BILL ANALYSIS Ó
AB 185
Page 1
Date of Hearing: January 21, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
185 (Eduardo Garcia) - As Amended January 11, 2016
-----------------------------------------------------------------
|Policy |Jobs, Economic Development, |Vote:|8 - 0 |
|Committee: |and the Economy | | |
| | | | |
| | | | |
|-------------+-------------------------------+-----+-------------|
| |Revenue and Taxation | |9 - 0 |
| | | | |
| | | | |
|-------------+-------------------------------+-----+-------------|
| | | | |
| | | | |
| | | | |
-----------------------------------------------------------------
Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill creates the California New Markets Tax Credit (CNMTC)
program, modeled after the federal New Markets Tax Credit (NMTC)
program, for the purpose of allocating tax credits to a
qualified community development entity (CDE) for purposes of
AB 185
Page 2
providing capital to low income communities. Specifically, this
bill:
1)Provides that the Governor's Office of Business and Economic
Development (GO-Biz) and the California Competes Tax Credit
Committee (Committee) administer the program.
2)Authorizes, for taxable years beginning on or after January 1,
2017 through January 1, 2029, a qualified CDE to apply tax
credits against the taxpayer's personal or corporate tax
liability in an amount equal to 39% of the CDE's qualified
equity investment as follows: Zero percent for the first two
credit allowances, 7% on the third credit allowance date, and
8% in each of the 4th through 7th years.
3)Requires GO-Biz, in consultation with the Department of
Finance, to determine the aggregate amount of qualified equity
investments that may be allocated in a calendar year, based on
the unused portion of the $100 million in exclusions from the
Sales and Use Tax Exclusion (STE) program, as determined by
the California Alternative Energy and Advanced Transportation
Financing Authority (CAEATFA).
4)Allows for aggregate tax credits of up to $40 million
annually, and cumulative aggregate tax credits of up to $200
million, over the life of the program
5)Modifies the federal definition of a qualified CDE to mean a
domestic corporation or partnership that has as its primary
mission of serving or providing capital for low-income
communities or low-income persons and has entered into an
allocation agreement with the federal Community Development
Financial Institutions (CDFI) Fund on or after January 1, 2012
that includes California within its service area.
AB 185
Page 3
6)Modifies the federal definition of a qualified active
low-income community business to require the business have
less than 250 employees (with the exception of tribal
businesses) and derive less than 15% of its annual revenue
from rental or sale of real estate. Further requires the
business to be physically located in a census tract that has a
poverty rate above 30%, a median income less than 60% of
California median income, or an unemployment rate 1.5 times
the national average. The bill also prohibits certain
businesses, such as, country clubs, golf courses, liquor
stores, sexually oriented businesses and charter schools from
participating in the program.
7)Sets forth a process to reallocate any undesignated credits in
the following calendar year and recapture credits due to
noncompliance with provisions of the bill. Requires GO-Biz to
adopt guidelines necessary or appropriate to carry out its
responsibilities with respect to the allocation of the
qualified equity investments and recapture of credit.
8)Requires GO-Biz to establish and impose reasonable fees upon
entities that apply for the credit to defray the cost of
application review. Authorizes GO-Biz to impose other
reasonable fees on entities that receive the credits, to
defray administrative costs. Specifies that GO-Biz and the
Committee shall only make awards in a calendar year in which
the Legislature appropriates funds to the CNMTC Fund.
9)Requires GO-Biz to begin accepting applications on or before
May 15, 2017 and annually through 2021. Requires GO-Biz to
AB 185
Page 4
consider how allocation of the CNMTC corresponds with the
federal NMTC.
10)Authorizes, in the case where the credit exceeds the
applicable tax, the excess credit to be carried over to the
following year, and the six succeeding years if necessary,
until the credit is exhausted.
11)Specifies the CNMTC may be provided in addition to any credit
allowed under the federal NMTC.
12)Provides that this bill shall take immediate effect as a tax
levy.
13)Sunset the credit provisions on December 1, 2029.
