BILL ANALYSIS �
AB 1079
Page A
Date of Hearing: April 30, 2013
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
Jose Medina, Chair
AB 1079 (Bradford) - As Amended: April 2, 2013
SUBJECT : Enterprise zones: energy management plans
SUMMARY : Authorizes a city, county or a city and county to prepare
one or more energy management plans in order to reduce air emissions
and promote economic development. Further, the bill authorizes the
financing for enterprise zone energy-related improvements through the
issuance of conduit revenue bonds by the state. Specifically, this
bill :
1)Makes findings and declarations, including, but not limited to, the
need for the state to encourage the development of new businesses
and retention of existing businesses within enterprise zones, the
benefits to existing energy utility customers from the addition of
new businesses, the value of greater stability and certainty in the
cost of energy services to businesses, and the optimal position that
investor-owned and publically owned utilities have in facilitating
these objectives.
2)Specifies that if a city, county, or city and county chooses to
prepare an energy management plan it is required to include the
following elements:
a) An electric or natural gas load forecast, as specified;
b) An assessment of the role that distributed generation,
combined with accurately priced utility services, could play in
providing greater rate stability and energy cost certainty, as
specified;
c) A list of recommendations for the enhanced use of
cost-effective energy efficiency and demand-side management in
existing buildings and the inclusion of energy efficiency
measures as part of the development of new buildings;
d) A plan to reduce air emissions for vehicle use within the
district boundaries, as specified;
e) Proposed actions for the development of infrastructure to aid
in the refueling of alternative fuel vehicles, as specified;
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f) Consideration of projects that provide greater certainty of
energy costs over a period of up to 15 years for businesses
developing in the district;
g) Other proposed actions and associated utility services that
may be implemented in connection with an energy management plan;
and
h) Proposed methods of funding the activities in the energy
management plan, including the California Infrastructure and
Economic Development Bank (I-Bank) and the California Alternative
Energy and Advanced Transportation Financing Authority, among
other sources.
3)Specifies that the energy management plan is to be jointly developed
by the city, county, or city and county and one or more of the
following: servicing electoral corporation, gas corporation, local
publicly owned electric utility or rural electric cooperative.
4)Requires expedited review of jointly developed elements of an energy
management plan by the California Public Utilities Commission (PUC),
as specified.
5)Requires the PUC and governing boards of local publically owned
utilities and rural electric cooperatives to encourage electric or
gas corporations to participate in developing, implementing, and
administering viable energy management plans for districts.
6)Requires projects that promote economic development in enterprise
zones pursuant to a specified energy management plan to consider
conduit revenue bond financing through the I-Bank. Specifies that
these projects would be eligible for funding and directs the bank to
remove unnecessary barriers to that funding.
EXISTING LAW
1)Makes findings and declarations, including, but not limited to, the
electric and natural gas utilities having a principal goal in
resource planning and investment to minimize the cost to society of
the reliable energy services, improve the environment, encourage
conservation and energy efficiency, and to encourage the diversity
of energy sources including wind, solar, and geothermal energy.
2)Creates the I-Bank, within the Business, Transportation and Housing
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Agency (BTH), to promote economic revitalization, enable future
development, and encourage a healthy climate for jobs in California.
The I-Bank is authorized to offer a variety of financial
undertakings including, but not limited to, issuance of conduit
revenue bonds for financing economic development facilities.
3)Defines economic development facilities to mean real and personal
property, structures, buildings, equipment, and supporting
components that are used to provide industrial, recreational,
research, commercial, utility, or service enterprise facilities,
community, educational, cultural, or social welfare facilities and
any parts or combinations thereof, and all facilities or
infrastructure necessary or desirable in connection therewith,
including provision for working capital, but shall not include any
housing.
4)Authorized the Department of the Housing and Community Development
(HCD) to designate up to 42 enterprise zones for the purpose of
stimulating business and industrial growth in depressed areas of the
state. Each enterprise zone is authorized for a term of 15-years,
unless there is cause for dedesignation.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Purpose : According to the author, "Businesses are finding
it more and more difficult to locate and expand in California. Of
the numerous obstacles, the supply and cost of energy has caused a
significant amount of uncertainty, staggering business growth and
the creation of new jobs. In economically distressed areas, these
costs paint an even bleaker picture for business development and
retention.
The California Enterprise Zone program was designed to incentivize
businesses retention and development in economically distressed
areas. Cities and counties can provide tax incentives to make it
easier to do business in these areas. However, they lack the ability
to develop energy management plans, making it difficult to achieve
enterprise zone objectives. AB 1079 recognizes the importance of
reducing energy costs in economically disadvantaged areas by
authorizing a city, county, or city and county, to develop energy
management plans jointly with the serving electric or gas utilities
(including publicly owned utilities). In doing so, this bill will
promote economic development, the addition of new business, and the
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retention of existing businesses as well as reduce air emissions in
that enterprise zone."
