BILL ANALYSIS �
AB 1530
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Date of Hearing: April 17, 2012
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel P�rez, Chair
AB 1530 (Huffman and Olsen) - As Amended: March 29, 2012
SUBJECT : Clean Manufacturing and Job Creation Incentive Act of
2012
SUMMARY : Enacts the Clean Manufacturing and Job Creation
Incentive Act of 2012, which establishes a process for local
governments to designate clean manufacturing zones. Within
these zones no qualified personal property is taxed and local
governments have the option of providing other incentives.
Specifically, this bill :
1)Makes various findings and declarations relating to the
California economy, in general, and the role of high-tech
manufacturing within the economy, more specifically. Among
other findings and declarations, the bill also states that one
of the major obstacles identified by businesses in opening new
facilities in California are delays related to acquiring the
necessary state and local licenses, permits and other
regulatory approvals.
2)Authorizes a local legislative body to establish, by ordinance
or resolution, a clean manufacturing zone for the purpose of
providing incentives to manufacturing businesses to locate
within the jurisdiction. Local legislative bodies include a
city, county, or city and county.
3)Defines a "clean manufacturing zone" as an area of a city or
county that is designated by its legislative body as a clean
manufacturing zone and is suitable for commercial and
industrial use.
4)Exempts from taxation, beginning on July 1, 2013, all
qualified personal property used within a clean manufacturing
zone.
5)Defines "manufacturing" as the activity of converting or
conditioning property by changing the form, composition,
quality, or character of the property for sale at retail or
use in manufacturing of a product to be sold at retail.
Manufacturing includes any improvements to tangible personal
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property that results in a greater service life or greater
functionality than that of the original property.
6)Defines "qualified personal property" as property that is
purchased on or after January 1, 2013, for use in a clean
manufacturing zone. Qualified personal property includes, but
is not limited to, equipment or devices used or required to
operate, control, regulate, or maintain machinery and
equipment, including, without limitation, computers, data
processing equipment, and computer software, together with all
repair and replacement parts with a useful life of one or more
years, whether purchased separately or in conjunction with the
machinery or equipment.
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EXISTING LAW :
1)Authorizes the establishment of 41 enterprise zones and eight
Local Agency Military Base Realignment Areas for the purpose
of stimulating economic development in historically
underserved communities. Business located in designated
communities have the option of accessing certain state tax
benefits, including a tax credit for hiring employees that
live in the zone or employees that face specified barriers to
employment and a sales tax exemption for capital equipment.
2)Authorizes cities and counties to pay a qualified
manufacturing facility a "capital investment incentive
amount," which is essentially a property tax rebate on the
amount of the assessed value of the facility in excess of $150
million for up to 15 years, if the governing body of the city
or county elects to establish a Capital Investment Incentive
in its jurisdiction. To qualify for this incentive, the
manufacturer must establish a job creation plan; pay an annual
"community services fee" of up to $2 million; and sign an
agreement to repay the property tax rebate if certain
conditions are not met.
3)Subjects all property in the state to taxation. There are,
however, specific exemptions including, but not limited to:
property owned by nonprofit corporations, possessory interests
in property acquired by certain state financing authorities,
property owned by specified private higher education entities,
and business inventories.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's purpose : According to the author, "Manufacturing is
a cornerstone in California's economy, providing high-wage
jobs for skilled employees and generating significant tax
revenues for the state and for local jurisdictions. Numerous
reports and surveys have identified delays in acquiring and
approving permits as a major deterrent to new and expanding
manufacturing businesses choosing to locate in California.
California must compete with other states to attract
high-skill, high-wage manufacturing businesses and jobs, and
to retain manufacturing jobs and facilities as companies grow
and expand, which in turn can stimulate and support new
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businesses and jobs in a range of sectors. AB 1530 creates
incentives for new manufacturing businesses to locate in
California and for existing businesses to remain here and
expand."
The bill is not limited to specific types of manufacturing,
and does not circumvent or shortcut the permitting and review
process. What it does is allow local jurisdictions to
designate an appropriate space as a Clean Manufacturing Zone,
secure the permits and approvals in advance, and then attract
manufacturing businesses with the promise of pre-approved
permits and the added incentive of a property tax exemption on
new equipment. AB 1530 will stimulate growth in our
manufacturing industry, without compromising California's high
environmental, public health, and safety standards."
2)Policy question on local government equity : Manufacturing
plays an important role within the California economy,
supporting high wage jobs and small businesses within the
expanded supply chain and exports of California products.
These activities serve as a foundation for local and state tax
revenues.
AB 1530 proposes to offer incentives to fast-track permitting
and exempt manufacturers from business equipment taxes, in
perpetuity. These incentives are designed to attract more
firms and serve to increase the ability of these manufacturers
to expeditiously set up shop resulting in stronger local
communities, the creation of new jobs and, ultimately, an
increase in local and state revenues.
In the short run, however, these potential long-term gains are
achieved through diverting local property taxes. Concerns
have been raised that this diversion is not appropriate
without some provision for consultation and possibly consent
by the affected taxing entities. To the extent that schools
are affected, the state General Fund may need to back-fill.
In addressing this concern, the committee may wish to consider
both sides of the coin. On one side, giving each taxing
entity a say regarding whether their share of property taxes
will be committed to the zone seems fair and provides for
equitable treatment. On the other side, if all the affected
taxing entities opt-out of the tax exclusion program, there
will not likely be sufficient moneys to attract manufacturers.
