BILL ANALYSIS
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|Hearing Date:June 28, 2010 |Bill No:AB |
| |2437 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Gloria Negrete McLeod, Chair
Bill No: AB 2437Author:V. Manuel Perez
As Amended:May 28, 2010 Fiscal: Yes
SUBJECT: State government: economic development.
SUMMARY: This bill establishes the California Manufacturing
Competitiveness Act of 2010 for the purpose of supporting the
retooling and expansion of California's manufacturing facilities,
supporting a vibrant logistics network, and retain and create jobs.
Existing law:
1) Under the California Industrial Development Financing Act (CIDF
Act) authorizes cities, counties and redevelopment agencies to
establish industrial development bonds, the proceeds of which may
be used to fund capital projects of private enterprise under terms
and conditions specified in the CIDF Act.
2) Establishes the California Industrial Development Financing
Advisory Commission (Commission) to advise on and approve specified
activities relating to the industrial development.
3) Authorizes the Commission, upon request of two or more authorities,
to act as a pooling agent to issue bonds on a joint or composite
basis for companies which have applied for financing to the
participating authorities, in order to share expenses and
facilitate bond issuance. Requires authorities to enter into
written agreements with the Commission specifying the projects
which are to be delegated to the Commission for financing.
4) Authorizes the Commission to issue bonds as requested and
authorizes and gives the Commission all the powers of an authority
and specifies that the Commission is allowed to enter into project
agreements and take all steps toward the sale, issuance, and
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security of bonds in the same matter as other authorities.
This bill:
1) Establishes the California Manufacturing Competitiveness Act of
2010 (Act of 2010) to authorize the Commission to make loans or
lines of credit available to companies, directly through a contract
with a participating financial institution, for the purposes of
acquiring, constructing, or rehabilitating facilities or portions
thereof, including, but not limited to, equipment and furnishings,
pursuant to Article 6 (commencing with Section 91600 of the
Government Code), all to the mutual benefit of the people of the
state and to protect their health, welfare, and safety.
2) States that the Legislature finds and declares all of the
following:
a) California is one of the largest and most diverse economies in
the world, with a state gross domestic product (GDP) of over $1.8
trillion in 2008. Based on figures from the International
Monetary Fund, if California were an independent nation it would
rank as the eighth largest economy in the world.
b) Historically, the state's significance in the global
marketplace resulted from a variety of factors, including: its
strategic west coast location that provides direct access to the
growing markets in Asia; its economically diverse regional
economies; its large, ethnically diverse population, representing
both a ready workforce and significant consumer base; its access
to a wide variety of venture and other private capital; its broad
base of small- and medium-sized businesses that support the
global manufacturing supply chain; and its culture of innovation
and entrepreneurship, particularly in the area of high
technology.
c) Historically, economic growth in California has outpaced the
economic growth rate of the nation as a whole, and the state has
led the nation in export-related jobs, business startups, and
innovation. However, since the subprime home mortgage crisis in
2007, California communities have struggled. With the increasing
rates of home foreclosure and the tightening of the credit
markets, many businesses have found their existing lines of
credit inaccessible. Significant drops in consumer spending have
led to workforce reductions and business bankruptcies.
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d) For much of 2009, the number of unemployed workers rose by
40,000 to 60,000 per month, and the year ended with 2.25 million
unemployed California workers. While California may have emerged
from the recession in the final quarter of 2009, unemployment is
expected to remain high throughout 2010 and 2011. Without
specific intervention to support job creation and business
expansion, many regions of California will be very slow to
recover.
e) As California moves forward from this recession, it is
important that the state support the recovery of industries that
provide quality jobs, including manufacturing industries. A
robust manufacturing sector offers many benefits to the state,
including high-wage jobs, a basis for international trade, and
one of the highest multiplier effects on other industries and
businesses.
f) Manufacturing employers and other large employers in
California, however, face many challenges in maintaining global
and domestic competitiveness, including maintaining a skilled
workforce and cost-effective productivity in the face of lower
safety and wage standards in emerging foreign markets.
3) Declares that it is the intent of the Legislature to strengthen the
manufacturing capacity of California through the implementation of
the Act of 2010, which will provide the framework and focus to
retool and expand California's manufacturing facilities, support a
vibrant logistics network, and retain and create more quality jobs.
