BILL ANALYSIS Ó AB 624 Page 1 ASSEMBLY THIRD READING AB 624 (John A. Pérez) As Amended March 31, 2011 Majority vote INSURANCE 10-0 REVENUE & TAXATION 7-0 ----------------------------------------------------------------- |Ayes:|Solorio, Hagman, Charles |Ayes:|Perea, Beall, Charles | | |Calderon, Carter, Feuer, | |Calderon, Cedillo, Alejo, | | |Grove, Hayashi, Alejo, | |Gordon, Harkey | | |Torres, Wieckowski | | | | | | | | ----------------------------------------------------------------- APPROPRIATIONS 17-0 ----------------------------------------------------------------- |Ayes:|Fuentes, Harkey, | | | | |Blumenfield, Bradford, | | | | |Charles Calderon, Campos, | | | | |Davis, Donnelly, Gatto, | | | | |Hall, Hill, Lara, | | | | |Mitchell, Nielsen, Norby, | | | | |Solorio, Wagner | | | | | | | | ----------------------------------------------------------------- SUMMARY : Extends the effective date on 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 laws that allow insurance companies, corporations, and other taxpayers to receive a tax credit equal to 20% 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 AB 624 Page 2 Advisory Board would consist of the IC or his or her designee, 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, an affordable housing practitioner, a local economic development practitioner, and a representative of a financial institution or a community development financial institution. EXISTING LAW : 1)Allows insurance companies, corporations, and other taxpayers to receive a tax credit equal to 20% 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 (DOI). 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 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 DOI, 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 : The Franchise Tax Board estimates that the AB 624 Page 3 income tax provisions of this bill will result in an annual revenue loss of $200,000 in fiscal year (FY) 2011-12 and $420,000 in FY 2012-13. The tax credit is equal to 20% of the invested amount, up to $10 million, for a statewide total tax credit capped at $2 million. State law provides that if the aggregate amount of these investments is less than $10 million in one year, the amount of the difference may be carried over to future years. As of February of this year, $4.75 million in Community Development Financial Institutions (CDFI) tax credits were available. The DOI estimates that the cost of staffing the COIN Advisory Board would be minor and absorbable within existing resources. COMMENTS : 1)The COIN Program was created in 1996 as a public/private partnership by the DOI, 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 disadvantaged communities. There are currently 81 CDFIs certified by COIN and eligible to participate in the tax-credit program. 2)According to the author and the DOI, 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) AB 624 Page 4 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. Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086 FN: 0000922