Amended in Assembly April 12, 2016

Amended in Assembly March 29, 2016

California Legislature—2015–16 Regular Session

Assembly Bill No. 2647

Introduced by Assembly Members Eduardo Garcia and Medina

(Principal coauthors: Assembly Members Brown, Chu, and Dodd)

February 19, 2016

An act to add Section 18410.3 to, and to add and repeal Sections 12283, 17053.9, and 23622.9 of, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 2647, as amended, Eduardo Garcia. Income taxation: insurance taxation: credits: California New Markets Tax Credit.

Existing federal law allows a New Markets Tax Credit to a taxpayer holding a qualified equity investment in an amount equal to the applicable percentage of the amount paid to the qualified community development entity for investment in low-income communities.

The state Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws. Existing state constitutional law governing insurance taxation imposes an annual tax on the gross premiums of an insurer, as defined, doing business in this state at specified rates.

Existing law establishes the Governor’s Office of Business and Economic Development, also known as “ GO-Biz,” to, among other things, serve the Governor as the lead entity for economic strategy and the marketing of California on issues relating to business development, private sector investment, and economic growth.

This bill would allow a California New Markets Tax Credit under the Personal Income Tax Law, the Corporation Tax Law, and the law governing insurance taxation, in modified conformity with the federal New Markets Tax Credit, for taxable years beginning on or after January 1, 2017, and before January 1, 2022, in a specified amount for investments in low-income communities. The bill would limit the total annual amount of credit allowed pursuant to these provisions to $40,000,000 per calendar year. The bill would impose specified duties on the Responsible Tax Credit Administrator (RTCA), to be designated by the Governor, with regard to the application for, and allocation of, the credit. The bill would require the RTCA to establish and impose reasonable fees upon entities that apply for the allocation of the credit, to be deposited in the California New Markets Tax Credit Fund established by the bill, and use the revenue, upon annual appropriation by the Legislature, to defray the cost of applying to and administering the credits, as specified. The bill would only authorize the allocation for these credits for those taxable years for which moneys are appropriated to the RTCA to administer these credits for those taxable years.

Existing law requires any bill authorizing a new personal or corporation income tax credit to contain, among other things, specific goals, purposes, and objectives that the tax credit will achieve, detailed performance indicators, and data collection requirements, as provided.

This bill would also include that additional information required for any bill authorizing a new personal or corporation income tax credit.

The bill would provide that its provisions are severable.

This bill would take effect immediately as a tax levy.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature finds and declares the following:

(a) While many areas of California have recovered from the
economic and community development impacts of the 2006
Financial Crisis and the 2010 global recession, Californians in a
number of communities and neighborhoods are still experiencing
their lingering effects. In some cases this has resulted in small and
medium businesses in low-income areas lacking sufficient access
to capital and technical assistance. Given that the state has many
needs and limited resources, moneys from the private sector are
necessary to fill this capital and investment gap.

(b) Initially enacted in 2000, the federal government established
the New Markets Tax Credit (NMTC) Program, which uses a
market-based approach for expanding capital and technical
assistance to businesses in lower income communities. The federal
program is jointly administered by the Community Development
Financial Institutions Fund (CDFI Fund) and the Internal Revenue
Service. The NMTC Program allocates federal tax incentives to
community development entities (CDE), which they then use to
attract private investors who contribute funds that can be used to
finance and invest in businesses and develop real estate in
low-income communities. Through the 2013-14 funding round,
the CDFI Fund had awarded approximately forty billion dollars
($40,000,000,000) in NMTC in 836 awards, including three billion
dollars ($3,000,000,000) in American Recovery and Investment
Act of 2009 awards and one billion dollars ($1,000,000,000) of
special allocation authority to be used for the recovery and
redevelopment of the Gulf Opportunity Zone.

(c) Since 2003, the NMTC Program has created or retained an
estimated 197,585 jobs nationally. It has also supported the
construction of 32.4 million square feet of manufacturing space,
74.8 million square feet of office space, and 57.5 million square
feet of retail space. The United States Department of the Treasury
reports that a secondary benefit is that as these communities
develop, they become more attractive to investors, catalyzing a
ripple effect that spurs further investments and revitalization.

(d) For every one dollar ($1) invested by the federal government,
the NMTC Program generates over eight dollars ($8) of private
investment. The NMTC Program catalyzes investment in the most
economically challenged areas of the state. Over 75 percent of
New Markets Tax Credit investments have been made in highly
distressed areas, meaning the household income was less than 60
percent of statewide median income and the poverty rate was higher
than 30 percent.

(e) The federal NMTC totals 39 percent of the original
investment amount in the CDE and is claimed over a period of
seven years (5 percent for each of the first three years and 6 percent
for each of the remaining four years). Any investment by any
taxpayer in the CDE redeemed before the end of the seven-year
period will be recaptured.

(f) Fourteen states in the United States have adopted state
programs using the NMTC model including Alabama, Florida,
Illinois, Nevada, and Oregon. While some of the programs
substantially mirror the federal program, others vary in both the
percentage of the credit and some of the policies that form the
foundation of the credit. One of the reasons cited for establishing
state-level programs is to make a state more attractive to CDEs,
which results in increasing the amount of federal NMTCs being
utilized in a state. Further, several studies, including a January 1,
2011, case study by Pacific Community Ventures, showed that for
every dollar of forgone tax revenue, the federal NMTC leverages
twelve dollars ($12) to fourteen dollars ($14) of private investment.

SEC. 2.  

Section 12283 is added to the Revenue and Taxation
Code, to read:

12283.  

(a) There is hereby created the California New Markets
Tax Credit Program as provided in this section, Section 17053.9,
and Section 23622.9. The purpose of this program is to stimulate
private sector investment in lower income communities by
providing a tax incentive to community begin insert and economic end insert development
entities that can be leveraged by the entity to attract private sector
investment that in turn will be deployed by providing financing
and technical assistance to small- and medium-sized businesses
and the development of commercial, industrial, and community
development projects, including, but not limited to, facilities for
nonprofit service organizations, light manufacturing, and mixed-use
and transit-oriented development. RTCA shall administer this
program as provided in this section, Section 17053.9, and Section
23622.9.

(b) (1) For taxable years beginning on or after January 1, 2017,
and before January 1, 2022, and subject to subdivision (h), there
shall be allowed as a credit against the tax described in Section
12201, in an amount determined in accordance with Section 45D
of the Internal Revenue Code, relating to the new markets tax
credit, as modified in this section.

(2) For the purposes of this section, “RTCA” means the
Responsible Tax Credit Administrator, as designated by the
Governor.

(c) Section 45D of the Internal Revenue Code is modified as
follows:

(1) Section 45D(a)(2) of the Internal Revenue Code, relating to
applicable percentage, is modified by substituting for “(A) 5
percent with respect to the first 3 credit allowance dates, and (B)
6 percent with respect to the remainder of the credit allowance
dates” with the following:

(A) Zero percent with respect to the first two credit allowance
dates.

(B) Seven percent with respect to the third credit allowance
date.

(C) Eight percent with respect to the remainder of the credit
allowance dates.

(2) (A) Section 45D(c)(1) of the Internal Revenue Code, relating
to qualified community development entity, is modified to only
include a qualified community development entity, that is certified
by the Secretary of the Treasury, and its subsidiary qualified
community development entities that have entered into an
allocation agreement with the Community Development Financial
Institutions Fund of the United States Treasury Department, with
respect to credits authorized by Section 45D of the Internal
Revenue Code, that includes California within the service area and
is dated on or after January 1, 2012.

(B)  Section 45D(c)(2) of the Internal Revenue Code, relating
to special rules for certain organizations, is modified to only
include a specialized small business investment company or
community development financial institution that entered into an
allocation agreement with the Community Development Financial
Institutions Fund of the United States Treasury Department, with
respect to credits authorized by Section 45D of the Internal
Revenue Code, that includes California within the service area and
is dated on or after January 1, 2012.

