BILL ANALYSIS Ó ----------------------------------------------------------------------- |Hearing Date:June 17, 2013 |Bill No:AB | | |1067 | ----------------------------------------------------------------------- SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Ted W. Lieu, Chair Bill No: AB 1067Author:Medina As Amended:April 18, 2013 Fiscal:Yes SUBJECT: Economic development: foreign trade. SUMMARY: Establishes the California Foreign Investment Program within the Governor's Office of Business and Economic Development (GO-Biz) as the lead entity for overseeing the state's participation in the federal the EB-5 visa program. Existing law: 1)Establishes the enterprise zone program, administered by California Department of Housing and Community Development (HCD) to stimulate business and industrial growth and create jobs in depressed areas of the state. (Government Code (GC) § 7071 and § 7072) 2)Defines a "targeted employment area" (TEA) for the purposes of an enterprise zone, to mean an area within a city, county, or city and county that is composed solely of those census tracts designated by the U.S. Department of Housing and Urban Development as having at least 51% of its residents of low- or moderate-income levels, using either the most recent U.S. Department of Census data available at the time of the original enterprise zone application or the most recent census data available at the time the targeted employment area is designated to determine that eligibility. Specifies that the purpose of a TEA is to encourage businesses in an enterprise zone to hire eligible local residents. A TEA may include, but is not required to include, all or part of the boundaries of the enterprise zone. The TEA does not need to encompass all eligible areas, but may include only those areas that the local government determines have residents who are in the most need of this employment targeting. AB 1067 Page 2 (GC § 7072 (i)) 3)Establishes GO-Biz within the Governor's Office for the purpose of serving as the lead state entity for economic strategy and marketing of California on issues relating to business development, private sector investment and economic growth. GO-Biz also serves as the administrative oversight for the California Business Investment Service and the Office of the Small Business Advocate. (GC §§ 12096 - 12098.5) 4)Specifies that GO-Biz is the primary state agency authorized to attract foreign investments, cooperate in international public infrastructure projects, and support California businesses in accessing markets, and requires the Director of GO-Biz to develop an international trade and investment program (Program) attracting employment-producing direct foreign investment to the state and provides support for California businesses in accessing international markets and increasing exports. (GC § 13996.41) 5)Authorizes GO-Biz to establish international trade and investment (ITI) offices outside of the U.S. according to certain requirements. (GC § 13996.42) 6)Requires GO-Biz to prepare an international trade and investment strategy and provide a report to the Legislature on or before February 1, 2014, updated once every five years that includes: (GC § 13996.55) a) Policy goals, objectives and recommendations necessary to implement a comprehensive international trade and investment program. b) Measurable outcomes and timelines for the goals, objectives and actions for the program. c) Impediments to achieving goals and objectives. d) Key stakeholder partnerships that will be used to implement the strategy. e) Options for funding. f) An organizational structure for state administration of international trade and investment policies, programs and services. AB 1067 Page 3 1)Requires the Director of GO-Biz to prepare the following: (GC § 13996.65) a) A budget for the Program and a separately stated budget for each ITI office, with specified information. b) A strategy and business plan for the Program, with specified information, that is developed with input from California businesses that shall include, but not be limited to, measurable goals, objectives, and outcomes and timelines necessary to attract employment-producing direct foreign investment to the state and increase California exports. c) A written review of the implementation of the prior year's strategy and business plan for the Program that addresses the performance of the program and each ITI Office. 1)Provides that the Controller shall not allocate any state funds to GO-Biz for international trade and investment activities unless the strategy for international trade and investment has been submitted to the Legislature by May 1, 2014. (GC § 13996.75) 2)Establishes processes and accountability measures for GO-Biz to accept private monies to fund, establish and operate international trade offices. (GC § 13997) 3)Establishes the EB-5 visa category Section 203(b)(5) of the Immigration and Nationality Act (8 U.S.C. Sec. 1153(b)(5)). This bill: 1)Specifies that GO-Biz shall serve as the lead state entity for overseeing the state's participation with the U.S. Citizenship and Immigration Services' EB-5 Investment Program (EB-5 Program). 2)Provides that, among other duties, GO-Biz shall set the terms and conditions for issuing a state designation letter for TEAs. 3)Requires a regional center operating within the state to provide GO-Biz with contact information for the center and the geographic region and industry sector or subsectors recognized by U.S. Citizenship and Immigration Service (USCIS) for that center. AB 1067 Page 4 Requires each regional center to annually provide information to GO-Biz on the number of clients served, location of investments, and the number of direct and indirect jobs created which may be satisfied by providing GO-Biz with a copy of the USCIS Form I-9224A. 4)Authorizes GO-Biz to provide a support letter for regional center applications to the EB-5 Program. Requires GO-Biz to post a list of contact information for each regional center applicant that receives a support letter on its website and specifies that the list shall be updated when new information is made available on at least an annual basis. 