BILL ANALYSIS Ó
AB 826
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Date of Hearing: April 21, 2015
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Eduardo Garcia, Chair
AB 826
(Chau) - As Introduced February 26, 2015
SUBJECT: Economic development: foreign trade: foreign and domestic
investors
SUMMARY: Strengthens the statutory framework for Governor's Office of
Business and Economic Development (GO-Biz') engagement on issues
related to California's position within the global economy.
Specifically, this bill:
1)Expands the role of the California Business Investment Services
Program, which is administered through GO-Biz, to include attracting
foreign and domestic investors.
2)Provides a definition of an EB-5 regional center to mean an entity
designated by the U.S. Citizenship and Immigration Services for the
purpose of pooling EB-5 capital from multiple foreign investors in
economic development projects in a defined geographic region.
3)Requires GO-Biz to include a web-link to regional centers operating
within the state on its official website. Existing law already
requires contract information be provided to the extent available.
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EXISTING LAW:
1)Establishes the GO-Biz to serve as the state's primary agency for
issues of economic and business development. Among other entities
within GO-Biz' oversight are the California Business Investment
Services Program, the Office of the Small Business Advocate, the
International Trade and Investment Program, and the California
Infrastructure and Economic Development Bank.
2)Establishes the California Business Investment Services Program
within GO-Biz to serve employers, corporate executives, business
owners, and site location consultants who are considering California
for a business relocation or expansion.
3)Authorizes GO-Biz to undertake international trade and investment
activities and, as a condition of that authority, directs the
development and implementation of a comprehensive international
trade and investment strategy (ITI Strategy). All international
trade and foreign investment activities and funding are required to
be consistent with the ITI strategy.
4)Establishes the California Foreign Investment Program within GO-Biz
to oversee the state's participation in the federal EB-5 foreign
investment visa program. Among other things, this office sets the
terms and conditions regarding the designation of targeted
employment areas, as related to the EB-5 visas.
FISCAL EFFECT: Unknown
POLICY ISSUE FRAMEWORK
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California's $2.2 trillion economy naturally functions as an
independent economic power within the global economy. Compared to
other nations, the state's economy consistently ranks in the top 10 in
the world. Among other advantages are the state's demonstrated
ability to serve as a top-tier trade partner, a best-in-class
investment location, a high quality producer of goods and services,
and the home and key access point for a massive consumer-base.
This bill enhances the statutory mission of the California Businesses
Investment Services Program by adding investors to the range of
economic development stakeholders who are encouraged to seek its
services. Under current law, the program's activities have primarily
focused on business development. This bill expands that focus and
highlights the importance of foreign and domestic investors to the
state's continued economic growth.
The Comment section of the analysis includes additional information on
the structure and role of GO-Biz, the EB-5 immigrant investor program,
and California's role within the evolving global economy.
COMMENTS:
1)Author's Purpose: According to the author's statement, "In recent
years, there has been a national growth of EB-5 investment as a
source of investment capital for economic development. EB-5
investment accounted for $6.5 billion in capital investment and
contributed to over 131,000 U.S. jobs from fiscal years 2005-2013.
With current efforts on Capitol Hill to make the EB-5 program
permanent, state and local efforts to attract EB-5 investment is
sure to grow as well.
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The Governor's Office of Business and Economic Development (Go Biz)
has laid out a clear vision in their International Trade and
Investment Strategy (2014) to 'expand international trade and
foreign investment'. The Strategy noted that while California is
leading the nation in attracting foreign investment, we are at risk
to losing this investment to other states. The EB-5 program as a
tool to induce foreign investment is no exception. States like
Vermont, Michigan, Washington, and others are actively seeking to
attract EB-5 investment.
The significance of the EB-5 program merits further exploration,
analysis, and investment on the part of the legislature and state to
realize this opportunity for the future of all Californians."
