BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 199 |Hearing | 9/10/15 |
| | |Date: | |
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|Author: |Eggman |Tax Levy: |No |
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|Version: |8/25/15 |Fiscal: |Yes |
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|Consultant|Grinnell |
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Alternative energy: recycled feedstock
Expands CAEATFA's sales and use tax exemption program to include
projects that use recycled feedstock.
Background and Existing Law
Housed in the office of the State Treasurer, 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 or engage in advanced manufacturing.
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. The Governor's budget proposes a total of $27.5 million
for CAEATFA in 2014-15, funded primarily through transfers from
the California Energy Commission. In addition to its sales and
use tax program, CAEATFA administers other programs, including:
A $10 million loan loss reserve program that directs the
state to reimburse the original mortgage lender for the
costs associated with the Property Assessed Clean Energy
program assessments during a foreclosure (SB 96, Committee
on Budget and Fiscal Review, 2013).
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A $25 million loan loss reserve program to backstop
loans made by participating financial institutions for
energy efficiency improvements and distributed generation
technology (ABx1 14, Skinner, 2011).
When the Legislature created CAEATFA in 1980, it provided that
both the state and local shares of the sales and use tax didn't
apply to its purchases of tangible personal property. However,
CAEATFA didn't do much until 2008, when Governor Arnold
Schwarzenegger and State Treasurer Bill Lockyer announced that
CAEATFA would use this authority to grant sales and use tax
exemption for normally taxable manufacturing equipment purchased
by Tesla Motors under a sale-leaseback agreement. Subsequently,
the Legislature directed CAEATFA to administer sales and use tax
exemptions for manufacturers of renewable technology, subject to
an application and evaluation process (SB 71, Padilla, 2010),
which was soon after expanded to advanced manufacturing (SB
1128, Padilla, 2012). While CAEATFA's blanket sales and use tax
exemption authority doesn't have a sunset, the Legislature
placed a July 1, 2021 sunset on the renewable energy production
program, and a July 1, 2016 sunset on the advanced
manufacturing.
CAEATFA can allocate exemptions up to $100 million annually to
successful applicants; however, CAEATFA evaluates all applicants
to determine whether the benefits received by the state will
outweigh forgone revenue, and can only allocate exemptions to
projects that produce net fiscal and environmental benefits for
the state. SB 1128 required CAEATFA to study the efficacy and
cost benefit of the program, including the number of jobs
created, the costs of each job, as well as its annual salary,
and consider a dynamic analysis of the economic output of the
state without the exemption by January 1, 2017. The measure
also required CAEATFA to submit interim reports to the
Legislature with specified contents by January 1, 2015.
In 2013, the Legislature enacted AB 93 (Committee on Budget) and
SB 90 (Committee on Budget and Fiscal Review), these measures
reformed California's economic development policies by
eliminating enterprise zones and other geographically-targeted
economic development areas, and instead allowed three new tax
benefits:
Tax credits for wages paid by taxpayers to qualified
employees within former enterprise zones, and other areas
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that suffer from high levels of poverty and unemployment.
The credit lasts from the 2014 taxable year until the 2019
taxable year.
The California Competes Tax Credit, where the California
Competes Tax Credit Committee, also created by the bill,
can award various tax credits up to an annually capped
amount to taxpayers who apply. The Committee is comprised
of the Treasurer, the Director of Finance, the Director of
the Governor's Office of Business and Economic Development
(GO-BIZ), one appointee of the Speaker of the Assembly, and
one appointee from the Senate Committee on Rules.
A state-only (4.1875%) sales and use tax exemption on
purchases of manufacturing equipment made by taxpayers
within specific North American Industrial Classification
System codes, capped at $200 million annually per taxpayer,
effective July 1, 2014, and ending July 1, 2022. The
exemption largely superseded the SB 71 and SB 1128
programs, as they applied to almost all the same taxpayers.
Instead of applying to CAEATFA, taxpayers simply print a
resale certificate from BOE's website, and present it to
the retailer to purchase the property sales-tax free.
In 2012, the Legislature enacted SB 341 (Chesbro), which stated
legislative intent that it is the policy goal of the state that
not less than 75% of solid waste be source reduced, recycled, or
composted by the year 2020. However, the statewide recycling
rate is currently slightly over 50%, having stagnated at that
level since at least 2010. In the hopes of increasing recycling
in the state, Californians Against Waste want to expand the
CAEATFA state and local sales and use tax exemption to include
projects that process or utilize recycled feedstock.
Proposed Law
Assembly Bill 199 expands the definition of a "project" eligible
for CAEATFA's sales and use tax exemption program to include
tangible personal property where at least 50% of its use is to
process recycled feedstock intended to be reused in the
production of another project, or using recycled feedstock in
the production of another product or soil amendment, as defined.
Property that processes or uses recycled feedstock in a manner
that would constitute disposal is explicitly excluded from the
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program. AB 199 sunsets its expansion on January 1, 2021, the
same date the SB 71 program is currently scheduled to expire.
State Revenue Impact
According to BOE, "Existing law limits the allowable sales and
use tax exclusion for all projects approved by CAEAFTA,
including this bill's described projects, to $100 million each
calendar year. Between November 2010 and July 2015, CAEATFA has
approved tax exclusions of about $318 million, but only $81.8
million in tax has actually been claimed."
Comments
1. Purpose of the bill . According to the author, "California
exports 20 million tons of recyclables annually, worth nearly $8
billion. With AB 199, the state would help incentivize the
recycling sector to invest more in manufacturing. Keeping more
of these valuable materials in-state would allow Californians to
share in both the environmental and economic benefits of their
recycling."
