BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Patricia Wiggins, Chair
BILL NO: AB 904 HEARING: 7/1/09
AUTHOR: V. Manuel P?rez FISCAL: Yes
VERSION: 5/4/09 CONSULTANT:
Weinberger
CAPITAL INVESTMENT INCENTIVES
Background and Existing Law
Counties and cities can pay a "capital investment incentive
amount" for 15 years to attract qualified manufacturing
facilities. A proponent pays property taxes on no less
than the first $150 million of the facility's value and
then receives a property tax rebate for the taxes paid on
the facility's value above that amount.
In return for this property tax rebate, the proponent must
pay a community service fee equal to 25% of the capital
incentive amount, up to $2 million a year. The proponent
must sign a community services agreement that spells out
the fee, payment conditions, a job creation plan, and
provisions to recapture the incentive payments if the
proponent fails to run the facility as agreed.
A city, special district, or school district may pay the
county or city an amount equal to the amount of property
tax revenue that the local government receives from the
facility's property taxes paid on the facility's value over
$150 million.
To qualify for this tax rebate program, a qualified
manufacturing facility must:
Have an initial investment in real and personal property
over $150 million, certified by the State Trade and
Commerce Agency.
Be within the county or city offering the capital
incentive program.
Be operated by either a high-technology business or a
business that recovers minerals from geothermal
resources.
Be engaged in commercial production or manufacture of
products.
The Legislature originally passed the tax rebate program to
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help Placer County officials attract an Intel plant, but
they never used the law (SB 566, Thompson, 1997).
Legislators expanded the definition of a qualified
manufacturing facility to include CalEnergy Company's plan
to extract minerals from geothermal brine (SB 133, Kelley,
1999). While Imperial County paid some property tax
rebates to that project, CalEnergy was unable to bring the
mineral extraction plant into operation and the rebates
were subsequently repaid to the County. With the exception
of this one unsuccessful attempt, the tax rebate program
has never been used. Imperial County officials want to use
the program to attract manufacturers of components for
renewable electricity generation technologies.
Proposed Law
Assembly Bill 904 expands the definition of a qualified
manufacturing facility eligible for local capital
investment incentive payments to include a facility
operated by a business engaged in the manufacturing of
parts or components related to the production of
electricity using solar, wind, biomass, hydropower, or
geothermal resources on or after July 1, 2010.
AB 904 replaces outdated references to the Trade and
Commerce Agency with references to the Business,
Transportation and Housing Agency.
Comments
1. Priming the economic pump . The development of
renewable-energy-technology manufacturing facilities will
bring new, good-paying jobs to Imperial County. Capital
investment in those facilities will also boost the local
tax rolls and generate more property tax revenue for the
county government, special districts, and schools. Good
jobs create economic ripples that multiply the effects of
the initial investment through the local economy. Building
on the 1999 precedent for CalEnergy's mineral recovery
plant, AB 904 widens the type of facilities that qualify
for local property tax subsidies. By offering tax rebates,
Imperial County officials can attract new investment that
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creates jobs, strengthens the local economy, and boosts
other tax revenues.
2. Subsidies and schools . School districts can contribute
funds towards the Capital Investment Incentive Program
(CIIP) property tax rebates. This provision of current law
raises two policy questions. First, why should school
districts be involved in economic development decisions
that are typically outside of their purview? Secondly,
this provision creates some uncertainty about whether
Proposition 98 requires the State General Fund to backfill
the funds that school districts give away. The Committee
may wish to consider amending AB 904 to eliminate schools'
ability to give away scarce property tax revenues.
3. Use it or lose it . The CIIP is not unique. A similar
program to allow property tax rebates to the owners of
"economic revitalization manufacturing property" (AB 1823,
Alpert, 1993) was allowed to sunset in 2003 after the
Legislative Analyst reported that no governments had
reported giving property tax rebates during that program's
nine years of existence. A subsequent effort to renew that
program also failed (SB 1767, Ducheny, 2004). In 2000, the
Legislature allowed San Diego County to give property tax
rebates on tangible personal property to the owner of a
telecommuting center, but that law also went unused and was
allowed to sunset in 2006 (AB 1984, Zettel, 2000).
Legislators may wish to consider amending AB 904 to impose
a January 1, 2017 sunset date on the CIIP statute. Like
its predecessors, the program should be removed from
statute if it remains unused many years after its creation.
4. No whining . Imperial County's share of property tax
revenues from locally assessed property (13
) is lower than � the statewide average (17
). AB 904 lets Imperial County's � supervisors reduce their share of property tax revenues by
rebating property tax revenues to manufacturers of
renewable energy generation components. The Committee may
wish to consider if the Legislature should permit a
relatively poor county government to give away its future
revenues. Further, the Committee may wish to consider how
legislators will react in the future if Imperial County
supervisors complain about ERAF shifts and program cuts.
How could Imperial County complain about the state when the
county supervisors give property tax rebates?
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5. Earlier failed bills . Three recent attempts to extend
the CIIP's reach, and one recent attempt to repeal the
CIIP, have all failed. Legislators rejected a bill that
would have expanded the definition of a qualified
manufacturing facility to include an electricity plant that
uses solar, wind, geothermal, solid-fuel biomass, or
digester gas (AB 2129, Kelley, 2002). Similar legislation
to extend the program to alternative electricity generation
plants also failed (AB 1966, Garcia, 2006 and AB 133,
Garcia, 2007). A bill to repeal the CIIP statute passed
the Senate, but was gut-and-amended to address an unrelated
topic in the Assembly Local Government Committee (SB 360,
Negrete McLeod, 2007).
Assembly Actions
Assembly Local Government Committee: 7-0
Assembly Appropriations Committee:15-0
Assembly Floor: 79-0
Support and Opposition (6/25/09)
Support : Imperial County Board of Supervisors, CalEnergy
Operating Corporation, Clean Power Campaign, Ormat
Technologies.
Opposition : Unknown.