(3) The term “qualified active low-income community business,”
as defined in Section 45D(d)(2) of the Internal Revenue Code, is
modified as follows:

(A) By substituting “any low-income community in California”
for “any low-income community” every place it appears in Section
45D of the Internal Revenue Code.

(B) A qualified active low-income community business shall
not include any business that derives, or projects to derive, 15
percent or more of its annual revenue from the rental or sale of
real estate. This exclusion does not apply to a business that is
controlled by, or under common control with, another business if
the second business: (i) does not derive or project to derive 15
percent or more of its annual revenue from the rental or sale of
real estate; and (ii) is the primary tenant of the real estate leased
from the first business.

(C) A qualified active low-income community business shall
only include a business that, at the time the initial investment is
made, has 250 or fewer employees and is located in one or more
California low-income communities. The operating business shall
meet all other conditions of a qualified active low-income
community business, except as modified by this paragraph. This
requirement does not apply to a business that is located on land
and is controlled by, or under common control with, a federally
recognized tribe.

(D) A qualified active low-income community business shall
only include a business located in census tracts with a poverty rate
greater than 30 percent, or census tracts, if located within a
nonmetropolitan area, with a median family income that does not
exceed 60 percent of median family income for this state, or census
tracts, if located within a metropolitan area, with a median family
income that does not exceed 60 percent of the greater of the
California median family income or the metropolitan area median
family income, or census tracts with unemployment rates at least
1.5 times the national average.

(E) A qualified active low-income community business shall
not include any business that operates or derives revenues from
the operation of a country club, gaming establishment, massage
parlor, liquor store, or golf course.

(F) A qualified active low-income community business shall
not include a sexually oriented business. A “sexually oriented
business” means a nightclub, bar, restaurant, or similar commercial
enterprise that provides for an audience of two or more individuals
live nude entertainment or live nude performances where the nudity
is a function of everyday business operations and where nudity is
a planned and intentional part of the entertainment or performance.
“Nude” means clothed in a manner that leaves uncovered or visible,
through less than fully opaque clothing, any portion of the genitals
or, in the case of a female, any portion of the breasts below the
top of the areola of the breasts.

(G) A qualified active low-income community business shall
not include a charter school.

(4) Section 45D(f) of the Internal Revenue Code, relating to
national limitation on amount of investments designated, is
modified as follows:

(A) The following shall apply in lieu of the provisions of Section
45D(f)(1) of the Internal Revenue Code: The aggregate amount
of qualified equity investments that may be allocated in any
calendar year for purposes of this section, Section 17053.9, and
Section 23622.9 shall be forty million dollars ($40,000,000) per
calendar year. The allocation of any undesignated qualified equity
investments shall be returned to RTCA by March 1 of the year
following allocation and the value of the undesignated qualified
equity investment shall be available for allocation in the following
calendar years in accordance with the application process. Any
qualified equity investment attributable to recaptured credits shall
be available to RTCA on March 1 of the year following recapture
and shall be available for allocation in the following calendar years
in accordance with subparagraph (B) of paragraph (5). Reallocated
qualified equity investments attributable to recapture credits shall
not count against the annual or the cumulative limit.

(B) The references to “the Secretary” in Section 45D(f)(2) of
the Internal Revenue Code, relating to allocation of limitation, is
modified to read “RTCA.”

(C) The last sentence of Section 45D(f)(3) of the Internal
Revenue Code, relating to carryover of unused limitation, shall
not apply.

(5) Section 45D(g)(3) of the Internal Revenue Code, relating
to recapture event, is modified to add the following:

(A) The qualified community development entity fails to comply
with subparagraph begin delete (C) end delete begin insert (D) end insert of paragraph (5) of subdivision (d). In
this case, recapture shall be 100 percent of the credit.

(B) RTCA shall establish a process, in consultation with the
Department of Insurance, for the recapture of credits allowed under
this section from the entity that claimed the credit on a return.

(C) Recaptured qualified equity investments revert back to
RTCA and shall be reissued. The reissue shall not count toward
the annual or cumulative allocation limitation. The reissue shall
be done in the following order:

(i) First, pro rata to applicants whose qualified equity investment
allocations were reduced pursuant to subparagraph begin delete (D) end delete begin insert (E) end insert of
paragraph (5) of subdivision (d) by the annual allocation limitation.

(ii) Thereafter, in accordance with the application process.

(D) Enforcement of each of the recapture provisions shall be
subject to a six-month cure period.

(d) (1) RTCA shall adopt guidelines necessary or appropriate
to carry out its responsibilities with respect to the allocation,
monitoring, and management of the tax credit program authorized
by this section.

(2) (A) RTCA shall establish and impose reasonable fees upon
entities that apply for the allocation pursuant to this subdivision
that in the aggregate defray the cost of reviewing applications for
the program. RTCA may impose other reasonable fees upon entities
that receive the allocation pursuant to this subdivision that in the
aggregate defray the cost of administering the program.

(B) The fees collected shall be deposited in the California New
Markets Tax Credit Fund established in Section 18410.3.

(3) In developing guidelines, RTCA shall adopt an allocation
process that does all of the following:

(A) Creates an equitable distribution process that ensures that
low-income community populations across the state have an
opportunity to benefit from the program.

(B) Sets minimum organizational capacity standards that
applicants must meet in order to receive an allocation of authority
to designate qualified equity investments, including, but not limited
to, its business strategy, targeted community outcomes,
capitalization strategy, and management capacity.

(C) Considers the qualified community development entity’s
prior qualified low-income community investments under Section
45D of the Internal Revenue Code.

(D) Considers the qualified community development entity’s
prior qualified low-income community investments under this
section, including subparagraph begin delete (C) end delete begin insert (D) end insert of paragraph (5).

(4) (A) Subject to subdivision (h), RTCA shall begin accepting
applications on or before May 15, 2017, and shall award authority
to designate qualified equity investments annually through begin delete 2022. end delete

begin insert 2021. end insert

(B) In the instance where RTCA determines that an application
is incomplete, the qualified community development entity shall
be given five business days to provide the omitted information.

(5) (A) In the 2017 awards cycle, RTCA shall award authority
to designate qualified equity investments to qualified community
development entities described in paragraph (2) of subdivision (c)
in the order applications are received by RTCA. Applications
received on the same day shall be deemed to have been received
simultaneously.

(B) In the 2018 to begin delete 2022 end delete begin insert 2021 end insert award cycles, inclusive, at least
60 percent of the authority to designate qualified equity investments
shall be awarded pursuant to subparagraph (A). At the discretion
of RTCA, a higher percentage of authority to designate qualified
equity investments may be awarded pursuant to subparagraph (A).

(C) RTCA shall award up to 40 percent of the authority to
designate qualified equity investments in the 2018 to begin delete 2022, end delete begin insert 2021, end insert
inclusive, award cycles, to qualified community development
entities on a competitive basis that meets the following criteria:

(i) Awards shall be reviewed using blind scoring and a review
committee that is composed of community development finance
practitioners and members having demonstrated experience in
assessing organizational business strategy, community outcomes,
capitalization strategy, and management capacity.

(ii) A member of the review committee shall not have a financial
interest, which includes, but is not limited to, asking, consenting,
or agreeing to receive any commission, emolument, gratuity,
money, property, or thing of value for his or her own use, benefit,
or personal advantage for procuring or endeavoring to procure for
any person, partnership, joint venture, association, or corporation
any qualified equity investment or other assistance from any
applicant.

begin delete

(iii) Applications for awards shall include a commitment to
make at least 15 percent of qualified community development
investments to a qualified community development entity with the
assistance of a nonprofit organization, as documented by a
cooperation agreement that states the terms and conditions of that
assistance. For the purposes of this clause, the following shall
apply:

(I) A qualified community development entity shall be certified
under Section 45D of the Internal Revenue Code but has not
received a federal New Markets Tax Credit allocation on or after
January 1, 2012, and has either a local service area that includes
one or more California communities or a California statewide
service area, but excluding qualified community development
entities with a national service area.

