BILL ANALYSIS Ó AB 2900 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 2900 (Committee on Jobs, et al.) As Amended August 19, 2016 Majority vote -------------------------------------------------------------------- |ASSEMBLY: |79-0 |(June 1, 2016) |SENATE: | 39-0 |(August 24, | | | | | | |2016) | | | | | | | | | | | | | | | -------------------------------------------------------------------- Original Committee Reference: J., E.D., & E. SUMMARY: Expands the reporting requirements of the California Competes tax Credit Program, which is administered through the Governor's Office of Business and Economic Development, to include the following information: 1)The primary location of the facility(s) for which the taxpayer is applying for credits. The primary location shall be listed by city or, in the case of unincorporated areas, by county; 2)Information that identifies each tax credit award that was given a priority for being located in a high unemployment or poverty area, as specified; and Information that identifies each tax credit award that is being counted toward the requirement that each fiscal year, 25% of the AB 2900 Page 2 aggregate amount of credits allocated are required to be reserved for small business, as defined. The Senate amendments remove the provisions relating to state contracts and add reporting requirements to the California Competes Tax Credit Program. These provisions are substantially similar to AB 2901 (Jobs, Economic Development and the Economy Committee) of the current legislative session, which was vetoed by the Governor for technical reasons. This bill contains the technical corrections to address the Governor's concerns. EXISTING LAW establishes the California Competes Tax Credit for the purpose of awarding $780 million in individually negotiated tax credits to businesses that operate in California. Tax credits are authorized to be awarded beginning in tax year 2014 through 2017. FISCAL EFFECT: The current language in the bill was contained in AB 2901, which passed through Senate Appropriations pursuant to 28.8. COMMENTS: In March 2015, the Assembly Committee on Jobs, Economic Development, and the Economy (JEDE) held the first in a series of program reviews of the Governor's Office of Business and Economic Development (GO-Biz) programs. A second hearing is planned in the future to hear about the California Competes Tax Credit program. The content of this bill was developed as part of the JEDE Committee's research for that hearing. This measure codifies the reporting of key elements of the tax credit program, including the identification of business or project location, credits awarded to small businesses, and credit awards that received priority consideration. Each of these new reporting requirements represents a key element of the tax credit program and is essential to providing appropriate oversight and program transparency. These elements include information to identify: areas that are not currently AB 2900 Page 3 being served; whether the requirements of the small business set aside are being met; and which areas of the state are benefiting from the priority application requirements for high unemployment and high poverty. The policy committee analysis includes further background on the California Competes Tax Credit Program. Background on Creation of the Program: The California Competes Tax Credit was established in 2013. It was part of a package of bills that eliminated the California Enterprise Zones Program and its related tax credits, including the New Hire Credit and the Sales and Use Tax Credit, among others. The approximately $750 million in tax incentives associated with those defunct programs was redirected to the California Competes Tax Credit, a more limited New Hire Credit, and a broader Sales and Use Tax-based incentive. Since inception, $303 million tax credits have been awarded to businesses who committed to investing $10 billion in California and adding 51,721 net new jobs. Public Reporting: Statute requires GO-Biz to post information on its Internet Web site relating to each tax credit award, including the taxpayer's name, estimated amount of each taxpayer's investment, estimated number of jobs created or retained, the amount of the credit allocated to the taxpayer, and the amount of any recaptured credit. When meeting this statutory requirement, GO-Biz has chosen to also include the city and industry sector. AB 2901 codifies the practice of reporting on the general geographic location of a credit award. Poverty Alleviation: The only statutory priority for the California Competes Tax Credit Programs is for applications which come from taxpayers with projects or businesses located in areas of high unemployment or poverty. GO-Biz defines high poverty as the taxpayer location being in an area with an income level at or above the federal poverty rate or at or above the state unemployment rate. GO-Biz does not currently report on these projects. Given the significance of the priority, it is important that the public and the Legislature have access to this information. AB 2901 requires reporting on this priority. AB 2900 Page 4 Small Business Mandate: At least 25% of the tax credits are required to be reserved for small businesses on an annual basis. A small business is defined as having gross receipts (less returns and allowances) of greater than $0 but less than $2 million in the prior tax year. The Franchise Tax Board is responsible for providing GO-Biz with the information as to whether a taxpayer qualifies as a "small business." Since inception, GO-Biz has awarded 22.0% of the tax credits to small businesses. Relative to the number of taxpayers receiving credits, 35.2% were small businesses. AB 2901 codifies posting this information on the GO-Biz Web site. Source of Tax Credit Provisions: The reporting requirements for the California Competes Tax Credit are identical to those in AB 2901, which was vetoed by the Governor in July 2016 due to technical issue. The issue has been corrected and the provisions are being returned to the Governor for his further consideration. AB 2901 passed both Houses of the Legislature without receiving any "no" votes. Its fiscal impact was determined to be not significant and AB 2901 moved from the Senate Appropriations Committee to the Senate Floor pursuant to Senate Rule 28.8. Analysis Prepared by: Toni Symonds / J., E.D., & E. / (916) 319-2090 FN: 0004811 AB 2900 Page 5