BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1079 HEARING: 6/26/13
AUTHOR: Bradford FISCAL: Yes
VERSION: 5/8/13 TAX LEVY: No
CONSULTANT: Grinnell
ENTERPRISE ZONES: ENERGY MANAGEMENT PLANS
Makes eligible for I-Bank and CAEATFA conduit financing a
project to promote economic development in an enterprise
zone as part of an energy management plan.
Background and Existing Law
I. Enterprise Zones. California's 40 enterprise zones
(EZs) are located in areas as diverse as the state itself.
From Siskiyou County to Compton, and from San Francisco to
Calexico, this program provides generous tax incentives for
firms that do business in these zones. Cities and counties
apply to the Department of Housing and Community
Development (HCD) to designate geographic areas in their
jurisdictions as enterprise zones. HCD reviews
applications, and may designate up to 42 zones statewide
for 15 year periods. Geographic areas are eligible based
on its unemployment rates, free lunch program
participation, median income, plant closures, or history of
gang-related activity.
Taxpayers located in enterprise zones may claim income and
corporation tax credits for hiring qualified individuals,
sales tax paid on equipment purchases, and can qualify
banks for a net interest deduction for loans made to a zone
business.
In his 2011-12 Budget, Governor Brown proposes to repeal
all EZ tax credits, citing the Legislative Analyst's Office
long-standing recommendation to reform or repeal the
program, and other economic research. The Legislature did
not act on the Governor's proposal.
Currently, HCD has designated 40 zones. Two zones, the
City of Watsonville and the Antelope Valley Zone, expired
in 2012, having reached the end of their 15 year
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designation period. HCD has stated that it "will use its
authorized discretion to not open up applications for new
zones until the program is sufficiently reformed to
strengthen its effectiveness to incentivize job creation."
In his 2013-14 Budget and May Revision, Governor Brown
proposed a comprehensive reform of enterprise zones,
currently under consideration in the Legislature. The
proposal would replace existing geographically-targeted tax
credits for enterprise zones and other similar areas
described above with a different credit for firms located
in census tracts with high unemployment and poverty that
hire long-term unemployed persons, veterans, or Earned
Income Tax Credit recipients. The Governor's proposal
would also exempt purchases of qualified manufacturing
equipment by specified taxpayers from the Sales and Use
Tax, and authorize the Governor's Office of Business and
Economic Development to grant tax credits to business in
the hopes that they locate economic activity in California.
II. The California Infrastructure and Economic Development
Bank. The California Infrastructure and Economic
Development Bank (I-Bank) supports economic development
through its authority to issue bonds, make loans and
provide credit enhancements. I-Bank issues tax-exempt
private activity industrial development conduit bonds,
where a manufacturer that meets minimum credit standards
applies to I-Bank to issue bonds on its behalf, among other
forms of financial assistance. I-Bank must receive an
allocation under the state's cap to issue tax-exempt
private activity bonds, set in federal law, as well as
comply with federal law's limit on eligible uses.
Housed within the Business, Transportation and Housing
Agency (BTH), the I-Bank has a five-member board of
directors that approves projects. The board includes the
BTH Secretary, who serves as the chair, the State
Treasurer, the Director of the Department of Finance, the
Secretary of the State and Consumer Services Agency, and an
appointee of the Governor. The I-Bank's Executive Director
is appointed by the Governor and confirmed by the Senate.
III. The California Alternative Energy and Advanced
Transportation Financing Authority (CAEATFA). CAEATFA
provides financing through conduit or revenue bonds, loan
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guarantees, loan loss reserves, and a sales and use tax
exemption for facilities that use alternative energy
sources and technologies and advanced manufacturing.
CAEATFA's board, composed of the Treasurer, Controller,
Director of Finance, Chairperson of the Energy Commission,
and President of the Public Utilities Commission, decides
which projects to assist. CAEATFA is similarly bound by
state and federal law regarding tax-exempt private activity
bonds as I-Bank.
IV. California Public Utilities Commission. The
California Constitution establishes the California Public
Utilities Commission (CPUC) with five members appointed by
the Governor and approved by the Senate for staggered
six-year terms, and grants the CPUC authority to regulate
public utilities subject to control by the Legislature.
(Article XII, Section 1). The Constitution also grants the
Legislature "plenary power" to confer authority and
jurisdiction upon the CPUC, with the intent that the CPUC
be accountable to the Legislature. As part of its
authority, CPUC approves utility rates for investor-owned
utilities, such as Pacific Gas and Electric, Southern
California Edison, and San Diego Gas and Electric, and in
so doing, considers whether utilities should be allowed to
recover the costs of its projects from ratepayers.