(II) A nonprofit organization shall meet all of the following
requirements: Is tax exempt under Section 23701, is registered
with the Registry of Charitable Trusts, which is administered by
the Attorney General, has articles of incorporation or articles of
organization that state the primary mission of the organization is
focused on improving the economic well-being of low-income
communities or individuals, and has bylaws that provide that the
organization maintains accountability to residents of low-income
communities through their representation on any governing board
or on an advisory board of the nonprofit organization.

(iv)

end delete

begin insert (iii) end insert  Priority shall be provided to both of the following:

(I) Applications that commit to addressing the hardest to serve
and undercapitalized lower income populations.

(II) Applications that support neighborhood revitalization
strategies driven by local grassroots stakeholders in multiple
low-income communities across one or more regions or the state.
These applications shall demonstrate how their investment activity
provides a scalable economic development model.

begin insert

(D) For applications described in subparagraphs (A) and (B),
applications for awards shall include a commitment to make at
least 15 percent of qualified community development investments
to a qualified community development entity with the assistance
of a nonprofit organization, as documented by a cooperation
agreement that states the terms and conditions of that assistance.
For the purposes of this subparagraph, the following shall apply:

end insert begin insert

(i) A qualified community development entity shall be certified
under Section 45D of the Internal Revenue Code but has not
received a federal New Markets Tax Credit allocation on or after
January 1, 2012, and has either a local service area that includes
one or more California communities or a California statewide
service area, but excluding qualified community development
entities with a national service area.

end insert begin insert

(ii) A nonprofit organization shall meet all of the following
requirements: Is tax exempt under Section 23701, is registered
with the Registry of Charitable Trusts, which is administered by
the Attorney General, has articles of incorporation or articles of
organization that state the primary mission of the organization is
focused on improving the economic well-being of low-income
communities or individuals, and has bylaws that provide that the
organization maintains accountability to residents of low-income
communities through their representation on any governing board
or on an advisory board of the nonprofit organization.

end insert begin delete

(D)

end delete

begin insert (E) end insert  (i)  For applications described in subparagraph (A), in the
event requests for authority to designate qualified equity
investments exceed the applicable annual allocation limitation,
RTCA shall certify, consistent with remaining qualified equity
investment capacity, qualified equity investments of applicants in
proportionate percentages based upon the ratio of the amount of
qualified equity investments requested in such applications to the
total amount of qualified equity investments requested in all such
applications received on the same day.

(ii) If a pending request cannot be fully certified due to this
limit, RTCA shall certify the portion that may be certified unless
the qualified community development entity elects to withdraw
its request rather than receive partial certification.

begin delete

(E)

end delete

begin insert (F) end insert  An approved applicant may transfer all or a portion of its
certified qualified equity investment authority to its controlling
entity or any subsidiary qualified community development entity
of the controlling entity, provided that the applicant and the
transferee notify RTCA within 30 calendar days of such transfer
and include the information required in the application with respect
to such transferee with such notice. The transferee shall be subject
to the same rules, requirements, and limitations applicable to the
transferor.

begin delete

(F)

end delete

begin insert (G) end insert  Within 200 calendar days of RTCA sending notice of
certification, the qualified community development entity or any
transferee, under subparagraph begin delete (E), end delete begin insert (F), end insert shall issue the qualified
equity investment and receive cash in the amount of the certified
amount. The qualified community development entity or transferee,
under subparagraph begin delete (E), end delete begin insert (F), end insert shall provide RTCA with evidence
of the receipt of the cash investment within 205 calendar days of
the applicant receiving notice of certification. If the qualified
community development entity or any transferee, under
subparagraph begin delete (E), end delete begin insert (F), end insert does not receive the cash investment and
issue the qualified equity investment within 200 calendar days of
RTCA sending the certification notice, the certification shall lapse
and the entity may not issue the qualified equity investment without
reapplying to RTCA for certification. Lapsed certifications revert
back to RTCA and shall be reissued in the following order:

(i) First, pro rata to applicants whose qualified equity investment
allocations were reduced pursuant to subparagraph begin delete (D) end delete begin insert (E) end insert under
the annual allocation limitation of forty million dollars
($40,000,000) in paragraph (4) of subdivision (c).

(ii) Thereafter, in accordance with the application process.

begin delete

(G)

end delete

begin insert (H) end insert  A qualified community development entity that issues
qualified equity investments shall notify RTCA of the names of
taxpayers that are eligible to utilize tax credits pursuant to this
section and any transfer of a qualified equity investment.

(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to RTCA that
provides documentation as to the investment of at least 85 percent
of the funds being deployed within one year in qualified
low-income community investments in qualified active low-income
community businesses located in California. Such report shall
include all of the following:

(i) A bank statement of such qualified community development
entity evidencing each qualified low-income community
investment.

(ii) Evidence that such business was a qualified active
low-income community business at the time of such qualified
low-income community investment.

(iii) Evidence that the community development entity complied
with subparagraph begin delete (C) end delete begin insert (D) end insert of paragraph (5).

begin delete

(iv) Evidence that each qualified low-income community
investment was determined to have a positive revenue impact on
the state. This requirement does not apply to reinvestments of
redeemed qualified low-income investments.

end delete begin delete

(v)

end delete

begin insert (iv) end insert  Any other information required by RTCA as being necessary
to meet the requirements of this section.

(B) Thereafter, the qualified community development entity
shall submit an annual report to RTCA during the seven years
following submittal of the report, pursuant to subparagraph (A).
No annual report shall be due prior to the first anniversary of the
initial credit allowance date. The report shall include, but is not
limited to, the following:

(i) The social, environmental, and economic impact the credit
had on the low-income community during the report period and
cumulatively.

(ii) The amount of moneys used for qualified low-income
investments in qualified low-income community businesses.

(iii) The number of employment positions created and retained
as a result of qualified low-income community investments and
the average annual salary of such positions.

(iv) The number of operating businesses assisted as a result of
qualified low-income community investments, by industry and
number of employees.

(v) Number of owner-occupied real estate projects.

(vi) Location of each qualified low-income community business
assisted by a qualified low-income community investment.

(vii) Summary of the outcomes of each of the revenue impact
assessments undertaken by the qualified community development
entity during the year.

(viii) Any other information requested by RTCA.

(e) (1) In the case where the credit allowed by this section
exceeds the tax described in Section 12201, the excess may be
carried over to reduce that tax in the following year, and the six
succeeding years if necessary, until the credit is exhausted.

(2) A taxpayer allowed a credit under this section for a qualified
equity investment shall not be eligible for any other credit under
this part with respect to that investment.

(3) The credit allowed under this section may be in addition to
any credit allowed under Section 45D of the Internal Revenue
Code.

(f) RTCA shall annually report on its Internet Web site the
information provided by low-income community development
entities and on the geographic distribution of the qualified active
low-income community businesses assisted.

(g) (1) The Insurance Commissioner may prescribe any rules
or regulations that may be necessary or appropriate to implement
this section. The Insurance Commissioner shall have access to any
documentation held by RTCA relative to the application and
reporting of a qualified community development entity.

(2) A qualified community development entity shall provide
RTCA with the name, address, and tax identification number of
each investor and entity for which a qualified equity investment
was designated by the qualified community development entity,
pursuant to this section. RTCA shall provide this information to
the Insurance Commissioner in a manner determined by the
Insurance Commissioner.

(h) (1) The credit authorized by this section shall only be
allowed for those taxable years for which moneys are appropriated
to RTCA to administer the California New Markets Tax Credit
pursuant to 18410.3 for that taxable year. The appropriation shall
specifically identify the California New Markets Tax Credit.

