BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 1269 (Dababneh) - Alternative energy.
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|Version: February 27, 2015 |Policy Vote: GOV. & F. 5 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 17, 2015 |Consultant: Marie Liu |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 1269 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.
Fiscal
Impact:
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.
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
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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.
CAEATFA's authority to offer these tax exemptions for advanced
manufacturing sunsets on July 1, 2016 while the entire STE
Program sunsets on January 1, 2021.
Proposed Law:
This bill would extend the sunset on the CAEATFA advanced
manufacturing program until January 1, 2021, thereby aligning
the sunset date for all project types under the STE Program.
Staff
Comments: This bill will increase the odds that the maximum tax
exemptions are issued: Since CAEATFA has been considering
advanced manufacturing applications in December 2013 in the STE
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Program, it has approved $104 million in tax exemptions, with
another $6.7 million in exemptions pending approval at the
August and September 2015 CAEATFA board meetings. Advanced
manufacturing projects have represented 64% of the approved
projects in the STE program since December 2013. Since advanced
manufacturing projects have represented a majority of project
types under the STE Program, extending the eligibility for
advanced manufacturing projects greatly increases the likelihood
that the $100 million in tax exemptions will be reached each
year.
Granting more tax exemptions may assist in the recovery of
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. Since advanced
manufacturing has been a major project type under the program,
extending its eligibility might make it more likely that the
CAEATFA recovers sufficient project applications to offset its
administrative costs.
Staff notes that CAEATFA may have difficulties in increasing
participation in the STE program, even if this bill does become
law. Related to the 2013-14 approved budget, AB 93 (Committee on
Budget) Chapter 69, Statutes of 2013 created a state-only sales
and use tax exemption on purchases of manufacturing equipment
for specific industries through 2022. Projects eligible for the
STE program are generally also eligible for the AB 93 tax
exemption, which is easier to obtain as there is no required
net-benefits test. While the STE program offers the benefit of
offering both a state and local tax exemption, the ease of
obtaining an AB 93 tax exemption will likely make it difficult
for CAEATFA to increase participation despite its increased
outreach efforts, and thereby less likely to recover its
administrative costs. Staff notes that there may be better ways
for CAEATFA to recover its administrative costs than to rely on
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greater participation in the program.
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. To date, no loan repayments have been made.
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. The
BCP requesting the extension did not discuss the need to extent
the advanced manufacturing portion of the program.
Tax exemptions are not necessarily offset by increased revenues
to the state: As discussed above, 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. The advanced manufacturing projects approved to date
are estimated to lead to over $196 million in fiscal benefits
over the lifespan of the programs. Should this estimation be
correct, the short term General Fund costs will more than be
offset by increased revenues. However, as noted by the
Treasurer's office, the nascent nature of many of the new
technologies means that not all approved projects move forward
or last as long as hoped. In these cases, it is possible that
the fiscal benefits of the program are not fully realized and
therefore may not fully offset lost tax revenues. A hearing held
by the Committees on Governance and Finance and Energy,
Utilities, and Communication on October 11, 2011 found that the
program had not yet resulted in net economic benefits. Though
there have been program changes, including changes to the
net-benefits text since that hearing.
This bill creates a Proposition 26 tax: Because the
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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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