BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 199 (Eggman) - Alternative energy: recycled feedstock.
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|Version: August 25, 2015 |Policy Vote: GOV. & F. 7 - 0 |
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|Urgency: Yes |Mandate: No |
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|Hearing Date: September 10, |Consultant: Marie Liu |
|2015 | |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 199 would make personal property that primarily processes
or utilizes recycled feedstock that is intended to be reused in
the production of another product or soil amendment eligible for
sales and use tax exemption under the California Alternative
Energy and Advanced Transportation Financing Authority.
Fiscal
Impact:
One-time costs in the high tens of thousands to low hundreds
of thousands (General Fund) to create a cost-benefit
evaluation for recycling manufacturing. These costs may
eventually be recovered through application fees, depending on
the level of program participation.
Increased likelihood that up to $100 million from the General
Fund will be lost through sales and use tax exemptions.
Unknown costs to the General Fund for CAEATFA's administrative
costs that are not recovered through application and
AB 199 (Eggman) Page 1 of
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administrative fees.
Background: The California Alternative Energy and Advanced Transportation
Financing Authority (CAEATFA) was established in 1980 as a means
to encourage the use of equipment using alternative or renewable
energy sources. CAEATFA's authority has since been expanded
several times including to include the financing of advanced
transportation technologies. Financial assistance can occur
through the issuance of revenue bonds, loan guarantees, loan
loss reserves, and insurance.
As a result of the passage of SB 71 (Padilla) Chapter 10,
Statutes of 2010, CAEATFA was authorized to provide projects
financial assistance in the form of a sales and use tax
exemption on property (such as manufacturing equipment) used for
the design, manufacture, production, or assembly of advanced
transportation technologies or alternative energy products,
components, or systems. The program was expanded in 2012 by SB
1128 (Padilla) Chapter 677, Statutes of 2012 to include advanced
manufacturing projects. This program is referred to as the Sales
and Use Tax Exclusion (STE) Program.
For all project types under the STE Program, existing law
requires CAEATFA to evaluate project applications for
eligibility based upon certain criteria that encourages
manufacturing facilities and jobs located in California and the
reduction of greenhouse gases beyond the reduction required by
federal or state law or regulation. Projects must meet the "net
benefits test" by showing that the new project will create jobs
in the state. No more than $100 million in tax exemptions may be
approved by CAEATFA in any calendar year.
The STE Program sunsets on January 1, 2021.
Proposed Law:
This bill would expand the definition of projects eligible
under the STE Program to include property that is used at least
50% for processing recycled feedstock so that it may be reused
in the production of another product or property that utilizes
recycled feedstock to produce another product or soil amendment.
AB 199 (Eggman) Page 2 of
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Property that is used for waste disposal, as defined under the
Integrated Waste Management Act.
Related
Legislation: AB 1269 (Dababneh) would extend the eligibility of advanced
manufacturing projects to receive state and local sales and use
tax exemptions by the California Alternative Energy and Advanced
Transportation Financing Authority until January 1, 2021. This
bill is on the Senate Floor.
AB 1021 (Eggman, 2013) was substantially similar to this bill
and was held on the Senate Appropriation Suspense File.
Staff
Comments: Potential one-time administrative costs: To implement this
bill, CAEATFA will need to update its regulations for the
program, including modifying its net-benefits evaluation to be
appropriate for recycling projects. The Treasurer's office
estimates that that this will take approximately 9 months. While
the Treasurer's office estimates that it would not ask for
additional funds to cover this workload cost, redirecting staff
for this purpose would displace other work responsibilities.
Additionally, staff notes that the development of net-benefits
evaluations is contracted out and this bill would potentially
affect that contract. As such, staff estimates that this bill
would result in workload costs in the high tens of thousands to
low thousands of dollars.
This bill will increase the odds that the maximum tax exemptions
are issued: Since December 2013, CAEATFA has approved $104
million in tax exemptions in the STE program, with another $6.7
million in exemptions pending approval at the August and
September 2015 CAEATFA board meetings. According to the
Treasurer's office, the STE program has hit the $100 million
limit once. As such, expanding the eligible projects under the
program will likely result in increased sales tax revenue
losses. These losses are likely only for local sales tax as many
of these projects are already eligible for a state sales tax
exemption under AB 93 (discussed below).
AB 199 (Eggman) Page 3 of
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Granting more tax exemptions may assist in the recovery of
ongoing administrative costs: CAEATFA incurs administrative
costs to administer the STE program. These costs are supposed to
be covered by an application and administrative fee. However,
historically the fee revenues have not been sufficient to cover
the administrative costs. According to the Treasurer's office,
fee revenues have fallen short because the fee schedule was
based on $100 million in award per year and that the majority of
the applicants would move forward with their projects. However,
the program has only reached its $100 million limit once and
fewer awarded projects have moved forward than anticipated.
CAEATFA staff is currently working with the Treasurer's office
to improve outreach and participation program. This bill would
increase its workload to consider additional problems, but it
would also result in increased collection application fees,
thereby helping the Treasurer's office more completely recover
its ongoing costs.
Granting more tax exemptions may (ironically?) assist in the
repayment of loans made to the program for startup costs : When
the STE program was first enacted, CAEATFA received a $2.4
million loan to cover initial program development costs.
CAEATFA's ability to repay back this loan is dependent on
participation in the program (i.e. there must be applicants on
which a fee can be assessed) and the amount of the fee. To the
extent that this bill increases participation in the program,
this increased participation can help ensure the repayment of
the loan. As part of this year's budget, the Treasurer's office
received a three-year extension on the loan payments. Three
annual payments of $804,000 are now due on June 30, 2017, 2018,
and 2019.
Tax exemptions are not necessarily offset by increased revenues
to the state: The STE program only has authority to grant tax
exemptions to projects that are estimated to have benefits to
the state that equal or exceed the exemption. However, the net
benefits test makes a number of assumptions that may over
attribute benefits to the program. For example, the net benefits
test assumes that the project would not go forward at all if not
for the STE exemption. Therefore, even if a project would have
gone forward on the natural but the STE exemption resulted in
earlier project completion, the net benefits test still credits
AB 199 (Eggman) Page 4 of
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all economic activity from the project to the STE program.
This bill creates a Proposition 26 tax: Because the
participation of advanced manufacturing projects in the STE
program can prevent the participation of other project types
under the STE program should the program become oversubscribed,
Legislative Counsel has determined that the measure can increase
a tax on a taxpayer for the purposes of Section three of Article
XIIIA of the California Constitution. As such, this measure
requires a 2/3 vote.
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