(2) For those taxable years for which those moneys are
appropriated pursuant to paragraph (1), RTCA shall post notice
of the appropriation on the homepage of its Internet Web site and
send notice of such appropriation to the Secretary of State and the
Legislative Counsel.

(i) This section shall be repealed on December 1, 2022.

SEC. 3.  

Section 17053.9 is added to the Revenue and Taxation
Code, to read:

17053.9.  

(a) There is hereby created the California New
Markets Tax Credit Program as provided in this section, Section
12283, and Section 23622.9. The purpose of this program is to
stimulate private sector investment in lower income communities
by providing a tax incentive to community and economic
development entities that can be leveraged by the entity to attract
private sector investment that in turn will be deployed by providing
financing and technical assistance to small- and medium-sized
businesses and the development of commercial, industrial, and
community development projects, including, but not limited to,
facilities for nonprofit service organizations, light manufacturing,
and mixed-use and transit-oriented development. RTCA shall
administer this program as provided in this section, Section 12283,
and Section 23622.9.

(b) (1) For taxable years beginning on or after January 1, 2017,
and before January 1, 2022, and subject to subdivision (h), there
shall be allowed as a credit against the “net tax,” as defined in
Section 17039, in an amount determined in accordance with Section
45D of the Internal Revenue Code, relating to the new markets tax
credit, as modified in this section.

(2) For the purposes of this section, “RTCA” means the
Responsible Tax Credit Administrator, as designated by the
Governor.

(c) Section 45D of the Internal Revenue Code is modified as
follows:

(1) Section 45D(a)(2) of the Internal Revenue Code, relating to
applicable percentage, is modified by substituting for “(A)   5
percent with respect to the first 3 credit allowance dates, and (B)  
6 percent with respect to the remainder of the credit allowance
dates” with the following:

(A) Zero percent with respect to the first two credit allowance
dates.

(B) Seven percent with respect to the third credit allowance
date.

(C) Eight percent with respect to the remainder of the credit
allowance dates.

(2) (A) Section 45D(c)(1) of the Internal Revenue Code, relating
to qualified community development entity, is modified to only
include a qualified community development entity, that is certified
by the Secretary of the Treasury, and its subsidiary qualified
community development entities that have entered into an
allocation agreement with the Community Development Financial
Institutions Fund of the United States Treasury Department, with
respect to credits authorized by Section 45D of the Internal
Revenue Code, that includes California within the service area and
is dated on or after January 1, 2012.

(B) Section 45D(c)(2) of the Internal Revenue Code, relating
to special rules for certain organizations, is modified to only
include a specialized small business investment company or
community development financial institution that entered into an
allocation agreement with the Community Development Financial
Institutions Fund of the United States Treasury Department, with
respect to credits authorized by Section 45D of the Internal
Revenue Code, that includes California within the service area and
is dated on or after January 1, 2012.

(3) The term “qualified active low-income community business,”
as defined in Section 45D(d)(2) of the Internal Revenue Code, is
modified as follows:

(A) By substituting “any low-income community in California”
for “any low-income community” every place it appears in Section
45D of the Internal Revenue Code.

(B) A qualified active low-income community business shall
not include any business that derives, or projects to derive, 15
percent or more of its annual revenue from the rental or sale of
real estate. This exclusion does not apply to a business that is
controlled by, or under common control with, another business if
the second business: (i) does not derive or project to derive 15
percent or more of its annual revenue from the rental or sale of
real estate; and (ii) is the primary tenant of the real estate leased
from the first business.

(C) A qualified active low-income community business shall
only include a business that, at the time the initial investment is
made, has 250 or fewer employees and is located in one or more
California low-income communities. The operating business shall
meet all other conditions of a qualified active low-income
community business, except as modified by this paragraph. This
requirement does not apply to a business that is located on land
and is controlled by, or under common control with, a federally
recognized tribe.

(D) A qualified active low-income community business shall
only include a business located in census tracts with a poverty rate
greater than 30 percent, or census tracts, if located within a
nonmetropolitan area, with a median family income that does not
exceed 60 percent of median family income for this state, or census
tracts, if located within a metropolitan area, with a median family
income that does not exceed 60 percent of the greater of the
California median family income or the metropolitan area median
family income, or census tracts with unemployment rates at least
1.5 times the national average.

(E) A qualified active low-income community business shall
not include any business that operates or derives revenues from
the operation of a country club, gaming establishment, massage
parlor, liquor store, or golf course.

(F) A qualified active low-income community business shall
not include a sexually oriented business. A “sexually oriented
business” means a nightclub, bar, restaurant, or similar commercial
enterprise that provides for an audience of two or more individuals
live nude entertainment or live nude performances where the nudity
is a function of everyday business operations and where nudity is
a planned and intentional part of the entertainment or performance.
“Nude” means clothed in a manner that leaves uncovered or visible,
through less than fully opaque clothing, any portion of the genitals
or, in the case of a female, any portion of the breasts below the
top of the areola of the breasts.

(G) A qualified active low-income community business shall
not include a charter school.

(4) Section 45D(f) of the Internal Revenue Code, relating to
national limitation on amount of investments designated, is
modified as follows:

(A) The following shall apply in lieu of the provisions of Section
45D(f)(1) of the Internal Revenue Code: The aggregate amount
of qualified equity investments that may be allocated in any
calendar year for purposes of this section, Section 12283, and
Section 23622.9 shall be forty million dollars ($40,000,000) per
calendar year. The allocation of any undesignated qualified equity
investments shall be returned to RTCA by March 1 of the year
following allocation and the value of the undesignated qualified
equity investment shall be available for allocation in the following
calendar years in accordance with the application process. Any
qualified equity investment attributable to recaptured credits shall
be available to RTCA on March 1 of the year following recapture
and shall be available for allocation in the following calendar years
in accordance with clause (ii) of subparagraph (B) of paragraph
(5). Reallocated qualified equity investments attributable to
recapture credits shall not count against the annual or the
cumulative limit.

(B) The references to “the Secretary” in Section 45D(f)(2) of
the Internal Revenue Code, relating to allocation of limitation, is
modified to read “RTCA.”

(C) The last sentence of Section 45D(f)(3) of the Internal
Revenue Code, relating to carryover of unused limitation, shall
not apply.

(5) (A) Section 45D(g)(2)(B) of the Internal Revenue Code,
relating to credit recapture amount, is modified to substitute
“Section 19101 of this code” for “Section 6621.”

(B) Section 45D(g)(3) of the Internal Revenue Code, relating
to recapture event, is modified to add the following:

(i) The qualified community development entity fails to comply
with subparagraph begin delete (C) end delete begin insert (D) end insert of paragraph (5) of subdivision (d). In
this case, recapture shall be 100 percent of the credit.

(ii) RTCA shall establish a process, in consultation with the
Franchise Tax Board, for the recapture of credits allowed under
this section from the entity that claimed the credit on a return.

(iii)  Recaptured qualified equity investments revert back to
RTCA and shall be reissued. The reissue shall not count toward
the annual or cumulative allocation limitation. The reissue shall
be done in the following order:

(I)  First, pro rata to applicants whose qualified equity
investment allocations were reduced pursuant to subparagraph begin delete (D) end delete
begin insert (E) end insert of paragraph (5) of subdivision (d) by the annual allocation
limitation.

(II)  Thereafter, in accordance with the application process.

(iv) Enforcement of each of the recapture provisions shall be
subject to a six-month cure period.

(d) (1) RTCA shall adopt guidelines necessary or appropriate
to carry out its responsibilities with respect to the allocation,
monitoring, and management of the tax credit program authorized
by this section.