4) Defines the following terms:
a) "Administration expenses" means the reasonable and necessary
expenses incurred by a Commission in the administration of the
CIDF Act, including, without limitation, the fees and costs of
paying agents, trustees, attorneys, consultants, and others.
b) "Company" means a person, partnership, corporation, whether
for profit or not, limited liability company, trust, or other
private enterprise of whatever legal form, for which a project is
undertaken or proposed to be undertaken pursuant to the CIDF Act
or which is in possession of property owned by an authority, and
may include more than a single enterprise.
c) "Cost" as applied to any project, may mean all of the
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following:
i) The cost of construction, improvement, repair,
rehabilitation, and reconstruction.
ii) The cost of acquisition, including rights in land and
other property, both real and personal and improved and
unimproved, and franchises, and disposal rights.
iii) The cost of demolishing, removing, or relocating any
building or structures on lands so acquired, including the cost
of acquiring any lands to which the buildings or structures may
be moved or relocated.
iv) The cost of machinery, equipment, and furnishings, of
engineering and architectural surveys, plans, and
specifications, and of transportation and storage until the
facility is operational.
v) The cost of agents or consultants, including, without
limitation, legal, financial, engineering, accounting, and
auditing costs, necessary or incident to a project and the
determination as to the feasibility or practicability of
undertaking the project.
vi) The cost of acquiring or refinancing existing obligations
incident to the undertaking and carrying out, including the
financing, of a project, and the reimbursement to any
governmental entity or agency, or any company, of expenditures
made by or on behalf of the entity, agency, or company that are
costs of the project hereunder, without regard to whether or
not the expenditures may have been made before or after the
adoption of a resolution of intention with respect to that
project by an authority.
vii) The cost of making relocation assistance payments as
provided by Chapter 16 (commencing with Section 7260) of
Division 7 of Title 1, of the Government Code.
viii) The cost of procuring raw materials and finished goods
that become integral to the property as a result of
construction, improvement, repair, rehabilitation, or
reconstruction.
d) "Governing body" means the board of supervisors, city council,
or board of directors of a redevelopment agency, as the case may
be.
e) "Indenture" means any mortgage, deed of trust, trust
indenture, security agreement, or other instrument relating to
establishing a lien or security interest in, or on, property, any
pledge or other instrument relating to the possession of
property, and any assignment or other instrument relating to
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establishing any right, title, or interest in, or related to,
property, including the revenues therefrom, given by an authority
to a corporate trustee, which may be any trust company or bank
having the powers of a trust company within or without the state,
or bondholder or agent, for the security of its bonds and the
benefit of the bondholders.
f) "Manufacturing Program Account" (Account) means the account
established within the Industrial Development Fund for moneys
which are available for direct loans and loan guarantees.
g) "Project" means the acquisition, construction, improvement,
repair, rehabilitation, and reconstruction of facilities and the
acquisition and rehabilitation of machinery, equipment, and
furnishings, and the acquisition of engineering and architectural
surveys, plans, and specifications, and all other necessary and
related capital expenditures by the issuance of bonds upon the
application of and to be repaid by payments from a company for
the purposes of the CIDF Act.
h) "Project agreements" means the agreements between an authority
and a company respecting a project, and may include, without
limitation, leases, subleases, options, and installments or the
contracts of purchase or sale, loan, or guaranty agreements,
notes, mortgages, deeds of trust, and security agreements.
i) "Property" means any land, air rights, water rights, disposal
rights, improvements, buildings or other structures, and any
personal property, tangible or intangible, and includes, but is
not limited to, machinery and equipment, whether or not in
existence or under construction, and interests in any of the
foregoing, or promissory notes or other obligations of any kind
respecting such interests. Property also means property suitable
for one or more of specified activities or uses.
j) Public agency" means any city, county, city and county, or
redevelopment agency.
aa) "Revenues" means all rents, purchase payments, and other
income derived from, or with respect to, the sale, lease, or
other voluntary or involuntary disposition of, or repayment of
loans with respect to, property, bond proceeds, and any receipts
derived from the deposit or investment of any income or proceeds
in the account, but does not include receipts designated to cover
administration expenses.
5) Authorizes the Commission to establish the California Manufacturing
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Competitiveness Loan and Loan Guarantee Program (Program) for the
purposes of attracting, retaining, and expanding large
manufacturing facilities, and requires the Commission to establish
guidelines for the implementation of the Program, as specified.
6) Requires the Commission to develop the Program to meet specified
objectives.
