BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 1021 (Eggman) - Alternative energy: recycled feedstock.
Amended: August 12, 2013 Policy Vote: Gov&Fin 7-0, EQ 9-0
Urgency: No Mandate: No
Hearing Date: August 30, 2013 Consultant:
Marie Liu
SUSPENSE FILE.
Bill Summary: AB 1021 would make personal property that
primarily processes or utilizes recycled feedstock that is
intended to be reused in the production of another product or
soil amendment eligible for sales and use tax exemption under
the California Alternative Energy and Advanced Transportation
Financing Authority (CAEATFA).
Fiscal Impact:
One-time costs of $50,000 (General Fund) beginning in FY
2013-14 to create a cost-benefit evaluation for recycling
manufacturing. These costs may eventually be recovered
through application fees, depending on the level of program
participation.
Ongoing costs of $50,000 beginning in FY 2013-14 to
conduct the net-benefits evaluation and the workload
associated with increased applications for sales and use tax
exemptions from CAEATFA. These costs may eventually be
recovered through application fees, depending on the level
of program participation.
Unknown costs, up to $100 million, to the General Fund due
to lost sales tax revenue.
Background: CAEATFA was established in 1980 as a means to
encourage the use of equipment using alternative or renewable
energy sources. CAEATFA's authority has since been expanded
several times including to include the financing of advanced
transportation technologies. Financial assistance can occur
through the issuance of revenue bonds, loan guarantees, loan
loss reserves, and insurance.
Beginning in 2011, as a result of the passage of SB 71 (Padilla)
Chapter 10/2010, CAEATFA is authorized to provide projects
AB 1021 (Eggman)
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financial assistance in the form of a sales and use tax
exemption on property (such as manufacturing equipment) used for
the design, manufacture, production, or assembly of advanced
transportation technologies or alternative energy products,
components, or systems. Property used for advanced manufacturing
is eligible for the tax exemption until July 1, 2016.
CAEATFA must evaluate project applications for eligibility based
upon certain criteria that encourages manufacturing facilities
and jobs located in California and the reduction of greenhouse
gases beyond the reduction required by federal or state law or
regulation. Projects must meet the "net benefits test" by
showing that the new project will create jobs in the state. The
program is limited to $100 million in tax exemptions annually.
As part of this year's approved budget, the Legislature passed
and the Governor signed AB 93 (Asm. Comm. on Budget) Chapter
69/2013, which created a new sales and use tax exemption until
January 1, 2021 for certain purchases by qualified purchasers,
including property that is used at least 50% of the time as an
integral part of the recycling process. This exemption only
applies to the state portion of the sales and use tax.
Proposed Law: This bill would expand the definition of projects
eligible for sales and use tax exemption to include property
that primarily processes recycled feedstock so that it may be
reused in the production of another product or property that
utilizes recycled feedstock to produce another product or soil
amendment. Property that is used for waste disposal, as defined
under the Integrated Waste Management Act.
Related Legislation: SB 1128 (Padilla) expanded the sale and use
tax exemption under CAEATFA until July 1, 2016 and imposed an
annual $100 million cap on the program.
Staff Comments: To implement this bill, CAEATFA will need to
update its net-benefits evaluation to be appropriate for
recycling projects. Developing and applying the net-benefits
evaluation is contracted out. This bill will likely increase
these contracting costs by $50,000 one-time to develop the
evaluation and $50,000 ongoing for the contractor to carry out
the evaluation.
The sales and use tax exemption created by this bill
AB 1021 (Eggman)
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substantially overlaps the exemption created in this year's
budget, with the primary difference being that the tax exemption
under CAEATFA applies to both the state and local portions of
the tax while the AB 93 exemption only applies to the state
portion and the CAEATFA program is also subject to a program cap
while the AB 93 exemption is not.
By expanding the eligibility of the CAEATFA tax exemption
program, this bill increases the likelihood that up to $100
million in tax exemptions will be issued in any one year.
However the likely increased participation in the CAEATFA
program was reduced with the passage of AB 93 given the
similarities between the two available exemptions.
Staff notes that the administration of program is intended to be
self-funded through a fee assessed on applicants. But start-up
costs for the program were paid by a General Fund loan of $2.4
million in 2010. CAEATFA's ability to repay back this loan is
dependent on participation in the program (i.e. there must be
applicants on which a fee may be assessed) and the amount of the
fee. To the extent that this bill increases participation in the
program, this increased participation can help ensure the
repayment of the General Fund. That said, the expansion of this
program will also initially increase startup costs, at least
temporarily making loan repayment more difficult.