2)The Governor's Office of Business and Economic Development: In
April 2010, the Governor's Office of Business and Economic
Development was established to provide a one-stop-shop for serving
the needs of businesses and economic developers. While initially
established through Executive Order S-01-10, the office was later
codified and renamed as GO-Biz. [AB 29 (John A. Pérez), Chapter
475, Statues of 2010] In 2014, GO-Biz assisted over 7,500
companies. This number includes assistance provided by the six
GO-Biz service units: California Business Investment Services,
Permit Assistance, the Office of the Small Business Advocate,
International Affairs and Business Development, the California
Competes Tax Credit Program, and the Innovation and Entrepreneurship
Program.
Among other programs, GO-Biz provides permit and other business
assistance for new and expanding businesses, as well as
administering the California Innovation Hub Program and the state
international trade investment program. GO-Biz also oversees the
Office of the Small Business Advocate, who advocates for and
provides key information to small businesses.
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The Governor's 2012 reorganization plan (GRP2), further aligned the
state's economic development-related administrative structure. Key
changes included dismantling of the Business, Transportation and
Housing Agency (BTH) and the shifting of a number of programs and
services to GO-Biz including:
The Small Business Loan Guarantee Program;
The California Travel and Tourism Commission;
The California Film Commission;
The Film California First Program; and
The California Infrastructure and Economic Development Bank.
AB 826 expands the role of the Business Investment Services Program,
which currently serves as the primary point of contact for
businesses looking to relocate or expand their business in
California. Services are provided without cost to the business.
Working through a statewide network of regional and local entities,
GO-Biz is able to develop information packets individualized to the
needs of each business. Among other things, businesses can obtain
information on available tax credits, financial assistance and loan
programs, local workforce skills, transportation and infrastructure,
and economic and demographic data.
The seven staff members are available to meet with businesses
throughout the state, with Senior Business Development Specialists
assigned to the Bay Area and the Sacramento, Los Angeles, and San
Diego regions.
AB 826 updates statute to reflect the dual development objectives of
investment capital and business development. The purposes of AB 826
are consistent with the growing deployment of EB-5 investment
dollars and new investment activities by sovereign wealth funds,
institutional investors, and impact investment funds.
1)EB-5 Investment Program: Created as a pilot program in 1990, the
EB-5 Investment Program is designed to stimulate the U.S. economy
through capital investment and resulting in job creation by
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immigrant investors. Below is a chart displaying for the top three
EB-5 destination states for federal fiscal year 2013.
------------------------------------------------------------------
| EB-5 Immigrant Investor Visa Benefits 2013 |
------------------------------------------------------------------
|---------+----------+----------+----------+-----------+----------|
| | Total |State/Loca| GDP | Federal |State/Loca|
| | EB-5 | l Jobs |Contribute| Tax | l tax |
| |Investment|Supported | d | Revenue | Revenue |
| | s | | |Contributed|Contribute|
| | | | | | d |
|---------+----------+----------+----------+-----------+----------|
| | | | | | |
|---------+----------+----------+----------+-----------+----------|
|Californi| $ 438 | 6,085 | $572 | $84.1 | $50.9 |
|a | million | | million| million| million|
|---------+----------+----------+----------+-----------+----------|
|New York | $379 | 6,024 | $543 | $84.7 | $53.8 |
| | million | | million| million| million|
|---------+----------+----------+----------+-----------+----------|
|Texas | $174 | 2,737 | $208 | $32.2 | $7.2 |
| | million | | million| million| million|
|---------+----------+----------+----------+-----------+----------|
|United | $1.9 | | $2.2 | $380.9 | $199.4 |
|States |billion |30,167 | billion | million | million|
-----------------------------------------------------------------
------------------------------------------------------------------
| Data Source: Economic Impacts of the EB-5 Program Reports, as |
| reported by IIUSA|
------------------------------------------------------------------
Under the U.S. Citizenship and Immigration Service (USCIS)
administered program, permanent-resident status is available to
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foreign investors who have invested - or are actively in the process
of investing - at least $1.0 million into a new commercial
enterprise, which can entail: the creation of an original business;
the purchase of an existing business and restructuring or
reorganizing the business to the extent that a new commercial
enterprise results; or a significant expansion of an existing
business (40% growth in value or jobs).
