BILL ANALYSIS Ó
AB 1560
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Date of Hearing: August 13, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 1560 (Quirk-Silva) - As Amended: August 7, 2014
Policy Committee: Revenue &
Taxation Vote: 7-0
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill authorizes the Director of the Department of Finance
(DOF) to increase the aggregate amount of the California
Competes Tax Credit available for an annual allocation by up to
$25 million for each year through 2019. The bill includes
legislative intent that the Director increase the aggregate
amount of California Competes Tax Credit in order to mitigate
the reduction in available credit resulting from the
recently-enacted tax credits to support the aerospace industry's
new advanced strategic aircraft development program (Advanced
Strategic Aircraft Tax Credit).
FISCAL EFFECT
Estimated GF revenue decreases in the low tens of millions of
dollars per year through 2019.
COMMENTS
1) Purpose. On July 10, 2014, the Governor signed AB 2389 (Fox),
creating an aerospace industry tax credit for an "advanced
strategic aircraft program" to be awarded by the US Department
of Defense. That bill required the tax credit to be funded
from the California Competes Tax Credit. The author contends
the California Competes Tax Credit will suffer a deficit of up
to $25 million per year until 2019 to fund the Advanced
Strategic Aircraft Tax Credit, and that restoration of that
funding is needed to ensure California remains a competitive
state in which to do business. This bill authorizes DOF to
increase the California Competes Tax Credit by any shortfall
created by the Advanced Strategic Aircraft Tax Credit.
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2) California Competes and Aerospace Tax Credits. The California
Competes Tax Credit program was created last year as part of a
broader reform effort that eliminated enterprise zones and
other geographically-targeted economic development programs.
Along with tax credits to facilitate the phase-out of the
legacy programs, the California Competes program will provide
up to $200 million in tax credits per year from FY 2015-16
through FY 2017-18 (plus certain adjustments and carry
forwards).
In FY 2013-14, the first year of the program, $30 million in
credits were available, yet according to the author, over 390
companies applied for more than $500 million in credits. DOF
allocated a total of $28.9 million to 30 companies
representing diverse industries including manufacturing,
biotech, agriculture, and food processing. According to
information submitted by the recipient companies,
approximately 6,000 jobs and more than $2 billion in
investment will be created as a result of the credits awarded.
$151.1 million in credits is available for allocation in FY
2014-15.
The Advanced Strategic Aircraft Tax Credit provides a credit
amount equal to 17.5% of the wages paid to California
employees of a taxpayer engaged in manufacturing property for
use in a new advanced strategic aircraft for the US Air Force.
The credit amount is limited to $25 million for each of the
first five years, $28 million during each of the next five
years and $31 million for each of the remaining five years,
totaling $420 million over the 15-year life of the program.
AB 2389 was drafted to benefit Lockheed Martin, a tier one
subcontractor that joined an overall bid for the project led
by Boeing. SB 718, which was passed by the Assembly on
Monday, August 11, will provide a similar tax credit program
to benefit Northrop Grumman, the other prime contractor
bidding for the project.
3) Funding Restoration or Just Additional Funding? As amended by
the Senate, the Advanced Strategic Aircraft Tax Credit reduced
the funding for the California Competes Tax Credit to mitigate
revenue losses to the General Fund. In theory, businesses
eligible for the Advanced Strategic Aircraft Tax Credit can
also apply for the California Competes Tax Credit, since both
programs are essentially designed to accomplish the same goal:
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increase employment in the state. Lockheed Martin could have
simply applied for a California Competes Tax Credit, and as a
result the Advanced Strategic Aircraft Tax Credit was
effectively treated as if it came from the same pool of
overall available credits.
The author of this bill argues California Competes must be
compensated for the credits it was forced to sacrifice to the
Advanced Strategic Aircraft Tax Credit because of the
substantial excess demand for California Competes Tax Credits.
In effect, however, this bill simply increases the total
credits available to incentivize job creation by ensuring the
Advanced Strategic Aircraft Tax Credits do not diminish the
other California Competes Tax Credits. This bill does so by
creating additional California Competes Tax Credits equal to
the Advanced Strategic Aircraft Tax Credits issued during the
first five years, effectively shifting the cost of the
Advanced Strategic Aircraft Tax Credit from California
Competes funding to the General Fund.
Analysis Prepared by : Joel Tashjian / APPR. / (916) 319-2081