BILL ANALYSIS Ó
AB 1422
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Date of Hearing: April 23, 2013
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
Jose Medina, Chair
AB 1422 (Jobs, Economic Development and the Economy) - As Amended:
April 15, 2013
SUBJECT : California Alternative Energy and Advanced Transportation
Financing Authority
SUMMARY : Clarifies the definition of "participating parties," as used
by the California Alternative Energy and Advanced Transportation
Financing Authority (Finance Authority) for qualifying applicants for
its sales and use tax exclusion (SUTE) program. Also, this bill
withdraws a requirement that the Governor's Office of Economic
Development (GO-Biz) issue a report on job creation and advanced
manufacturing. Specifically, this bill :
1)Clarifies that an entity that is located outside the state,
including those located overseas, is considered a participating
party for the purpose of the Finance Authority's SUTE program if
they commit to, and demonstrate that they will be opening a
manufacturing facility within the state.
2)Withdraws a requirement that GO-Biz review and identify efficient
and cost-effective methods for the state to create jobs in advanced
manufacturing and report their findings to the Legislature by
January 1, 2017.
3)Modifies the definition of advanced manufacturing to include either
of the following rather than both of the following.
a) Systems that result from substantive advancement, beyond the
current industry standard, in the production of materials and
products.
b) Sustainable manufacturing systems and manufacturing
technologies that minimize the use of resources while maintaining
or improving cost and performance. These systems and
manufacturing technologies may not include those required to be
undertaken pursuant to state or federal law or regulations, as
specified.
EXISTING LAW:
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1)Establishes the Finance Authority for the purpose of providing and
promoting the establishment of facilities utilizing alternative
sources of energy and facilities needed for the development and
commercialization of advanced transportation technologies.
2)Authorizes the Finance Authority to administer a SUTE program for
any tangible personal property that is utilized for the design,
manufacture, production, or assembly of advanced manufacturing,
advanced transportation technologies, or alternative source
products, components, or systems. The SUTE program is capped at a
total of $100 million in tax exclusion benefits for all projects per
calendar year.
3)Requires the Finance Authority to evaluate the SUTE Program project
applications based on the extent to which: (a) the project develops
manufacturing facilities or purchases equipment in California; (b)
the benefits of the project to the state equal or exceed the
benefits to the project applicant and other participants; (c) the
project creates new permanent jobs in California; (d) the project
results in a reduction in greenhouse gases, a reduction in air or
water pollution, an increase in energy efficiency, or a reduction in
energy consumption, beyond what is required by state or federal law;
(e) unemployment exists in the area in which the proposed project is
to be located; and (f) any other factors deemed appropriate.
4)Requires GO-Biz to review and identify cost-effective methods for
the state to create jobs in advanced manufacturing and report its
findings to the Legislature on or before January 1, 2017.
FISCAL EFFECT : Unknown
COMMENTS :
1)Framing the Issue : This bill clarifies that the statutory term
"participating party" used by the Finance Authority for the purpose
of the sales and use tax exclusion program applies to both an
in-state entities and an entity located outside the state, including
an entity located overseas, if the entity commits to, and
demonstrates that it will be opening a manufacturing facility in the
state. The bill also repeals a GO-Biz reporting requirement
pursuant to an agreement with the Governor in signing SB 1128
(Padilla), Chapter 677, Statutes of 2012.
The "participating party" issue was brought to the committee's
attention by an economic development corporation that was trying to
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use the program to attract a business to California and was told the
business would not be eligible. This is only a clarification of
existing law.
2)Background on the Finance Authority : The Finance Authority was
established in 1980 for the purpose of providing capital for
facilities utilizing alternative methods and sources of energy and
facilities needed for the development and commercialization of
advanced transportation technologies. The Finance Authority
oversees a range of financial products including conduit bond and
revenue bond financings, loan guarantees, loan loss reserve accounts
among other financial products that support the development and
commercialization of technologies that conserve energy, reduce air
pollution, and promote economic development and jobs.
Examples of some of the Finance Authority's more unique financial
products include $381 million in Qualified Energy Conservation Bonds
authorized under the federal American Recovery and Reinvestment Act
and the SB 77 Property Assessed Clean Energy (PACE) Bond Program.
Governor Arnold Schwarzenegger used the Finance Authority to assist
a joint venture between Tesla Motors and Toyota Motors to purchase
the Nummi assembly plant in Fremont, California, where the two
companies focus on manufacturing hybrid and electric vehicles,
including the TESLA brand.
Most recently, the role of the Finance Authority was expanded to
include administration of a state sales and use tax exclusion for
property used in the "design, manufacture, production, or assembly"
of either advanced transportation technologies or alternative energy
source products, components or systems [SB 71 (Padilla), Chapter 10,
Statutes of 2010]. Interest in the program was high at the
program's inception but has since tapered off, as indicated by the
fact that approximately 60% of the projects were approved within the
first eight months of the program.
The Finance Authority is overseen by a five-member board of
directors comprised of the Treasurer (Chair), Controller, Director
of Finance, Chairperson of the Energy Commission, and President of
the Public Utilities Commission. The Finance Authority meets on a
monthly basis and members of the board serve without compensation.
