BILL ANALYSIS
AB 1111
Page 1
Date of Hearing: April 27, 2009
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Felipe Fuentes, Chair
AB 1111 (Blakeslee) - As Amended: April 22, 2009
SUBJECT : Energy: California Alternative Energy and Advanced
Transportation Financing Authority.
SUMMARY : Authorizes the California Alternative Energy and
Advanced Transportation Financing Authority (Financing
Authority) to recommend to the Board of Equalization (BOE) that
projects be exempt from sales and use tax.
EXISTING LAW :
1)Creates the Financing Authority for the purpose of promoting
the development and utilization of alternative energy sources
and the development and commercialization of advanced
transportation technologies.
2)Permits the Financing Authority to provide bond financing to
lend assistance to a participating party to enter into loan
agreements to finance projects that use an alternative energy
source or advanced transportation technologies.
3)Defines participating party as a public or private entity or
person that applies for financial assistance from the
Financing Authority to implement a project.
4)Allows the Financing Authority to issue up to $1 billion in
revenue or prepayment bonds to fund projects and, under
federal law (Energy Act of 2005), the Authority can also offer
financing at lower than conventional costs through Clean
Renewable Energy Bonds (CREBs).
5)Requires the Financing Authority to establish a renewable
energy program to provide financial assistance to public power
entities, independent generators, utilities, or businesses
manufacturing components or systems to generate new and
renewable energy sources, develop clean and efficient
distributed generation and demonstrate the economic
feasibility of new technologies.
THIS BILL :
AB 1111
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1)Authorizes Financing Authority to declare its intent to the
Board of Equalization (BOE) to exempt projects that meet
specified criteria, from sales and use tax.
2)Requires projects to have a net tax benefit to the state at
least equal to the tax benefit of the participating party.
3)Requires that projects produce quantifiable, verifiable and
sustainable reductions in the emission of greenhouse gases.
4)Includes in the definition of "financial assistance," the
purchase, sales, or lease arrangements approved by the BOE to
qualify an advanced transportation or alternative source
component project for sales and use tax exemption.
5)Requires the Financing Authority to notify the Legislature if
it intends to approve additional exemptions in excess of $100
million annually and provide a 20-day notice to the
Legislature for additional recommendations for exemption.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, the purpose of this bill is
to retain companies and industries that are considering moving
their operations from California to benefit by other states' tax
exemptions. The author believes that California currently lacks
policies that support the production of the innovative
technologies being developed in-state.
The author quotes the California Manufacturing and Technology
Association, which indicates that California is only one of
three states - along with Wyoming and South Dakota - in the U.S.
that taxes manufacturing equipment purchases with no credit or
exemption. Most states recognize that taxing the input as well
as the final manufactured product is double taxation and
discourages investment. The current policy has resulted in less
production in California. Out-of-state companies are electing to
relocate elsewhere and in-state companies are continuing to
shift workers or facilities to other regions, amounting to
523,500 lost manufacturing jobs since 2001.
1) The Financing Authority : The Authority was created in 1980
with an authorization of $200 million in revenue bonds to
finance projects that utilize alternative sources of energy,
AB 1111
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such as cogeneration, wind, and geothermal power. It was
renamed in 1994 as the California Alternative Energy and
Advanced Transportation Financing Authority and its charge was
expanded to include the financing of "advanced transportation"
technologies.
During the energy crisis of 2001, the Authority's authority was
expanded to provide financial assistance to public power
entities, independent generators, and others for new and
renewable energy sources, and to develop clean distributed
generation.
The Authority has not issued or sold new bonds. The Authority
has approximately $814 million in outstanding, relatively
low-risk debt that it has previously financed.
2) Why the tax exemption : The author believes that California
is losing jobs to international outsourcing and to neighboring
states with less onerous tax policies. In California, the
manufacturer pays a sales tax for the manufacturing equipment,
pays annual property taxes on the depreciated equipment (but is
allowed to "expense" the depreciation), and the final product is
taxed again at the retail level.
California has to compete with neighboring states. In addition
to many personal income tax exemptions, Nevada offers a
manufacturing sales tax abatement, incentives for businesses to
build new facilities. New Mexico offers a high-wage jobs tax
credit to companies who create jobs in rural areas and a
manufacturer's investment tax credit. Oregon offers a biofuels
raw material tax credit, business energy tax credit, a property
tax exemption for business, and a taxable income exemption for
business development.
Last year, Tesla Motors was considering leaving California and
relocating its new manufacturing facility for its Model S,
Tesla's second-generation vehicle, to New Mexico. Governor
Schwarzenegger and State Treasurer Lockyer offered Tesla a
package of incentives, including using a state agency to
purchase manufacturing equipment to avoid the sales tax, then
"sell" the equipment to Tesla for the purchase price. AB 1111
builds upon the Tesla experience by expanding the scope of the
Financing Authority to include sales and use tax exemptions for
the manufacturing and production of alternative energy and
advanced transportation projects.
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Shortly after the Tesla offer, the Governor announced a new
program that waives the sales tax on investment in new
manufacturing equipment for Zero Emission Vehicles (ZEVs). This
program was developed in conjunction with the State Treasurer
and the Financing Authority.
REGISTERED SUPPORT / OPPOSITION :
Support
California State Treasurer Bill Lockyer (co-sponsor)
Opposition
None on file.
Analysis Prepared by : Gina Adams / U. & C. / (916) 319-2083