BILL ANALYSIS Ó AB 624 Page 1 Date of Hearing: March 30, 2011 ASSEMBLY COMMITTEE ON INSURANCE Jose Solorio, Chair AB 624 (Perez) - As Introduced: February 16, 2011 SUBJECT : Insurance investments: tax credits and advisory board SUMMARY : Extends the effective date on the laws that allow tax credits for insurers and other taxpayers that make qualified investments in community development financial institutions that invest in community development. Specifically, this bill: 1)Extends from January 1, 2012 until January 1, 2017 the effective date on the laws that allow insurance companies, corporations, and other taxpayers to receive a tax credit equal to 20 percent of the amount of the qualified investment made during the taxable year into a community development financial institution that is certified by the California Organized Investment Network (COIN) of the Department of Insurance. 2)Requires the Insurance Commissioner (IC) to create and appoint a COIN Advisory Board with the duty to advise on the best methods to increase the level of insurance industry capital in safe and sound investments while providing fair returns to investors and social benefits to underserved communities. The advisory board would consist of the IC, an executive in the insurance investment community, a licensed attorney practicing insurance law, a member of the State Assembly, a member of the State Senate, a member from a consumer advocacy group, and an affordable housing practitioner. EXISTING LAW : 1)Allows insurance companies, corporations, and other taxpayers to receive a tax credit equal to 20 percent of the amount of the qualified investment made during the taxable year into a community development financial institution that is certified by the COIN Office of the Department of Insurance. 2)Specifies that the aggregate amount of qualified investments by all insurance companies, corporations, and other taxpayers shall not exceed $10 million for each calendar year, but if the qualified investments are less than that amount in one AB 624 Page 2 year, the difference may be carried over to future years. 3)Defines "qualified investment" as an investment that is a deposit or loan that does not earn interest, or an equity investment, or an equity-like debt instrument meeting federal or state agency standards. The duration of the investment must be for 60 months or more and the amount must equal $50,000 or more. 4)Defines "community development financial institution" as a private financial institution located in California that is certified by the COIN Office of the Department of Insurance, that has community development as its primary mission, and that lends in urban, rural, or reservation communities in this state. A community development financial institution may include a community development bank, a community development loan fund, a community development credit union, a microenterprise fund, a community development corporation-based lender, or a community development venture fund. 5)Sunsets this tax credit on January 1, 2012. FISCAL EFFECT : Undetermined. COMMENTS : 1)Background. The COIN Program was created in 1996 as a public/private partnership by the Department of Insurance, the insurance industry, state government leaders, and community development organizations with the goal of helping to address the unmet capital needs for economic development and affordable housing in low-income urban and rural communities throughout California. COIN serves as a liaison between insurers that are seeking investment opportunities and the community organizations that are seeking investment capital for projects. Community Development Financial Institutions (CDFIs) help bridge the gap between the services available to the economic mainstream and those available to low-income communities by providing access to credit, loans, and investments in these communities and offering administrative and technical assistance. CDFIs work with COIN to provide loans to small businesses and non-profits that serve economically AB 624 Page 3 disadvantaged communities. There are currently 81 CDFIs certified by COIN and eligible to participate in the tax-credit program. 2)Arguments in support. According to the Author and the Department of Insurance, CDFIs have invested, through the CDFI Tax Credit and Certification Program, more than $100 million into California's underserved communities from 1997 through 2009. The following are a few examples of these investments: a) loans for six child care centers that serve 500 low-income children; b) a mortgage loan for a nonprofit residential alcohol treatment facility; c) micro-loans of $500 to $5,000 to self-employed business owners; d) pre-development loans to Habit for Humanity to construct affordable homes; e) a loan to a church to build a child care center for low-income residents; f) a loan for 953 water hook-ups in two small rural communities; and g) a short-term loan to close escrow on housing for low-income foster youth. The San Luis Obispo County Housing Trust Fund (HTF) states that it received a $100,000 investment at 0% interest from a donor. HTF combined this investment with other investments and grants to create a $6.2 million revolving fund and has loaned nearly $7 million to create or preserve 218 units of affordable housing. HTF reports that projects that it helped to finance accounted for nearly 30% of all the housing starts in the entire county during 2010. 3)Appointments to Advisory Board. The author requests the following amendments for the reasons specified: a) Insurance Commissioner designee. Since the Insurance Commissioner is not able to attend all meetings of various advisory groups to the Department of Insurance, it is recommended that the bill be amended to authorize the Commissioner to appoint a designee if that is necessary. b) Financial institution representative. This tax credit program extends to insurers, corporations, and other individuals, but the advisory board does not include a representative from a financial institution or a community development financial institution. It is recommended that this bill be amended to include a representative of a financial institution or a community development financial institution. AB 624 Page 4 c) Legislative appointments. The bill does not clarify how a Member of the Assembly or the State Senate would be appointed to serve on this advisory board. It is recommended that the bill be amended to specify that the Speaker of the Assembly would appoint the Member of the Assembly and that the Senate Rules Committee would appoint the Member of the Senate. 4)Technical corrections . The following technical only changes are recommended: a) Word correction. Correct a misspelled word ("equitylike") that should be spelled "equity-like" in three places (page 6, line 27; page 11, line 17; and page 16, line 4). b) Date correction. Correct the sunset date on the laws governing the tax credit for corporations and individuals to December 31, 2017, rather than December 1, 2017. Specifically, make this change on page 12, line 26, and on page 17, line 14. With this change, the bill will contain the same sunset date on the laws for corporations and individuals as would apply to insurers. REGISTERED SUPPORT / OPPOSITION : Support Department of Insurance (Sponsor) Opportunity Fund Northern California, a CDFI San Luis Obispo County Housing Trust Fund, a CDFI Support, if Amended Personal Insurance Federation of California Opposition None received Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086 AB 624 Page 5