BILL ANALYSIS Ó
SB 1128
Page 1
Date of Hearing: July 2, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
SB 1128 (Padilla) - As Amended: June 18, 2012
Majority vote. Fiscal committee.
SENATE VOTE : 38-0
SUBJECT : Energy: alternative energy financing: the California
Alternative Energy and Advanced Transportation Financing
Authority (CAEATFA or the 'Authority').
SUMMARY : Temporarily expands the sales and use tax (SUT)
exemption under the CAEATFA program by revising the definition
of "project" to include "advanced manufacturing," as specified,
and makes technical clarifying changes to other provisions
related to the program. Specifically, this bill :
1)Authorizes CAEATFA, until July 1, 2016, to grant financial
assistance to eligible projects that promote the utilization
of "advanced manufacturing," as defined, therefore, expanding
the SUT exemption under the CAEATFA program.
2)Defines "advanced manufacturing" as manufacturing that
improves existing, or creates entirely new, materials,
products, and process through the use of science, engineering,
or information technologies, high-precision tools and methods,
a high-performance workforce, and innovative business or
organization models in any of the following technology areas:
a) Micro- and Nano electronics, including semiconductors.
b) Advanced materials.
c) Integrated computational materials engineering.
d) Nanotechnology.
e) Additive manufacturing.
f) Industrial biotechnology.
3)Specifies that the phrase "advanced manufacturing" includes
SB 1128
Page 2
certain systems and technologies that:
a) Are capable of furnishing a mix of products, as
specified, to respond rapidly to customer demand and
desired quality;
b) Result from substantive advancement over the current
state of the art in the production of materials and
products (for example, 'smart' or 'intelligent'
manufacturing systems, which integrate computational
predictability and operational efficiency);
c) Produce goods that minimize the use of resources while
maintaining or improving cost and performance; or,
d) Are sustainable.
4)Provides that "sustainable systems and technologies" do not
include those required to be undertaken pursuant to state or
federal law or regulations, air district rules or regulations,
memoranda of understanding with a governmental entity, or
legally binding agreements or documents. Requires the State
Air Resources Board to advise CAEATFA to ensure that these
requirements are met.
5)Modifies the definition of "advanced transportation
technologies" to do all of the following:
a) Eliminate outdated references to specified technologies;
b) Specify that eligible technologies do not include those
that are required to be undertaken pursuant to state or
federal law or regulations, air district rules or
regulations, or memoranda of understanding with a
governmental entity, or legally binding agreements or
documents;
c) Require the State Air Resources Board to advise CAEATFA
regarding the requirements of this modified definition.
6)Revises the definition of "alternative sources" to align it
with the definition of "renewable electrical generation
facilities" of the Renewable Portfolio Standard and the
definition of "combined heat and power system" in the Waste
Heat and Carbon Emissions Reduction Act.
SB 1128
Page 3
7)Narrows the definition of "financial assistance" by clarifying
that insurance and guarantees are limited to credit
enhancements - bond insurance and loan guarantees - and do not
include other forms of insurance or guarantees.
8)Specifies that only those applicants that qualify for
financial assistance under Public Resources Code (PRC) Section
26011.8 are eligible for the SUT exemption provided for in
Revenue and Taxation Code (R&TC) Section 6010.8.
9)States that the total amount of SUT exemptions granted for
projects approved by CAEATFA in each calendar year may not
exceed $100 million.
10)Clarifies CAEATFA's rulemaking authority and its authority to
delegate its powers and duties to the State Treasurer's
designee.
