BILL ANALYSIS Ó
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THIRD READING
Bill No: AB 32
Author: John A. Pérez (D)
Amended: 9/3/13 in Senate
Vote: 27
SENATE GOVERNANCE & FINANCE COMMITTEE : 7-0, 8/14/13
AYES: Wolk, Knight, Beall, DeSaulnier, Emmerson, Hernandez, Liu
SENATE APPROPRIATIONS COMMITTEE : 7-0, 8/30/13
AYES: De León, Walters, Gaines, Hill, Lara, Padilla, Steinberg
ASSEMBLY FLOOR : 77-1, 5/28/13 - See last page for vote
SUBJECT : Insurance taxes: income taxes: credits: community
development
SOURCE : Department of Insurance
DIGEST : This bill increases from $10 million to $50 million
the amount of investments the California Organized Investment
Network (COIN) can certify for the Community Development
Financial Institution Credit (CDFI) credits each year. This
bill restricts the amount of investments COIN can certify for
any one CDFI, combined with its affiliates to 30% of the annual
total, unless COIN determines after October 1 that the supply of
credits exceeds demand. Additionally, this bill sets aside 10%
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.
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ANALYSIS :
Existing law:
1. Authorizes a credit against the Insurance Gross Premiums Tax
(IT), Personal Income Tax (PIT) or Corporation Tax (CT), in
an amount equal to 20% of a qualified investment made by a
taxpayer into a CDFI.
2. Limits that annual certification of total qualified
investments made by all taxpayers to all CDFIs to $10 million
for each calendar year, but if the qualified investments are
less than that amount in one calendar year, the difference
may be carried over to future years a and added to the
aggregate amount authorized for those years.
3. Defines "qualified investment" as an investment that is a
deposit or loan that does not earn interest, or an equity
investment, or an equity-like debt instrument meeting federal
or state agency standards. The duration of the investment
must be for 60 months or more and the amount must equal
$50,000 or more.
4. Defines a "community development financial institution" as a
private financial institution located in California that is
certified by the COIN Office of the Department of Insurance
(DOI), that has community development as its primary mission,
and that lends in urban, rural, or reservation communities in
this state. The term "CDFI" includes a community development
bank, a community development loan fund, a community
development credit union, a microenterprise fund, a community
development corporation-based lender, ad a community
development venture fund.
5. Provides that, in the event the total amount of qualified
investments exceeds $10 million in a calendar year, priority
shall be granted to those applications that meet any or all
of the following:
A. Directly benefit low-income persons.
B. Prioritize rental housing, mortgages for
community-based residential programs, and self-help
housing ahead of single-family owned housing.
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C. Represent investments from insurance companies
subject to tax under Section 12201 of the Revenue and
Taxation Code or under Section 28 Article XIII of the
California Constitution.
6. Allows a carry-forward of the unused CDFI credit up to four
taxable years, or until the credit has been exhausted,
whichever occurs first.
7. Authorizes COIN to certify investments for the credit on or
before January 1, 2015.
8. Provides that the CDFI tax credit is effective until December
31, 2017, and as of that date is repealed.
This bill:
1. Increases from $10 million to $50 million the amount of
investments COIN can certify for CDFI credits each year.
Restricts the amount of investments COIN can certify for any
one CDFI, combined with its affiliates to 30% of the annual
total, unless COIN determines after October 1 that the supply
of credits exceeds demand. Additionally, sets aside 10% 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.
2. Modifies the requirement for COIN to prioritize applications
when credit demand exceeds supply to place priority on
affordable rental housing, and housing for veterans.
3. Extends the date before which COIN can certify investments
from January 1, 2015 to January 1, 2017.
4. Requires 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.
5. Allows the Commissioner, from time to time, to adopt, amend,
or repeal regulations to implement the provisions of this
bill. The initial adoption of the regulations implementing
this bill shall be deemed to be an emergency and necessary in
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order to address a situation calling for immediate action to
avoid serious harm to the public peace, health, safety, or
general welfare.
