BILL ANALYSIS Ó
AB 624
Page 1
Date of Hearing: May 18, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 624 (John A. Perez) - As Amended: March 31, 2011
Policy Committee: InsuranceVote:10
- 0
Revenue and Taxation 7 - 0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill extends the effective date on the laws that allow tax
credits for insurers and other taxpayers that make qualified
investments in community development financial institutions that
invest in community development. Specifically, this bill:
1)Extends, from January 1, 2012 until January 1, 2017 the
effective date on the laws that allow insurance companies,
corporations, and other taxpayers to receive a tax credit
equal to 20% of the amount of the qualified investment made
during the taxable year into a community development financial
institution that is certified by the California Organized
Investment Network (COIN) of the Department of Insurance.
2)Requires the Insurance Commissioner (IC) to create and appoint
a COIN Advisory Board with the duty to advise on the best
methods to increase the level of insurance industry capital in
safe and sound investments while providing fair returns to
investors and social benefits to underserved communities. The
advisory board would consist of the IC, an executive in the
insurance investment community, a licensed attorney practicing
insurance law, a member of the State Assembly, a member of the
State Senate, a member from a consumer advocacy group, and an
affordable housing practitioner.
FISCAL EFFECT
1)FTB estimates that the income tax provisions of this bill will
result in an annual revenue loss of $200,000 in fiscal year
(FY) 2011-12, $420,000 in FY 2012-13, $450,000 in FY 2013-14,
AB 624
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and $450,000 in FY 2014-15.
2)The tax credit is equal to 20% of the invested amount, up to
$10 million, for a statewide total tax credit capped at $2
million. However, state law provides that if the aggregate
amount of the qualified investments made in any calendar year
is less than $10 million, the difference between the $10
million and the actual amount of investment may be carried
over to the next year and any succeeding year.
3)The Legislative Analyst Office (LAO) notes that the tax credit
has in fact been underutilized for the last few years.
Therefore, funds that aren't expended each year are rolled
over to the next year. As of February of this year, $4.75
million in Community Development Financial Institutions (CDFI)
tax credits were available.
4)The Department of Insurance estimates that the cost of
staffing the COIN Advisory Board would be minor and absorbable
within existing resources.
COMMENTS
1)Purpose . The intent of this legislation is to extend the
current tax credits that are used to encourage investments in
community development. The author states that, "Community
development investments make sound business sense and provide
solid returns while bringing much needed capital to low-income
communities. These investments are leveraged to provide loans
such as small business loans, mortgage loans, and construction
loans. More than $100 million has been invested into some of
California's most under-served communities from 1997 through
2009."
2)Background . The personal income tax law, corporation tax law
and insurance gross premiums tax law each provide a 20 %
credit, capped at a maximum of $2 million per year, for
qualified investments in CDFIs. A qualified investment is:
a) a deposit or loan that does not earn interest
b) an equity investment
c) an equity-like debt instrument that conforms to the
specifications for these instruments as prescribed by the
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U.S. Department of the Treasury CDFI Fund, or its
successor.
To qualify for the 20 % tax credit, an investment must be
equal to or greater than $50,000 and for a minimum of 60
months. State law limits the aggregate amount of qualified
deposits made by all taxpayers to $10 million for each
calendar year.
A CDFI must be certified by COIN by demonstrating that it is a
private financial institution located in this state, its
primary mission is community development, and that it lends in
urban, rural, or reservation-based communities in this state.
COIN is a collaborative effort between the California
Department of Insurance, the insurance industry, community
economic development organizations, and community advocates.
COIN was established in 1996 at the request of the insurance
industry as an alternative to state legislation that would
have required insurance companies to invest in underserved
communities, similar to the federal Community Reinvestment Act
(CRA) that applies to the banking industry.
CDFIs may be banks, credit unions, or non-regulated non-profit
institutions organized to provide private capital for
community development lending or investing. CDFIs provide
private capital for minority small businesses and low-income
borrowers who traditionally have been underserved by
conventional lending institutions. There are almost 50 CDFIs
in California, located mostly in the state's urban areas.
3)Related Legislation . AB 145 (Vincent; Chapter 821, Statutes of
1999) established COIN and authorized the initial CDFI tax
credit.
AB 2831 (Ridley-Thomas; Chapter 580, Statutes of 2008)
extended the tax credit until January 1, 2012.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081