BILL ANALYSIS Ó
AB 2901
Page 1
Date of Hearing: April 19, 2016
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Eduardo Garcia, Chair
AB 2901
(Committee on Jobs, Economic Development, and the Economy) - As
Amended April 12, 2016
SUBJECT: California Competes Tax Credit Committee
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
3)Information that identifies each tax credit award that is being
counted toward the requirement that each fiscal year, 25% of the
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aggregate amount of credits allocated are required to be reserved
for small business, as defined.
EXISTING LAW: establishes the California Competes Tax Credit for the
purpose of awarding individually negotiated tax credits to businesses
that operate in California. Key statutory program requirements
include:
1)Allocation Years: 2013-2014 through and including 2017-18.
2)Tax Years: January 1, 2014, and before January 1, 2025.
3)Total Tax Credit Awards: $780 million for 5 years of credits - $30
million (2013-14); $150 million (2014-15); $200 million (2015-16,
2016-17, 2017-18).
4)Value of the Individual Credit: Each credit award is individually
negotiated with GO-Biz staff and approved by the California Competes
Tax Credit Committee. Awards are based on the committed dollars of
investment and net new jobs, as compared to the dollar amount of tax
credits requested. No taxpayer may receive more than 20% of the
total annual allocation.
5)Program Priority: Applications from taxpayers whose project or
business is located or proposed to be located in an area of high
unemployment or high poverty are required to be treated as a
priority. This is the only statutory priority under the California
Competes Tax Credit. High poverty areas are those that are at or
above the federal poverty rate at the time of the tax credit award.
High unemployment areas are those that are at or above the state
unemployment rate at the time of the tax credit award.
6)Carryforward: Six years from the initial application of the credit,
as specified in the written agreement.
7)Competitive Award Criteria: The California Competes Tax Credit is a
competitively awarded credit based on the following criteria:
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a) The number of anticipated California jobs created or retained;
b) The compensation paid or proposed to be paid to its employees,
including wages and fringe benefits;
c) The amount of investment in this state by the taxpayer;
d) The extent of unemployment or poverty in the area in which the
taxpayer's project or business is proposed or located;
e) The incentives available to the taxpayer in this state,
including incentives from the state, local government, and other
entities;
f) The incentives available to the taxpayer in other states;
g) The duration of the proposed project and the duration the
taxpayer commits to remain in this state;
h) The overall economic impact in this state of the taxpayer's
project or business;
i) The strategic importance of the taxpayer's project or business
to the state, region, or locality;
j) The opportunity for future growth and expansion in this state
by the taxpayer's business; and
aa) The extent to which the anticipated benefit to the state
exceeds the projected benefit to the taxpayer from the tax
credit.
8)Written Agreements: Each award is documented through a written
agreement between GO-Biz and the taxpayer. Enforcement of the
individual commitments is the responsibility of the Franchise Tax
Board (FTB), which is directed to review the books and records of
every non-small business taxpayer who receives a credit. FTB has
the authority to review the books and records of small business tax
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payers, but is not mandated.
9)Small Business Mandate: At least 25% of the tax credits are
required to be awarded to small businesses on an annual basis. A
small business is defined as having net revenues of less than $2
million in the prior tax year. The FTB 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 24.4% of the
tax credits to small businesses. Relative to the number of
taxpayers receiving credits, 33.7% were small businesses.
10)General Fund Protection: Although statute generally sets a
specific schedule for awarding the credits, GO-Biz works in
partnership with the state's tax entities to ensure the financial
impact on the General Fund does not exceed $750 million in the
current and next fiscal year, including all incentives awarded
through the California Competes Tax Credit, the Sales and Use Tax
Exclusion, and the New Hire Credit.
The Franchise Tax Board is required to annually provide a report to
the Joint Legislative Budget Committee that identifies the actual
total dollar amount of the credits claimed under the California
Competes Tax Credit.
FISCAL EFFECT: Unknown
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POLICY ISSUE FRAME:
In March 2015, the Assembly Committee on Jobs, Economic Development,
and the Economy held the first in a series of program reviews of
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 are essential to providing appropriate
oversight and program transparency. These elements include
information to identify: areas that are not currently 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
analysis includes further background on the California Competes Tax
Credit Program.
COMMENTS:
1.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
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businesses who committed to investing $10 billion in California and
adding 51,721 of net new jobs.
2.Reporting Requirements in Statute: Existing law requires GO-Biz to
post information on its internet website relating to each tax credit
award, including the taxpayers 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 the any recaptured credit.
3.Number of Businesses Served: Below are charts displaying
information on the tax credit wards, including numbers of small
businesses and non-small businesses who received credits, applied
for credits, average credit award, and median credit award.