2)Framing the Policy Issue : This bill proposes to encourage cities
and counties to adopt comprehensive energy management plans for
enterprise zones by offering an expedited PUC review of projects
that flow from the plan. Enterprise zones are designated based on a
select set of economic challenges that often result in reducing the
competitiveness of zone businesses relative to other business across
the state, nation and world. For this reason, businesses located in
zones are eligible for certain incentives not available these other
businesses including a tax credit to offset sales taxes and state
contracting preferences.
This bill adds another incentive to assisting zone businesses, that
being a coordinated focus on increasing energy efficiency and
development of more sustainable form of energy production. The
analysis includes additional information on energy management plans,
how plans could advantage zone businesses, background on the
enterprise zone program, and a list of related legislation.
Suggested amendments are included in Comment 7.
3)Energy Management Plans : Energy management plans are comprehensive
strategies for monitoring, controlling, and conserving energy. This
is primarily accomplished through a systemic analysis of current
energy consumption in order to identify areas of suboptimal energy
usage. The resulting data is used to identify baseline energy usage
metrics and opportunities for cost-effective energy savings measures
through upgrades to high-efficiency equipment and systems, and
promoting efficient behaviors by workers.
Efficiency improvements can be found in many different areas.
Upgrades to existing infrastructure can be substantially
cost-effective because advances to HVAC systems, lighting,
refrigeration systems, motors, and transformers have been
significant enough in recent years that the cost of replacement of
decades-old equipment can be cost-neutral in little time. Modern
design techniques allow for new construction and renovations to be
designed to be highly energy efficient. Strategic purchasing of
energy, avoiding peak hours and choosing an appropriate rate plan
can also yield significant energy savings. Finally, education and
institutional culture are of the utmost importance, as a successful
energy management plan takes the full commitment of the entire
organization.
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4)Energy Management Plans and Enterprise Zones : High energy costs are
one of California businesses' top concerns. To the extent that
energy management plans help local communities identify key actions
to reduce energy consumption, share best conservation practices, and
access financing that would not otherwise be available, the measure
benefits underserved communities.
Energy management plans within enterprise zones will, however,
require unique approaches to planning and stakeholder involvement.
Typically, plans are developed by entities that have some level of
control over the project, building, or even a port district, as is
the case in AB 628 (Gorell and Hall). Enterprise zones, however,
have multiple government and nongovernmental stakeholders, each
having different levels of control over various elements of the
community. This lack of direct control will be a challenge to
setting an agenda, financing, and ensuring commitments are kept over
times. While the bill identifies several financing options, there
are still repayment requirements which could be difficult for
residents and businesses in low-income areas.
A further challenge for enterprise zone-based energy management
plans is ensuring that the benefits that arise from longer term
planning and possible utility rate increases accrue to zone
residents and businesses. Comment 7 includes a suggestion which
requires a city or county to make a finding that both the costs and
benefits of the projects and actions equitably apply to zone
businesses and residents.
Too often low income areas become overburdened with large-scale
infrastructure projects which impair the ability of a neighborhood
to rationally develop, while providing its primary benefit to higher
income neighboring areas. In addition, improved infrastructure can
lead to gentrification and possible displacement of long-time
residents and businesses. Clearly, neither of these events are the
author's intent. The proposed finding is designed to raise these
issues to the local government's attention, where they can be
considered and possibly mitigated on a case by case basis.
5)The California Enterprise Zone Program : The EZ program and the
other G-TEDAs are among the largest state economic development
programs in California. HCD administers four G-TEDA programs
including programs for the EZs, MEAs, LAMBRAs, and one TTA.
HCD is authorized to designate up to 42 enterprise zones based on a
statutory list of criteria related to poverty and economic
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dislocation. The G-TEDA programs are based on the economic
principle that targeting significant incentives to lower income
communities allows these communities to more effectively compete for
new businesses and retain existing businesses, resulting in
increased tax revenues, decreased reliance on social services, and
lower public safety costs. Residents and businesses also directly
benefit from these more sustainable economic conditions through
improved neighborhoods, business expansion, and job creation.
Enterprise zones are located in portions of 54 Assembly Districts
and 32 Senate Districts. Enterprise zones range in size from one
square mile to 70 square miles and in geographic locations ranging
from Eureka and Shasta Valley near the Oregon border to San Diego
and Calexico along the Mexican border.
Under the program, businesses and other entities located within the
area are eligible for a variety of local and state incentives. In
its application, a prospective enterprise zone is required to
identify specific local government incentives that will be made
available to businesses located in the proposed zone. The local
incentives can, among other things, include writing down the costs
of development, funding related infrastructure improvements,
providing job training to prospective employees, and/or establishing
streamlined processes for obtaining permits.
