BILL ANALYSIS                                                                                                                                                                                                    

                            Senator Lois Wolk, Chair

          BILL NO:  AB 1422                     HEARING:  7/3/13
          AUTHOR: Committee on Jobs, Economic Development & the  
          VERSION:  6/19/13                     FISCAL:  Yes
          CONSULTANT:  Miller                   TAX LEVY:  No


            Makes several changes to the CAEATFA program within the  
                              Treasurer's Office.

                           Background and Existing Law  

          The California Alternative Energy and Advanced  
          Transportation Financing Authority (CAEATFA) provides  
          financing through conduit or revenue bonds, loan  
          guarantees, loan loss reserves and a sales and use tax  
          exemption for facilities that use alternative energy  
          sources and technologies.  CAEATFA also provides these  
          financing mechanisms for facilities needed to develop and  
          commercialize advanced transportation technologies that  
          conserve energy, reduce air pollution, and promote economic  
          development and jobs.  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.  On  
          March 24, 2010, Governor Arnold Schwarzenegger signed SB 71  
          (Padilla)  which authorizes the CAEATFA to provide eligible  
          projects financial assistance in the form of a sales and  
          use tax  exemption on property used for the "design,  
          manufacture, production, or assembly" of either advanced  
          transportation technologies or alternative energy source  
          products, components or system.  Prior to the passage of SB  
          71, Governor Schwarzenegger used CAEATFA 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. 


          AB 1422 -- 6/19/13 -- Page 2

          The SB 71 program promotes the creation of California-based  
          manufacturing, California-based jobs, and the reduction of  
          greenhouse gases, air and water pollution, or energy  
          consumption.  To date, CAEATFA has approved financial  
          assistance for private entities in the following fields:  
          electric vehicle manufacturing, solar photovoltaic  
          manufacturing, landfill gas capture and production, biogas  
          capture and production (dairies and waste water treatment  
          plants), demonstration hydrogen fuel production, electric  
          vehicle battery manufacturing, biomass processing and fuel  
          production, and others.   Last year, the Legislature added  
          "advanced manufacturing" to the list of projects eligible  
          for the exemption, and capped the amount of exemptions  
          awarded annually to $100 million.  The Legislature also  
          approved a study by GO-Biz in conjunction with the study  
          (SB 1128, Padilla).

          The Treasurer's office provides the following estimates of  
          awards "drawn down" or actually used:
               2010: $16.8 M 
               2011: $21.7 M 
               2012: $10.5 M 
               2013: $4.2 M 

           Eligibility Criteria  .  Applicants must show the property to  
          be purchased will be used to design, manufacture, produce  
          or assemble an eligible advanced transportation technology  
          or alternative source product - including energy efficiency  
          - component or system.  Each applicant must pass the "net  
          benefits test," by showing that the new project's  
          environmental and economic benefits exceed the fiscal loss  
          of granting the exemption.  Applicants are awarded the  
          sales and use tax exemption by CAEATFA and are all publicly  
          disclosed on their website and in annual report documents.

          This definition includes manufacturers of alternative  
          source electricity generation equipment such as solar  
          panels or wind turbines, but it excludes the purchase of  
          that equipment for power generation. 

           Sales & Use Tax Exemption for manufacturing  .  AB 93  
             (Committee on Budget, 
          2013) passed by the Senate on June 25, 2013 allows for an  
             exemption from the 
          state portion (4.19%) of the sales and use tax, beginning  
             July 1, 2014 and before 


          AB 1422 -- 6/19/13 -- Page 3

          January 1, 2019 for state wide purchases or before July 1,  
             2121 for purchases 
          made in the former enterprise zones or areas of high  
             unemployment and poverty 
          according the US Census.  The exemption will be limited  
             annually to the first 
          $200 million of eligible purchases by a qualified purchaser  
             defined as manufac
          turers or processors engaged in manufacturing, research &  
             development or 
          processing according to the North American Industry  
             Classification System (NA

          ICS), but excluding extractive industries:

                   NAICS Codes 3111 through 3399 include all  
                establishments primarily engaged in manufacturing  
                activities.  This encompasses manufacturers in the  
                aerospace sector, textiles, pharmaceuticals,  
                printing, food and others.

