BILL ANALYSIS                                                                                                                                                                                                    



                                                                    AB 2334


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          Date of Hearing:  May 25, 2016


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                               Lorena Gonzalez, Chair


          AB  
          2334 (Mullin) - As Amended May 16, 2016


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          |Policy       |Revenue and Taxation           |Vote:|9 - 0        |
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          Urgency:  No  State Mandated Local Program:  NoReimbursable:  No


          SUMMARY:


          This modifies the California Alternative Energy and Advanced  
          Transportation Financing Authority (CAEATFA) Act to increase the  
          annual amount of the sales and use tax (SUT) exclusion available  
          for allocation by the CAEATFA and to extend the SUT exclusion to  
          purchases of tangible personal property (TPP) by certain  
          contractors, as provided. Specifically, this bill:  


          1)Extends the SUT exclusion to a lease or transfer of title of  
            eligible TPP to any contractor for use in the performance of a  
            construction contract for the participating party that will  
            use that property as an integral part of the approved project  








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            (a "construction contract"). 


          2)Increases the annual amount of SUT exclusions available for  
            allocation to projects, including projects that involve  
            specified construction contracts, as follows:


             a)   For the 2016 calendar year, from $100 million to $575  
               million, plus any amounts not granted or used from the  
               prior year.


             b)   For calendar years 2017 through 2021, from $100 million  
               to $350 million, plus any amounts not granted or used from  
               the prior year.


          FISCAL EFFECT:


          Annual state and local revenue loss of up to $475 million in  
          2016 and $250 million annually thereafter. This bill expands the  
          total allowable sales and use tax exclusion, but this not  
          necessarily guarantee that the annual allocation will be used  
          every year. Between November 2010 and January 1, 2016, the  
          program approved $455 million in tax exclusions, but only $92  
          million was actually used, in part because some approved  
          projects never get off the ground. However, the increasing  
          popularity of the program, combined with this bill's provision  
          that unused dollars can be rolled forward into the current year,  
          means more of the allocated credits in any given year are more  
          likely to be used. 


          COMMENTS:


          1)Background.  The California Alternative Energy Source  








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            Financing Authority was established in 1980, with an  
            authorization of $200 million in revenue bonds to finance  
            projects utilizing alternative or renewable energy sources,  
            such as wind, solar, and cogeneration and geothermal.  In  
            1994, the authority was renamed the California Alternative  
            Energy and Advanced Transportation Financing Authority  
            (CAEATFA). 



            CAEATFA is also allowed to provide a SUT exclusion for certain  
            specified projects, and this program has been expanded in  
            recent years. The first SUT exclusion was granted to Tesla in  
            2009.  SB 71 (Padilla), Chapter 10, Statutes of 2010, expanded  
            the SUT exclusion to apply to purchases of equipment used for  
            "advanced transportation technologies" and "alternative  
            source" products, components, or systems. In 2012, SB 1128  
            (Padilla), Chapter 677, Statutes of 2012 added "advanced  
            manufacturing" to the list of eligible projects and placed a  
            $100 million cap on the amount of the SUT exclusion that may  
            be awarded in a calendar year.  In 2015, AB 199 (Eggman),  
            Chapter 768, Statutes of 2015, further modified the SUT  
            exclusion program to include manufacturing projects that  
            either process or utilize "recycled feedstock."  The expanded  
            program is due to sunset on January 1, 2021. 





          2)Program oversubscription. Last year, CAEATFA had a high number  
            of applications requesting an allocation of the SUT exclusion,  
            and the existing cap of $100 million was quickly reached.   
            With the expansion of the CAEATFA program to include projects  
            that process or utilize recycled feedstock, the number of SUT  
            exclusion applications is expected to increase even more. 

          While historically small projects requesting less than $2.1  
            million in SUT exclusions comprised almost 75% of approved  








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            applications, in recent years CAEAFTA has approved a number of  
            applications for large projects with more than $20 million in  
            SUT exclusions, such as for example, the ones submitted by  
            Tesla, Atieva, Lockheed, Space X, and Solyndra.  

          Existing law does not impose a cap on the amount that a company  
            may request in SUT exclusions, nor does existing law  
            prioritize certain types of projects.  Thus, applications  
            involving large projects may utilize a considerable portion of  
            the allowable $100 million cap, leaving no funds for smaller  
            projects.  Furthermore, the CAEAFTA does not have the  
            authority to utilize the unclaimed awards.  Finally, CAEAFTA  
            may not award any amounts that remain unallocated in a  
            particular calendar year in the following years.  In other  
            words, the un-awarded SUT exclusion amounts disappear.  



          3)Related legislation. AB 1683 (Eggman), also on today's agenda,  
            adds two state legislators as ex officio members to CAEATFA  
            and allows unused or unallocated amounts of the SUT exclusion  
            to be carried forward one additional year. 
          


          Analysis Prepared by:Luke Reidenbach / APPR. / (916)  
          319-2081