2. The general and the specific . SBs 71 and 1128 were the
first state tax incentives for manufacturing in California since
the Manufacturer's Investment Credit expired in 2000. In these
bills, the Legislature set forth an application process that
required CAEATFA to only approve applications that demonstrated
net environmental and economic effects in public meetings after
a thorough due diligence review. However, the Legislature
wanted to further expand manufacturing in the state by extending
the sales and use tax exemption to include almost all
manufacturing, and put its own money at risk by only exempting
the state share of the sales tax. AB 93 trumps AB 199 except to
the extent successful CAEATFA applicants can obtain an exemption
from the local share too. As such, AB 199 only impacts local
sales tax revenues. The Committee may wish to consider whether
expanding the CAEATFA sales and use tax exemption program will
result in additional recycling and economic activity in the
state above and beyond the general exemption and if so, whether
asking local agencies to pay for it is fair.
3. Details . AB 199 allows CAEATFA to approve applications for
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projects where at least 50% of the use is to process recycled
feedstock into another product or soil amendment. Sponsors of
the bill indicate that the change is intended to apply to:
Material recovery facilities, which sort and separate
recyclables from curbside recycling programs.
Pre and post-processing equipment at composting
facilities,
Plastics recycling and remanufacturing, and
Tire recycling.
Sponsors indicate that some of this equipment may be eligible
for the general AB 93 exemption, but other equipment may not,
because AB 93 only makes eligible for the exemption those
businesses that are principally engaged in certain activities,
such as manufacturing and biotechnology, among others. AB 199
would specifically include this equipment in the definition of
"project" that CAEATFA uses; however, the exemption would not be
automatic, as applicants would have to obtain approval from
CAEATFA to obtain the exemption.
4. Review . In its report to the Legislature regarding both the
SB 71 and 1128 programs, CAEATFA states that it has approved 76
projects worth a total of $273 million of foregone revenue;
however, only 63 applicants eventually purchased $43.3 million
of equipment because many projects are built out over a course
of years, and the revenue effect doesn't occur until the
applicant purchases the property. CAEATFA adds that most of the
unspent allocation comes from a few, larger, more recent
applicants, with only two comprising one-third of the unspent
amount. Smaller projects of less than $1 million constitute the
majority of granted applications and foregone revenue. CAEATFA
projects net environmental benefits of $82 million, economic
benefits of $299 million, with a fiscal cost of $244 million,
for a total net benefit of $137 million realized over the
expected useful life of the equipment, which is about 5 to 29
years. However, at the time of the report, only 6 projects had
been approved as part of the advanced manufacturing program.
5. Related legislation . In July, the Committee approved AB 1269
(Dababneh), which extends the SB 1128 Advanced Manufacturing
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sales and use tax exemption to January 1, 2021, the same date AB
199 uses, and the sunset date for the SB 71 program. AB 1269 is
currently pending on the Senate Floor, and contains
double-jointing provisions with AB 199 to resolve conflicts
should both be enacted; however, AB 199 doesn't currently
contain these provisions, raising the possibility that AB 199
could "chapter out" AB 1269's change if it's enacted last.
6. 75% recycling goal . AB 1021 (Eggman) of 2013 contained
substantively identical provisions to AB 199, and passed out of
both the Governance and Finance and Environmental Quality
Committee, but was subsequently held on the Senate Committee on
Appropriations' suspense file. The Committee on Environmental
Quality noted of that bill: "AB 1021 would encourage the
creation of new recycling infrastructure, such as materials
recovery facilities (MRFs), which sort and process waste and
recover marketable materials, processors that clean and
mechanically process those materials, and manufactures who
utilize those mechanically processed materials to create new
products. According to CalRecycle's report 'California's New
Goal: 75% Recycling,' recycling infrastructure must be
significantly expanded in order to meet the 2020 goal. The
report also proposes financial incentives, such as a tax
credits, for the purchase of equipment and materials used in the
manufacture of recycled content products and suggests that those
incentives could include a tax credit for equipment."
7. 2/3 . CAEATFA can allocate sales and use tax exemptions up
to $100 million. Because expanding the program to include new
applicants may crowd out current ones seeking an exemption under
that cap, Legislative Counsel has determined that the measure
increases a tax on any taxpayer for the purposes of Section
Three of Article XIIIA of the California Constitution. As such,
the measure is keyed a 2/3 vote.
8. Urgency . Regular statutes take effect on January 1
following their enactment; bills passed in 2014 take effect on
January 1, 2015. The California Constitution allows bills with
urgency clauses to take effect immediately if they're needed for
the public peace, health, and safety. AB 199 contains an
urgency clause declaring that it is necessary for its provisions
to go into effect immediately to provide incentives for the
development of recycling projects.
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Assembly Actions
Assembly Floor 77-0
Assembly Appropriations 17-0
Assembly Revenue and Taxation 9-0
Assembly Natural Resources 8-0
Support and
Opposition (9/10/15)
Support : State Treasurer John Chiang, Californians Against
Waste. Association of California Recycling Industries,
Association of Compost Producers, Association of Postconsumer
Plastic Recyclers, California Association of Sanitation
Agencies, California Compost Coalition, California Electronic
Asset Recovery, California League of Conservation Voters,
California Manufacturing and Technology Association, California
Refuse Recycling Council, CarbonLITE Industries, City of Los
Angeles, Command Packaging CRM, CR&R Environmental Services ,
Don't Waste LA Coalition, ECS Refining , Glass Packaging
Institute, Global Plastics, Institute of Scrap Recycling
Industries, Los Angeles Alliance for a New Economy, Napa
Recycling and Waste Services, Natural Resources Defense Council,
PC Recycle, Potential Industries, Recology, RePet, RePlanet,
Republic Services, Solid Waste Association of North America,
StopWaste, Strategic Materials, Tri-City Economic Development
Corporation, Talco Plastics, Verdeco Recycling, Waste Management
Opposition : None received.
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