Proposed Law
Assembly Bill 1079 makes a project to promote economic
development in an enterprise zone as part of an energy
management plan eligible for I-Bank Funding.
Cities, counties, or cities and counties may propose one or
more energy management plan, which must be developed
jointly with an electrical or gas corporation or local
publicly owned electric utility, serving an enterprise zone
unless the zone is in a harbor and port district. The
energy management plan must include the following:
An assessment of current energy consumption within
the zone by energy source and type of users,
An electric or natural gas load forecast that
reflects anticipated load growth,
Consideration of the role of distributed
generation, combined with accurately priced utility
services and energy cost certainty to aid in economic
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development, and proposed actions with respect to that
role,
An assessment to identify current and emerging
processes and technologies that reduce energy
consumption and improve energy efficiency,
A set of measurable energy performance and
management goals that reduce air pollution and promote
economic development, including a prioritized list of
infrastructure projects, public education initiatives,
and other actions,
Proposed actions 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 new buildings,
Proposed actions for the development of
infrastructure to aid in the refueling of alternative
fuel vehicles,
Identification of government and nongovernment
impediments to implementing the plan,
One-year, three-year, five-year, ten-year, and
15-year objectives for implementing the plan, in
sufficient detail to enable a district to undertake a
meaningful review,
Proposed methods to fund the activities, including
through utility ratepayer programs, CAEATFA financial
assistance, and I-Bank funding,
Consideration of other related energy plans,
mandates, and requirements, and means for leveraging
opportunities for achieving energy efficiency and
sustainable energy production while also not
overburdening impacted businesses.
The plan must also consider the development of projects
that provide greater certainty of energy costs over a
period of up to 15 years for business developing in the
enterprise zone.
Cities, counties, and cities and counties must engage with
zone residents, businesses, and small business technical
assistance providers to assist in the identification of
joint or collaborative energy efficiency project
opportunities, public education activities, and financing
opportunities that implement the plan. Local agencies must
make a finding that benefits and costs are equitably
distributed in the plan when approving it, and must report
on the plan's progress to HCD.
AB 1079 - 5/8/13 -- Page 5
The California Public Utilities Commission (CPUC) must
provide expedited review of plan elements delivered by an
electrical or gas corporation to facilitate economic
development. CPUC must also encourage electrical or gas
corporations to participate in the bill's program; however,
the CPUC cannot limit the role of the electrical or gas
corporation called for in the plan. Additionally, the
governing boards of local publicly owned utilities and
rural electric cooperatives shall encourage joint
participation with local agencies and gas corporation with
the plans in the zones.
The measure makes legislative findings and declarations
supporting its provisions.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . 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. 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
retention of existing businesses as well as reduce air
emissions in that enterprise zone."
AB 1079 - 5/8/13 -- Page 6
2. Choose wisely . AB 1079 seeks to provide a framework
for utilities to engage local agencies in the hopes of
collaboratively developing energy management plans that
assists in matching electrical supply with demand.
However, energy management plans must be deployed within
enterprise zones under the bill, a costly and controversial
economic development program. Top economic research has
demonstrated zones' ineffectiveness at job creation and
business formation, and critics point out that accounting
firms, tax credit consultants, and tax attorneys profit
from the program by amending taxpayer returns retroactively
to claim tax credits for employees hired years ago, usually
under contingency fee arrangements. The Governor has
proposed major reform currently under consideration in the
Legislature, and the Committee approved SB 434 (Hill)
earlier this year, which limits the availability of the
program's tax credits.
California's enterprise zone program, the result of
collaboration between former Assemblymembers Pat Nolan and
Maxine Waters (AB 40 and 514, 1984, respectively), has
evolved from a well-intentioned legislative effort to use
tax credits to draw investment into economically depressed
rural and urban areas into a more than $700 million tax
credit program referred to as California's best economic
development program. HCD administers the program, taking
over from the now-defunct Trade and Commerce Agency in
2003.
Program defenders say the program is the state's best tool
for economic development, citing accounts from taxpayers
who state that they locate in California largely because of
enterprise zone program incentives, which overcome alleged
disadvantages posed by California's tax and regulatory
system. Supporters state that the incentives draw
investment into economically distressed communities and
provide avenues for hard-to-hire individuals to find
employment.
While AB 1079 doesn't change any aspect of zone tax
benefits, powers, or governance, the measure's energy
management plans are contingent on being deployed within
them. Given the current debate and controversy surrounding
the program, is it appropriate to use zones as a geographic
basis for any legislatively-sanctioned effort? The
Committee may wish to consider eliminating the bill's
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necessity that the emergency management plan be part of a
zone, or amend the bill to select different criteria if
geographic targeting is indeed necessary.