An applicant seeking status as an immigrant investor must
demonstrate that his or her investment will benefit the U.S. economy
and create full-time employment for at least ten qualified
individuals, or maintain the number of existing employees in a
troubled business. For investors who choose to invest in a Targeted
Employment Area (TEA), the required investment is decreased to
$500,000.
A TEA is either a high-unemployment area that has experienced an
unemployment rate of at least 150% of the national average rate or a
rural area, which is either outside of a metropolitan statistical
area or outside the boundary of a town having a population under
20,000. Investments made in a TEA require certification that the
area qualifies as a TEA. GO-Biz currently issues these
certification letters. In 2012, over 6,500 TEA-based visas were
issued for investors and immediate family, while only 3 visas were
issues for non-TEA investments.
Based on 2013 state figures (most current) and a high unemployment
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rate defined as 11.1% or greater, California has 23 counties, 20
rural areas, 10 metropolitan statistical areas, and multiple cities
in 30 counties that GO-Biz has identified as eligible TEAs. Some
states, such as South Dakota, have specific programs that target
foreign investment by those who are looking to apply for visas under
the investment provisions.
In addition to individual investors, the federal government
designates regional centers, where capital can be pooled from
multiple EB-5 investors and used in larger scale projects. In 2014,
nearly 600 new regional centers were certified by the USCIS.
According to the USCIS website, there are over 160
federally-recognized regional centers currently operating in
California, significantly more than any other state. These regional
centers are based across the state. Their focuses are widely varied
and include commercial real estate development, agricultural
products, film projects, and high-tech ventures. Information on
these centers is limited to the name of the center. AB 826 will
further link California economic activities with prospective
immigrant investors, potentially providing millions of additional
dollars for start-ups and business expansion.
Among other requirements, applicants of the EB-5 Investment Program
must demonstrate that they meet all requirements of the program
prior to filing with the USCIS. If it is determined that the
investment criteria is met and properly documented, any investor may
be granted conditional permanent residence status for a period of
two years by USCIS. A permanent green card may be issued at the end
of the conditional period.
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The U.S. Congress has authorized the approval of up to 10,000 EB-5
visas per year. Historically, the annual allocation is not fully
utilized, although usage is growing. In 2014, for the first time,
all 10,000 visas were issued. In 2014, there was a 72% increase in
the number of new immigrant petitions filed with the USCIS,
representing 11,000 immigrant visa applications for $5.5 billion in
potential investment. More than 250 applications for regional
centers were filed, representing a 34% increase over the prior
fiscal year.
2)EB-5 Success Stories: There are many examples of areas and
developments that have benefited from foreign investment through the
EB-5 program, most especially as businesses routinely cite access to
capital as a roadblock to successful development of new or growth of
existing ventures. One example includes the McClellan Business
Park, a residential and industrial development at the former
McClellan Air Force Base. When the base closed in 2001
approximately 12,000 individuals lost their jobs across the region.
Today, nearly 15,000 people work at the McClellan Business Park.
This transformation was completed with the help of $18 million
invested by 36 immigrants from China, Mexico and an array of other
countries who have applied for EB-5 visas.
Nationally, the state of Vermont is home to one of the largest
success stories from EB-5 investment. The New York Times and
National Public Radio both reported extensively on a ski resort that
was able to expand from seasonal winter recreation to a year-round
resort after raising nearly $200 million dollars from foreign
investors (South Africa, Sweden, Canada, Mexico and England). The
entire state of Vermont is now recognized as a regional center
called the Vermont Agency of Community Development, which focuses on
bringing foreign investment to the tourism, manufacturing,
professional services, education and information publishing
industries in the state. The state formally markets and promotes
the availability of EB-5 status to gain foreign investment and is a
model for state involvement in securing this type of money. On its
website, Vermont publicizes a swift approval process for projects,
state oversight of projects and activities to assure compliance with
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U.S. Immigration Law, and hands-on involvement by Vermont's elected
officials, including the Governor and Congressional delegation.