11)Requires CAEATFA to do all of the following:
a) Study the efficacy and cost benefit of the SUT exemption
as it relates to advanced manufacturing projects. The study
must include the number of jobs created, the costs of each
job, and the annual salary of each job and must consider a
dynamic analysis of the economic output to the state that
would occur without the exclusion.
b) Work with the Legislative Analyst's Office (LAO) to
determine the most efficient and cost effective way for the
state to create jobs in advanced manufacturing.
c) Submit to the Legislature, prior to January 1, 2017, a
report outlining the results of the study.
d) Work, before January 1, 2014, and within six months of
any significant change to the net benefits test, with the
University of California or the California State
University, to perform a peer review of the net benefit
test currently used to evaluate applicants applying for the
program.
e) Submit to the Legislature, prior to January 1, 2015, an
interim report on the efficacy of the program. The study
must include recommendations on program changes that would
SB 1128
Page 4
increase the program's efficacy in creating permanent and
temporary jobs, and whether eligibility for the program
should be extended or narrowed to other manufacturing
types. Authorizes CAEATFA to work with the LAO in
preparing the report and its recommendations.
12)Revises provisions relating to conduit bond financing to
conform to current law and business practices.
13)Removes the existing $1 billion cap imposed on the total
amount of outstanding debt that CAEATFA is authorized to
incur.
14)Authorizes CAEATFA to refinance bonds, notes or other
evidence of indebtedness of any public agency, as provided.
15)Specifies that, if CAEATFA refunds bonds or evidences of
indebtedness not originally issued by the CAEATFA, it shall
make findings stating that the project being refinanced
qualifies as a "project" under the program.
16)Provides that CAEATFA may contract with any participating
party for the acquisition, and not just construction, of a
project by the participating party, and may agree to pay the
cost of the acquired project.
17)Recast and restructure the existing provisions relating to
the Property Assessed Clean Energy (PACE) and Clean Energy
Financing Program and makes corresponding clarifying changes.
18)Repeals obsolete provisions relating to several programs that
have never been implemented nor funded.
19)Makes several technical non-substantive changes.
EXISTING LAW :
1)Creates CAEATFA for the purpose of promoting the development
and utilization of alternative energy sources and the
development and commercialization of advanced transportation
technologies.
2)Authorizes CAEATFA to provide financial assistance to certain
facilities that use alternative energy sources and
technologies or are needed to develop and commercialize
SB 1128
Page 5
advanced transportation technologies that conserve energy,
reduce air pollution, and promote economic development and
jobs.
3)Allows CAEATFA to provide eligible projects financial
assistance in the form of a SUT exemption on property used for
the "design, manufacture, production, or assembly" of either
advanced transportation technologies or alternative energy
source products, components or system, as defined.
4)Requires a project to demonstrate that it will create jobs in
the state under the "net benefit test."
5)Requires CAEATFA to provide 20-day notice to the Legislature
once the value of SUT exemptions approved by CAEATFA exceeds
$100 million. The notification must be provided prior to
grating additional approvals.
6)Sunsets the CAEATFA's expanded authority to approve
alternative energy sources or technologies projects on January
1, 2021.
7)Imposes a sales tax on a retailer's gross receipts from the
retail sale of tangible personal property (TPP) in this state,
unless the sale is specifically exempt from taxation by
statute. It is presumed that gross receipts from a particular
sale of TPP are subject to tax, unless the seller can
establish either that the sale was not a retail transaction or
that the sale is subject to an exemption.
FISCAL EFFECT : Unknown.
COMMENTS :
1)Author's Statement . The author states that, "Last summer
President Obama launched the Advanced Manufacturing
Partnership, to "invest in the emerging technologies that will
create high quality manufacturing jobs". The program directs
more than $1billion to promoting advanced manufacturing. The
Advanced Manufacturing Partnership offers new opportunities
for California to draw down federal dollars, attract new
investment, and employ our workforce.
"States such as Massachusetts, Michigan and Georgia are
creating collaborative centers between industry and government
SB 1128
Page 6
to attract advanced manufactures and draw down the federal
dollars. California must act to remain competitive.
"The California Alternative Energy and Advanced Transportation
Financing Authority (CAEATFA) is an existing authority within
the Office of the State Treasure that can attract and retain
manufacturers. In the first year alone the program approved 26
projects which generated $950 million in investments in
California. These investments are projected to create an
estimated 6,027 jobs; 3,936 permanent jobs and 2,091
construction jobs. CAEATFA is a successful model for
leveraging state dollars to create new jobs and investments.
