department staff person said the legislature would have to request it be tracked and that they might be reluctant to do so because of the additional expense.

Jeanne Faatz, the Colorado school-to-career director, says that she only has anecdotal information as to its effectiveness. She says most inquiries into the credit come from rural regions and small businesses.

Connecticut's Tax Credit for Work Education Programs

The Connecticut legislature passed in 1995 a corporate income tax credit for employers participating in state-approved programs combining high school study and part-time employment. The 1995 credit was for 10 percent of wages, up to $300 per student.

The Revenue Services Department did count the number of businesses involved and the cost of this credit. Data for 1996 show 29 corporations received the credit, totaling $11,172. Mike Galliher with Revenue Services said most of these corporations were small, meaning their tax liability only totaled $250. Since a business can only receive a credit less than or equal to their tax liability, most credits capped out at $250. Based on an average credit of $275, an estimated 40 students were participating in 1996.

Although only 20 corporations received the credit in 1997, tax credits totaled $461,762. Galliher said the majority of credit dollars went to large corporations with large tax liabilities, meaning they could receive more credits for employed students. The largest credit to one corporation was $130,000. Since each student was capped at $300, this corporation employed 433 students in a work-study program. It's probably safe to assume that somewhere around 1600 to 1700 students were involved, based on the total number of credits granted.

Unfortunately, data will not be collected after 1997 because the legislature replaced this individual tax credit with one aimed at work education and grouped it in with other credits targeting human capital investment. The new corporate income tax credit is for employers who invest in job training or worker education. It includes investments in "work education programs… including, but not limited to, programs in public high schools and work education-diversified occupations programs." It does not require that the investment be in current employees. The credit equals 4 percent of any expenses for the 1999 calendar year and 5 percent during the 2000 calendar year. The new, expanded credit can be found at CT 12-217x .

Changing the tax credit has been a double-edged sword. On the one hand, folding the credit in with others makes it virtually impossible to track the investments in school-to-career programs. On the other, the new credit is broader in scope and allows more credit with no cap. The Connecticut Business Industry Association (CBIA) has been a strong supporter of tax credits for school-to-career. CBIA worked closely with the legislature in 1997 to make sure work-based education language was added to the human capital investment credit statute. Elizabeth Gara with CBIA admitted that having the credit as a stand-alone activity allowed the association to use it as a stronger marketing and business incentive tool for involvement in school-to-career. However, having a broader based credit is also to the advantage of businesses.

One legislator cited the need to cut down on paperwork for businesses and state administrators as a reason for consolidating the credits. But Gara said she did not know of any business overburdened by the paperwork. Despite CBIA's effort to get the word out about the tax credits, some businesses still are not aware of the incentives because many accountants are not apprised of them, according to Gara. Gara said it would be beneficial to widely publicize the credit's availability.

Florida's Employing and Training our Youths (ENTRY)

ENTRY is a business tax credit for hiring a youths between ages 15 and 18 who are enrolled in public school, work at least 12 hours per week and are paid at least minimum wage. The tax credit is contingent on the annual legislative appropriation, but an eligible business may receive refund payments of up to $1,600 per eligible youth employee (for a maximum of five employees in a fiscal year.) Click here to read the statute Florida 288.039

This was a one-year pilot project that ran from July 1998, to July 1999. The program wasn't very feasible and hard to administrate according to Florida's Office of Tourism, Trade, and Economic Development. Designed to be tested in four counties, only two rural counties participated. Fewer than six businesses took advantage of credits totaling less than $10,000. The program didn't attain the desired goal of job creation for youths. The Legislature will probably repeal the statute this session.

Illinios' Tech-Prep Manufacturing Tax Credit

Illinois has a tax credit for tech-prep youth vocational programs in manufacturing. A credit of 20 percent of the taxpayer's direct payroll expenditures is given for certified cooperative secondary school youth vocation programs. This credit does not apply to registered apprenticeships. A bill to extend this credit to all tech prep programs, not just manufacturing, died in the rules committee last year. To read the statute relating to the credit go to Illinois Ch. 35 Act 5/209.