3)State's Diverse Population as a Trade Advantage: New globally-based
models for innovation and technology have brought great changes in
how world economies work. The emerging economies of China, India,
and Singapore, just to name a few, have been and are committed to
continuing massive investments in research and development. While
these dynamics may pose challenges to some existing technology
centers, California's diverse population provides the state with a
key trade and investment advantage over other states and nations.
Due to strong past in-migration from other nations, more than
one-in-four of California's current residents (9.5 million people)
were born outside the U.S., compared to just over one-in-ten
nationally. About half of foreign-born Californians are from Latin
America, and another third are from Asia. Regionally, 36% of the
population in Los Angeles is foreign-born, as is 27% of the Bay
Area. It is estimated that 40% of the entrepreneurs in the Silicon
Valley are foreign born. For many immigrant groups, California
represents the single largest gathering of their brethren outside
their native lands.
4)California's Global Economy: International trade and foreign
investment are very important components of California's $2.2
trillion economy. California receives more foreign direct
investment (FDI) than any other state in the U.S., which is
significant since the U.S. is the largest receiver of FDI in the
world. The California economy benefits from FDI in many ways, some
of which include assisting in the creation of jobs, boosting worker
wages, increasing exports, bringing in new technology and skills,
and generally strengthening the state's manufacturing base.
The top 5 regions with the highest foreign owned and affiliated
businesses are: Gateway Cities (796 establishments), South Bay-LAX
(741 establishments), San Fernando Valley (725 establishments), San
Gabriel Valley (698 establishments), and West Side (415
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establishments). The top 5 cities with the highest concentration of
foreign owned and affiliated businesses are Los Angeles (1591
establishments), Torrance (310 establishments), Long Beach (212
establishments), Santa Monica (134 establishments), and Pasadena
(127 establishments).
The federal International Trade Administration estimates that in
2012 over 602,800 California workers benefit from jobs with
foreign-owned firms, which accounts for 4.8% of all private sector
jobs in the state. California has had the highest level of
employment in foreign-owned firms in the nation since at least 1997.
Along with employment, foreign-owned firms own more property,
plants, and equipment in California than in any other state.
If California were a country, it would be the 31st largest exporter
in the world. Exports from California accounted for over 10.7% of
total U.S. exports in goods, shipping to over 220 foreign
destinations in 2014. California's land, sea, and air ports of
entry serve as key international commercial gateways for products
entering the country. California exported $174.1 billion in goods
in 2014 (up from $168 billion in 2013), ranking only second to Texas
with $289 billion in export goods. Computers and electronic
products were California's top exports in 2014, accounting for 24.5%
of all state exports, or $42.7 billion.
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--------------------------------------------------------------
| 2014 Exports From California to the World |
| |
| |
--------------------------------------------------------------
|----------------------+---------------+-----------------------|
| Product | Value | Percent |
| | | |
| | | |
|----------------------+---------------+-----------------------|
|334 Computers & | $42.7 billion| 24.5 % |
|Electronic Prod. | | |
| | | |
| | | |
|----------------------+---------------+-----------------------|
|336 Transportation | $18.7 billion| 10.7 % |
|Equipment | | |
| | | |
| | | |
|----------------------+---------------+-----------------------|
|333 Machinery (except | $14.9 billion| 8.5 % |
|electrical) | | |
| | | |
| | | |
|----------------------+---------------+-----------------------|
|339 Misc. Manufacture | $14.6 billion| 8.4 % |
|Commodities | | |
| | | |
| | | |
|----------------------+---------------+-----------------------|
|325 Chemical | $14.0 billion| 8.1% |
|Manufactures | | |
| | | |
| | | |
|----------------------+---------------+-----------------------|
|111 Agricultural | $13.5 billion| 7.8 % |
|Products | | |
| | | |
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| | | |
|----------------------+---------------+-----------------------|
|All Others |$55.5 billion | 31.9 % |
| | | |
| | | |
| | | |
|----------------------+---------------+-----------------------|
|Total | $161 billion | 100 % |
| | | |
| | | |
--------------------------------------------------------------
--------------------------------------------------------------
| Source: Tradestates.com|
| |
| |
| |
| |
| |
--------------------------------------------------------------
Manufacturing is California's most export-intensive activity.