7) Requires the Commission to provide for the development and
administration of the application, review, and evaluation process
for the Program, including but not limited to defining the
eligibility standards, rating and ranking criteria, and other
polices and procedures for implementing a direct loan and guarantee
program subject to the following:
a) Requires the maximum loan limit to be $5 million and the
maximum loan guarantee amount to be $10 million.
b) Provides that only companies with at least 200 employees may
receive assistance under the Program.
c) Requires all loan and loan guarantee applicants to demonstrate
that they will have the ability to repay the loans.
d) Authorizes loans to be provided at terms and conditions below
market to the extent that the overall Program remains financially
viable.
e) Requires applicants to demonstrate that they are in compliance
with applicable federal, state, and local laws and regulations,
or that the project for which they are requesting funding will
bring them into compliance.
f) Requires outstanding loans to be paid in full six months prior
to a relocation of a facility outside of California. If the loan
or loan guarantee included a subsidized amount, then that amount
must also be repaid subject a sliding scale adopted by the
Commission.
g) Requires each applicant to agree to annually report to the
Commission on total capital investment made by the company and
total employment, including wage levels by the type of work, in
the prior year and the following two years. Also requires the
applicant to estimate the number of jobs created or retained
through the provision of this state assistance, as well as
provide other appropriate performance data, as determined by the
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Commission.
8) Requires each applicant to demonstrate that it meets all of the
specified criteria, specifically:
a) The facility or facilities where the moneys will be expended
or provide a benefit to are located in the state.
b) The moneys being awarded will be used to create or retain jobs
in the state.
c) The wages the applicant pays its employees in the state are on
average, equal to or more than the average weekly wage rate for
similar workers in the same industry subsector.
d) The applicant provides health insurance benefits for all
full-time employees.
e) The applicant's turnover rate has not exceeded 20% annually at
any facility where moneys obtained through the Program will be
used.
9) Requires each applicant to pay a nonrefundable application fee of
$5,000 and an administrative fee equal to 0.5% of the total
requested guaranteed amount. Requires these moneys to be deposited
into the Account for the purpose of ensuring that funds are
available to the state for the sole purpose of administration of
the program.
10)Requires all moneys received from private and public funding
sources to for the purpose of implementing the Program to be
deposited into the Account and all loan repayments, interest, and
royalties must be deposited back into the Account.
11)Prohibits General Fund moneys from being deposited in the Account.
12)Prohibits the Commission from commencing the Program prior to its
adoption of a resolution finding that there is sufficient money in
the Account to cover the costs of implementing the Program,
including, but not limited to, appropriate oversight costs.
13)Authorizes moneys in the Account to be allocated by the Commission
to a lending institution or financial company that will act as
trustee of the funds, with the approval of the Department of
Finance, upon appropriation by the Legislature.
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14)Requires the Commission, beginning October 1, 2012, to annually
post on its Internet Web site and provide the Legislature with a
report with specified information on the Program's activities and
impact on the manufacturing industry, and on the state's economy
generally.
15)Sunsets the provisions of the Act of 2010 on January 1, 2016.
FISCAL EFFECT: According Assembly Appropriations Analysis dated May
12, 2010, one-time costs associated with developing the Program would
be approximately $200,000 from the General Fund (GF). Ongoing
administrative costs, in the range of $200,000 could be covered by fee
and administrative revenue. The analysis also asserts that there is no
available federal or private funding for this Program, and therefore,
the loan and loan guarantees would need to be provided by GF,
estimating a total of $65.5 million GF for the loan program and $32.75
million GF for the loan guarantee program each year.
COMMENTS:
1. Purpose. This bill is sponsored by California Labor Federation,
AFL-CIO (Sponsor). According to the Author, "the U.S. Congress is
in the process of approving federal funds for state's that have
manufacturing loan and guarantee programs. We need to be sure that
California is ready and can submit a competitive application. In
addition, manufacturing plays an important role in the California
economy providing both quality jobs and supporting hundreds of
small businesses within its supply chain."
2. Background. According to Author, "manufacturing in California,
even prior to the current economic recession, faced many challenges
maintaining global and domestic competitiveness, including
providing a skilled workforce to support the changing needs of
manufacturing and goods movement, and maintaining cost-effective
productivity in the face of lower safety and wage standards in
emerging foreign markets. Globalization has given rise to economic
clusters in other areas of the US and the world, which directly
compete with California businesses. Many states have established
targeted economic incentives to attract manufacturing facilities."
The Author provides several examples listed below.
Chickasaw Trail Economic Development Compact (MS/TN) : The purpose
of this compact is to promote the development of an undeveloped
rural area of Marshall County, Mississippi., and Fayette County,
Tennessee, and to create a development authority which incorporates
public and private partnerships to facilitate the economic growth of
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such areas by providing developed sites for the location and
construction of manufacturing plants, distribution facilities,
research facilities, regional and national offices with supportive
services and facilities, and to establish a joint interstate
authority to assist in these efforts.
Michigan SmartZones : The program consists of collaborations among
universities, industry, research organizations, government and other
local institutions that have resulted in regionally based high-tech
zones which target growth in a specific economic sector that fits
the geographic region's strengths and needs, creating clusters of
high-skilled, high-paying jobs.