--------------------------------------------------------------------
| As of | | | | |
| November | Number of | Number | Amount of | Credit |
| 2015 | | of Jobs | Investment | Awarded |
| | Awardees | | | |
| | | Committ | Committed | |
| | | ed | | |
|-------------+--------------+-----------+---------------+-----------|
|Non-Small | 21 | 36,038 | $8,967,133,5| $168,119,6|
| | | | | |
|Businesses | 2 | | 74 | 50 |
| | | | | |
|-------------+--------------+-----------+---------------+-----------|
|Small | 11 | 6,3 | $1,320,513,6| $54,699,0|
| | | | | |
|Businesses | 8 | 14 | 77 | 31 |
| | | | | |
|-------------+--------------+-----------+---------------+-----------|
|Total | 33 | 42,352 | $10,287,647,| $222,818,6|
| | | | | |
|Businesses | 0 | | 251 | 81 |
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| | | | | |
--------------------------------------------------------------------
--------------------------------------------------------------------
| Data Source: |
|GO-Biz |
--------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
| | | | | | | |
| |Total Credits | Total Credit | Number of | Number of | Number of | Number |
| Fiscal Year | Available | | Non-Small | Small | Non-Small | Small |
| (FY) | | Requests | | | | |
| | | | Business | Business | Businesses | Businesses |
| | | | Applications | Applications | Awarded | Awarded |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|FY 13-14: | $30,000,000 | $561,454,983 | 262 | 134 | 18 | 11 |
|Application | | | | | | |
|Period 1 | | | | | | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|FY 14-15: | $45,000,000 | $329,333,538 | 228 | 58 | 31 | 25 |
|Application | | | | | | |
|Period 1 | | | | | | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|FY 14-15: | $75,000,000 | $289,800,949 | 177 | 76 | 66 | 27 |
|Application | | | | | | |
|Period 2 | | | | | | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|FY 14-15: | $30,000,000 | $320,181,186 | 187 | 80 | 38 | 25 |
|Application | | | | | | |
|Period 3 | | | | | | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|FY 15-16: | $75,000,000 | $268,876,560 | 205 | 136 | 59 | 30 |
|Application | | | | | | |
|Period 1 | | | | | | |
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--------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------
| Data Source: |
|GO-Biz |
| |
| |
| |
-----------------------------------------------------------------
----------------------------------------
|As of November | Average | Median |
| | | |
| 2015 | Credit | Credit |
| | | |
| | Award | Award |
| | | |
|---------------+----------+-------------|
| | | |
|Non-Small | $793,017 | $329,167 |
|Businesses | | |
|---------------+----------+-------------|
| | | |
|Small | $463,551 | $106,667 |
|Businesses | | |
|---------------+----------+-------------|
| | | |
|Total | $675,208 | $226,667 |
|Businesses | | |
----------------------------------------
----------------------------------------
| |
| Data Source: |
|GO-Biz |
| |
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| |
| |
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4)Summary of Related Reports: Below is a list of reports related to
the California Competes Tax Credit Program.
a) California Competes Tax Credit Program Report (December 2014):
This mandated report was prepared by GO-Biz in response to
supplemental budget reporting language. The report chronicles
the establishment of the program, adoption of regulations,
outreach activities, and a summary of the application process.
Between the commencement of the program and December 2014, GO-Biz
held 29 application workshops throughout the state, including
four online webinars. Between the spring of 2014 and October 31,
2014, GO-Biz expended 2,653 hours of California Competes staff
and used 2,822 hours of time redirected by other GO-Biz staff.
In the first $45 million round, GO-Biz received 286 applications
for a total of $330 million in tax credits. At the time of the
report, first round awards had not been finalized. Two
additional allocation rounds are anticipated in the 2015-16
fiscal year for a total of $106.1 million in tax credits.
Document is not available online.
b) California Competes Credit Report (March 2016): This mandated
report was prepared by the Franchise Tax Board (FTB) to disclose
the total annual amount of credits claimed under the California
Competes Tax Credit in the most recent fiscal years. For the
2014 tax year, filed in 2015, FTB reports that $3.6 million in
credits were claimed on 79 returns. FTB also notes that these
numbers do not reflect all fiscal year returns, as some have not
been filed at the time of the report. FTB, however, notes that
it defers to GO-Biz and the Department of Finance for actual
estimated revenues loss. According to data provided by GO-Biz,
there have been $10.5 million in allocated tax credit agreements
covering the 2014 tax year. Document is not available online.
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5)Public Reporting: Statute requires GO-Biz to post information on
its internet website relating to each tax credit award, including
the taxpayers 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.
6)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 the public and the
Legislature have access to this information. AB 2901 requires
reporting on this priority.
7)Small Businesses Applications: According to information provided by
GO-Biz, 118 of the 330 businesses assisted have been awarded to
small businesses, $54,699,031 in credits to small businesses and
$168,119,650 to non-small businesses. The tax credit program has a
25% annual small business mandate. Since inception, GO-Biz is only
slightly off the 25% mandate, with awards to small businesses
totaling 24.5%. Recognizing the difficulty many small businesses
have in applying for and utilizing tax credits, it is also important
to consider the number of small business taxpayers which received
credits. In this case, GO-Biz awarded 35.7% of the credits to
businesses that met the revenue limits to be considered a small
business ($2 million in revenues in the prior tax year).
Currently GO-Biz reports on small businesses through their
individual committee meeting agendas. Small business reporting is
currently not mandated. AB 2901 codifies posting this information
on the GO-Biz website. A question arose as to whether it was
appropriate to have the public know general revenue information
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about businesses. JEDE is in discussions about how to disclose this
information without necessarily disadvantaging these businesses in
future business relationships.
REGISTERED SUPPORT / OPPOSITION:
Support
None Received
Opposition
None Received
Analysis Prepared by:Toni Symonds / J., E.D., & E. / (916) 319-2090