(2) (A) RTCA shall establish and impose reasonable fees upon
entities that apply for the allocation pursuant to this subdivision
that in the aggregate defray the cost of reviewing applications for
the program. RTCA may impose other reasonable fees upon entities
that receive the allocation pursuant to this subdivision that in the
aggregate defray the cost of administering the program.

(B) The fees collected shall be deposited in the California New
Markets Tax Credit Fund established in Section 18410.3.

(3) In developing guidelines, RTCA shall adopt an allocation
process that does all of the following:

(A) Creates an equitable distribution process that ensures that
low-income community populations across the state have an
opportunity to benefit from the program.

(B) Sets minimum organizational capacity standards that
applicants must meet in order to receive an allocation of authority
to designate qualified equity investments, including, but not limited
to, its business strategy, targeted community outcomes,
capitalization strategy, and management capacity.

(C) Considers the qualified community development entity’s
prior qualified low-income community investments under Section
45D of the Internal Revenue Code.

(D) Considers the qualified community development entity’s
prior qualified low-income community investments under this
section, including subparagraph begin delete (C) end delete begin insert (D) end insert of paragraph (5).

(4) (A) Subject to subdivision (h), RTCA shall begin accepting
applications on or before May 15, 2017, and shall award authority
to designate qualified equity investments annually through begin delete 2022. end delete

begin insert 2021. end insert

(B) In the instance where RTCA determines that an application
is incomplete, the qualified community development entity shall
be given five business days to provide the omitted information.

(5) (A) In the 2017 awards cycle, RTCA shall award authority
to designate qualified equity investments to qualified community
development entities described in paragraph (2) of subdivision (c)
in the order applications are received by RTCA. Applications
received on the same day shall be deemed to have been received
simultaneously.

(B) In the 2018 to begin delete 2022 end delete begin insert 2021 end insert award cycles, inclusive, at least
60 percent of the authority to designate qualified equity investments
shall be awarded pursuant to subparagraph (A). At the discretion
of RTCA, a higher percentage of authority to designate qualified
equity investments may be awarded pursuant to subparagraph (A).

(C) RTCA shall award up to 40 percent of the authority to
designate qualified equity investments in the 2018 to begin delete 2022, end delete begin insert 2021, end insert
inclusive, award cycles, to qualified community development
entities on a competitive basis that meets the following criteria:

(i) Awards shall be reviewed using blind scoring and a review
committee that is composed of community development finance
practitioners and members having demonstrated experience in
assessing organizational business strategy, community outcomes,
capitalization strategy, and management capacity.

(ii) A member of the review committee shall not have a financial
interest, which includes, but is not limited to, asking, consenting,
or agreeing to receive any commission, emolument, gratuity,
money, property, or thing of value for his or her own use, benefit,
or personal advantage for procuring or endeavoring to procure for
any person, partnership, joint venture, association, or corporation
any qualified equity investment or other assistance from any
applicant.

begin delete

(iii) Applications for awards shall include a commitment to
make at least 15 percent of qualified community development
investments to a qualified community development entity with the
assistance of a nonprofit organization as documented by a
cooperation agreement that states the terms and conditions of that
assistance. For the purposes of this clause, the following shall
apply:

(I) A qualified community development entity shall be certified
under Section 45D of the Internal Revenue Code but has not
received a federal New Markets Tax Credit allocation on or after
January 1, 2012, and has either a local service area that includes
one or more California communities or a California statewide
service area, but excluding qualified community development
entities with a national service area.

(II) A nonprofit organization shall meet all of the following
requirements: Is tax exempt under Section 23701, is registered
with the Registry of Charitable Trusts, which is administered by
the Attorney General, has articles of incorporation or articles of
organization that state the primary mission of the organization is
focused on improving the economic well-being of low-income
communities or individuals, and has bylaws that provide that the
organization maintains accountability to residents of low-income
communities through their representation on any governing board
or on an advisory board of the nonprofit organization.

(iv)

end delete

begin insert (iii) end insert  Priority shall be provided to both of the following:

(I) Applications that commit to addressing the hardest to serve
and undercapitalized lower income populations.

(II) Applications that support neighborhood revitalization
strategies driven by local grassroots stakeholders in multiple
low-income communities across one or more regions or the state.
These applications shall demonstrate how their investment activity
provides a scalable economic development model.

begin insert

(D) For applications described in subparagraphs (A) and (B),
applications for awards shall include a commitment to make at
least 15 percent of qualified community development investments
to a qualified community development entity with the assistance
of a nonprofit organization as documented by a cooperation
agreement that states the terms and conditions of that assistance.
For the purposes of this subparagraph, the following shall apply:

end insert begin insert

(i) A qualified community development entity shall be certified
under Section 45D of the Internal Revenue Code but has not
received a federal New Markets Tax Credit allocation on or after
January 1, 2012, and has either a local service area that includes
one or more California communities or a California statewide
service area, but excluding qualified community development
entities with a national service area.

end insert begin insert

(ii) A nonprofit organization shall meet all of the following
requirements: Is tax exempt under Section 23701, is registered
with the Registry of Charitable Trusts, which is administered by
the Attorney General, has articles of incorporation or articles of
organization that state the primary mission of the organization is
focused on improving the economic well-being of low-income
communities or individuals, and has bylaws that provide that the
organization maintains accountability to residents of low-income
communities through their representation on any governing board
or on an advisory board of the nonprofit organization.

end insert begin delete

(D)

end delete

begin insert (E) end insert  (i) For applications described in subparagraph (A), in the
event requests for authority to designate qualified equity
investments exceed the applicable annual allocation limitation,
RTCA shall certify, consistent with remaining qualified equity
investment capacity, qualified equity investments of applicants in
proportionate percentages based upon the ratio of the amount of
qualified equity investments requested in such applications to the
total amount of qualified equity investments requested in all such
applications received on the same day.

(ii) If a pending request cannot be fully certified due to this
limit, RTCA shall certify the portion that may be certified unless
the qualified community development entity elects to withdraw
its request rather than receive partial certification.

begin delete

(E)

end delete

begin insert (F) end insert  An approved applicant may transfer all or a portion of its
certified qualified equity investment authority to its controlling
entity or any subsidiary qualified community development entity
of the controlling entity, provided that the applicant and the
transferee notify RTCA within 30 calendar days of such transfer
and include the information required in the application with respect
to such transferee with such notice. The transferee shall be subject
to the same rules, requirements, and limitations applicable to the
transferor.

begin delete

(F)

end delete

begin insert (G) end insert  Within 200 calendar days of RTCA sending notice of
certification, the qualified community development entity or any
transferee, under subparagraph begin delete (E), end delete begin insert (F), end insert shall issue the qualified
equity investment and receive cash in the amount of the certified
amount. The qualified community development entity or transferee,
under subparagraph begin delete (E), end delete begin insert (F), end insert shall provide RTCA with evidence
of the receipt of the cash investment within 205 calendar days of
the applicant receiving notice of certification. If the qualified
community development entity or any transferee, under
subparagraph begin delete (E), end delete begin insert (F), end insert does not receive the cash investment and
issue the qualified equity investment within 200 calendar days of
RTCA sending the certification notice, the certification shall lapse
and the entity may not issue the qualified equity investment without
reapplying to RTCA for certification. Lapsed certifications revert
back to RTCA and shall be reissued in the following order:

(i) First, pro rata to applicants whose qualified equity investment
allocations were reduced pursuant to subparagraph begin delete (D) end delete begin insert (E) end insert under
the annual allocation limitation of forty million dollars
($40,000,000) in paragraph (4) of subdivision (c).

(ii) Thereafter, in accordance with the application process.

begin delete

(G)

end delete

begin insert (H) end insert  A qualified community development entity that issues
qualified equity investments shall notify RTCA of the names of
taxpayers that are eligible to utilize tax credits pursuant to this
section and any transfer of a qualified equity investment.

(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to RTCA that
provides documentation as to the investment of at least 85 percent
of the funds being deployed within one year in qualified
low-income community investments in qualified active low-income
community businesses located in California. Such report shall
include all of the following:

(i) A bank statement of such qualified community development
entity evidencing each qualified low-income community
investment.

(ii) Evidence that such business was a qualified active
low-income community business at the time of such qualified
low-income community investment.

(iii) Evidence that the community development entity complied
with subparagraph begin delete (C) end delete begin insert (D) end insert of paragraph (5).

begin delete

(iv) Evidence that each qualified low-income community
investment was determined to have a positive revenue impact on
the state. This requirement does not apply to reinvestments of
redeemed qualified low-income investments.

end delete begin delete

(v)

end delete

begin insert (iv) end insert  Any other information required by RTCA as being necessary
to meet the requirements of this section.

(B) Thereafter, the qualified community development entity
shall submit an annual report to RTCA during the seven years
following submittal of the report, pursuant to subparagraph (A).
No annual report shall be due prior to the first anniversary of the
initial credit allowance date. The report shall include, but is not
limited to, the following:

(i) The social, environmental, and economic impact the credit
had on the low-income community during the report period and
cumulatively.

(ii) The amount of moneys used for qualified low-income
investments in qualified low-income community businesses.

(iii) The number of employment positions created and retained
as a result of qualified low-income community investments and
the average annual salary of such positions.

(iv) The number of operating businesses assisted as a result of
qualified low-income community investments, by industry and
number of employees.

(v) Number of owner-occupied real estate projects.

(vi) Location of each qualified low-income community business
assisted by a qualified low-income community investment.

(vii) Summary of the outcomes of each of the revenue impact
assessments undertaken by the qualified community development
entity during the year.

(viii) Any other information requested by RTCA.

(e) (1) In the case where the credit allowed by this section
exceeds the “net tax,” the excess may be carried over to reduce
the “net tax” in the following year, and the six succeeding years
if necessary, until the credit is exhausted.

(2) A taxpayer allowed a credit under this section for a qualified
equity investment shall not be eligible for any other credit under
this part with respect to that investment.

(3) The credit allowed under this section may be in addition to
any credit allowed under Section 45D of the Internal Revenue
Code.

(f) RTCA shall annually report on its Internet Web site the
information provided by low-income community development
entities and on the geographic distribution of the qualified active
low-income community businesses assisted.

(g) (1) The Franchise Tax Board may prescribe any rules or
regulations that may be necessary or appropriate to implement this
section. The Franchise Tax Board shall have access to any
documentation held by RTCA relative to the application and
reporting of a qualified community development entity.

(2) A qualified community development entity shall provide
RTCA with the name, address, and tax identification number of
each investor and entity for which a qualified equity investment
was designated by the qualified community development entity,
pursuant to this section. RTCA shall provide this information to
the Franchise Tax Board in a manner determined by the Franchise
Tax Board.

(h) (1) The credit authorized by this section shall only be
allowed for those taxable years for which moneys are appropriated
to RTCA to administer the California New Markets Tax Credit
pursuant to 18410.3 for that taxable year. The appropriation shall
specifically identify the California New Markets Tax Credit.

(2) For those taxable years for which those moneys are
appropriated pursuant to paragraph (1), RTCA shall post notice
of the appropriation on the homepage of its Internet Web site and
send notice of such appropriation to the Secretary of State and the
Legislative Counsel.

(i) This section shall be repealed on December 1, 2022.

SEC. 4.  

Section 18410.3 is added to the Revenue and Taxation
Code, to read:

18410.3.  

(a) The California New Markets Tax Credit Fund is
hereby established in the State Treasury.

(b) Upon annual appropriation, moneys in the fund shall be used
for the purposes described in subdivision (d) of Section 12283,
subdivision (d) of Section 17053.9, and subdivision (d) of Section
23622.9.

SEC. 5.  

Section 23622.9 is added to the Revenue and Taxation
Code, to read:

23622.9.  

(a) There is hereby created the California New
Markets Tax Credit Program as provided in this section, Section
12283, and Section 17053.9. The purpose of this program is to
stimulate private sector investment in lower income communities
by providing a tax incentive to community and economic
development entities that can be leveraged by the entity to attract
private sector investment that in turn will be deployed by providing
financing and technical assistance to small- and medium-sized
businesses and the development of commercial, industrial, and
community development projects, including, but not limited to,
facilities for nonprofit service organizations, light manufacturing,
and mixed-use and transit-oriented development. RTCA shall
administer this program as provided in this section, Section 12283,
and Section 17053.9.

(b) (1) For taxable years beginning on or after January 1, 2017,
and before January 1, 2022, and subject to subdivision (h), there
shall be allowed as a credit against the “tax,” as defined in Section
23036, in an amount determined in accordance with Section 45D
of the Internal Revenue Code, relating to the new markets tax
credit, as modified in this section.

(2) For the purposes of this section, “RTCA” means the
Responsible Tax Credit Administrator, as designated by the
Governor.

(c) Section 45D of the Internal Revenue Code is modified as
follows:

(1) Section 45D(a)(2) of the Internal Revenue Code, relating to
applicable percentage, is modified by substituting for “(A)   5
percent with respect to the first 3 credit allowance dates, and (B)  
6 percent with respect to the remainder of the credit allowance
dates” with the following:

(A) Zero percent with respect to the first two credit allowance
dates.

(B) Seven percent with respect to the third credit allowance
date.

(C) Eight percent with respect to the remainder of the credit
allowance dates.

(2) (A) Section 45D(c)(1) of the Internal Revenue Code, relating
to qualified community development entity, is modified to only
include a qualified community development entity, that is certified
by the Secretary of the Treasury, and its subsidiary qualified
community development entities that have entered into an
allocation agreement with the Community Development Financial
Institutions Fund of the United States Treasury Department, with
respect to credits authorized by Section 45D of the Internal
Revenue Code, that includes California within the service area and
is dated on or after January 1, 2012.

(B) Section 45D(c)(2) of the Internal Revenue Code, relating
to special rules for certain organizations, is modified to only
include a specialized small business investment company or
community development financial institution that entered into an
allocation agreement with the Community Development Financial
Institutions Fund of the United States Treasury Department, with
respect to credits authorized by Section 45D of the Internal
Revenue Code, that includes California within the service area and
is dated on or after January 1, 2012.

(3) The term “qualified active low-income community business,”
as defined in Section 45D(d)(2) of the Internal Revenue Code, is
modified as follows:

(A) By substituting “any low-income community in California”
for “any low-income community” every place it appears in Section
45D of the Internal Revenue Code.

(B) A qualified active low-income community business shall
not include any business that derives, or projects to derive, 15
percent or more of its annual revenue from the rental or sale of
real estate. This exclusion does not apply to a business that is
controlled by, or under common control with, another business if
the second business: (i) does not derive or project to derive 15
percent or more of its annual revenue from the rental or sale of
real estate; and (ii) is the primary tenant of the real estate leased
from the first business.

(C) A qualified active low-income community business shall
only include a business that, at the time the initial investment is
made, has 250 or fewer employees and is located in one or more
California low-income communities. The operating business shall
meet all other conditions of a qualified active low-income
community business, except as modified by this paragraph. This
requirement does not apply to a business that is located on land
and is controlled by, or under common control with, a federally
recognized tribe.

(D) A qualified active low-income community business shall
only include a business located in census tracts with a poverty rate
greater than 30 percent, or census tracts, if located within a
nonmetropolitan area, with a median family income that does not
exceed 60 percent of median family income for this state, or census
tracts, if located within a metropolitan area, with a median family
income that does not exceed 60 percent of the greater of the
California median family income or the metropolitan area median
family income, or census tracts with unemployment rates at least
1.5 times the national average.

(E) A qualified active low-income community business shall
not include any business that operates or derives revenues from
the operation of a country club, gaming establishment, massage
parlor, liquor store, or golf course.