Arizona Clean Technology Credit : The goal of the new program
(enacted in 2009) is to encourage business investment that will
produce high quality employment opportunities and enhance Arizona's
position as a center for production and use of renewable energy
products. The program offers two benefits: up to a 10% refundable
income tax credit and up to a 75% reduction on real and personal
property taxes, for companies that are primarily engaged in the
manufacturing of or headquarters for producing systems and
components that are used or useful in manufacturing renewable energy
equipment. The company must also be expanding or locating in
Arizona, create fulltime employment positions of which at least 51%
are paid at least 125% of the state's annual median wage (currently
$30,940), offers to pay at least 80% of the health insurance costs
for all net new fulltime employment positions, and spend at least
$250,000 in qualifying investments during each twelve-month period.
Missouri Life Science Trust Fund : In 2007, Missouri's General
Assembly approved the $13.4 million funding of the Missouri Life
Sciences Research Trust Fund to enhance research capacity and
transform research into commercial life science technology. In
conjunction with Missouri's universities and industry, $10.5 million
was awarded for research grants and $2.6 million for
commercialization grants. This Trust Fund is in addition to $15
million the state earmarked to the Missouri Technology Corporation
(MTC) for various programs designed to improve commercialization of
Missouri technologies.
3. Milken Institute's Manufacturing 2.0 Report. A June 2009 report by
the Milken Institute, Manufacturing 2.0: A more Prosperous
California, asserts that for the past hundred years, California's
economy has been built on the success of the manufacturing
industry. Their research concludes that both traditional and high
tech manufacturing still drive California's economy in various
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ways, but the state is losing ground to other states and nations
because of our regulatory climate, tax burden, and reputation as a
difficult and costly place to do business.
The report discusses the need for action due to the current state
of manufacturing. One of the report's key findings was that
California is losing a larger share of manufacturing employment
overall, in high-tech in particular, and at a faster rate compared
to some other states (specifically Oregon, Texas, Minnesota,
Washington) that are often using targeted incentives to keep and
lure manufacturers away from California. The report suggests that
one way to take action and increase California's capacity to
innovate is to create new partnerships between manufacturers and
the public sector. Specifically, one initiative proposed in the
report calls for enhanced incentives that are strategic, clear and
coordinated. The report states, "Public incentives offered to the
private sector to stimulate investment, job creation, and
infrastructure development should be deployed strategically based
on the cost-benefit ratio to society, the rest of the business
community, and the state as a whole. To increase the effectiveness
of incentives, a comprehensive review should be conducted to
identify efficiencies, eliminate duplication, and simplify the
process."
In addition, the report states, "in order to remain competitive and
expand into new markets, companies must develop increasingly
sophisticated supply chains and production models with suppliers
and partners overseas. And although the United States may disagree
with the monetary policies of its trading partners, particularly
with regard to exchange rates, efforts also should focus on solving
challenges to manufacturing competitiveness that can be addressed
locally. These include the regulatory environment, tax burden, and
business climate, as well as inadequate investment in innovation,
infrastructure, and human capital."
4. Arguments in Support. According to the Sponsor, California Labor
Federation , "U.S. Congress is considering legislation to fund state
manufacturing loan and loan guarantee programs. This bill would
prepare California to receive such funds and does not use state
General Fund dollars to capitalize the loan and loan guarantee
program."
Additionally the Sponsor asserts, "Investment in manufacturing, in
particular, is a smart way to spur economic recovery.
Manufacturing jobs have the highest multiplier effect of any job
classification in any industry - for every manufacturing job
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created, an additional 2.5 jobs are created in the broader
economy."
The Sponsor continues and states, "California has great potential
to generate new manufacturing activity, especially in the green
economy. . . However, there is a gap between innovation and the
capacity to commercialize those innovations and produce in the
state. A manufacturing loan and loan guarantee program will give
business access to the capital it needs to thrive. Several other
states have established similar manufacturing loan programs using
federal dollars to capitalize the funds. By creating the
infrastructure for a loan and loan guarantee program, California is
positioned to immediately put federal dollars to work when they
become available."
Finally the Sponsor believes, "This measure will help create and
retain good jobs because priority for loans will be given to
applicant that meet wage goals, provide good health benefits and
submit joint labor/management applications. The legislation also
includes important protections for taxpayers by requiring firms
that do not meet job creation goals or that move jobs out of state
to pay back the loan in full plus interest."
SUPPORT AND OPPOSITION:
Support:
California Labor Federation, AFL-CIO (Sponsor)
American Federation of State, County and Municipal Employees (AFSCME)
California Manufacturers & Technology Association (CMTA)
California State Pipe Trades Council
California State Treasurer
California State Association of Electrical Workers
Western States Council of Sheet Metal Workers
Opposition: None on file as of June 21, 2010
Consultant: Antoinnae Comeaux