BILL ANALYSIS Ó
AB 32
Page 1
Date of Hearing: May 24, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
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:
SUMMARY
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.
COMMENTS
1)Purpose . The author states community development investments
make sound business sense and provide solid returns while
AB 32
Page 2
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
credits.
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
successor.
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
AB 32
Page 3
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