Iowa's Certified School to Career Program

Iowa's legislature created a Certified School to Career Program in 1998. The program provides a tax credit to businesses who employ youth in a state-registered apprenticeship that integrates a secondary school curriculum with private sector job training, places the students in internships, continues into postsecondary education and results in teaching new skills and adding value to the wage-earning potential of the participants. The employer is eligible for a refund limited to the first 400 hours of payroll expenditures per participant for each year the participant is in the program to a maximum of three years per student. From July 1, 1999, to June 30, 2004, the legislature will appropriate up to half a million dollars annually from the state general fund to the Department of Economic Development to pay for the refunds. What sets this tax credit program apart from other states' is a mandate that all participants and sponsors in a certified school-to-career program be included in a customer tracking system by the Department of Workforce Development.

No one applied for the credit during the first year according to Iowa's school-to-work office. Businesses thought that the application process was too labor intensive and cumbersome, mainly because the businesses had to apply to the state board of education for program approval. The legislature amended the statute to streamline the process this session. The amendment allows local school districts to approve the programs. The local district will be responsible for making sure the program complies with federal regulations under apprenticeship programs and any other requirements. Laurie Phelan, the school-to-work director, expects the first region to apply for the credit this year.

Michigan's Registered Apprenticeship Tax Credit

In 1996, the Michigan Legislature enacted Senate Bill 872 that grants a tax credit to employers who participate in a registered youth apprenticeship program. The employers are entitled to a credit equal to 50 percent of the apprentice's salary, fringe benefits and other related expenses and 100 percent of all costs incurred by the employer for classroom-related instruction, as long as the registered apprentice is in high school.

The Legislature's goal for the incentive was to attract younger apprentices, enhance school-to-work in Michigan, and revitalize the aging, skilled workforce. In order to recruit more students and businesses, the legislation also allows schools to have "junior Bureau of Apprenticeship and Training (BAT) representatives," according to Cindy Ballard of the Michigan Jobs Commission. Before the passage of the legislation, only the five federal BAT representatives were able to place an apprentice of any age. The 40 schools that are now certified can do everything but actually register the apprentice in one of the 800 apprenticeships offered. Ballard believes one strength of the Michigan program is the fact that the federally registered apprentices will complete their training with a journeyman's card that can be accepted anywhere in the country.

Before the tax credit, says Bob Rice with Michigan's Career Development Department, there were 100 registered apprentices in high school. Now three years later, there are 300. However, only 34 employers are using the tax credit, less business participation than expected. Therefore, the anticipated fiscal impact on the state has been minor compared to projections. Rice has a few guesses as to why only 34 employers receive the credit:

It is a tax credit against the single business tax. Small businesses don't necessarily have to file this tax. Therefore, sometimes it's not worth the effort of filing for the credit (which may only add up to $400) because the small business would also have to file a single business tax return since the credit is a refund.
The businesses may not know that they are eligible for the credit. Apprenticeships may be set up through a shop floor manager or human resource person, etc. Therefore, the news of an available credit may not be getting to the accounting department.
There may be a lack of understanding because it is not well publicized.

Originally when the legislation passed, the governor had a goal of increasing the number of high school students in registered apprenticeships by 10,000. Rice said that perhaps the goal was unrealistic but that the increase of 200 students is healthy. He surmises that the student participation numbers aren't higher because:

"Junior" BAT representatives were trained in each vocational skill center (and sometimes high schools). It's taken a long time for the "school-to-registered apprenticeship coordinators" to be trained because there are only five U.S. Department of Labor BAT representatives in the whole state.
In addition these coordinators often have more than one job. They coordinate co-ops and other programs. Since the schools aren't making registered apprenticeships a priority, these coordinators aren't either - plus it's easier for them to identify co-ops than registered apprenticeships because the employer goes through a longer process of developing an approved program.

Rice added that many good things have come out of the program. Publicizing it has started to change some stereotypes. For example:

The application process for a registered apprenticeship is rigorous, producing good job candidates. The employers have been impressed by the quality of the students which has changed their traditional stereotype of a vocational student and helped them overcome fear of hiring students.
Students are seeing registered apprenticeships as a step towards college, not in place of college.
Overall, the program is changing the negative image associated with vocational programs.

