BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2728| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 2728 Author: Atkins (D) Amended: 8/19/16 in Senate Vote: 21 SENATE INSURANCE COMMITTEE: 8-0, 6/22/16 AYES: Roth, Gaines, Berryhill, Glazer, Hall, Hernandez, Mitchell, Wieckowski NO VOTE RECORDED: Liu SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 6/29/16 AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach, Pavley SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/11/16 AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen ASSEMBLY FLOOR: 80-0, 5/31/16 - See last page for vote SUBJECT: Insurance: community development investments SOURCE: California Department of Insurance DIGEST: This bill adds to the categories of investments that qualify under standards established for California Organized Investment Network (COIN) program and extends the sunset date of the Community Development Financial Institution (CDFI) tax credit. Senate Floor Amendments of 8/19/16 eliminate the extension of AB 2728 Page 2 the advisory board and move the sunset date for the tax credit to January 1, 2018. ANALYSIS: Existing law: 1)Establishes COIN within the California Department of Insurance (CDI). 2)Defines "community development investments" as investments where all or part of the investment has as its primary purpose community development for, or that directly benefits, low or moderate income (LMI) individuals, families, or communities including investments in affordable housing, community service providers, certain economic developments, and activities that revitalize or stabilize LMI communities. 3)Requires any insurer that writes at least $100 million in California premium to report to COIN by July 1, 2016, various categories of investments over the last three years ("data call"), including community development investments and "green investments," as defined. 4)Requires CDI to report on its Web site, by December 31, 2016, aggregate data from the data call, specific insurers that make high-impact investments, and actions taken by COIN to analyze the data in order to create and identify potential investments opportunities. 5)Sunsets the data call and reporting provisions on January 1, 2020. AB 2728 Page 3 6)Allows a tax credit against the gross premiums tax, personal income tax, and corporation tax, ending in the 2017 taxable year, of an amount equal to 20 percent of the amount of each qualified investment into a CDFI up to $50 million per year. 7)Provides that COIN must certify investments that qualify for the CDFI credit. 8)Requires the Legislative Analyst's Office to submit a report to the Legislature on the effects of the CDFI tax credit by June 30, 2016. This bill: 1)Adds investments in reservation-based communities and rural area investments to the list of community development investments for purposes potential future data calls. 2)Defines, for the purposes of potential future data calls, "diverse investment managers" as investment management organizations whose investment managers are comprised of at least 51 percent women, veterans, or minorities, or combination of person in those groups. 3)Revises the definitions of "high-impact" and "green" investments. 4)Declares the Legislature's intent to establish future data calls once CDI complies with an existing requirement to publish specified information on its Web site. 5)Extends the sunset date on the CDFI tax credit to January 1, 2018. AB 2728 Page 4 6)Grants priority to insurance companies over all other tax credit investors. 7)Provides that investment reductions of less than $50,000 trigger a clawback of the total amount of the credit. Background COIN was created in 1996 as a public/private partnership that includes CDI, the insurance industry, state government leaders, and community development organizations. COIN's goal is to help address unmet capital needs that support investments in economic development and affordable housing in low-income urban and rural communities throughout California. The program serves as a liaison between insurers that are seeking investment opportunities and the community organizations that are seeking investment capital for projects. Investments are submitted, scrutinized by COIN, and reported on the CDI website. Insurers may identify investments on their own and submit them for certification or may select investments sourced or structured by COIN. COIN also administers a "data call" that requires insurers to submit information related to qualified investments. This bill revises the categories of investments that must be disclosed and adds diverse fund managers to the reportable categories. Under existing statute, the last data call was due on July 1, 2016. This bill contains intent language to establish new data calls once the CDI complies with existing reporting requirements. It is anticipated that an additional data call will be considered next year when the Legislature is in a better position to review several reports about the program that were published after the policy committee deadline. COIN also administers the CDFI tax credit program. Those tax credits are available to any qualified taxpayer, not just insurers. Each year, CDI may allocate up to $50 million in tax credits each year. Investors receive a tax credit worth up to 20% of their investment in one of the CDFIs certified by COIN. Investments must be in the form of non-interest bearing deposits, loans, or equity investments, in an amount of at least AB 2728 Page 5 $50,000, and held for at least 60 months. Investors can claim a credit against the state personal income tax, corporation tax, or insurance gross premium tax. This bill extends the tax credit to January 1, 2018. A June report by the Legislative Analyst's Office (LAO) evaluated the tax credit. LAO notes that, as of 2015, the tax credit has been fully utilized and that small- to medium-sized CDFIs have likely benefited the most. However, few insurance companies participate in the program. In 2015, only three insurance companies participated in the program, investing a total of $22.3 million in CDFIs (less than a third of total qualified investments). Based on information provided by COIN, CDFI investments between 2011 and 2015 could result in 1,400 jobs in low-to-moderate income areas. However, LAO expects that the total statewide net increase in employment may be significantly less, or even negative, due to opportunity costs. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No According the Senate Appropriations Committee, the bill would result in ongoing costs to the Insurance Fund of $630,000 per year starting in fiscal year 2017-18 to retain five limited term positions associated with the tax credit program that will expire on June 30, 2017. The Franchise Tax Board estimates that the tax credit extension will result in an annual revenue loss of $0.6 million in fiscal year 2016-17. Due to recent amendments, estimated costs for fiscal year 2017-18 and beyond are not available at this time. These estimates do not include the revenue impact of tax credits allowed against the insurance gross premiums tax. SUPPORT: (Verified8/22/16) California Department of Insurance (source) 3CORE AB 2728 Page 6 Association of California Life and Health Insurance Companies Bankers Small Business CDC of California Burbank Housing Development Corporation California Apartment Association CDC Small Business Finance California LISC Century Housing CSAA Insurance Group Denice Wint (individual) Enterprise Community Investments First General Bank Genesis LA Economic Growth Corporation Housing Trust Silicon Valley Mercy Loan Fund National Association of Mutual Insurance Companies Neighborhood Housing Services of the Inland Empire NeighborWorks HomeOwnership Center Sacramento Pacific Association of Domestic Insurance Companies Personal Insurance Federation of California Prudential Financial, Inc. Redwood Valley Little River Bank of Pomo Indians Roxborough, Pomerance, Nye & Adreani, LLP Rural Community Assistance Corporation Small Business Investor Alliance United Native Housing Development Corporation WNC & Associates OPPOSITION: (Verified8/22/16) None received ARGUMENTS IN SUPPORT: Many of the supporters of this bill explain that since 1997, $57 million in state tax credits have generated more than $285 million in investments and that the economic impact of this program is exponentially greater than the sum of the deposits. ASSEMBLY FLOOR: 80-0, 5/31/16 AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, AB 2728 Page 7 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, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon Prepared by:Hugh Slayden / INS. / (916) 651-4110 8/22/16 20:37:58 **** END ****