BILL ANALYSIS
AB 1111
Page 1
Date of Hearing: May 20, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 1111 (Blakeslee) - As Amended: May 13, 2009
Policy Committee: Utilities and
Commerce Vote: 14-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill:
1)Expands the types of projects for which the California
Alternative Energy and Advanced Transportation Financing
Authority (CAEATFA) may authorize a sales tax exclusion to
encompass sales lease-back arrangements involving facilities
and equipment used to manufacture renewable energy components.
2)Requires CAEATFA, in approving projects for the sale and use
tax exclusion pursuant to its current authority, to consider
the extent to which:
a) The benefit to the state from the project exceeds or
equals the recipient's benefit of the exclusion.
b) The project will create new, permanent jobs in the
state.
c) The project is consistent with local and state planning.
d) The project will produce quantifiable greenhouse gas
emissions.
3)Requires the authority, once the exclusions provided exceed
$100 million annually, to provide the Legislature a 20-day
notice of additional approvals.
FISCAL EFFECT
Because the bill broadens the definition of "project," for
purposes of approving and providing the sales and use tax
exclusion, there could be significant state and local revenue
losses. The extent of such losses would depend on the number of
AB 1111
Page 2
new projects approved by the CAEATFA pursuant to this bill and
the dollar amount of machinery, equipment or other property
sold, leased or transferred. For every $100 million in
exclusions provided, state revenues losses would total $6.25
million and local revenue losses would total $2.75 million. To
the extent the exclusions provided from this bill result in
economic activity in California that would not otherwise occur,
the state and local governments could realize some offsetting
revenue gains.
COMMENTS
Background and Purpose . CAEATFA was created in 1980 with an
authorization of $200 million in revenue bonds to finance
projects that utilize alternative sources of energy, such as
cogeneration, wind, and geothermal power. It was renamed in
1994 as the California Alternative Energy and Advanced
Transportation Financing Authority and its charge was expanded
to include the financing of "advanced transportation"
technologies. During the energy crisis of 2001, the CAEATFA's
authority was expanded to provide financial assistance to public
power entities, independent generators, and others for new and
renewable energy sources, and to develop clean distributed
generation. CAEATFA was given the authority last year to issue
electricity pre-payment bonds to finance the purchase of
renewable energy by state agencies and schools.
The authority has $53 million of bonds outstanding, no bonds
unsold, and approximately $813.9 million in remaining bonding
capacity. In addition to bonds, financial assistance from the
authority can include loans, loan guarantees, and credit
enhancement.
Existing law also permits CAEATFA to authorize companies to
enter into sales lease-back arrangements with the authority for
any authorized project, whereby the sales and leaseback of the
tangible personal property related to the project is exempt from
state and local sales and use taxes.
In a typical transaction involving the financing of equipment,
for example, the participating party, upon receiving project
approval from the authority, would purchase the equipment (and
other property meeting the statutory "project" definition)
AB 1111
Page 3
without payment of the sales tax, and then resell the equipment
to CAEATFA. This transfer may be excluded from sales and use
taxes as a transfer from a participating party to CAEATFA. The
applicant and CAEATFA then enter into a lease, whereby CAEATFA
transfers to the applicant the equipment. (While normally a
lease involving tangible personal property is subject to sales
taxes, current law provides a specific sales tax exclusion for
lease-back arrangements between CAEATFA and the participating
party.) Upon complete installation of all the equipment,
ownership of the equipment is transferred from CAEATFA to the
participating party. The transfer may also be excluded from
sales and use taxes under existing law.
The Public Resource Code currently defines "project" for
purposes of the sales tax exclusion to include any land,
construction or improvements to buildings, and acquisition of
personal property (such as machinery and equipment) that uses an
alternative energy source, or is used for the manufacturing of
advanced transportation technologies. This bill expands the
scope of "project" to include tangible personal property
purchased for the manufacturing of alternative energy
components. Thus, under existing law, a company wishing to
install solar panels may be authorized for the sales tax
exemption. This bill would also enable CAEATFA to authorize the
exemption for the plant and equipment needed to manufacture the
solar panels.
This bill, sponsored by the State Treasurer, is intended to make
CAEATFA's financial assistance availability to entities that
produce the component parts of renewable energy and alternative
transportation products. The sponsor also indicates that the
bill is intended to "set a clear, prudent, but adaptable
financial cap for a sales tax exemption program that would
include both manufacturers of advances transportation project
and manufacturers of components for production of renewable
energy." (The bill does not actually impose any cap on
CAEATFA-approved sales tax exemptions, instead only requiring
that the Legislature be notified when the board is approving
exclusions exceeding $100 million in a year.)
According to the author, the bill is intended to retain
companies and industries that are considering moving their
AB 1111
Page 4
operations from California in order to benefit from other
states' tax exemptions. The author believes that California
currently lacks policies that support the production of the
innovative technologies being developed in-state.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081