When asked if these programs were tied to Michigan's career pathways system, Rice said that they added to the idea that career pathways are for all students. Since the majority of apprenticeship candidates come only from skill centers, integrating this program with other career development efforts in all schools could be a challenge, but nevertheless a worthwhile endeavor to broaden students' awareness of these opportunities, says Tracy Schmidt, a workforce development specialist with NCSL.

New Mexico's Mentorship Tax Credit

The New Mexico Legislature passed a mentorship tax credit in the spring of 1999 to encourage businesses to hire youth participating in school-to-career programs. The law establishes a pilot program with a sunset date of January 1, 2002, and a maximum of 1,000 student mentorship slots (or program certificates). Local school-to-career administrators can request program certificates based on the number of students participating in certified programs. Certificates are given to local administrators on a first-come, first-served basis. These program certificates will then be given to the businesses hiring students for a certified summer employment program that incorporates academic and career goals and objectives. The business turns this certificate in with their taxes as evidence of participating in an approved program.

The law also limits the size of eligible businesses to 300 employees. The credit has a cap of $12,000 in a year and can be applied to 50 percent of the student's gross wages, for a maximum of 320 hours of work per year for up to three years. An employer can only hire up to 10 students and cannot displace or replace a current employee. Statute section 7-2A-17 pertains to applying this tax credit to the corporate income tax of a business, and section 7-2-18.6 applies this credit to the personal state income tax, provided the business is a sole proprietorship or fits into other specified categories.

Vonell Huitt, the governor's education policy advisor and school-to-work coordinator, believes the credit is a good tool for sustaining school-to-work in New Mexico. "Anytime business people have the opportunity to work with a young person they can see the benefits of sustaining school-to-work." Huitt does not anticipate that all 1,000 certificates will go out this year since local coordinators are busy spreading the word and developing programs with employers. Ensuring that employers are aware of linking on-the-job experiences with academic school curricula is an important part of the program, according to Huitt.

Although this program targets the state's primary business sector, small businesses, one of the state's largest industries, Public Service Company of New Mexico, helped advertise the credit by publishing a brochure. "There's been a great publicity effort," says Huitt. Businesses from all over the state have been calling Huitt about the credit having heard about it through their chamber of commerce's newsletter, the New Mexico Business Weekly or the public utility's brochure. Huitt is excited word is getting out and believes participation numbers should be in by September.

A Workforce Development Reform Action Plan

It's the traditional role of the legislature to set policy - point the state in a direction with parameters and goals. In many instances, such guidance is needed on workforce development. In order to create a more coherent and efficient system, the legislature plays a crucial role by defining an overall policy vision with input from other state and local stakeholders.

To put workforce development reform in perspective, NCSL has put together an action plan legislators can follow when examining their workforce system. The action plan is based on work by other legislatures through the years and references for legislative involvement from the federal Workforce Investment Act (WIA) (listed under Level 1: Required Actions.)