5)Provides that the requirements and authorities in this bill only affect EB-5 related activities that occur on or after January 1, 2014. FISCAL EFFECT: This bill has been keyed "fiscal" by Legislative Counsel. According to the Assembly Committee on Appropriations analysis dated May 1, 2013, this bill will result in administrative costs of approximately $100,000 for GO-Biz to implement this program. COMMENTS: 1. Purpose. The Author is the Sponsor of this bill. According to the Author, California leads the nation in attracting and receiving foreign direct investment. The Author asserts that the top countries investing in California are Japan, the United Kingdom and the Netherlands and that foreign direct investment has many positive impacts on the state's economy, including job creation. According to the Author, in 2010, foreign firms employed almost 6 million Americans and owned over 33,000 individual business establishments. The Author states that foreign affiliate employment accounts for over 700,000 jobs in California and that the state cannot afford to miss out on the tremendous economic benefits that foreign investment provides. The Author believes that implementing a robust EB-5 program in the state will continue to create jobs, introduce new technology and research, and contribute to rising productivity within the state. 2. EB-5 Program. The EB-5 visa category, which was created by Congress in 1990, is available to immigrants seeking to enter the United States in order to invest in a business or company that will benefit the economy. This federal program is administered by the USCIS. The name "EB-5" is derived from the fact that it is the 5th category of the Employment-Based visa. Permanent-resident AB 1067 Page 5 status through an EB-5 visa is available to foreign investors who have invested - or are actively in the process of investing - at least $1million into a new commercial enterprise, which can entail: the creation of an original business; the purchase of an existing business and restructuring or reorganizing the business to the extent that a new commercial enterprise results; or a significant expansion of an existing business. 10,000 EB-5 visas are made available per year by USCIS. Close to 4,300 investors attained EB-5 status in 2009, up from only hundreds in 2007. An applicant seeking status as an immigrant investor must demonstrate that his or her investment will benefit the U.S. economy and create full-time employment for at least ten qualified individuals, or maintain the number of existing employees in a troubled business. If the investment in a new commercial enterprise is made in a TEA, the required investment is decreased to $500,000. A TEA is either a high-unemployment area that has experienced an unemployment rate of at least 150% of the national average rate or a rural area. In addition to individual investors, the federal government can also recognize regional centers which allow for a pooling of investor money. There are at least 31 federally-recognized regional centers currently operating in California, significantly more than any other state. These regional centers are based across the state. Their focuses vary widely, and include commercial real estate development, agricultural products, film project, and high-tech ventures. Applicants to the EB-5 visa program must demonstrate that they meet all requirements of the program prior to the filing with the USCIS. If it is determined that the investment criteria is met and properly documented, any investor may be granted conditional permanent residence status for a period of two years by USCIS. A permanent green card may be issued at the end of the conditional period. 3. California's Role in EB-5. Currently, GO-Biz serves as a resource to connect those interested in receiving foreign investment through EB-5 with the necessary state entities responsible for the identification and designation of TEAs. In accordance with Title 8, Code of Federal Regulations Section 204.6(i), the California Employment Development Department (EDD) has been delegated the authority by the state to designate the cities, counties, AB 1067 Page 6 metropolitan statistical areas, and geopolitical subdivisions (census tracts) that meet the high unemployment definition to qualify for the $500,000 minimum investment threshold as TEAs for EB-5 program purposes. Unemployment rates for cities, counties and census tracts are published annually and the state uses the most recent calendar year labor force and unemployment estimates to establish high unemployment rates and high unemployment areas. Upon the request of the applicant or an alternative representative body, staff at GO-Biz may determine that a specific metropolitan statistical area, a county within a metropolitan statistical area, or a county in which a city or town with a population of 20,000 or more is located, is a TEA. In order to make such a determination, the county, city or census tract in question must experience an average unemployment rate of 150 percent of the national average. According to GO-Biz, for TEA projects that do not meet the existing standard, pre-calculated certification categories, GO-Biz can certify "Special TEA applications" under the following criteria: Projects can receive an EB-5 "Special TEA certification" if they are located within an area of twelve or fewer contiguous Census Tracts with a total average unemployment rate of 150% the national average. Requests for a special TEA should include a table listing of each census tract with its corresponding unemployment rate and a map showing the project address. A supporting letter from the local Economic Development Corporation (EDC) or County or City in which the project is to be located must be provided. The letter must indicate the economic development corporation's concurrence that the proposed census tract will reasonably be a source of workforce for the project. 