BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1269|
|Office of Senate Floor Analyses | |
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THIRD READING
Bill No: AB 1269
Author: Dababneh (D)
Amended: 9/4/15 in Senate
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.
Senate Floor Amendments of 9/4/15 enact provisions to resolve
conflicts with
AB 199 (Eggman).
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, and enacts
provisions resolving conflicts should both this bill and AB 199
(Eggman) be enacted.
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.
A state-only (4.1875%) sales and use tax exemption on
purchases of manufacturing equipment made by taxpayers within
AB 1269
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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.
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
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Page 5
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.
Related Legislation
AB 199 (Eggman) expands the CAEATFA sales and use tax exemption
program to include projects that process or utilize recycled
feedstock. The bill is currently in the Senate Rules Committee.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
AB 1269
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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: (Verified9/4/15)
State Treasurer John Chiang (source)
California Manufacturers and Technology Association
Capstone
Large Scale Solar Association
OPPOSITION: (Verified9/4/15)
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,
Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,
AB 1269
Page 7
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
9/8/15 15:00:05
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