Action	State Examples
Level I: Required Actions
Appoint four legislators to the state workforce board. Legislative leadership of each chamber appoints two.	Connecticut, Hawaii, Indiana and Vermont have added the legislative membership to their state workforce board statute based on WIA.
Appropriate all federal training dollars	Oregon reiterated in statute that the legislature would be appropriating all federal training funds. North Carolina established a grant fund to more easily manage the appropriations. Florida earmarked money to certain legislative priorities.
Approve the inclusion of secondary vocational funds if it's the state's intent to make vocational education part of the workforce system	Florida, Indiana and Wyoming approved the inclusion of secondary vocational funds with the workforce system
Level II: Suggested Actions
Examine the need for independent staff for the state workforce investment board, with some level of accountability to the legislature. May require state line item funding.	A bill was introduced in Vermont that would provide line item funding for the state and regional boards. Washington statute requires Senate consent on state board appointments and chair. A proposed Pennsylvania bill would allow the board to hire its own staff.
Decide how much of the state structure you want to set in statute, i.e., directives for the state board, board membership (including legislators), local boards and their authority, youth councils, possible local councils for any other specific client group (rural or hard-to-serve workers,) and accountability measures and sanctions. Any or all of the WIA structure can be legislated to signal a long-term commitment to reform.	Arkansas, Hawaii, Indiana, North Carolina and Oregon listed the structural changes to their workforce systems based on WIA. Arkansas incorporated the WIA template into their overall system, which included numerous provisions to keep the legislature informed of state board actions. Indiana was very thorough in setting its structure in statute and created incumbent worker councils, in addition to the WIA mandated youth councils.
Designate one legislative committee in each chamber (or a joint committee) to conduct oversight of workforce services.	Florida, Texas, Wisconsin and others have either created or designated one committee to consolidate their legislative oversight.
Examine the benefits of consolidating programs on two levels: at the state level by moving programs from the current multiple agencies to one agency, and at the local level by mandating a consolidation and coordination of multiple delivery areas.	States that have merged programs into one agency include Indiana, Iowa, Michigan, Tennessee, Texas and Utah. With Florida's initial reform effort, programs were not merged into one agency. Currently legislation combining policy oversight of all workforce and welfare reform programs into one board and merging administrative services needed for WIA at the state and local level into one management agency is pending in the House after Senate passage.
Direct the workforce development system by defining a policy vision, i.e., client-driven, outcome-focused, adaptable, coordinated, locally controlled.	The legislatures of Connecticut, Florida, Texas and Utah all played a critical role in defining and shaping their workforce development policy.
Level III: Optional Actions
Develop a performance management system with benchmarks, outcome measures and sanctions for poor performance.	Florida, Illinois, Iowa, Maine, Massachusetts, New York, Oregon, Texas, Utah, Washington and Wisconsin all statutorily mandated that responsibility to the state workforce investment board.
Mandate that the state agency or agencies develop and implement an integrated case management system with common intake forms and databases and shared assessments. Possibly even provide a line item for upgrading the computer system to enhance this new approach and accountability.	Connecticut, Florida, Iowa, Minnesota, North Carolina, and Utah have all been working toward these goals. In 1999, California earmarked money for the infrastructure needed to conform to the data collection, reporting and performance management requirements under WIA.

For more information contact Tracy Schmidt at 202-624-8668.

Join Workforce Officials from Across the Country at the Albuquerque Convention Center, Albuquerque, New Mexico on July 10-12, 2000 for JETT*CON2000

Hear the latest update of federal policy on WIA implementation from Employment and Training Administration. This will be the primary national opportunity to get this information. Topics covered will be:
Summary of new policy directions -Administrative funding - Performance accountability and reporting - Individual training accounts / Eligible training providers - Youth councils and youth program design - Cost allocation, resource sharing, and MOU's - Introduction to WIA

Get full information on the report of the 21^st Century Workforce Commission, selected by the president and Congress to address the challenges that technology brings to workforce development. Their report was issued June 27.

Jettcon will feature many outstanding business and national leaders and key federal partners.

JETT*CON2000 features: The latest information on new workforce systems and the technology tools to make the systems work. Leading edge technology companies with the most progressive state and local workforce systems and technology applications. Full information on all of the essential elements of the new workforce investment system, including:

Streamlined services
Universal access
Increased performance management and accountability
Strong business-led boards
New program designs and flexibility
New youth program strategies and services

JETT*CON2000 highlights the information needed to build the partnerships that are so essential to new workplace systems:

All federal, state and local workforce partners and programs
Universal access a reality by emphasizing strategies addressing the digital divide and reaching customers too often left out:
*Rural customers *Persons with disabilities *Women *Out-of-School Youth
*Limited or non-English speakers *Welfare recipients *Older workers
The key role of business, both as a customer and as a provider of strategic direction through their leadership role on workforce boards.

Building on the highly acclaimed features of JETT*CON'99, the conference will include over 110 exhibitors, the HyperLink Café, and outstanding workshops and plenary sessions.