1. EB-5 Success Stories. There are many examples of areas and developments that have benefitted from foreign investment through EB-5, most especially as businesses routinely cite access to capital as a roadblock to successful development of new or growth of existing ventures. According to a 2011 article in the Sacramento Bee, there are now close to 15,000 people who work at McClellan Business Park, a residential and industrial development at the former McClellan Air Force Base which closed in 2001, AB 1067 Page 7 resulting in the loss of some 12,000 jobs in the region. The transformation was completed with the help of $18 million invested by 36 immigrants from China, Mexico and an array of other countries who have applied for EB5 visas. Nationally, the state of Vermont is home to one of the largest success stories from EB-5 investment. The New York Times and National Public Radio (NPR) both reported extensively on a ski resort that was able to expand from seasonal winter recreation to being a year-round resort after raising nearly $200 million dollars from foreign investors (South Africa, Sweden, Canada, Mexico and England). The entire state of Vermont is now recognized as a regional center called the Vermont Agency of Community Development which focuses on bringing foreign investment to the tourism, manufacturing, professional services, education and information publishing industries in the state. The state formally markets and promotes the availability of EB-5 status to gain foreign investment and is a model for state involvement in securing this type of money. On its Website, Vermont publicizes a swift approval process for projects, state oversight of projects and activities to assure compliance with U.S. Immigration Law, and hands-on involvement by Vermont elected officials, including the Governor and Congressional delegation. 2. Governor's Office of Business and Economic Development (GO-Biz). In February 2010, the Little Hoover Commission undertook a review of the state's economic and workforce development programs. In its final report, Making up for Lost Ground: Creating a Governor's Office of Economic Development, it analyzed the status and effectiveness of current programs since the 2003 demise of the Technology, Trade and Commerce Agency and recommended the creation of a new governmental entity to fill the void left by the dismantled agency. The report called for a single entity that would promote greater economic development, foster job creation, serve as a policy advisor and deliver specific services (i.e., permitting, tax, regulatory, and other information) directly to the California business community. In April 2010, Governor Schwarzenegger issued Executive Order S-05-10 as a means to operationalize the report recommendations including the creation of the Governor's Office of Economic Development (GOED). In October 2011, the Governor signed AB 29 (cited and described below), which effectively codified GOED and changed its name to GO-Biz, effective January 1, 2012. Since its inception, the office AB 1067 Page 8 has served over 3,000 businesses, 95% of which are small. The most frequent types of assistance include help with permit streamlining, starting a businesses, relocation and expansion of businesses, and regulatory challenges. Among other programs, GO-Biz administers the Innovation Hub (iHub) program in partnership with the statewide network of Small Business Development Centers. There are currently 12 regional iHubs located throughout the state. The iHub program is designed to improve the state's national and global competitiveness by stimulating partnerships, economic development, and job creation around specific research clusters. Key assets and partners of the initiative include technology incubators, research parks, universities, federal laboratories, economic development organizations, business groups, and venture capitalists. Another key initiative of GO-Biz is the "strike teams" which can be mobilized to help attract and/or retain specific businesses. Strike teams are especially well suited to engage with major employers and have been successfully activated to assist Bayer Healthcare, Jazz Semiconductor, and Baxter Pharmaceutical to locate and/or expand in California. 