BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 199|
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THIRD READING
Bill No: AB 199
Author: Eggman (D), et al.
Amended: 9/10/15 in Senate
Vote: 27 - Urgency
SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 9/10/15
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach,
Pavley
SENATE APPROPRIATIONS COMMITTEE: 6-1, 9/10/15
AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza
NOES: Nielsen
ASSEMBLY FLOOR: 77-0, 8/27/15 - See last page for vote
SUBJECT: Alternative energy: recycled feedstock
SOURCE: Californians Against Waste
DIGEST: This bill makes eligible for the California
Alternative Energy and Advanced Transportation Financing
Authority's (CAEATFA) state and local sales tax exemption
program projects using recycled feedstock.
ANALYSIS:
Existing law:
1)Establishes CAEATFA in the Office of State Treasurer, which
provides financing through conduit or revenue bonds, loan
guarantees, loan loss reserves, and a state and local sales
and use tax exemption for facilities that use alternative
energy sources and technologies or engage in advanced
manufacturing.
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Page 2
2)Creates CAEATFA's board, composed of the State Treasurer,
State Controller, Director of Finance, Chairperson of the
Energy Commission, and President of the Public Utilities
Commission.
3)Directs CAEATFA to administer a state and local sales and use
tax exemption for manufacturers of renewable technology,
subject to an application and evaluation process, and board
approval, which sunsets on July 1, 2021 (SB 71, Padilla,
Chapter 10, Statutes of 2010), and to administer a similar
state and local sales and use tax for advanced manufacturing,
which sunsets on July 1, 2016 (SB 1128, Padilla, Chapter 677,
Statutes of 2012):
a) Allows CAEATFA to allocate exemptions to successful
applicants under for programs up to $100 million annually;
however, CAEATFA must evaluate all applicants to determine
whether the net environmental and economic benefits
received by the state will outweigh forgone sales and use
tax revenue, and can only allocate exemptions to projects
that demonstrate such a benefit.
b) Requires 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.
c) Requires CAEATFA to submit interim reports to the
Legislature with specified contents by January 1, 2015.
This bill:
1)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.
2)Bars from eligibility for the exemption property that
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Page 3
processes or uses recycled feedstock in a manner that would
constitute disposal.
3)Sunsets on January 1, 2021.
4)Contains provisions necessary to resolve conflicts with AB
1265 (Dababneh).
Background
In 2013, the Legislature enacted AB 93 (Committee on Budget,
Chapter 69, Statutes of 2013), which reformed California's
economic development policies by eliminating enterprise zones
and other geographically-targeted economic development areas,
instead allowing three new tax benefits:
Tax credits for wages paid by taxpayers to qualified employees
within former enterprise zones, and other areas 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, 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 the
Board of Equalization's website, and present it to the
retailer to purchase the property sales-tax free.
AB 199 allows CAEATFA to approve applications for projects where
AB 199
Page 4
at least 50% of the use is to process recycled feedstock into
another product or soil amendment. The sponsor of this 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.
The sponsor 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
specifically includes 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.
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 six projects had been approved as part
of the advanced manufacturing program.
AB 1021 (Eggman, 2013) contained substantively identical
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provisions to AB 199, and passed out of both the Senate
Committees on Governance and Finance and Environmental Quality,
but was subsequently held on the Senate Committee on
Appropriations' suspense file. The Senate 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."
Comments
SB 71 and SB 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.
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,
this bill is keyed a two-third vote.
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Related Legislation
AB 1269 (Dababneh, 2015) extends the SB 1128 advanced
manufacturing 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.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Senate Appropriations Committee:
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
administrative fees.
SUPPORT: (Verified9/10/15)
Californians Against Waste (source)
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
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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
State of California, Treasurer
StopWaste
Strategic Materials
Tri-City Economic Development Corporation
Talco Plastics
Verdeco Recycling
Waste Management
OPPOSITION: (Verified9/10/15)
None received
ARGUMENTS IN SUPPORT: 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."
ASSEMBLY FLOOR: 77-0, 8/27/15
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Page 8
AYES: Achadjian, Alejo, Baker, Bigelow, Bloom, Bonilla, Bonta,
Brough, Brown, Burke, Calderon, Chang, Chau, Chávez, Chiu,
Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Beth
Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto,
Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper,
Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim,
Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis,
Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte,
O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon,
Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark
Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams,
Wood, Atkins
NO VOTE RECORDED: Travis Allen, Campos, Frazier
Prepared by:Colin Grinnell / GOV. & F. / (916) 651-4119
9/10/15 23:31:11
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