BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 1128 (Padilla) - Energy: alternative energy financing.
Amended: May 1, 2012 Policy Vote: Gov&F 9-0, EU&C
12-0
Urgency: No Mandate: No
Hearing Date: May 14, 2012 Consultant: Marie Liu
This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 1128 would temporarily expand the sales and use
tax exemption under the California Alternative Energy and
Advanced Transportation Financing Authority (CAEATFA) program to
include "advanced manufacturing."
Fiscal Impact:
One-time costs of approximately $500,000 from the General
Fund (via a loan) in 2013-14 for the development of
emergency regulations and reporting costs. These costs may
eventually be recovered through fees, depending on the level
of program participation.
Uncertain, but potentially tens to hundreds of millions of
dollars, from the General Fund beginning in 2013-14 through
2015-16 due to loss sales tax revenue. However, these
revenues may be offset by also uncertain, but potentially
millions of dollars, to the General Fund in economic
stimulus.
Background: The California Alternative Energy and Advanced
Transportation Financing Authority (CAEATFA) was established in
1980 as a means to encourage the use of equipment using
alternative or renewable energy sources. CAEATFA's authority has
since been expanded several times including to include the
financing of advanced transportation technologies. Financial
assistance can occur through the issuance of revenue bonds, loan
guarantees, loan loss reserves, and insurance.
Beginning in 2011, as a result of the passage of SB 71 (Padilla)
Chapter 10/2010, CAEATFA is authorized to provide projects
financial assistance in the form of a sales and use tax
exemption on property (such as manufacturing equipment) used for
the design, manufacture, production, or assembly of advanced
SB 1128 (Padilla)
Page 1
transportation technologies or alternative energy products,
components, or systems. CAEATFA must evaluate project
applications for eligibility based upon certain criteria that
encourages manufacturing facilities and jobs located in
California and the reduction of greenhouse gases beyond the
reduction required by federal or state law or regulation.
Projects must meet the "net benefits test" by showing that the
new project will create jobs in the state. If CAEATFA approves
more than $100 million in tax exemptions in one year, CAEATFA
must provide a notice to the Legislature before approving
further exemptions. This authority sunsets on January 1, 2021.
Proposed Law: This bill would expand CAEATFA's authority so that
advance manufacturing projects are eligible to receive sales and
use tax exemptions until July 1, 2016. Advanced manufacturing is
defined as manufacturing that "improves existing, or creates
entirely new, materials, products, and processes through the use
of science, engineering or information technologies,
high-precision tools and methods, a high-performing workforce,
and innovative business or organizational models" regarding
micro and nano electronics, advanced materials, integrated
computational materials engineering, nanotechnology, additive
manufacturing, and industrial biotechnology.
Staff Comments: In the two years since the enactment of SB 71,
CAEATFA has authorized $146.6 million in state and local tax
exemptions of which $39.2 million has been used and $50.1
million is inactive (can no longer be used). Interest in the
program was high at the program's inception but has since
tapered off, as indicated by the fact that approximately 60% of
the projects were approved within the first eight months of the
program. The administration of this program is intended to be
self-funded through a fee assessed on applicants. But start-up
costs for the program were paid by a General Fund loan of $2.4
million in 2010. CAEATFA's ability to repay back this loan is
dependent on participation in the program (i.e. there must be
applicants on which a fee may be assessed) and the amount of the
fee. To the extent that this bill increases participation in the
program, this increased participation can help ensure the
repayment of the General Fund. That said, the expansion of this
program will also initially increase startup costs, at least
temporarily making loan repayment more difficult. The
Treasurer's Office estimates that the one-time set-up costs
necessitated by this bill will be approximately $500,000.
SB 1128 (Padilla)
Page 2
This bill also requires the Air Resources Board (ARB) to advise
CAEATFA on whether advanced manufacturing project applicants are
going above and beyond what is required in law. Staff believes
this requirement poses unknown costs on ARB; however the ARB's
costs should be fully reimbursable by the application fee.
The larger fiscal impact of this bill however is the potential
loss of revenues to the General Fund as a result of the tax
exemption, potentially balanced by the fiscal benefits,
environmental benefits, and job creation created by
incentivizing advanced manufacturing projects. According to
CAEATFA's report on the SB 71 program on May 1, 2012, of the
$95.7 million approved state and local exemptions approved for
active projects, CAEAFTA estimates $72.4 million in
environmental benefits and $123.1 million in fiscal benefits for
a total net benefit to the state of $99.6 million. However, an
informational hearing of the Committees on Governance and
Finance and Energy, Utilities, and Communication on October 11,
2011 found that 721 jobs were created in the program at a cost
of $153,000 per job.
Theoretically, the application of the net benefit test to each
of the project applicants would ensure that there continues to
be a net benefit to the state with this bill's expansion of the
program. Staff notes that applicants must provide a large amount
of information on environmental and economic benefits of the
project- more than any other state tax credit, deduction, or
exemption- to conduct the net benefits test, but the test is
applied to self-reported information by the project sponsor.
This bill would require a peer review of the net benefits test
for both existing eligible projects as well as the advanced
manufacturing projects added under this bill. The peer review of
the net benefits test should add some security that this program
ultimate offers a net benefit to the state. The cost of the peer
review is included in the estimated $500,000 start-up costs.
Staff further notes that this bill contains a definition of
"advance manufacturing" that seems to be open to a fair amount
of interpretation. For example, the definition requires that an
advance manufacturing include systems and technologies that are
"sustainable." It is unclear how "sustainability" should be
measured and whether it is referring to economic, environmental,
or social sustainability values, or some combination. Staff
SB 1128 (Padilla)
Page 3
notes that interpreting the definition could potentially cause
implementation difficulties and questionable benefits from the
program.
Recommended Amendments: There is some clarity need for the peer
review requirements in the bill to ensure that the peer review
applies to the net benefits test for all projects and the timing
of the peer review.