3. International Trade Efforts in California. Between 1986 and 2004, the Technology, Trade and Commerce Agency (TTCA) was the responsible government entity for promoting economic development, international trade, and foreign investment in California. When the agency was eliminated due to its poor administrative performance, the authority for all state trade activity was also eliminated and the few remaining programs came under the umbrella of the Business, Transportation and Housing Agency (BT&H). The former International Investment Division under TTCA had 91 employees and a budget of $43 million, allowing it to engage in activities like formal marketing. Beginning in the 2005-06 Session, several legislative measures were introduced to reinstate the state's trade authority. SB 1530 (Romero, 2006) addressed these concerns by requiring BT&H to undertake a trade study to determine what role the state should play in international trade and foreign investment activities and required them to establish a business advisory committee, and development of a trade strategy consistent with the study and acts as the vehicle for implementing the state's trade policy. The first strategy was published in February 2008 and the next update is required in February 2014. Until the creation of GO-Biz there were only a very small number of former International Investment Division staff working on trade AB 1067 Page 9 related issues and activities for the state. GO-Biz now has authority for undertaking international trade and foreign investment activities, including establishing any international trade and investment office (AB 2012, Perez, Statutes of 2012). GO-Biz has partnered with the Bay Area Council to open a California-China Trade and Investment office in Shanghai's downtown Yangpu district. In a March 2013 report to the Legislature on the status of this effort, GO-Biz described the office's goals "to drive increased employment, revenues at California enterprises, tax revenues, and international competitiveness in California" which will be accomplished through promoting investment in California; facilitating two-way international business growth, with an emphasis on expanding foreign sales by California employers, including not only manufacturers, agricultural enterprises, and commodity producers, but also service providers such as universities, banks, consulting companies, and the like; supporting continued growth of California's role as a gateway state for goods movement and passenger travel, and; identifying and addressing barriers to international expansion by California employers. 4. Related Legislation This Session. SB 9 (Price) establishes the Office of Social Innovation within GO-Biz to establish partnerships with government agencies, private investors, nonprofit organizations, and for-profit service providers to facilitate the use of social impact bonds (SIBs), as defined, to address social services needs.to explore the use of social innovative financing in the State of California. ( Status : The bill is pending in the Senate Committee on Governance and Finance.) SB 431 (Price) establishes the California Socioeconomic Development Pods Program within GO-Biz to encourage the use of social innovative financing, as defined, within blighted areas in the state. ( Status : The bill was held in the Senate Committee on Appropriations.) SB 592 (Price) is an urgency measure that requires GO-Biz to provide a port trade promotion strategy to the Legislature on or before April 1, 2014 and requires GO-Biz to convene a statewide business partnership for port trade promotion and makes various findings and declarations about the economic impact of California's ports and possible threats to ports from the expansion of the Panama Canal. ( Status : The bill is pending in the Assembly.) AB 250 (Holden and V. Manuel Pérez) codifies and expands the iHub Program at GO-Biz for the purpose of stimulating economic development and job creation through the coordination of federal, AB 1067 Page 10 state and local innovation-supporting resources. ( Status : The bill is pending in the Senate.) AB 495 (Campos) establishes the California Community Investment Initiative within GO-Biz tasked with (1) creating an inventory of low-income neighborhoods, state and local programs, and sources of public-sector finance, (2) coordinating public-sector financial investment and public programs to assist low-income communities to become business, development, and investment ready, (3) developing criteria for determining the type of economically, socially, and environmentally responsible businesses and real estate developments that the Initiative will assist in starting-up, locating, and growing in low-income neighborhoods, and (4) establishing a broad array of incentives to encourage responsible businesses and real estate developments to grow and invest in low income neighborhoods. ( Status: The bill is currently pending in the Assembly Committee on Banking and Finance.) AB 737 (Fox), as introduced, would have required GO-Biz to prepare and submit a proposal for an unmanned aircraft test site to the Federal Aviation Administration (FAA) on or before May 6, 2013. ( Status : The bill was amended to deal with a different subject matter.) 8.Prior Related Legislation. AB 2012 (Perez, Chapter 294, Statutes of 2012) transferred the authority for undertaking international trade and foreign investment activities from BT&H to GO-Biz, including establishing any international trade and investment office. SB 460 (Price) of 2011 required the Secretary of BT&H to convene a statewide business partnership for international trade marketing and promotion that includes, but is not limited to, representatives of public airports, land ports of entry, seaports, ocean carriers, marine terminal operators, air carriers, warehouse operators, railroads, trucking companies, foreign trade zones, and shippers, specifically including agricultural exporters, manufacturers, post-consumer secondary material handlers, and retailers. Required the partnership to advise the Secretary of the BT&H on what role the state should play in international trade marketing and promotion, as specified. ( Status : The bill was held in the Assembly Committee on Appropriations.) SCR 33 (Price, Resolution Chapter 60, Statutes of 2011) expressed the sentiment of the Legislature that the