BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 624| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 624 Author: John A. Pérez (D) and Blumenfield (D), et al. Amended: 8/15/11 in Senate Vote: 21 SENATE GOVERNANCE & FINANCE COMMITTEE : 9-0, 6/29/11 AYES: Wolk, Huff, DeSaulnier, Fuller, Hancock, Hernandez, Kehoe, La Malfa, Liu SENATE APPROPRIATIONS COMMITTEE : 9-0, 8/25/11 AYES: Kehoe, Walters, Alquist, Emmerson, Lieu, Pavley, Price, Runner, Steinberg ASSEMBLY FLOOR : 75-2, 5/31/11 - See last page for vote SUBJECT : California Organized Investment Network SOURCE : Department of Insurance DIGEST : This bill extends the Community Development Financial Institution investments tax credit until January 1, 2017. This bill also authorizes the Insurance Commissioner to establish a California Organized Investment Network Advisory Board until January 1, 2015, as specified. ANALYSIS : Existing law allows a credit against the personal income tax, corporation tax, and insurance premiums tax for non-interest bearing investments in community development financial institutions of at least CONTINUED AB 624 Page 2 $50,000 held for 60 months. The credit is equal to 20 percent of investments with the maximum amount of aggregate investments capped at $10 million per year ($2 million in credits). If qualified investments are less than this amount in a calendar year, the remaining amount may be carried forward to succeeding years. Existing law also limits the amount that may be invested with a single Community Development Financial Institution (CDFI) in a single year, reserves a portion of the aggregate amount for insurance company investments, and reserves a portion for investments of less than $300,000. The Department of Insurance (CDI) or the Franchise Tax Board (FTB) may recapture the credit within the 60 month period if the investor reduces or withdraws the investment in a CDFI. The CDFI investment credit is scheduled to sunset at the end of the 2011 tax year. This bill continues this tax credit program until January 1, 2017, but prohibits the California Organized Investment Network (COIN) from certifying investments for the credit after January 1, 2015, and makes the following changes to the program: (1) eliminate limits on the amount that may be invested with a single CDFI and requirements to reserve specified amounts for insurance companies and small investments; (2) delete provisions that require investments to be certified on a first-come, first-served basis; and (3) specify that if aggregate investments exceed available amounts, priority would be given to investments by insurance companies for projects that benefit low-income persons and prioritize certain types of housing over single-family owned housing. This bill also authorizes the Insurance Commissioner to establish a COIN Advisory Board until January 1, 2015 to advise COIN on methods to increase insurance industry investments, facilitate contacts among entities qualified for the CDFI credit, and recommend programmatic guidelines. This bill creates the COIN Advisory Board, composed of the Insurance Commissioner or his/her designee, three executives in the insurance investment industry, and at least one voluntary member from: A licensed attorney practicing law. CONTINUED AB 624 Page 3 A member of the public appointed by the Speaker of the Assembly. A member of the public appointed by the Senate Committee on Rules. A member of a consumer advocacy group. An affordable housing practitioner. A local economic development practitioner. A member of a financial institution or community development financial institution. A representative with experience seeking investments for low-to-moderate income or rural communities. The board shall elect a Chair. Members serve two-year terms, staggered by drawing lots at its first meeting so that a simple majority serves two-year terms, with the remaining members serving one-year terms. The board's purpose is to advise COIN or its successor on the best methods of increasing the level of insurance industry capital in safe and sound investments while providing fair returns to investors and social benefits to underserve communities. The board shall meet quarterly, or as directed by the Insurance Commissioner, and can be reimbursed for actual expenses. Background A CDFI must be certified by COIN, an office in the CDI, by demonstrating that it is a private financial institution located in California, its primary mission is community development, and that it lends in urban, rural or reservation-based communities in California. COIN is a collaborative effort between CDI, the insurance industry, community economic development organizations, and community advocates. COIN was established in 1996, at the request of the insurance industry as an alternative to state legislation that would have required insurance companies to invest in underserved communities (similar to the federal Community Reinvestment Act that applies to the banking industry). CDFIs may be banks, credit unions, or non-regulated non-profit institutions organized to provide private capital for community development or investing. CDFIs CONTINUED AB 624 Page 4 provide private capital for minority small businesses and low-income borrowers who traditionally have been underserved by conventional lending institutions. There are almost 50 CDFIs in California, located mostly in urban areas. COIN certifies the amount of the investment and the credit, which is capped at a total of $10 million each year, but any unused amount may be carried over to future years. COIN allocates the credits on a first-come, first-served basis. Until October 1st of each year, the total amount of investments in any one CDFI may not exceed the lesser of $10 million or 40 percent of the annual aggregate amount, although the Insurance Commissioner can specify an alternative amount or a different date. Until July 1st of each year, 25 percent of aggregate qualified investments are reserved for admitted insurance companies, but again, the Insurance Commissioner may specify an alternate percentage or different date. Additionally, until July 1st of each year, the amount of investment reserved for investments of less than $300,000 is either $3 million, or an alternative date or amount determined by the Insurance Commissioner. The CDI or the FTB may recapture the credit within the 60-month period if the taxpayer reduces or withdraws the investment. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee: Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund Credit extension up to $1,000 up to $2,000up to $2,000 General (revenue loss) (actual amounts may vary) Advisory Board up to $20 up to $40 up to $40 Special* COIN: credit $70 $140-$200 $140-$200 CONTINUED AB 624 Page 5 Special* administration (continued annual staffing) * Insurance Fund SUPPORT : (Verified 8/25/11) Department of Insurance (source) 3CORE Association of Financial Development Corporations California Association for Micro Enterprise Opportunity Congress of California Seniors Local Initiatives Support Corporation Low Income Investment Fund National Federation of Community Development Credit Unions NCB Capital Impact Neighborhood National Bank Northern California Community Loan Fund Personal Insurance Federation of California Rural Community Assistance Corporation San Luis Obispo County Housing Trust Fund OPPOSITION : (Verified 8/25/11) Department of Finance ASSEMBLY FLOOR : 75-2, 5/31/11 AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, Brownley, Buchanan, Butler, Charles Calderon, Campos, Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani, Galgiani, Garrick, Gatto, Gordon, Grove, Hagman, Hall, Harkey, Hayashi, Roger Hernández, Hill, Huber, Hueso, Huffman, Jeffries, Jones, Knight, Lara, Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Mitchell, Monning, Morrell, Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel Pérez, Portantino, Silva, Skinner, Smyth, Solorio, Swanson, Torres, Valadao, Wagner, Wieckowski, Williams, Yamada, John A. Pérez NOES: Donnelly, Halderman NO VOTE RECORDED: Beth Gaines, Gorell, Mansoor CONTINUED AB 624 Page 6 AGB:mw 8/29/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED