BILL ANALYSIS
AB 2687
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Date of Hearing: May 12, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2687 (Bradford) - As Amended: April 27, 2010
Policy Committee: Revenue and
Taxation Vote: 9-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill creates two corporate income tax credits for taxable
years 2011 through 2020, which are aimed at promoting the use of
public port facilities in California. Specifically the bill:
1)Establishes a trade infrastructure investment tax credit equal
to up to 5% of qualifying capital expenditures to upgrade or
expand port facilities. In order to qualify, the investment
must be at least $5 million.
2)Establishes an import-export cargo tax credit of up to $5 per
ton of additional imported or exported cargo (excluding liquid
cargo) moving through California public ports. The credit,
which is applied to the year-to-year increase in cargo
tonnage, would be available to entities involved in the import
or export of bulk cargo or containerized cargo (excluding
petroleum and other liquids) to or from cargo facilities
located within California.
3)Makes both credits subject to certification by the FTB that
the revenues generated by the investments or additional trade
will be greater than the value of the credits.
4)Makes both credits subject to the Legislature approving a cap
by January 1, 2012, and provides that if the cumulative value
of the credits greater than the cap, FTB shall reduce them
proportionally.
5)Requires the Legislative Analyst's Office to conduct a study
on the effectiveness of the credit by January 1, 2020.
AB 2687
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FISCAL EFFECT
1)Unknown but potentially major revenue impact, depending on the
maximum amount set in future statute.
a) As an illustration, the Port of Los Angeles (which
accounts for about 60% of trade volume in California)
reported about $175 million in capital expenditures and
movement of about 156 million metric tons of cargo in 2009.
A 5% investment credit would translate into about an $8
million revenue reduction, and - assuming a 10%
year-to-year increase in cargo volume - a $5 per ton credit
for additional qualifying cargo imports and exports would
translate into a $70 million revenue loss.
2)Significant administrative costs potentially in the range of
several hundreds thousands of dollars annually, to FTB to
certify, allocate, and audit credits.
COMMENTS
1)Rationale . This bill is intended to stimulate investment and
trade through California ports, which are facing growing
competition from other regions of the U.S. Proponents state
that the bill is critical to incentivizing development in new
port and harbor infrastructure for California's ports. They
also assert that California receives environmental benefits
from this bill, since investments in new technology will
produce emissions reductions in and around the ports.
2)Opponents of this bill state that a tax credit for capital
investments is unnecessary because California has the ability
to issue revenue bonds for a port development. If these other
methods of financing are inadequate, California may wish to
find funding by eliminating other tax expenditures to pay for
a potential loss to the General Fund.
3)Issues . The bill raises a variety of policy and fiscal issues.
For example, the bill imposes significant administrative
burdens on FTB to certify the investments. In particular, it
requires FTB to determine whether a project seeking the credit
will generate revenues to the state that are greater than the
credit -whether or not the project is due to the credit. This
will require considerable work which will be of questionable
value. As currently structured, the credit will have no
AB 2687
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bearing on investment decisions, hence the credit will be
offered for activity that would have happened anyway. In this
regard, there is no point in FTB making the revenue-generating
determination.
The sponsors indicate that the primary purpose of the credit
is to lower costs of capital to port businesses, which would
enable them lower the prices they charge to shippers. If this
is the case, a more appropriate metric for measuring the
viability of the credit would be its impact on
price-competitiveness of the ports, and their ability to
attract and retain shipping business.
Also, the bill contains ambiguities regarding which entities
are eligible for the cargo credit, and how it would be
calculated, or capped by the Legislature.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081