"SB 1128 will expand the success of the program by adding
"Advanced Manufacturing" as one of the top priority criteria
CAEATFA will use to determine the allocation of exemptions."
2)Arguments in Support . The proponents state that "exempting
manufacturing equipment from the sales and use tax is nearly
universal in its recognition as an effective way to use tax
policy to stimulate job creation and innovation by eliminating
an unnecessary barrier to investment." The proponents argue
that "Ýs]timulating manufacturing is key to California's
economic stability and growth," because manufacturing jobs
"have the highest multiplier effect of any job classification
in any industry."
3)CAEATFA: Background . According to the Senate Energy,
Utilities, and Communications Committee, the California
Alternative Energy Source Financing Authority was established
in 1980 with an authorization of $200 million in revenue bonds
to finance projects utilizing alternative or renewable energy
sources, such as wind, solar, cogeneration and geothermal. In
1994, the authority was renamed as CAEATFA and its charge was
expanded to include the financing of "advanced transportation"
technologies. During the energy crisis of 2001, CAEATFA's
authority was expanded again 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 CAEATFA board consists of five
members: the Treasurer, Controller, Director of Finance,
Chairperson of the Energy Commission, and President of the
Public Utilities Commission.
CAEATFA may provide financial assistance to approved projects
SB 1128
Page 7
via the issuance of bonds, loans, loan guarantees and credit
enhancements. It may authorize up to $1 billion in revenue or
prepayment bonds to fund projects. Over the last few years,
CAEATFA has provided financial assistance through various
programs, including qualified energy conservation bonds for
projects that promote the use of alternative energy and energy
efficiency in state, local and tribal government facilities as
well as clean renewable energy bonds for renewable energy
projects. In addition, with the passage of SB 71 (Padilla),
Chapter 10, Statutes of 2010, CAEATFA is allowed to grant a
SUT exemption to provide financial assistance for the purchase
of equipment that is used for the design, manufacture,
production, or assembly of "advanced transportation
technologies" or "alternative source" products, components, or
systems (SB 71 Program). Alternative source products include
cogeneration technology, energy conservation, solar, biomass,
wind, geothermal, specified hydro-electric, or any other
energy efficient technologies that reduce the use of fossil
and nuclear fuels. Alternative sources also include advanced
electric distributive generation technology and energy storage
technology. The SB 71 Program sunsets on January 1, 2021.
4)The SB 71 Program . According to the CAEATFA's 2011 annual
report to the Legislature, as of December 31, 2011, it had
approved 39 projects under the SB 71 Program, which include,
among others, electric vehicles and solar photovoltaic
manufacturing, biomass processing and fuel production, and
biogas capture and production. Out of those 39 projects, nine
are inactive and are not moving forward. The 30 active
projects have been approved for $937.7 million in anticipated
qualified property purchases, estimated to result in
approximately $80.3 million in SUT exemptions (of which $25
million were utilized by Solyndra that filed for bankruptcy on
September 6, 2011). These projects are located across 12
counties. The CAEATFA staff estimated that the projects will
produce $37.2 million in environmental benefits and $108.4
million in fiscal benefits, resulting in approximately $65.2
million of "net benefits." But, at the October 11, 2011 joint
informational hearing held by the Senate Committee on
Governance and Finance and the Committee on Energy, Utilities,
and Communications, the Committees learned that the current SB
71 Program costs about $153,000 per job created, including the
Solyndra allocation.
The SB 71 Program requires more data and information from
SB 1128
Page 8
applicants than any other tax incentive programs. However, it
is still difficult to measure the efficacy of the existing
program. Thus, this measure proposes a peer review approach
of the net benefits test currently used to evaluate applicants
applying for the SUT exemption. It would require CAEATFA to
work with the University of California or the California State
University to perform a review of the test before January 1,
2014, and within six month of any significant change to the
test.
5)Expanding the Definition of Eligible "Projects ." SB 1128
temporarily, until July 1, 2016, expands CAEATFA's authority
to grant a SUT exemption to "advanced manufacturing" projects.
