BILL ANALYSIS                                                                                                                                                                                                    Ó

                                                                  AB 32
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          Date of Hearing:  May 24, 2013

                                  Mike Gatto, Chair

                 AB 32 (John A. Pérez) - As Amended:  April 17, 2013 

          Policy Committee:                              Revenue and  
          Taxation     Vote:                            9-0

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              


          This bill increases from $10 million to $50 million the annual  
          aggregate amount of qualified investments eligible for the  
          community development financial institution (CDFI) tax credit  
          under the insurance gross premiums tax, personal income tax, and  
          corporation tax, as provided.  

           FISCAL EFFECT  

          1)The tax credit is equal to 20% of the invested amount, up to  
            $50 million, for a statewide total tax credit capped at $10  
            million, compared to current law, which caps the tax credit at  
            $2 million.  The actual cost year to year will vary because if  
            the aggregate amount of the qualified investments made in any  
            calendar year is less than $50 million, the unused amount may  
            be carried over to the next year and any succeeding year. 

          2)Franchise Tax Board (FTB) staff estimates the proportion of  
            total revenue loss resulting from the PIT and CT tax  
            provisions will be approximately $1.5 million annually.

          3)The Department of Insurance estimates the costs to implement  
            would be approximately $500,000 annually, given the increase  
            in the workload associated with certifying CDFIs, marketing  
            the CDFI Tax Credit program, and qualifying, monitoring and  
            reporting CDFI Tax Credit investments.  

           1)Purpose  .  The author states community development investments  
            make sound business sense and provide solid returns while  


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            bringing much needed capital to low-income communities.  These  
            investments are leveraged to provide loans such as small  
            business loans, mortgage loans, and construction loans.  The  
            author notes from 1997 through 2012 more than $135 million has  
            been invested into some of California's most underserved  
            communities through the California Organized Investment  
            Network (COIN) program.  According to the author, insurer  
            demand for CDFI tax credits continues to increase due to the  
            reinvigoration of COIN.  The author contends unmet insurer  
            appetite and underutilized CDFI capacity means the state could  
            gain significantly more insurer investment if the amount of  
            available tax credits was increased.

           2)Support  .  The California Department of Insurance, the sponsor  
            of this bill, states COIN helps address unmet capital needs by  
            supporting economic development, affordable housing and other  
            such investments that benefit low-income and rural communities  
            in California.  The sponsor notes COIN received a record  
            number of CDFI tax credit applications in 2011 and 2012, which  
            required the COIN to allocate unused tax credits from prior  
            years.  Furthermore, according to the sponsor, within days of  
            opening the first 2013 CDFI tax credit application cycle,  
            investors and CDFIs reported their intended community  
            investment to be nearly $80 million on $16 million of tax  

           3)Background  . The personal income tax law, corporation tax law  
            and insurance gross premiums tax law each provide a 20%  
            credit, capped at a maximum of $2 million per year, for  
            qualified investments in CDFIs. Qualified investments include:

             a)   deposits or loans that do not earn interest 
             b)   equity investments
             c)   an equity-like debt instrument that conforms to the  
               specifications for these instruments as prescribed by the  
               U.S. Department of the Treasury CDFI Fund, or its  
            To qualify for the 20% tax credit, an investment must be equal  
            to or greater than $50,000 and for a minimum of 60 months.   
            State law limits the aggregate amount of qualified deposits  
            made by all taxpayers to $10 million for each calendar year.

            A CDFI must be certified by COIN by demonstrating that it is a  


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            private financial institution located in this state, its  
            primary mission is community development, and that it lends in  
            urban, rural, or reservation-based communities in this state.   
            COIN is a collaborative effort between the California  
            Department of Insurance, 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 lending or investing.  CDFIs 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 the state's urban areas.

           4)The Report by the Legislative Analyst's Office (LAO)  .  In  
            April 2011, the LAO issued an analysis of the CDFI tax credit,  
            discussing the credits' fiscal impact and the resulting  
            benefits to economically disadvantaged communities and  
            low-income people in California.  While the LAO was unable to  
            estimate the economic impact of the tax credits, it stated in  
            many cases investments in the CDFIs would not have been made  
            in the credit's absence.

           5)Related Legislation  .

             a)    AB 624 (John A. Pérez), Chapter 436, Statutes of 2011,  
               extended the CDFI tax credit program from January 1, 2012  
               until January 1, 2017.

             b)   AB 2832 (Ridley-Thomas), Chapter 580, Statutes of 2006,  
               extended the operation of the CDFI tax credit program from  
               January 1, 2007, until January 1, 2012.
           Analysis Prepared by  :    Roger Dunstan / APPR. / (916) 319-2081