The state additionally offers a number of incentives, including tax
credits, special tax provisions, priority notification in the sale
of state surplus lands, access to certain Brownfield clean-up
programs, and preferential treatment for state contracts. In
addition to enterprise zones, the state is also authorized to
administer several other G-TEDAs including a TTA, MEA and LAMBRA.
Below is a chart comparing the state tax incentives offered to
businesses located in a G-TEDA.
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-------------------------------------------------------------
| Comparison of State Tax Benefits by Targeted Area |
-------------------------------------------------------------
|---------+------+---------+---------+----------+-------------|
| |Hiring|Longer |Sales |Accelerate|Lender |
| | |NOL<1> |and Use |d |Interest |
| |Credit|Carry- |Tax |Depreciati|Deduction |
| | |Forward |Credit |on | |
| | |Period | | | |
|---------+------+---------+---------+----------+-------------|
|Enterpris| X | X | X | X | X |
|e Zone | | | | | |
|---------+------+---------+---------+----------+-------------|
|Manufactu| X | | | | |
|ring | | | | | |
|Enhanceme| | | | | |
|nt Zone | | | | | |
|---------+------+---------+---------+----------+-------------|
|Targeted | X | X | X | X | |
|Tax Area | | | | | |
|---------+------+---------+---------+----------+-------------|
|Local | X | X | X | X | |
|Agency | | | | | |
|Military | | | | | |
|Base | | | | | |
|Recovery | | | | | |
|Area | | | | | |
-------------------------------------------------------------
-------------------------------------------------------------
|Source: Legislative Analyst's Office |
-------------------------------------------------------------
The Franchise Tax Board (FTB) reported that in 2010 - the most
current comprehensive data available - $721.5 million in enterprise
zone business incentives were claimed through corporate and personal
income tax (PIT) returns. Additionally, FTB reported hundreds of
millions in carryover credits have been earned by businesses, but
have not been claimed. Below is a chart that displays the dollar
amount of enterprise zone incentives claimed through each of the tax
incentives.
--------------------------------
<1> NOL= Net Operating Loss
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---------------------------------------------------------------
| Enterprise Zone Tax Incentive Usage* |
| Source: |
|http://www.ftb.ca.gov/aboutFTB/Tax_Statistics/Reports/2011_Tabl|
| es_Memo.pdf |
|http://www.ftb.ca.gov/aboutFTB/Tax_Statistics/Reports/2011_Tabl|
| e_2_EZPA.pdf |
| |
| http://www.ftb.ca.gov/aboutFTB/Tax_Statistics/Rev_Est_Exhibits_1212.pdf |
---------------------------------------------------------------
|-------+------+------+------+------+-------+------+------+-----|
| | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 |2011 |
| | | | | | | | | |
|-------+------+------+------+------+-------+------+------+-----|
|Hiring |$349,1|$362,6|$385,6|$430,9|$462,68|$458,9|$697,9|$476,|
|and |27 |20 |77 |34 | 2 | 12 | 12 |205* |
|Sales | | | | | | | | |
|Tax | | | | | | | | |
|Credit | | | | | | | | |
|-------+------+------+------+------+-------+------+------+-----|
|NOL |$72,32|$74,02|$126,1|$207,9|$50,418|$5,588|$6,521| -- |
|Deducti|6 |4 |06 |93 | | | | |
|ons | | | | | | | | |
|-------+------+------+------+------+-------+------+------+-----|
|Tax |$5,171|$5,966|$11,35|$15,80|$3,433 | $359 | $523 | -- |
|Impact | | |1 |7 | | | | |
|-------+------+------+------+------+-------+------+------+-----|
|Net |$432,8|$490,1|$517,3|$520,3|$264,54|$265,6|$335,9| -- |
|Interes|67 |29 |10 |72 | 7 | 83 | 82 | |
|t | | | | | | | | |
|Deducti| | | | | | | | |
|ons | | | | | | | | |
|-------+------+------+------+------+-------+------+------+-----|
|Tax |$29,10|$32,39|$34,15|$34,43|$17,282|$12,26|$22,98| -- |
|Impact |3 |5 |6 |8 | | 8 | 6 | |
|-------+------+------+------+------+-------+------+------+-----|
|Busines|$4,387|$4,770|$4,463|$5,136|$5,637 |$4,365|$4,481| -- |
|s | | | | | | | | |
|Expense| | | | | | | | |
| | | | | | | | | |
|Deducti| | | | | | | | |
|ons | | | | | | | | |
|-------+------+------+------+------+-------+------+------+-----|
|Tax |$222 |$200 |$188 |$197 | $199 | $163 | $159 | -- |
|Impact | | | | | | | | |
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|-------+------+------+------+------+-------+------+------+-----|
|Total |$383,6|$401,1|$431,3|$481,3|$483,59|$474,5|$721,5| -- |
|Tax |24 |81 |71 |76 | 6 | 15 | 80 | |
|Impact | | | | | | | | |
---------------------------------------------------------------
---------------------------------------------------------------
| *Data shown in Thousands|
|---------------------------------------------------------------|
| Data Provided by the Franchise Tax Board 4/2013|
| *Estimated based on preliminary data (returns processed |
|through November 11, 2012) |
| |
---------------------------------------------------------------
Across the U.S., 37 other states have G-TEDA type programs.