3. Necessary ? AB 1079 allows local agencies to develop
energy management plans jointly with municipal or
investor-owned utilities, and sets forth the requirements
for the contents of energy management plans, but doesn't
contain a requirement that either utilities or zones deploy
them. Additionally, utilities don't need legislation to
create energy management plans, or work with local agencies
to deploy them. The measure also allows the I-Bank and
CAETFA to provide financial assistance for AB 1079's energy
management plans; however, both agencies indicate that the
projects contemplated by the bill are likely already
eligible for tax-exempt conduit bond financing to the
extent allowed by other sections of state law and federal
laws regarding states issuing tax-exempt private activity
bonds. Any new tax-exempt bonds issued for AB 1079 energy
management plans would have to apply for and receive an
allocation under the state's tax-exempt, private activity
bond cap. The Committee may wish to consider whether AB
1079 is necessary.
4. Performance measures. To the extent that the
Legislature wants local agencies and utilities to jointly
enter into energy management plans, the measure should
contain a sunset and performance measures for a future
Legislature to determine the measure's effectiveness. The
Committee may wish to consider adding performance measures
and a sunset to AB 1079.
5. Double-referred . AB 1079 is double-referred to the
Senate Committee on Energy, Utilities, and Communications
Committee.
6. Technicals . Committee Staff recommend the following
amendments.
Some enterprise zones are multi-jurisdictional.
The bill currently applies to any project within the
jurisdiction of any local agency in the zone. The
bill should be limited only to the local agency that
manages the zone, as that's the local agency that's
invested resources in its zone.
The bill doesn't condition the bill's authority on
the zone being currently designated. Cities and
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counties within expired or dedesignated zones that
propose energy management plans can still receive
I-Bank assistance. The bill should be amended to
restrict its authorization to currently designated
zones solely for the current period of designation.
The bill doesn't require that the energy management
plan be executed wholly within the zone. Vague
statutes in enterprise zone tax credit statutes have
caused disputes between the Franchise Tax Board and
the taxpayers over whether activity that qualifies for
tax credits takes place within or without the zone.
The bill should be amended to require that energy
management plans be solely deployed in the zone.
The measure contains vague terms and requirements
without enforcement procedures. Those terms and
procedures should be deleted unless necessary to
ensure that state law doesn't contain unnecessary
language:
o Insert "jointly developed" after "the" on
page 3, line 19.
o What does "accurately priced utility
services" on Page 3, line 38, mean?
o Are energy prices "unstable" or merely
higher than desired? (Page 3, line 39)
o "District" should be replaced with city,
county, city or county, and the Infrastructure
Bank (Page 4, line 35.
o What's a "meaningful" review? What
happens if the review isn't "meaningful?" (Page
4, line 35)
o What does "engage with zone residents,
businesses, and small business technical
assistance providers" mean? What happens if the
city, county, or city and county doesn't engage?
(Page 5, lines 5 through 10)
o Change "involve" to "involves" on Page 5,
line 18.
o What does it mean to "overburden" a
business? What's an "impacted" business? (Page
7, lines 14 and 15).
o How will the CPUC "encourage" electrical
or gas corporations, and the governing boards of
local publicly owned utilities "encourage" local
agencies and to do the things the bill
contemplates? What happens if they don't?
o Should "electric or" be added before
AB 1079 - 5/8/13 -- Page 9
"gas" on Page 5, line 5?
o Who shall consider applying to the I-Bank
on Page 5, line 39?
Assembly Actions
Assembly Jobs, Economic Development and the Economy9-0
Assembly Appropriations 17-0
Assembly Floor 77-0
Support and Opposition (6/20/11)
Support : Barrio Planners, Inc., California Association of
Enterprise Zones, California Asian Pacific Chamber of
Commerce, California Association of Enterprise Zones,
California Black Chamber of Commerce, California
Manufacturers and Technology Association, Central City
Association, Chula Vista Chamber of Commerce, City of
Pasadena, City of Santa Clairta, City of Taft, Congress of
California Seniors, County of San Bernardino, CONNECT, El
Monte/South El Monte Chamber of Commerce, Hornblower
Cruises and Events, Inland Action, Inland Empire Economic
Partnership, Kings County Economic Development Corporation,
League of California Cities, Los Angeles Area Chamber of
Commerce, Los Angeles County Business Federation, National
City Chamber of Commerce, San Diego Gas and Electric
Company, San Diego Port Tenants Association, South County
Economic Development Council, Southern California Gas
Company, Westside Council of Chambers of Commerce, two
individuals.
Opposition : Clean Energy