(F) A qualified active low-income community business shall
not include a sexually oriented business. A “sexually oriented
business” means a nightclub, bar, restaurant, or similar commercial
enterprise that provides for an audience of two or more individuals
live nude entertainment or live nude performances where the nudity
is a function of everyday business operations and where nudity is
a planned and intentional part of the entertainment or performance.
“Nude” means clothed in a manner that leaves uncovered or visible,
through less than fully opaque clothing, any portion of the genitals
or, in the case of a female, any portion of the breasts below the
top of the areola of the breasts.

(G) A qualified active low-income community business shall
not include a charter school.

(4) Section 45D(f) of the Internal Revenue Code, relating to
national limitation on amount of investments designated, is
modified as follows:

(A) The following shall apply in lieu of the provisions of Section
45D(f)(1) of the Internal Revenue Code: The aggregate amount
of qualified equity investments that may be allocated in any
calendar year for purposes of this section, Section 12283, and
Section 17053.9 shall be forty million dollars ($40,000,000) per
calendar year. The allocation of any undesignated qualified equity
investments shall be returned to RTCA by March 1 of the year
following allocation and the value of the undesignated qualified
equity investment shall be available for allocation in the following
calendar years in accordance with the application process. Any
qualified equity investment attributable to recaptured credits shall
be available to RTCA on March 1 of the year following recapture
and shall be available for allocation in the following calendar years
in accordance with clause (ii) of subparagraph (B) of paragraph
(5). Reallocated qualified equity investments attributable to
recapture credits shall not count against the annual or the
cumulative limit.

(B) The references to “the Secretary” in Section 45D(f)(2) of
the Internal Revenue Code, relating to allocation of limitation, is
modified to read “RTCA.”

(C) The last sentence of Section 45D(f)(3) of the Internal
Revenue Code, relating to carryover of unused limitation, shall
not apply.

(5) (A) Section 45D(g)(2)(B) of the Internal Revenue Code,
relating to credit recapture amount, is modified to substitute
“Section 19101 of this code” for “Section 6621.”

(B) Section 45D(g)(3) of the Internal Revenue Code, relating
to recapture event, is modified to add the following:

(i) The qualified community development entity fails to comply
with subparagraph begin delete (C) end delete begin insert (D) end insert of paragraph (5) of subdivision (d). In
this case, recapture shall be 100 percent of the credit.

(ii) RTCA shall establish a process, in consultation with the
Franchise Tax Board, for the recapture of credits allowed under
this section from the entity that claimed the credit on a return.

(iii) Recaptured qualified equity investments revert back to
RTCA and shall be reissued. The reissue shall not count toward
the annual or cumulative allocation limitation. The reissue shall
be done in the following order:

(I) First, pro rata to applicants whose qualified equity investment
allocations were reduced pursuant to subparagraph begin delete (D) end delete begin insert (E) end insert of
paragraph (5) of subdivision (d) by the annual allocation limitation.

(II) Thereafter, in accordance with the application process.

(iv) Enforcement of each of the recapture provisions shall be
subject to a six-month cure period.

(d) (1) RTCA shall adopt guidelines necessary or appropriate
to carry out its responsibilities with respect to the allocation,
monitoring, and management of the tax credit program authorized
by this section.

(2) (A) RTCA shall establish and impose reasonable fees upon
entities that apply for the allocation pursuant to this subdivision
that in the aggregate defray the cost of reviewing applications for
the program. RTCA may impose other reasonable fees upon entities
that receive the allocation pursuant to this subdivision that in the
aggregate defray the cost of administering the program.

(B) The fees collected shall be deposited in the California New
Markets Tax Credit Fund established in Section 18410.3.

(3) In developing guidelines, RTCA shall adopt an allocation
process that does all of the following:

(A) Creates an equitable distribution process that ensures that
low-income community populations across the state have an
opportunity to benefit from the program.

(B) Sets minimum organizational capacity standards that
applicants must meet in order to receive an allocation of authority
to designate qualified equity investments, including, but not limited
to, its business strategy, targeted community outcomes,
capitalization strategy, and management capacity.

(C) Considers the qualified community development entity’s
prior qualified low-income community investments under Section
45D of the Internal Revenue Code.

(D) Considers the qualified community development entity’s
prior qualified low-income community investments under this
section, including subparagraph begin delete (C) end delete begin insert (D) end insert of paragraph (5).

(4) (A) Subject to subdivision (h), RTCA shall begin accepting
applications on or before May 15, 2017, and shall award authority
to designate qualified equity investments annually through begin delete 2022. end delete

begin insert 2021. end insert

(B) In the instance where RTCA determines that an application
is incomplete, the qualified community development entity shall
be given five business days to provide the omitted information.

(5) (A) In the 2017 awards cycle, RTCA shall award authority
to designate qualified equity investments to qualified community
development entities described in paragraph (2) of subdivision (c)
in the order applications are received by RTCA. Applications
received on the same day shall be deemed to have been received
simultaneously.

(B) In the 2018 to begin delete 2022 end delete begin insert 2021 end insert award cycles, inclusive, at least
60 percent of the authority to designate qualified equity investments
shall be awarded pursuant to subparagraph (A). At the discretion
of RTCA, a higher percentage of authority to designate qualified
equity investments may be awarded pursuant to subparagraph (A).

(C) RTCA shall award up to 40 percent of the authority to
designate qualified equity investments in the 2018 to begin delete 2022, end delete begin insert 2021, end insert
inclusive, award cycles, to qualified community development
entities on a competitive basis that meets the following criteria:

(i) Awards shall be reviewed using blind scoring and a review
committee that is composed of community development finance
practitioners and members having demonstrated experience in
assessing organizational business strategy, community outcomes,
capitalization strategy, and management capacity.

(ii) A member of the review committee shall not have a financial
interest, which includes, but is not limited to, asking, consenting,
or agreeing to receive any commission, emolument, gratuity,
money, property, or thing of value for his or her own use, benefit,
or personal advantage for procuring or endeavoring to procure for
any person, partnership, joint venture, association, or corporation
any qualified equity investment or other assistance from any
applicant.

begin delete

(iii) Applications for awards shall include a commitment to
make at least 15 percent of qualified community development
investments with the assistance of a nonprofit organization as
documented by a cooperation agreement that states the terms and
conditions of that assistance. For the purposes of this clause, the
following shall apply:

(I) A qualified community development entity shall be certified
under Section 45D of the Internal Revenue Code but has not
received a federal New Markets Tax Credit allocation on or after
January 1, 2012, and has either a local service area that includes
one or more California communities or a California statewide
service area, but excluding qualified community development
entities with a national service area.

(II) A nonprofit organization shall meet all of the following
requirements: Is tax exempt under Section 23701, is registered
with the Registry of Charitable Trusts, which is administered by
the Attorney General, has articles of incorporation or articles of
organization that state the primary mission of the organization is
focused on improving the economic well-being of low-income
communities or individuals, and has bylaws that provide that the
organization maintains accountability to residents of low-income
communities through their representation on any governing board
or on an advisory board of the nonprofit organization.

(iv)

end delete

begin insert (iii) end insert  Priority shall be provided to both of the following:

(I) Applications that commit to addressing the hardest to serve
and undercapitalized lower income populations.

