BILL ANALYSIS                                                                                                                                                                                                    



                                                               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