BILL ANALYSIS �
AB 643
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Date of Hearing: January 19, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 643 (Davis) - As Amended: January 12, 2012
Policy Committee: JEDE Vote:4-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill creates a $300 million state New Markets Tax Credit
program (NMTC) for the purpose of stimulating economic
development. Specifically, this bill:
1)Authorizes the creation of the California New Markets Tax
Credit Program, administered through the California Tax Credit
Allocation Committee (TCAC), for the purpose of allocating tax
credits to qualifying community development entities (CDE).
2)Authorizes a tax credit valued at 39% of a taxpayer's
qualified equity investment in a CDE, beginning in 2013 and
ending in 2019 and allows the credit to be applied against the
tax payer's personal and/or corporate tax liability.
3)Establishes that allowable investments are limited to
qualified low-income community investments, which may include
loans and capital investments in businesses, real estate and
other CDEs that undertake development projects in eligible
low-income areas, as defined.
4)Requires TCAC to establish guidelines for implementing the
NMTC program and set fees to cover the costs for administering
the program. Up to $50 million in tax credits may be
allocated in any one tax year for a total allocation of $300
million over the six years of the NMTC program.
5)Appropriates $150,000 from Tax Credit Allocation Fee Account
to the TCAC for the purpose of administering the new tax
credit program. These moneys are only available for
expenditure until January 1, 2020 and it is the Legislature's
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intent that these moneys would be reimbursed through fees on
the New Market Tax Credit application.
6)Reduces the cumulative total of the use of Small Business Hire
Credit (SBHC) from $400 million to $100 million in order to
fund the NMTC.
7)Takes immediate effect as a tax levy.
FISCAL EFFECT
1)The funds appropriated for developing the new tax credit
program would be a loan which would be paid back through fees
on the NMTC application. All other funds for administration
would come from NMTC fees.
2)The current hiring credit is capped at $400 million and the
funds for this credit would come from that capped allocation,
thus it does not result in any additional revenue loss.
However, it is likely to accelerate revenue loss, aggravating
the current budget deficit.
COMMENTS
1)Purpose . According to the author, "California can no longer
afford to leave millions in federal money on the table, year
after year, by failing to implement a state New Markets Tax
Credit Program to jump-start economic productivity in our
low-income areas. Such a program will enable us to leverage
many times more in federal funds than it would cost the state
to implement, and lead directly to capital investment in small
businesses, a proven model for helping to end an economic
recession. At least nine other states have successfully
implemented such a program already, on average leveraging 13
times more in federal monies than they allocated in planned
revenue to fund the tax credit. This bill means community
empowerment because the program in question has a proven track
record of job creation."
2)Federal New Market Tax Credit Program . Congress enacted the
NMTC with the Community Renewal Tax Relief Act of 2000 (Public
Law 106-554) for the purpose of stimulating equity investments
in low-income communities. Under the program, CDEs apply to
the US Treasury, for an allocation of federal tax credits,
which the CDE can then offer to individual and corporate
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investors in exchange for making an equity investment in the
CDE or its subsidiary. In this way, the CDE serves as a
community and financial intermediary between sources of
private capital and low-income communities. The value of the
federal credit to the investor is 39% of the original
investment amount, claimed over a period of seven years (5%
for each of the first three years, and 6% for each of the
remaining four years). The investment in the CDE cannot be
redeemed before the end of the seven-year period.
The federal NMTC is set to expire in 2011. The US Congress is
currently considering legislation to extend the federal NMTC
program through 2016.
3)State New Market Tax Credits . Since the inception of federal
NMTC, at least nine other states have enacted matching
programs to help leverage more federal dollars in NMTC
investments including Ohio, Florida, Missouri, Louisiana,
Mississippi, Kentucky, Illinois, Oklahoma, and Connecticut.
According to information provided by the author's office,
several of these states have experienced a return on
investment of 13 to 1.
4)Impact on the existing Small Business Hiring Credit Program .
Implementation of this bill will reduce the authorized credits
under the SBHC and use the amount of the reduction to fund the
credits authorized in the NMTC program. According to the FTB
and information provided by the Assembly Committee on Revenue
and Taxation, 12,903 personal income tax and business entity
returns had been filed as of December 2011using the SBHC with
a cumulative credits value of only $76 million. Concerns have
previously been raised, including within the governor's
2011-12 May Revision Report, that the SBHC was being
significantly underutilized.
5)Related legislation. The following related bills have been
introduced in the current session:
a) AB 11 (Portantino) transfers $200 million of the
allocation for the existing small business hiring credit
and used it for a new credit equal to 20% of annual
workers' compensation premiums paid by qualified taxpayers.
AB 11 is on the Assembly Revenue and Taxation Committee's
Suspense File.
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b) AB 234 (Wieckowski) expands the existing small business
hiring credit to encourage the employment of the
chronically unemployed. AB 234 is pending on the Assembly
Revenue and Taxation Committee's Suspense File.
c) AB 248 (Perrea) provides a personal income tax (PIT)
credit equal to 25% of the value of qualified medical
services personally provided by a physician free of charge
or at a reduced rate. AB 248 is before this committee
today.
d) AB 1009 (Wieckowski) modifies the jobs tax credit to
allow employers with 100 or fewer employees to be eligible.
AB 1009 is on the Assembly Revenue and Taxation
Committee's Suspense File.
e) AB 1195 (Allen) would expand the pool of eligible
claimants for the Jobs Tax Credit from taxpayers with 20 or
fewer employees to those with 50 or fewer employees. AB
1195 is on the Senate Appropriations Committee Suspense
File.
f) SB 640 (Runner) enacts a new employment tax credit of up
to $6,000 per qualified full-time employee hired by a
taxpayer that employ 50 of fewer employees for taxable
years on or after January 1, 2011 until the calendar
quarter in which a cumulative credit amount of $50 million
is reached. SB 640 is on the Senate Appropriations
Committee Suspense File.
6) Prior legislation. SB 1316 (Romero) of 2010 would have
enacted a New Markets Tax Credit for qualified investments
made in low income communities in the 2011 calendar year.
This bill died on the Senate inactive file.
7) There is no registered opposition to this bill.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081