BILL ANALYSIS                                                                                                                                                                                                    Ó

                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair

          AB 32 (John Perez) - Insurance Taxes: Income Taxes: Credits:  
          Community Development Financial Institution Investments
          Amended: August 21, 2013        Policy Vote: G&F 7-0
          Urgency: Yes                    Mandate: No
          Hearing Date: August 26, 2013                           
          Consultant: Robert Ingenito     
          This bill meets the criteria for referral to the Suspense File.

          Bill Summary: AB 32 would extend and expand the Community  
          Development Financial Institution (CDFI) tax credit. 

          Fiscal Impact: 
                 The tax credit is equal to 20 percent 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 each 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. 

                 The Franchise Tax Board (FTB) estimates the proportion  
               of total revenue loss resulting from the Personal Income  
               Tax (PIT) and Corporation Tax (CT) provisions would be  
               approximately $1.5 million annually. FTB indicates that the  
               bill would not significantly impact its costs. 

                 The Department of Insurance (DOI) would incur costs of  
               $428,000 in 2003-14, $571,000 in 2014-15, and $604,000 in  
               2015-16 to implement the provisions of the bill,  
               specifically, certifying Community Development Financial  
               Institutions (CDFIs), marketing the CDFI tax credit  
               program, and qualifying, monitoring and reporting CDFI tax  
               credit investments.

          Background: To promote the availability of investment capital  
          for low-income communities, current state law contains the CDFI  
          tax credit, administered by DO).  Taxpayers may claim a credit  


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          against the Gross Premiums Tax, PIT, or CT equal to 20 percent  
          of qualified investments in the form of non-interest bearing  
          deposits, loans, or equity investments of at least $50,000 held  
          for at least 60 months.  The credit can be carried over for four  
          years, and is currently schedule to sunset at the end of the  
          2016 tax year. However, but DOI can only certify new deposits  
          for credits until January 1, 2015.
          For deposits to generate credits, CDFI must be certified by the  
          California Organized Investment Network (COIN), an office within  
          DOI, by demonstrating that (1) it is a private financial  
          institution located in California, (2) its primary mission is  
          community development, and (3) that it lends in urban, rural or  
          reservation-based communities in California.  CDFIs may be  
          banks, credit unions, or non-regulated non-profit institutions  
          organized to provide private capital for community development  
          or investing. There are currently 27 CDFIs in California, down  
          from 50 in 2011. CDFIs must use the proceeds of the investment  
          for a purpose that is consistent with its community development  
          mission and for the benefit of economically disadvantaged  
          communities and low-income people in California.

          CDFIs must apply to COIN on behalf of the taxpayer.  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 from past years may be carried over to future ones.  COIN  
          generally allocates the credits on a first-come, first-served  
          basis; however, if COIN determines that the total amount of  
          investment will exceed the cap, it can prioritize applications  
          with investments that directly benefit low-income persons, or  
          prioritize rental housing, mortgages for community-based  
          residential housing, and self-help housing ahead of  
          single-family housing.  DOI or FTB may recapture the credit  
          within the 60 month period if the taxpayer reduces or withdraws  
          the investment.  

          Proposed Law: This bill would, among other things, do the  
                 Increase from $10 million to $50 million the amount of  
               investments COIN can certify for CDFI credits each year.   
               The measure would restrict the amount of investments COIN  
               can certify for any one CDFI, combined with its affiliates  
               to 30 percent of the annual total, unless COIN determines  


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               after October 1 that the supply of credits exceeds demand.   
               Additionally, the measure sets aside 10 percent of the  
               annual total for investments of less than $200,000, again  
               unless COIN determines after October 1 that the supply of  
               credits exceed demand.

                 Modify the requirement for COIN to prioritize  
               applications when credit demand exceeds supply to place  
               priority on affordable rental housing, housing for  
               veterans, and self-help housing ahead of single-family  

                 Extend the date before which COIN can certify  
               investments from January 1, 2015 to January 1, 2017.

                 Require the Insurance Commissioner to establish tax  
               credit issuance cycles throughout the year as necessary in  
               order to issue tax credit certificates to those  
               applications granted the highest priority.

                 Require the Legislative Analyst's Office (LAO) to submit  
               a report by June 30, 2016 to the Legislature on the effects  
               of the tax credits allowed, with a focus on employment in  
               low-to-moderate income and rural areas, and on the benefits  
               of these tax credits to low-to-moderate income and rural  

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

          Staff Comments: In April 2011, the LAO analyzed the CDFI tax  
          credit, discussing the credit's 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. The LAO also noted that the tax credit  
          program has not fully realized the full $2 million tax credit  
          capacity in recent years.


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