Specifically, it revises the definition of eligible project
for purposes of the SB 71 Program to include "advanced
manufacturing." In addition, SB 1128 indirectly changes the
definition of "project" to include a few types of projects
that, arguably, are not "eligible projects" under existing
law.
For example, SB 1128 allows CAEAFTA to contract with a
participating party not just for the construction but also the
acquisition of a project, therefore expanding the types of
eligible projects. Under existing law, CAEAFTA may contract
with a participating party for the construction of a project
and may agree to pay the cost of such project, as specified.
SB 1128 would authorize CAEAFTA to pay the costs incurred by a
participating party not just in constructing but also in
acquiring an eligible project.
Further, under existing law, CAEAFTA may refinance its bonds,
notes or other evidence of indebtedness. However, it may not
refinance bonds issued by other agencies. A borrower, at
times, finds it desirable to move its bonds to another agency.
For example, the borrower may have reasons to refund their
older bonds and, at the same time, would like to take
advantage of current interest rates or other items. SB 1128
authorizes CAETFTA to refinance (known as refunding), directly
or indirectly, bonds, notes or other evidence of indebtedness
of a public agency. This bill also directs CAEAFTA, in the
case it refinances bonds issued by another agency, to make
findings that the project that is being refinanced qualifies
as a "project." Would a newly qualified project be eligible
for the SUT exemption? What if the newly qualified project
was not an "eligible project" prior to the refinancing? For
SB 1128
Page 9
instance, if a public agency originally issued bonds to
finance a project that did not qualify as an eligible
"project" for purposes of the SUT exemption, and the CAEATFA
refinances the bonds, could the user of the project apply for
a refund of the sales tax paid? The Committee may wish to
consider amending this bill to clarify that newly qualified
"projects" in this case are not eligible for the SUT
exemption.
6)The SUT Exemption. While this measure expands the types of
projects that may qualify as eligible for CAEAFTA's financial
assistance, it also imposes a hard cap of $100 million on the
total amount of SUT exemptions that may be granted by CAEATFA
in any given year and clarifies that only those projects that
are authorized under the SB 71 Program qualify for the SUT
exemption.
SB 1128 also revises R&TC Section 6010.8, which authorizes the
SUT exemption, to allow a participating party to purchase or
lease qualified TPP directly from the seller, removing the
need for CAEATFA to act as an intermediary. Typically, in
order to qualify for the exemption, the participating party
would have to purchase the property without payment of tax and
then resell the equipment to CAEATFA. The transfer would be
excluded from the SUT as a transfer from a participating party
to CAEATFA. The participating party and CAEATFA would then
enter into a lease agreement and upon complete installation of
the TPP, ownership of that property would be transferred from
the CAEATFA to the participating party. Alternatively,
CAEATFA may purchase the specified equipment on behalf of the
participating party, financing the purchase through a bond or
loan, and the participating party would lease the equipment
from CAEATFA. As the purchaser of the equipment, the CAEATFA
will pay no sales tax on the purchase, nor will it be required
to collect the use tax on the lease receipts. SB 1128 would
simplify these complicated sale-lease transactions that may
not be feasible for business reasons by providing that a lease
or transfer of TPP constituting a "project" under the SB 71
Program to a participating party is exempt from the SUT.
7)Double-Referral . This bill is double-referred with the
Assembly Committee on Jobs and Economic Development. SB 1128
is set to be heard on July 3, 2012, pending referral.
8)Suggested Amendments .
SB 1128
Page 10
On page 5, line 2, strike out the second comma
On page 8, line 23, strike out "paragraph (1)" and insert
"paragraph (B)"
On page 12, line 35, strike out "paragraph (1)" and insert
"paragraph (B)"
On page 13, line 8, strike out "of this"
REGISTERED SUPPORT / OPPOSITION :
Support
Boehringer-Ingelheim
State Buildings Trades and Construction Trades Council, AFL-CIO
Opposition
None on file
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098