EB-5 visa program is beneficial to the state's economic development and provides important opportunities for foreign direct investment to AB 1067 Page 11 California. AB 1137 (V. Manuel Pérez) of 2011 would have facilitated local economic development and job creation by assisting small businesses to access new export markets for their goods and services, codifying the EB-5 investment visa program, updating the law relating to free trade zones, and authorizing the use of new federal funds under the Small Business Jobs Act of 2010. ( Status : The bill was held in Senate Committee on Appropriations in 2012.) AB 1409 (Jobs, Economic Development and the Economy Committee) of 2011 would have required that the next update by Business, Transportation and Housing Agency, of the international trade and investment strategy to include policy goals, objectives and recommendations from the state Goods Movement Action Plan. ( Status : The bill was amended to deal with another subject matter and held in the Senate Committee on Rules in 2012.) AB 1558 (Assembly Committee on Jobs, 2009) aimed to recodify and reorganize sections of the Government Code to create one comprehensive code for the state's international trade activities and programs. The measure was amended to deal with reorganization of the state's economic development programs. ( Status : The bill was held in the Senate Committee on Appropriations in 2010.) SB 1513 (Romero, Chapter 663, Statutes of 2006) Provides new authority for BT&H to undertake international trade and investment activities, and as a condition of that new authority, directs the development of a comprehensive international trade and investment policy for California. 9. Suggested Author's Amendment. EB-5 investment can provide significant resources to local developments, which in turn may positively impact local communities. Legislative members within those areas may wish to be notified of the potential EB-5 investments to be made within their own districts. The Author may wish to amend the bill to require GO-Biz to transmit a copy of any TEA designation letters to the member of the California State Assembly and California State Senate who represents the area designated as a TEA where EB-5 investment will be made. On page 3, line 7, insert (c) "In the event that the office issues a state designation letter, the office shall transmit a copy of the AB 1067 Page 12 state designation letter to the member of the California State Assembly and California State Senate in whose district the TEA is located." On page 3, line 7, strike "(c) (1)" and replace it with "(d)(1)" On page 3, line 24, strike "(d)" and replace it with "(e)" On page 3, line 26, strike "(e)" and replace it with "(f)" (a) The office shall serve as the lead state entity for overseeing the state's participation with the United States Citizenship and Immigration Service's EB-5 Investment Program. (b) The director shall set the terms and conditions for issuing a state designation letter for target employment areas within the structure and scope of the EB-5 Investment Program. (c) In the event that the office issues a state designation letter, the office shall transmit a copy of the state designation letter to the member of the California State Assembly and California State Senate in whose district the TEA is located.(c)(d) (1) A regional center operating in the state shall provide the office with contact information for the center and the geographic region and industry sector or subsectors recognized by the United States Citizenship and Immigration Services (USCIS) for that center. (2) A regional center operating within this state shall annually provide information to the office on the number of clients served, location of investments, and number of direct and indirect jobs created. The regional center may satisfy this requirement by submitting a copy of Form I-9224A of the (USCIS) to the office.(d)(e) The office may provide a support letter for regional center applications to the (USCIS).(e)(f) The director shall post on the office's Internet Web site a list with contact information for each regional center where information is readily available to the office. The list shall be updated when new information is made available on at least an annual basis. AB 1067 Page 13 10.Suggested Technical Amendments. a) In its current form, the bill refers to the "United States Citizenship and Immigration Service's EB-5 Investment Program". Staff recommends the following amendment to correct a drafting error. On page 3, line 3, strike "Service's" and replace it with "Services' " b) In its current form, the bill refers to "target employment areas" rather than "targeted employment areas". Staff recommends the following amendment to correct a drafting error: On page 3, line 5, strike "target" and replace it with "targeted" c) In its current form, the bill authorizes a regional center to provide GO-Biz with certain information and states that the requirement may be provided by providing GO-Biz with a copy of "US Citizenship and Immigration Service Form I-9224A". Form I-924A is the form used to demonstrate a regional center's continued eligibility for designation as a regional center. Each designated regional center is required to file a Form I-924A with USCIS for each fiscal year (October 1 through September 30) within 90 days after the end of the fiscal year (on or before December 29) of the calendar year in which the fiscal year ended. On page 3, line 16, strike "I-9224A" and replace it with "I-924A" SUPPORT AND OPPOSITION: Support: None on file as of June 12, 2013 Opposition: None on file as of June 12, 2013 Consultant: Sarah Mason AB 1067 Page 14