6. Requires 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
persons.
Background
Federal law allows a new markets tax credit for taxpayer's
qualified equity investments in community development entities,
the primary mission of which must be serving or providing
investment capital for low-income communities or low-income
persons, as certified by the Secretary of the Treasury. The
federal credit is equal to 39% of the qualified equity
investment and is spread over seven years.
State law does not conform to the federal new markets credit,
but instead allows the CDFI, administered by the DOI (AB 1520
(Vincent), Chapter 947, Statutes of 1997). Taxpayers may claim
a credit against the IT, PIT, or CT equal to 20% 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. Taxpayers can carry over the credit for four years.
The credit was initially used only to reduce PIT, or CT
liabilities, but the Legislature added a credit against the IT
in 1999, also administered by DOI. In 2002, the Legislature
extended the credit until 2007, again until 2012, and once more
until 2017, but only allowed DOI to certify new deposits for
credits until January 1, 2015 (AB 624 (J. Pérez), Chapter 436,
Statutes of 2011).
For deposits to generate credits, CDFI must be certified by
COIN, an office in DOI, by demonstrating that it is a private
financial institution located in California, its primary mission
is community development, and 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
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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 the Franchise Tax Board (FTB) may
recapture the credit within the 60 month period if the taxpayer
reduces or withdraws the investment.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
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 existing 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.
FTB estimates the proportion of total revenue loss resulting
from the PIT and CT provisions would be approximately $1.5
million annually. FTB indicates that this bill will not
significantly impact its costs.
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 this bill, specifically, certifying CDFIs, marketing the
CDFI tax credit program, and qualifying, monitoring and
reporting CDFI tax credit investments.
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SUPPORT : (Verified 8/30/13)
Department of Insurance (source)
3CORE Financial Mentoring Perspective
AFSCME
Association of California Insurance Companies
Association of California Life and Health Insurance Companies
California United Bank
Century Housing Corporation
Corporation for Supportive Housing
Enterprise Community Investments, Inc.
Farmers Insurance Group
Grossman Financial Management
InSight at Pacific Community Ventures
Karuk Community Loan Fund, Inc.
Los Angeles LDC
Nehemiah Community Reinvestment Fund
Northeast Community Federal Credit Union
Northern California Community Loan Fund
Opportunity Fund Northern California
Pacific Coast Regional Small Business Development Corporation
Pacific Life Insurance Company
Personal Insurance Federation of California
Rural Community Assistance Corporation
The Association of Financial Development Corporation
OPPOSITION : (Verified 8/30/13)
Department of Finance
ARGUMENTS IN SUPPORT : According to the author, "the bill
would also ensure the availability of tax credit investment
opportunities for CDFIs and their investors by limiting the
amount of tax credit that may be allocated to each investor; set
aside 10% of the qualified investments for investment amounts of
$200,000 or less; if the program is oversubscribed and there are
applications that support housing, priority within those
applications will be given to applications that support
affordable rental housing, housing for veterans, mortgages for
community- based residential programs, and self- help housing
ahead of single-family owned housing; require the Insurance
Commission to establish tax credit issuance cycles throughout
the year, and allow the COIN to certify investments until the
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January 1, 2017 sunset date."
ARGUMENTS IN OPPOSITION : The Department of Finance is opposed
to this bill because it results in annual General Fund losses.
This bill is intending to incentivize capital investment into
low-to-moderate income areas; however, it is
unclear that these projects are not able to get funding absent
the increase in the tax credit.
ASSEMBLY FLOOR : 77-1, 5/28/13
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,
Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,
Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway,
Cooley, Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier,
Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell,
Gray, Grove, Hagman, Hall, Harkey, Roger Hernández, Jones,
Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein,
Mansoor, Medina, Melendez, Mitchell, Morrell, Mullin,
Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea,
V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Salas, Skinner,
Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Wilk,
Williams, Yamada, John A. Pérez
NOES: Donnelly
NO VOTE RECORDED: Holden, Vacancy
AB:dk 9/3/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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