                   NAICS Code 541711 includes establishments  
                primarily engaged in conducting biotechnology  
                research and experimental development.  This  
                encompasses industries using microorganisms and  
                cellular and bio-molecular processes to develop or  
                alter materials.

                   NAICS Code 541712 includes establishments  
                primarily engaged in conducting research and  
                experimental development in the physical, engineering  
                and life sciences.  This encompasses activities in  
                agriculture, electronics, environmental biology,  
                botany, computers, chemistry, food, fisheries,  
                forest, geology, health, mathematics, medicine,  
                oceanography, pharmacy, physics, veterinary and other  
                allied fields.

          Qualified tangible personal property must be used at least  
          50% of the time by the qualified purchaser in any stage of  
          manufacturing, processing, refining, fabricating, or  
          recycling of tangible personal property; for purposes of  
          research and development; to maintain, repair, measure, or  
          test tangible personal property; and, if purchased by a  
          contractor, used as an integral part of the manufacturing,  
          processing, refining, fabricating, or recycling process, or  


          AB 1422 -- 6/19/13 -- Page 4

          as a research and storage facility for use in connection  
          with those processes.

             Qualifying purchases that are removed from the state, or  
             used for unqualified activities, within one year of the  
             purchase will be subject to a 'claw-back' equal to the  
             value of the SUT exemption.  The purchaser of the  
             property will be liable for the payment of the sales or  
             use tax that would otherwise have been collected from  
             the seller absent the provision of the exemption.

                                   Proposed Law  

          Assembly Bill 1422 makes several changes to the CAEATFA  
          statute to clarify existing law, broaden aspects of the  
          program within the cap, and changes aspects of the cap.

          AB 1422 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 sales tax exemption program if the equipment is  
          purchased and utilized within the state (as amended).  
          AB 1422 deletes 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.

          AB 1422 modifies the definition of advanced manufacturing  
          to include either of the following rather than both of the  

               1.     Systems that result from substantive  
                 advancement, beyond the current industry standard,  
                 in the production of materials and products. 

               2.     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  

          AB 1422 requires that any portion of the $100 million not  


          AB 1422 -- 6/19/13 -- Page 5

          granted through the sales and use tax exclusion be  
          available in the subsequent calendar year, but provides  
          that the amount shall not exceed $200 million.

                               State Revenue Impact


          1.   Purpose of the bill  .  AB 1422 is the Assembly Committee  
          on Jobs, Economic Development, and the Economy's code  
          maintenance and technical clean-up bill for programs  
          administered through the California Alternative Energy and  
          Advanced Transportation Financing Authority.  Each of the  
          issues has been brought forward by one or more stakeholder  
          groups.  Language in the bill has been developed in  
          consultation with the Senate and Assembly policy committees  
          which also oversee the programs of the Authority.

          2.   Amendments  .  The author will take amendments in  
          committee to clarify that property must be purchased and  
          used in this state as follows: 

          (8)(A)"Project" means a land, building, improvement to the  
          land or building, rehabilitation, work, property, or  
          structure, real or personal, stationary or mobile,  
          including, but not limited to, machinery and equipment  
           purchased and utilized in the state  , whether or not in  
          existence or under construction, that utilizes, or is  
          designed to utilize, an alternative source, or that is  
          utilized for the design, technology transfer, manufacture,  
          production, assembly, distribution, or service of advanced  
          transportation technologies or alternative source  

          (B)"Project," for purposes of Section 26011.8 and Section  
          6010.8 of the Revenue and Taxation Code, means tangible  
          personal property that is  utilized   purchased and utilized   
           in the state  for the design, manufacture, production, or  
          assembly of advanced manufacturing, advanced transportation  
          technologies, or alternative source products, components,  
          or systems.


          AB 1422 -- 6/19/13 -- Page 6

                                 Assembly Actions  

          Assembly Jobs, Economic Development & the Economy9 -0
          Assembly Revenue & Taxation             8-0
          Assembly Appropriations                      17-0
          Assembly Floor                          70-0

                        Support and Opposition  (6/27/13)

           Support  :  Unknown.

           Opposition  :  Unknown.