Economic developers have testified that the G-TEDA programs are
among the state's last remaining marketing tools for attracting new
businesses and investment to California. Others, however, remain
unconvinced and have suggested that this level of tax expenditure
could be better spent elsewhere.
6)California Infrastructure and Economic Development Bank : The I-Bank
was established in 1994 to promote economic revitalization, enable
future development, and encourage a healthy climate for jobs in
California. The I-Bank administers two categories of programs: 1)
The Infrastructure State Revolving Fund which provides direct
low-cost financing to public agencies for a variety of public
infrastructure projects; and 2) Bond financed programs which provide
financing for manufacturing companies, nonprofit organizations,
public agencies and other eligible entities. There is no commitment
of the I-Bank or state funds for any of the category #2 conduit
revenue bonds. Even in the case of default, the state is not
liable.
Since its inception, the I-Bank has loaned over $400 million to
local agencies, developing a high-level of expertise in the
financing of public infrastructure. The I-Bank also serves as the
state's only general purpose financing authority with broad
statutory powers to issue revenue bonds. Over $30 billion in
conduit revenue bonds have been issued by the I-Bank since 2000.
Effective July 1, 2013 the I-Bank will be administered through the
Governor's Office of Business and Economic Development (GO-Biz),
pursuant to the 2012 Governor's Reorganization Plan.
AB 1079 would state that projects that come from the energy
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management plan would be eligible for conduit bond financing through
the I-Bank. Technical amendments are proposed in Comment 7 to
expand the code reference to include all of the I-Bank financing
programs.
7)Implementing Amendments : This measure calls for the development of
energy management plans for the purpose of supporting the
development and expansion of businesses within the enterprise zones,
creating more certainty in energy costs, and improving the
environment. The following are a list of technical and implementing
amendments.
a) Modify the energy management plan requirement by:
i) Adding an assessment of the current energy consumption
within the zone by energy source and user;
ii) Setting short, mid and long term goals for projects and
actions;
iii) Identifying government and nongovernmental impediments to
implementing projects and actions;
iv) Requiring the local government make a finding that there
is an equitable distribution of costs and benefits of the
projects and actions proposed in and implemented through the
energy management plan.
b) Clarify the meaning of prohibiting the PUC from limiting the
role of utilities who jointly develop recommendations;
c) Make technical corrections to the I-Bank provisions and expand
the program to reference all I-Bank financing options;
d) Require city and counties to engage small business technical
assistance providers and business and industry-related partners
in identifying energy efficiency opportunities, public education
activities, and the development of funding options and packages;
and
e) Require zones to report on the content and progress of the
plans within their already required biennial report to HCD.
8)Related Legislation : The following is a list of related
legislation.
a) AB 628 (Gorell and Hall) Energy Management Plans at Ports :
This bill authorizes a harbor and port district to prepare one or
more energy management plans in order to reduce air emissions and
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promote economic development. Further the bill authorizes the
financing for harbor and port district improvements through a
specified state revolving loan fund. Status: Pending in JEDE.
b) AB 1530 (Huffman and V. Manuel P�rez) Clean Manufacturing
Zones : This bill would have enacted the Clean Manufacturing and
Job Creation Incentive Act of 2012, which establishes a process
for local governments to designate clean manufacturing zone,
access tax credits for local manufacturers and have those
manufacturers receive priority on their permit and license
applications. Status: Held by the Assembly Committee on
Appropriations in 2012.
REGISTERED SUPPORT / OPPOSITION :
Support
California Asian Pacific Chamber of Commerce
California Association of Enterprise Zone
California Black Chamber of Commerce
California Manufacturers & Technology Association
Central City Association
Chula Vista Chamber of Commerce
City of Pasadena
San Diego Gas & Electric Company (the Sempra Energy utilities)
Southern California Gas Company
Southern California Gas Company and Sand Diego Gas & Electric Company
The Inland Empire Economic Partnership
The League of California Cities
Three Individuals
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916) 319-2090