FISCAL EFFECT:
1)Annual GF administrative costs of approximately $1.4 million
to support 12 positions at GO-Biz for program administration,
compliance monitoring, and program enforcement. The bill
authorizes some portion of these costs to be offset by
applicant fees and other reasonable fees, as determined by
GO-Biz.
2)General Fund (GF) administrative costs, likely in the hundreds
of thousands of dollars, to the Franchise Tax Board (FTB) to
administer the changes to procedures, forms, and systems.
3)The FTB indicates that this bill could result in a General
Fund revenue loss of $1.9 million for FY 2018-19, $6 million
for FY 2019-20 and $11 million for FY 2020-21. No credit may
be claimed in the first two years of the program.
AB 185
Page 5
COMMENTS:
1)The federal New Market Tax Credit (NMTC) program. Congress
established the federal NMTC program as part of the Community
Renewal Tax Relief Act of 2000. Under the program, tax credit
authority is provided to CDEs. CDEs are corporations or
partnerships with the primary mission of providing investment
capital for low-income communities. After CDEs are awarded
tax credit authority, they use it to attract investments from
investors who then claim the tax credit. CDEs use the money
raised to make investments in projects in low income
communities. In this way, the CDE serves as a community and
financial intermediary between sources of private capital and
low-income communities.
Qualified low income community investments include investments
in residential, commercial and industrial projects. Since the
inception of the program, approximately half of the federal
NMTC investments have been used for commercial real estate
projects. The value of the federal credit to the investor is
39% of the original investment amount, claimed over a period
of seven years (5% for each of the first three years, and 6%
for each of the remaining four years).
Since its inception, the federal program has allocated $40
billion in federal tax credit authority to CDEs. California
has received 85 awards for a total of $3.5 billion.
2)Purpose. This bill creates a state version of the federal
AB 185
Page 6
NMTC. Fourteen states have created similar programs.
According to the author, these states have seen significant
return on investment and have leveraged an increased share of
the federal NMTC. The goal of the author is to create a state
program that will assist California in attracting a more
significant share of federal-credit funded projects.
3)Sales and Use Tax Exclusion (STE) program oversubscribed. The
STE program provides a sales tax exclusion for manufactures of
alternative source and advanced transportation products. The
program has been expanded in recent years to include advanced
manufacturing products and equipment that processes or
utilizes recycled feedstock. Currently, annual exclusions are
capped at $100 million per year.
This bill proposes to reallocate unused STE program exclusions
not granted in a calendar year and provide that amount in the
subsequent year to the CNMTC. According to the California
Alternative Energy and Advanced Transportation Financing
Authority (CAEATFA), STE program requests for 2015 exceeded
the $100 million annual cap. CAEATFA suspended acceptance of
all new applications and is seeking legislative remedies to
address this oversubscription. CAEATFA anticipates meeting or
exceeding the $100 million annual cap over the next few years.
Given the demand on the STE program, it is not clear when
additional exclusions will be available to support the CNMTC
program established by this bill.
4)Prior legislation.
AB 185
Page 7
a) This bill is substantially similar to AB 1399 (Medina)
of 2014. Governor Brown vetoed AB 1399 with the following
message:
This bill creates a new markets tax credit that will cost
- over time - $200 million. I certainly endorse programs
that result in private investments to help low income
areas, but a bill to spend this much should be considered
with other priorities during the annual budget.
b) AB 305 (V. Manuel Pérez) of 2013 proposed to create the
California New Markets Tax Credit Program, administered
through the California Tax Credit Allocation Committee
(TCAC). This bill was held on this committee's Suspense
file.
c) AB 643 (Davis) and AB 2037 (Davis) of 2012 were similar
to AB 305. Both were held on this committee's Suspense
File.
d) SB 1316 (Romero) of 2010 would have enacted a New
Markets Tax Credit for qualified investments made in low
income communities in the 2011 calendar year. This bill
died on the Senate inactive file.
Analysis Prepared by:Misty Feusahrens / APPR. / (916)
AB 185
Page 8
319-2081