BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 624 (J.Perez)
Hearing Date: 08/25/2011 Amended: 08/15/2011
Consultant: Mark McKenzie Policy Vote: G&F 9-0
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BILL SUMMARY: AB 624 would extend the Community Development
Financial Institution (CDFI) investments tax credit until
January 1, 2017. The bill would also authorize the Insurance
Commissioner to establish a California Organized Investment
Network (COIN) Advisory Board until January 1, 2015, as
specified.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Credit extension (revenue loss) up to $1,000 up to
$2,000 up to $2,000 General
(actual amounts may vary - see staff
comments)
Advisory Board up to $20 up to $40 up to $40 Special*
COIN: credit administration $70 $140-$200
$140-$200 Special*
(continued annual staffing)
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* Insurance Fund
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STAFF COMMENTS: SUSPENSE FILE.
Existing law allows a credit against the personal income tax,
corporation tax, and insurance premiums tax for non-interest
bearing investments in community development financial
institutions of at least $50,000 held for 60 months. The credit
is equal to 20% of investments with the maximum amount of
aggregate investments capped at $10 million per year ($2 million
in credits). If qualified investments are less than this amount
in a calendar year, the remaining amount may be carried forward
to succeeding years. Existing law also limits the amount that
AB 624 (J.Perez)
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may be invested with a single CDFI in a single year, reserves a
portion of the aggregate amount for insurance company
investments, and reserves a portion for investments of less than
$300,000. The Department of Insurance (CDI) or the Franchise
Tax Board (FTB) may recapture the credit within the 60 month
period if the investor reduces or withdraws the investment in a
CDFI. The CDFI investment credit is scheduled to sunset at the
end of the 2011 tax year.
AB 624 would continue this tax credit program until January 1,
2017, but prohibit COIN from certifying investments for the
credit after January 1, 2015, and make the following changes to
the program: 1) eliminate limits on the amount that may be
invested with a single CDFI and requirements to reserve
specified amounts for insurance companies and small investments;
2) delete provisions that require investments to be certified on
a first-come, first-served basis; and 3) specify that if
aggregate investments exceed available amounts, priority would
be given to investments by insurance companies for projects that
benefit low-income persons and prioritize certain types of
housing over single-family owned housing. The bill would also
authorize the Insurance Commissioner to establish a COIN
Advisory Board until January 1, 2015 to advise COIN on methods
to increase insurance industry investments, facilitate contacts
among entities qualified for the CDFI credit, and recommend
programmatic guidelines.
A CDFI may include a community-development bank, a
community-development loan fund, a community-development credit
union, a micro-enterprise fund, a community-development
corporation-based lender, and a community-development venture
fund. CDFIs are generally organized to provide private capital
for minority small businesses and low-income borrowers who
traditionally have been underserved by conventional lending
institutions. There are currently 81 CDFIs certified by COIN to
participate in the tax credit program. CDI indicates that over
$100 million has been invested in some of California's most
underserved communities from 1997 through 2009.
A recent report by the Legislative Analyst's Office indicates
that the tax credit program has not fully utilized the full $2
million capacity in recent years, and that $4.75 million in
aggregate credits were available at the beginning of this year
due to the recent underutilization of the credit. Staff notes,
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however, that a recent press release by the Insurance
Commissioner announced that all of the accumulated tax credits
have been allocated in 2011 to support investments of $23.6
million and that the program is closed to new applicants for the
rest of the year.
FTB estimates that extending the CDFI investments credit would
result in income and corporate tax revenue losses of $200,000 in
2011-12, $420,000 in 2012-13, $450,000 in 2013-14, and $450,000
in 2014-15 based on past usage of the credit. Using historical
data provided by CDI, the average gross premiums insurance tax
revenue loss over the past ten years has been $385,000. If one
assumes these levels would be maintained, the combined revenue
losses would be in the range of $850,000. Staff notes, however,
that revenue losses are likely to spike in the near-term as a
result of the full allocation of $4.75 million in aggregate
credits in 2011. If full utilization of the credit continues,
particularly due to efforts of the current Insurance
Commissioner and increased outreach by the COIN Advisory Board,
annual revenue losses would likely be in the range of $2 million
annually.
CDI indicates that costs associated with the COIN Advisory Board
would be minor, likely less than $40,000 annually, and
absorbable within existing resources. Staff notes that CDI
currently dedicates approximately 1/4 of COIN's annual budget of
nearly $550,000 to the administration of the credit program, or
roughly $140,000 annually. COIN currently has 3 full-time PY,
but has the authority for 6 PY, two of which are currently
advertised for hire. If all positions are ultimately filled,
staff estimates the full COIN budget would be approximately
$850,000. Assuming 25% of the budget would continue to be
dedicated to the CDFI tax credit program, ongoing staffing costs
for the program could rise to approximately $200,000.