BILL ANALYSIS Ó
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CONCURRENCE IN SENATE AMENDMENTS
AB 32 (John A. Pérez)
As Amended September 3, 2013
2/3 vote. Urgency
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|ASSEMBLY: |77-1 |(May 28, 2013) |SENATE: |39-0 |(September 9, |
| | | | | |2013) |
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Original Committee Reference: REV. & TAX.
SUMMARY : 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 (IT), Personal Income Tax
(PIT), and Corporation Tax (CT) Laws, as provided.
The Senate Amendments :
1)Require a CDFI to provide, in its application for a CDFI tax
credit, a detailed description of the intended use of the
investment funds and specified information about the taxpayer.
2)Prohibit public disclosure of the information included in the
application, other than the taxpayer's name.
3)Require the California Organized Investment Network (COIN),
when accepting and evaluating applications for certification
from any CDFI, to grant highest priority to those applications
where the intended use of the investments has the greatest
aggregate benefit for low-to-moderate income areas or
households, or rural areas or households.
4)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.
5)Require the Legislative Analyst's Office to submit a report to
the Legislature, on or before June 30, 2016, on the effects of
the CDFI tax credits, 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.
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6)Authorize the Insurance Commissioner to adopt, amend, or
repeal regulations to implement the CDFI tax credit and deem
the initial adoption of the regulations to be emergency
regulations, as specified.
EXISTING LAW :
1)Authorizes a credit against the IT, PIT or CT, in an amount
equal to 20% of a qualified investment made by a taxpayer into
a CDFI.
2)Limits the 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 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,
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, and 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.
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b) Prioritize rental housing, mortgages for community-based
residential programs, and self-help housing ahead of
single-family owned housing.
c) Represent investments from insurance companies subject
to tax under Section 12201 of the Revenue and Taxation Code
(R&TC) or under Section 28 of Article XIII of the
California Constitution.
6)Allows a carryforward 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.
FISCAL EFFECT : According to the Senate Appropriations
Committee, the fiscal effect of this bill would be as following:
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 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.
2)The Franchise Tax Board (FTB) estimates the proportion of
total revenue loss resulting from the PIT Law and CT Law
provisions would be approximately $1.5 million annually. The
FTB indicates that the bill would not significantly impact its
costs.
3)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 CDFIs, marketing the CDFI tax credit program, and
qualifying, monitoring and reporting CDFI tax credit
investments.
COMMENTS :
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1)Background: The COIN Program . The COIN program was created
in 1996 as a public-private partnership by the Department of
Insurance, the insurance industry, state government leaders,
and community development organizations with the goal of
helping to address the unmet capital needs for economic
development and affordable housing in low-income urban and
rural communities throughout California. This voluntary
program was established at the request of the insurance
industry, "as an alternative to state legislation that would
have required insurance companies to invest in low-income
urban and rural communities, similar to the federal Community
Reinvestment Act (CRA) that applies to the banking industry."
(Insurance Commissioner Urges California Insurers to Invest in
Low-Income Communities, Press Release, August 6, 2001). The
COIN program serves as a liaison between insurers that are
seeking investment opportunities and the community
organizations that are seeking investment capital for
projects. CDFIs work with COIN - an office within the
California Department of Insurance - as financial
intermediaries providing access to credit, loans, and
investments to small businesses and non-profits that serve
economically disadvantaged communities. CDFIs also offer
administrative and technical assistance in these low-income
communities. Generally, CDFIs lend to borrowers that do not
satisfy the criteria for conventional lenders and focus on a
particular community or certain groups of people.
2)The CDFI Tax Credit Program . In 1997, the COIN CDFI Tax
Credit program was created to attract and leverage private
capital to fund investments into CDFIs that yield economic and
social benefits for California's underserved markets, as well
as investments that yield environmental benefits. The program
was set to expire at the end of 2011, but was extended until
January 1, 2017. The amount of the credit is equal to 20% of
each qualified investment of $50,000 or more made in a
specified private financial institution located in California
- a CDFI - that has been certified by the COIN as eligible.
The COIN must certify each CDFI and each qualified investment.
A CDFI, among other requirements, must apply to COIN for
certification of its status and, on behalf of a taxpayer, for
certification of the credit amount allocated to the taxpayer.
The COIN office generally approves applications on a
first-come, first-served basis, although it has some
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discretion in certifying CDFIs. If however, the COIN
determines that total qualified investments will exceed $10
million, then priority must be granted to those applications
that 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, or c) represent investments from insurance companies.
The COIN is required to provide the State Board of
Equalization or the FTB, whichever is applicable, with an
annual list of the names and identification numbers of any
taxpayers who make any withdrawal or partial withdrawal of a
qualified investment before the expiration of 60 months from
the date of the qualified investment.
The goal of the CDFI tax credit program is to provide
incentives to attract private capital investments that
otherwise would not be available to CDFIs. This tax credit
may be claimed by taxpayers against the insurance gross
premium tax, the state CT, or the state PIT. The statewide
amount of the credit for all recipients is capped at $2
million per year for the three taxes combined. Every $1 of
the tax credit yields $5 of private investment, with the total
tax credit allocation of $2 million generating up to $10
million of private investments in COIN-certified CDFIs.
However, if less than $10 million is invested in qualified
CDFIs in any calendar year, the remaining amount may be
carried over to the next year and any succeeding year during
which the credit remains in effect. Private investments have
a minimum term of 60 months, and the tax credit is allocated
in year one of the five-year investment period. The credit is
subject to a 60-month recapture period if the investment is
reduced or withdrawn. According to the FTB's tax expenditure
report, the total amount of credit claimed under the CT and
the PIT Laws in 2009 was $250,000, and was allowed on 89 PIT
and an unknown number of CT returns.
As stated in the COIN report dated January 10, 2011,
approximately $1.65 million in qualified investments were
approved by the COIN and $330,000 of the tax credits were
certified for the 2010 calendar year. The total remaining
amount of investment still available for 2010 calendar year
was $13.7 million. However, by July 2011, the COIN had
allocated $6.75 million in tax credits to insurance companies
and other investors, which included $2 million for 2011 and
$4.75 million of unused credit from prior years. The
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allocation translated into $33.75 million of qualified
community investments.
Most investments that qualify for the CDFI tax credit may also
qualify for the federal New Markets tax credit. Furthermore,
those investments may also qualify for the low-income housing
tax credit and/or the enterprise zones (EZs) and targeted tax
areas deductions. The low-income housing tax credit and EZ
programs are state tax programs that are also intended to
generate new investment and economic activity in targeted
communities.
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
FN:
0002407