The day-to-day activities of the Finance Authority are overseen by
an executive director, who serves at the pleasure of the board.
3)The Finance Authority's SUTE Program : The purpose of the SUTE
program is to promote the creation of California-based manufacturing
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jobs that will stimulate the economy and incentivize manufacturing
of green technologies that will help reduce greenhouse gas
emissions, air and water pollution, and energy consumption.
The SUTE Program provides eligible projects with financial
assistance in the form of a sales and use tax exclusion on equipment
and machinery ("qualified property") used for the "design,
manufacture, production, or assembly" of advanced transportation
technologies or alternative energy source products, components or
systems.
All applications are evaluated to determine the extent to which the
anticipated benefit to the state from the project exceeds the
anticipated cost of the avoided sales and use tax by use of a net
benefits test. Once approved, the applicant is required to purchase
at least 25% of its approved qualified property within one year, and
the remainder must be purchased within three years.
4)Performance of the SUTE Program in 2012 : Since the inception of the
SUTE program, the Finance Authority has approved a total of 50
applications, of which 40 are active. These 40 applications have
been approved for $1.16 billion in anticipated qualified purchases,
with an estimated result of $98.5 million in sales and use tax
exclusions. These projects have produced an estimated $72.5 million
in environmental benefits and $125.7 million in fiscal benefits
across 14 counties, resulting in approximately $99.7 million in net
benefits.
12 applicants were added to the SUTE program in 2012. These new
applicants provided a combined value of approximately $433.9 million
in anticipated qualified property purchases, which estimated to
result in $35.1 million in SUTE credits. The new applicants
represented a variety of industries: solar photovoltaic
manufacturing, biogas capture and production, biodiesel production,
electric vehicle manufacturing, and biomass processing.
5)Manufacturing Incentives in other States: California communities
are in competition to attract and retain manufacturers. Many states
have developed economic development programs that target
manufacturing generally, while others focus on sub-industry and
sub-subindustry sections such as energy generation, information
technology, biotechnology and food processing. As an example, the
U.S. Department of Energy has taken a closer look at state
incentives related to attracting renewable energy production and
manufacturing and reports that 24 states have tax credits, 28 states
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authorize property assessed clean energy (PACE) programs, and 38
states offer property tax-based incentives. Below are examples of
three nationally recognized state initiatives:
a) Michigan SmartZones : Michigan's 15 SmartZones include
technology business accelerators and incubators that provide the
critical entrepreneurial and commercialization support services
essential to growing start-up ventures. The program consists of
collaborations among universities, industry, research
organizations, government and other local institutions and has
resulted in regionally based high-tech zones which target growth
in a specific economic sector that fits the geographic region's
strengths and needs, creating clusters of high-skilled,
high-paying jobs.
b) Arizona Clean Technology Property Tax Reduction and Tax
Credit : The goal of the program (enacted in 2009) is to
encourage business investment that will produce high quality
employment opportunities and enhance Arizona's position as a
center for production and use of renewable energy products. The
program offers two benefits: up to a 10% refundable income tax
credit and up to a 75% reduction on property taxes for 10 years,
for companies that are primarily engaged in manufacturing or have
headquarters for producing systems and components that are used
or useful in manufacturing renewable energy equipment. To be
eligible for these benefits, companies must meet and maintain
certain requirements, including paying wages above the state's
annual median wage, paying certain health care costs and making
annual investments in equipment.
c) Missouri TechLaunch : The Missouri Technology Corporation
(MTC) is a public-private partnership created by the Missouri
Legislature to "promote entrepreneurship and foster the growth of
new and emerging high-tech companies." One MTC initiative is the
Missouri TechLaunch which offers pre-seed funding to start-ups
for intellectual property development and evaluation, including
in-depth market analysis, competitive analysis, proof of concept,
and prototype design and development. Individual awards cannot
exceed $100,000 and may be in the form of equity or convertible
debt.
6)Related Legislation :
a) SB 1128 (Padilla) Energy: Alternative Energy Financing : This
bill authorizes the Finance Authority to expand the SUTE program
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to include advanced manufacturing projects. This bill also caps
the SUTE program benefit at $100 million per year for all
projects. Status: The bill was signed by the Governor, Chapter
677, Statutes of 2012.
b) SB 71 (Padilla) Sales and Use Tax Exemption : This bill
authorizes the Finance Authority to administer a state and local
sales tax exclusion program for tangible personal property that
is used for the design, manufacture, production, or assembly of
advanced transportation technologies or alternative source
products, components or systems. Status: The bill was signed by
the Governor, Chapter 10, Statutes of 2010.
7)Double Referral : This bill was double referred to the Assembly
Committee on Jobs, Economic Development and the Economy (JEDE) and
to the Assembly Committee on Revenue and Taxation (R&T). JEDE will
hear the bill on April 23rd, 2013. Should the measure pass, it will
be referred to R&T for further consideration.
REGISTERED SUPPORT / OPPOSITION :
Support
None received
Opposition
None received
Analysis Prepared by : Toni Symonds and Zach Hutsell / J., E.D. & E.
/ (916) 319-2090