(II) Applications that support neighborhood revitalization
strategies driven by local grassroots stakeholders in multiple
low-income communities across one or more regions or the state.
These applications shall demonstrate how their investment activity
provides a scalable economic development model.

begin insert

(D) For applications described in subparagraphs (A) and (B),
applications for awards shall include a commitment to make at
least 15 percent of qualified community development investments
to a qualified community development entity with the assistance
of a nonprofit organization as documented by a cooperation
agreement that states the terms and conditions of that assistance.
For the purposes of this subparagraph, the following shall apply:

end insert begin insert

(i) A qualified community development entity shall be certified
under Section 45D of the Internal Revenue Code but has not
received a federal New Markets Tax Credit allocation on or after
January 1, 2012, and has either a local service area that includes
one or more California communities or a California statewide
service area, but excluding qualified community development
entities with a national service area.

end insert begin insert

(ii) A nonprofit organization shall meet all of the following
requirements: Is tax exempt under Section 23701, is registered
with the Registry of Charitable Trusts, which is administered by
the Attorney General, has articles of incorporation or articles of
organization that state the primary mission of the organization is
focused on improving the economic well-being of low-income
communities or individuals, and has bylaws that provide that the
organization maintains accountability to residents of low-income
communities through their representation on any governing board
or on an advisory board of the nonprofit organization.

end insert begin delete

(D)

end delete

begin insert (E) end insert  (i) For applications described in subparagraph (A), in the
event requests for authority to designate qualified equity
investments exceed the applicable annual allocation limitation,
RTCA shall certify, consistent with remaining qualified equity
investment capacity, qualified equity investments of applicants in
proportionate percentages based upon the ratio of the amount of
qualified equity investments requested in such applications to the
total amount of qualified equity investments requested in all such
applications received on the same day.

(ii) If a pending request cannot be fully certified due to this
limit, RTCA shall certify the portion that may be certified unless
the qualified community development entity elects to withdraw
its request rather than receive partial certification.

begin delete

(E)

end delete

begin insert (F) end insert  An approved applicant may transfer all or a portion of its
certified qualified equity investment authority to its controlling
entity or any subsidiary qualified community development entity
of the controlling entity, provided that the applicant and the
transferee notify RTCA within 30 calendar days of such transfer
and include the information required in the application with respect
to such transferee with such notice. The transferee shall be subject
to the same rules, requirements, and limitations applicable to the
transferor.

begin delete

(F)

end delete

begin insert (G) end insert  Within 200 calendar days of RTCA sending notice of
certification, the qualified community development entity or any
transferee, under subparagraph begin delete (E), end delete begin insert (F), end insert shall issue the qualified
equity investment and receive cash in the amount of the certified
amount. The qualified community development entity or transferee,
under subparagraph begin delete (E), end delete begin insert (F), end insert shall provide RTCA with evidence
of the receipt of the cash investment within 205 calendar days of
the applicant receiving notice of certification. If the qualified
community development entity or any transferee, under
subparagraph begin delete (E), end delete begin insert (F), end insert does not receive the cash investment and
issue the qualified equity investment within 200 calendar days of
RTCA sending the certification notice, the certification shall lapse
and the entity may not issue the qualified equity investment without
reapplying to RTCA for certification. Lapsed certifications revert
back to RTCA and shall be reissued in the following order:

(i) First, pro rata to applicants whose qualified equity investment
allocations were reduced pursuant to subparagraph begin delete (F) end delete begin insert (E) end insert under
the annual allocation limitation of forty million dollars
($40,000,000) in paragraph (4) of subdivision (c).

(ii) Thereafter, in accordance with the application process.

begin delete

(G)

end delete

begin insert (H) end insert  A qualified community development entity that issues
qualified equity investments shall notify RTCA of the names of
taxpayers that are eligible to utilize tax credits pursuant to this
section and any transfer of a qualified equity investment.

(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to RTCA that
provides documentation as to the investment of at least 85 percent
of the funds being deployed within one year in qualified
low-income community investments in qualified active low-income
community businesses located in California. Such report shall
include all of the following:

(i) A bank statement of such qualified community development
entity evidencing each qualified low-income community
investment.

(ii) Evidence that such business was a qualified active
low-income community business at the time of such qualified
low-income community investment.

(iii) Evidence that the community development entity complied
with subparagraph begin delete (C) end delete begin insert (D) end insert of paragraph (5).

begin delete

(iv) Evidence that each qualified low-income community
investment was determined to have a positive revenue impact on
the state. This requirement does not apply to reinvestments of
redeemed qualified low-income investments.

end delete begin delete

(v)

end delete

begin insert (iv) end insert  Any other information required by RTCA as being necessary
to meet the requirements of this section.

(B) Thereafter, the qualified community development entity
shall submit an annual report to RTCA during the seven years
following submittal of the report, pursuant to subparagraph (A).
No annual report shall be due prior to the first anniversary of the
initial credit allowance date. The report shall include, but is not
limited to, the following:

(i) The social, environmental, and economic impact the credit
had on the low-income community during the report period and
cumulatively.

(ii) The amount of moneys used for qualified low-income
investments in qualified low-income community businesses.

(iii) The number of employment positions created and retained
as a result of qualified low-income community investments and
the average annual salary of such positions.

(iv) The number of operating businesses assisted as a result of
qualified low-income community investments, by industry and
number of employees.

(v) Number of owner-occupied real estate projects.

(vi) Location of each qualified low-income community business
assisted by a qualified low-income community investment.

(vii) Summary of the outcomes of each of the revenue impact
assessments undertaken by the qualified community development
entity during the year.

(viii) Any other information requested by RTCA.

(e) (1) In the case where the credit allowed by this section
exceeds the “tax,” the excess may be carried over to reduce the
“tax” in the following year, and the six succeeding years if
necessary, until the credit is exhausted.

(2) A taxpayer allowed a credit under this section for a qualified
equity investment shall not be eligible for any other credit under
this part with respect to that investment.

(3) The credit allowed under this section may be in addition to
any credit allowed under Section 45D of the Internal Revenue
Code.

(f) RTCA shall annually report on its Internet Web site the
information provided by low-income community development
entities and on the geographic distribution of the qualified active
low-income community businesses assisted.

(g) (1) The Franchise Tax Board may prescribe any rules or
regulations that may be necessary or appropriate to implement this
section. The Franchise Tax Board shall have access to any
documentation held by RTCA relative to the application and
reporting of a qualified community development entity.

(2) A qualified community development entity shall provide
RTCA with the name, address, and tax identification number of
each investor and entity for which a qualified equity investment
was designated by the qualified community development entity,
pursuant to this section. RTCA shall provide this information to
the Franchise Tax Board in a manner determined by the Franchise
Tax Board.

(h) (1) The credit authorized by this section shall only be
allowed for those taxable years for which moneys are appropriated
to RTCA to administer the California New Markets Tax Credit
pursuant to 18410.3 for that taxable year. The appropriation shall
specifically identify the California New Markets Tax Credit.

(2) For those taxable years for which those moneys are
appropriated pursuant to paragraph (1), RTCA shall post notice
of the appropriation on the homepage of its Internet Web site and
send notice of such appropriation to the Secretary of State and the
Legislative Counsel.

(i) This section shall be repealed on December 1, 2022.

SEC. 6.  

For the purposes of complying with Section 41 of the
Revenue and Taxation Code, the Legislature finds and declares as
follows:

(a) Specific goals, purposes, and objectives: attract private sector
investment in lower income communities in California.

(b) Performance indicators:

(1) Amount of qualified low-income community investments
issued.

(2) Amount of dollars deployed in qualified low-income
community investments.

(3) Number of operating businesses assisted as a result of
qualified low-income community investments.

(4) Number of employment positions created and retained as a
result of qualified low-income community investments and the
average annual salary of those positions.

(c) Data collection requirements and baseline measurements:

(1) The baseline measurements include:

(A) The amount of tax credits issued in the year.

(B) The unemployment rate of the area.

(C) The poverty rate of the area.

(2) Data to collect includes:

(A) The amount of tax credits issued in the year.

(B) The number of operating businesses in a low-income
community assisted.

(C) The number of jobs created and retained as a result of
qualified low-income community investments.

SEC. 7.  

The provisions of this act are severable. If any
provision of this act or its application is held invalid, that invalidity
shall not affect other provisions or applications that can be given
effect without the invalid provision or application.

SEC. 8.  

This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.