HomeMy WebLinkAboutAgenda Report - September 15, 2021 C-16AGENDA ITEM C40/to
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COUNCIL COMMUNICATION
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AGENDA TITLE: Receive Report Regarding Communication Pertaining to Tax Implications for
Customers Receiving CAPP/CWWAPP Benefits
MEETING DATE: September 15, 2021
PREPARED BY: City Clerk
RECOMMENDED ACTION. Receive report regarding communication pertaining to tax
implications for customers receiving CAPP/CWWAPP benefits.
BACKGROUND INFORMATION: The City received a request for communication from the California
Municipal Utilities Association. There was a need to send a letter
immediately in light of on-going conversations with both the State
and federal government.
CAPP and CWWAPP are two programs that will provide the City with funds from State ARPA funds to
pay off utility account balances accrued during COVID for electricity, water, and wastewater. The funds
will be utilized first for residential accounts and then business accounts. However, several sources have
indicated that CAPP and CWWAPP benefits may be considered taxable income and the City would be
required to issue 1099-C forms to all customers who receive over $599 in credit. In the City of Lodi, there
are thousands of accounts over $599. The California Municipal Utilities Association has requested letters
supporting a method of resolving the issue administratively or statutorily to relieve cities of the burden of
issuing thousands of 1099-C forms.
The attached letter, signed by the Mayor, was sent out on September 7, 2021.
FISCAL IMPACT: Not applicable.
FUNDING AVAILABLE: Not applicable.
Jennifer Cusmir
Jennifer Cusmir
City Clerk
APPROVED: Steve Schwabauer
Stephen Schwabauer, City Manager
\\cvcfilv01\administration$\Shared\cityclerk\Agenda\2021\091521\CLK - Letter\Report of Letter doc
CITY COUNCIL
ALAN NAKANISHI, Mayor
MARK CHANDLER,
Mayor Pro Tempore
MIKEY HOTHI
SHAK KHAN
DOUG KUEHNE
September 1, 2021
CITY OF LODI
CITY HALL, 221 WEST PINE STREET
P.O. BOX 3006
LODI, CALIFORNIA 95241-1910
(209) 333-6702 / FAX (209) 333-6807
www.lodi.gov cityclerkg_D]od].gov
The Honorable Nancy Pelosi
Speaker of the House
U.S. House of Representatives
H-232, U.S. Capitol
Washington, D.C. 20515
The Honorable Kevin McCarthy
Minority Leader
U.S. House of Representatives
H-204, U.S. Capitol
Washington, D.C. 20515
The Honorable Dianne Feinstein
U.S. Senator from California
331 Hart Senate Office Building
Washington, DC 20510
The Honorable Alex Padilla
U.S. Senator from California
B03 Russell Senate Office Building
Washington, DC 20510
STEPHEN SCHWABAUER
City Manager
JENNIFER CUSMIR
City Clerk
JANICE D. MAGDICH
City Attorney
The Honorable Gavin Newsom
Governor
State of California
State Capitol, First Floor
Sacramento, CA 95814
The Honorable Toni Atkins
President pro Tempore
California State Senate
State Capitol, Room 205
Sacramento, CA 95814
The Honorable Anthony Rendon
Speaker
California State Assembly
State Capitol, Room 219
Sacramento, CA 95814
Re: Tax Implications of American Rescue Plan Act funds for utility assistance
Dear Speaker Pelosi, Minority Leader McCarthy, Senators Feinstein and Padilla, Members of the
California Congressional Delegation, Governor Newsom, Senate pro Tem Atkins and Speaker
Rendon:
Our organizations collectively represent water agencies, electric utilities and environmental
stakeholders. We are writing today to express our concerns that the use of American Rescue
Plan Act (ABPA) funds for utility bill assistance will be considered taxable income for utility
customers already suffering due to the pandemic, and to urge your action to avoid a surprise and
financially devastating tax burden on hundreds of thousands of Californians.
Tax Implications of American Rescue Plan Act funds for utility assistance
Page 2
Utilizing California's share of the Coronavirus Fiscal Recovery Fund of 2021 from the American Rescue
Plan Act, led by State Senate pro Tem Atkins, Governor Newsom and Assembly Speaker Rendon,
California in July enacted two programs to help utility customers with unpaid bills incurred during the
COVID-19 pandemic between March 4, 2020, (when Governor Newsom declared a state of emergency)
and June 15, 2021 (when the state's economy officially reopened). California received approximately
$27 billion, funding which can be used to "respond directly to the economic or financial harms resulting
from and or exacerbated by the public health emergency."
The state established assistance programs because many Californians were unable to pay their water
and power bills due through no fault of their own. There was an estimated $1 billion in unpaid water
bills and about $1.7 billion in unpaid energy bills in California prior to the passage of the California
Arrearage Payment Program (CAPP), which provides $993.5 million for electric and natural gas
customers, and the California Water and Wastewater Arrearage Payment Program (CWWAPP), which
provides $985 million for water and wastewater bills. Both programs assist residential and commercial
customers.
However, it is our understanding that the benefits provided to customers could count as cancelation of
debt income, which would trigger the need for an IRS 1099 tax form if the benefit exceeds $599. The
determination was made based on CARES Act -related guidance to make this determination given the
lack of relevant guidance from the IRS about ARPA funds.
We are gravely concerned with the possibility that customers receiving credits from the CAPP and
CWWAPP Programs could be subject to a tax burden as they are working to financially get back on their
feet and the economy recovers. First, taxing CAPP and CWWAPP benefits is inconsistent with tax policy
regarding other COVID-19 assistance programs and long-standing programs that provide direct
assistance to individuals. There are several parallel, recent precedents that limit such taxation:
• Emergency Rental Assistance Program benefits are not taxable.
• Low-income Household Energy Assistance Program (LIHEAP) benefits are not taxable.
• Low -Income Household Water Assistance Program (LIHWAP) benefits are not taxable.
• Direct stimulus payments made to individuals are not taxable.
In addition, to benefit consumers quickly, State policy directs that CAPP and CWWAPP benefits be
applied directly to a customer's account without an application. It is unreasonable public policy to
automatically provide direct aid to financially struggling Californians, while at the same time creating a
new surprise tax liability — an unexpected expense — for those individuals and businesses the state and
federal government intended to help with these funds.
Further, it would be extremely burdensome to implement; IRS 1099 tax forms would have to be issued
to hundreds of thousands, if not millions, of Californians.
We recommend that the State and Federal government work together to immediately address this issue
and ensure these benefits are not considered income or regarded as a resource for purposes of
determining the eligibility for benefits or assistance, or the amount or extent of benefits or assistance,
Tax Implications of American Rescue Plan Act funds for utility assistance
Page 3
under any Federal program or under any State or local program financed in whole or in part with Federal
funds. We believe this could be accomplished through language in statute or guidance from the IRS to
stipulate the direct assistance using Coronavirus Fiscal Recovery Fund monies does not constitute
income.
We appreciate your attention to this matter. If you have questions and to discuss further, please contact
Danielle Blacet-Hyden, Deputy Executive Director for California Municipal Utilities Association, at 916-
847-8444 or dblacet@cmua.or.
Sincerely,
Alan Nakanishi
Mayor
City of Lodi