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