Overall, manufacturing exports represent 9.4% of California's gross
domestic product. More than one-fifth (21.9%) of all manufacturing
workers in California directly depend on exports for their jobs.
Small- and medium-sized firms generated more than two-fifths (43%)
of California's total exports of merchandise. This represents the
seventh highest percentage among states and is well above the 29%
national average export share for these firms.
Mexico is California's top trading partner, receiving $25.4 billion
(14.5%) in goods in 2014. The state's second and third largest
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trading partners are Canada and China with $18.2 billion (10.4%) and
$16.0 billion (9.2%), respectively. Other top-ranking export
destinations include Japan, South Korea, Hong Kong, Taiwan, Germany,
the Netherlands, and India.
5)Related Legislation: Below is a list of bills from the current and
prior sessions.
a) AB 337 (Allen) Economic Development: International Trade and
Investment Strategy: This bill adds specificity to the
development and content of the state international trade and
investment strategy (ITI Strategy), which is an existing report
requirement of the Governor's Office of Business and Economic
Development (GO-Biz). This bill requires the ITI Strategy to be
based on current and emerging market conditions and the needs of
investors, businesses, and workers. Specific new content
requirements include the addition of a framework, which can be
used by GO-Biz to evaluate the changing needs of business during
the five-year term of the ITI Strategy. Status: Signed by the
Governor, Chapter 776, Statutes of 2014.
b) AB 826 (Gipson) California Export Finance Office: This bill
would have re-established the California Export Finance Office
within the California Infrastructure and Economic Development
Bank. Status: Scheduled to be heard in the Assembly Committee
on Jobs, Economic Development and the Economy on April 21, 2015.
c) AB 1067 (Medina) EB-5 Immigration Oversight: This bill
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establishes the California Foreign Investment Program within
GO-Biz to oversee the state's participation in the federal EB-5
foreign investment visa program. Among other things, this office
will set the terms and conditions regarding the designation of
targeted employment areas, as related to the EB-5 visas. Status:
Signed by the Governor, Chapter 535, Statutes of 2013.
d) AB 1137 (V. Manuel Pérez) Small Business Assistance and
Attracting Private Investment: This bill would have facilitated
local economic development and job creation by assisting small
businesses to access new export markets for their goods and
services, updating the law relating to free trade zones, and
authorizing the use of new federal funds under the Small Business
Jobs Act of 2010. Status: Held in Senate Committee on
Appropriations, 2012.
e) SB 460 (Price) International Trade Marketing and Promotion:
This bill would have required the Secretary of the Business,
Transportation and Housing Agency to convene a statewide business
partnership for international trade marketing and promotion.
Status: Held on the Suspense File of the Assembly Committee on
Appropriations, 2011.
f) SB 511 (Lieu) California Export Finance Office: This bill
would have re-established the California Export Finance Office
within the California Infrastructure and Economic Development
Bank and required the Governor's Office of Business and Economic
Development to convene a statewide business partnership to
discuss the promotion and greater utilization of California
ports. Status: Held on the Suspense File in the Assembly
Committee on Appropriations, 2014.
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g) SCR 33 (Price) Foreign Investment: This bill expresses the
sentiment of the Legislature that the EB-5 visa program is
beneficial to the state's economic development and provides
important opportunities for foreign direct investment to
California. Status: Chaptered by the Secretary of State- Res.
Chapter 60, Statutes of 2011.
REGISTERED SUPPORT / OPPOSITION:
Support
None received
Opposition
None received
Analysis Prepared by:Toni Symonds / J., E.D., & E. / (916) 319-2090