BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 1269 |Hearing |7/15/15 |
| | |Date: | |
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|Author: |Dababneh |Tax Levy: |No |
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|Version: |2/27/15 |Fiscal: |Yes |
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|Consultant|Grinnell |
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Alternative energy
Extends the sunset on the CAEATFA advanced manufacturing program
until January 1, 2021.
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).
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 SUT 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), measures 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
AB 1269 (Dababneh) 2/27/15 Page 3
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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 1186
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.
Today's CAEATFA advanced manufacturing applicants qualify for
the general sales and use tax exemption, but apply to also
obtain both the state and local exemption. To date, CAEATFA has
approved 18 applications in the past year since AB 93 was
effective, and will consider applications from Las Gallinas
Valley Sanitation District (Marin County), Hi Shear Corporation
(Los Angeles County), Fisker Automotive (Riverside and Orange
Counties), and Orbital ATK Defense Electronic Systems (Los
Angeles County) at its July and August meetings.
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, but a July 1,
2016 sunset on the advanced manufacturing. State Treasurer John
Chiang wants to extend the sunset on the advanced manufacturing
program.
Proposed Law
Assembly Bill 1269 extends the sunset on the CAEATFA advanced
manufacturing program until January 1, 2021.
State Revenue Impact
No estimate.
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Comments
1. Purpose of the bill . According to the author, "The sales
and use tax exclusion program for advanced manufacturing under
CAEATFA is critical for attracting and retaining cutting edge
high tech companies and jobs in California. While AB 93 (2014)
is providing a partial sales and use tax exemption at just over
4% for qualifying businesses, the CAETFA exclusion for all state
and local taxes continues to provide added value for the state
and companies by encouraging targeted high tech manufacturing
projects with a high return on investment. To date the program
has approved projects that will generate 3,535 jobs and create
over $146 million in fiscal benefit for a cost of just over
$77,000,000. Extending the sunset date of this successful
program will allow business to plan investments and help further
grow the state's high tech manufacturing industry."
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 all manufacturing,
and put its own money at risk by only exempting the state share
of the sales tax. AB 93 trumps SB 1128 except to the extent
successful CAEATFA applicants can obtain an exemption from the
local share too. As such, extending AB 1269 will only come at
the cost of local sales tax revenues. The Committee may wish to
consider whether extending the SB 1128 program will result in
additional manufacturing in the state above and beyond the
general exemption, and if so, asking local agencies to pay for
it is fair.
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3. Review . In its report to the Legislature regarding both the
SB 71 and 1128 programs, CAEATFA states that its 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 that
AB 1269 seeks to extend. As part of the report, CAEATFA
recommends extending the advanced manufacturing program to
provide businesses with stability and a sufficient planning
horizon, and removing the $100 million cap on the combined
program as a signal to green businesses and investors that the
exemption would be available for large projects choosing to
locate in California.
4. Hard times . The recently enacted Budget Act extended the
repayment date on the $2.4 million loan from the Renewable
Resources Trust Fund made to start the program in 2010-11to the
2018-19 fiscal year. In its Budget Change Proposal, CAEATFA
stated that it had "erratic application volume and program
activity" due to the economic recession, localized industry
trends such as the disruption of the solar manufacturing market,
and the enactment of the general sales and use tax exclusion, so
revenue for the agency wasn't sufficient to repay the loan.
CAETFA collects .0005 of the total amount of anticipated
qualified machinery in the application, not to exceed $10,000
per applicant, and .004 of the machinery purchases, not to
exceed $350,000. CAETFA states that renewed outreach efforts
will result in more applications, and therefore application
fees, so it should be able to repay the loan by 2018-19.
Without AB 1269, it's unlikely CAEATFA will be able to repay the
loan.
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5. 2/3 . CAEATFA can allocate sales and use tax exemptions up
to $100 million. Because extending the advanced manufacturing
program may crowd out an applicant seeking an exemption for
renewable energy manufacturing 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.
Assembly Actions
Assembly Floor 80-0
Assembly Appropriations 17-0
Assembly Revenue and Taxation 9-0
Support and
Opposition (7/9/15)
Support : California Manufacturers and Technology Association,
Capstone, Large Scale Solar Association.
Opposition : None received.
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