BILL ANALYSIS                                                                                                                                                                                                    Ó






           ----------------------------------------------------------------- 
          |SENATE RULES COMMITTEE            |                       AB 1269|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |
           ----------------------------------------------------------------- 


                                   THIRD READING 


          Bill No:  AB 1269
          Author:   Dababneh (D)
          Introduced:2/27/15  
          Vote:     27  

           SENATE GOVERNANCE & FIN. COMMITTEE:  5-0, 7/15/15
           AYES:  Hertzberg, Beall, Hernandez, Moorlach, Pavley
           NO VOTE RECORDED:  Nguyen, Lara

           SENATE APPROPRIATIONS COMMITTEE:  6-0, 8/27/15
           AYES:  Lara, Beall, Hill, Leyva, Mendoza, Nielsen
           NO VOTE RECORDED:  Bates

           ASSEMBLY FLOOR:  80-0, 6/1/15 - See last page for vote

           SUBJECT:   Alternative energy


          SOURCE:    State Treasurer John Chiang


          DIGEST:  This bill extends the sunset on the California  
          Alternative Energy and Advanced Transportation Financing  
          Authority (CAEATFA) advanced manufacturing program until January  
          1, 2021.


          ANALYSIS:   


          Existing law:










                                                                    AB 1269  
                                                                    Page  2


          1)Establishes in the Office of State Treasurer, the CAEATFA,  
            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.


          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.









                                                                    AB 1269  
                                                                    Page  3


          This bill extends the sunset on the CAEATFA advanced  
          manufacturing program until January 1, 2021.


          Background


          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.  Soon after,  
          the Legislature enacted SBs 71 and 1128.  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 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  
               (GO-BIZ), one appointee of the Speaker of the Assembly, and  
               one appointee from the Senate Committee on Rules.








                                                                    AB 1269  
                                                                    Page  4



                 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.   


          Comments


          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 considered 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.


          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.  









                                                                    AB 1269 
                                                                    Page  5


          In its report to the Legislature regarding both the SB 71 and  
          1128 programs, CAEATFA states that it's 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 five to 29 years.  However, at  
          the time of the report, only six 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.


          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.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  







                                                                    AB 1269  
                                                                    Page  6


          Com.:YesLocal:   No

          According to the Senate Appropriations Committee, this bill will  
          result in an increased likelihood that up to $100 million from  
          the General Fund will be lost through sales and use tax  
          exemptions.


          SUPPORT:   (Verified8/28/15)


          State Treasurer John Chiang (source)
          California Manufacturers and Technology Association
          Capstone
          Large Scale Solar Association


          OPPOSITION:   (Verified8/28/15)


          None received


          ARGUMENTS IN SUPPORT:  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." 

          ASSEMBLY FLOOR:  80-0, 6/1/15
          AYES:  Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,  
            Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,  
            Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,  
            Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina  
            Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,  







                                                                    AB 1269  
                                                                    Page  7


            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

          Prepared by:Colin Grinnell / GOV. & F. / (916) 651-4119
          8/31/15 11:43:28
                                   ****  END  ****