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3)Manufacturing report : According to a June 2010 report by the
Milken Institute, "Manufacturing 2.0: A More Prosperous
California," the challenges in the manufacturing industry
serve as an early warning of the challenges facing the state's
economy as a whole. The report finds that while manufacturing
still drives the state's economy, California's competitive
position is losing ground to other states and nations based on
its regulatory climate, tax burden and reputation as a
difficult and costly place to do business.
One of the report's key findings is that California is losing
a larger share of manufacturing employment at a faster rate
than other states. In addressing these challenges, the report
recommends the state develop a new cooperative relationship
that undertakes the following:
o Streamlining regulatory procedures for manufacturers and
increasing transparency and accountability in the
regulatory process;
o Enhancing public incentives through better planning,
coordination across government agencies and partnering with
the public sector;
o Launching an industry-led campaign to encourage
Californians to pursue careers in manufacturing;
o Creating a state-wide network of training, research and
business incubation to assist entrepreneurs to start
manufacturing businesses; and
o Creating a public-private initiative to conduct
research, develop new technologies and commercialize more
efficient and environmentally sustainable manufacturing
practices.
Site Selection Magazine, a trade paper for the business
development community, reports that from 2007 to 2009,
California had the slowest growth in manufacturing capacity
among the nation's 25 most populous states. While the
national average of new manufacturing sites was 28.7 new
facilities during this time period, California gained only
3.7.
AB 1530 proposes a framework for addressing these
recommendations and provides local governments with a new tool
for attracting manufacturing. The bill, however, is silent
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about what types of incentives local governments can provide,
excluding the exemption on business property taxes.
Amendments, described later in the analysis, propose that each
local government, as a condition of establishing a clean
manufacturing zone, designate a permit streamlining ombudsman
and specify the other types of incentives being offered.
1)Manufacturing incentives in other states: California
communities are in competition to attract and retain
manufacturers. Many states have developed economic
development programs that target manufacturing generally,
while others focus on sub-industry and sub-subindustry
sections such as energy generation, information technology,
biotechnology and food processing. As an example, the U.S.
Department of Energy has taken a closer look at state
incentives related to attracting renewable energy production
and manufacturing and reports that 24 states have tax credits,
28 states authorize property assessed clean energy (PACE)
programs, and 38 states offer property tax-based incentives.
The programs listed below include four nationally recognized
state initiatives.
a) Michigan SmartZones : Michigan's 15 SmartZones include
technology business accelerators and incubators that
provide the critical entrepreneurial and commercialization
support services essential to growing start-up ventures.
The program consists of collaborations among universities,
industry, research organizations, government and other
local institutions and 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.
According to the Michigan Economic Development
Corporation's website, the Michigan SmartZone network is
the framework around which the state's entrepreneurial and
innovation ecosystem has blossomed.
b) Ohio Business Gateway : This program is a web-based
filing and payment system that allows business taxpayers to
file and pay various state level taxes to different state
agencies electronically at one web site for free. The
program is designed to provide a "One-Stop Shop" for
businesses to comply with a variety of state agency tax and
reporting requirements, including sales tax, employer
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withholding, worker's compensation, unemployment
compensation and unclaimed funds.
c) Arizona Clean Technology Property Tax Reduction and Tax
Credit : The goal of the 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 property taxes for 10 years, for companies that are
primarily engaged in manufacturing or have headquarters for
producing systems and components that are used or useful in
manufacturing renewable energy equipment. To be eligible
for these benefits, companies must meet and maintain
certain requirements including pay wages above the state's
annual median wage, pay certain health care costs and make
annual investments in equipment.
d) Missouri TechLaunch : The Missouri Technology
Corporation (MTC) is a public-private partnership created
by the Missouri Legislature to "promote entrepreneurship
and foster the growth of new and emerging high-tech
companies." One MTC initiative is the Missouri TechLaunch
which offers pre-seed funding to start-ups for intellectual
property development and evaluation, including in-depth
market analysis, competitive analysis, proof of concept,
and prototype design and development. Individual awards
cannot exceed $100,000 and may be in the form of equity or
convertible debt.
AB 1530 proposes the development of manufacturing incentive
zones, which will help fast track approvals (described under
proposed amendments) and provide for a business equipment tax
exemption.
2)Governor's Office of Business and Economic Development : In
April 2010, the Governor's Office of Economic Development was
established to provide a One-Stop-Shop for serving the needs
of businesses and economic developers. While initially
established through Executive Order S-01-10, the office was
later codified and renamed as the Governor's Office of
Business and Economic Development (GO-Biz), in AB 29, Chapter
475, Statues of 2010. Since its inception, GO-Biz has served
over 3,000 businesses, 95% of which are small.
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Among other programs, GO-Biz provides permit assistance for
new and expanding businesses, as well as administering the
Innovation Hub (iHUB) program in partnership with the
statewide network of Small Business Development Centers.
There are currently 12 regional iHUBs located throughout the
state. The iHUB program is designed to improve the state's
national and global competitiveness by stimulating
partnerships, economic development, and job creation around
specific research clusters. Key assets and partners of the
initiative include technology incubators, research parks,
universities, federal laboratories, economic development
organizations, business groups, and venture capitalists.
GO-Biz is also sponsoring a permit streamlining pilot project,
which will offer a One-Stop-Shop for state and local permits.
The pilot, launched in partnership with the City and County of
San Francisco, will allow a business owner to login to a
single Web site (24x7) and apply for and pay all necessary
city, county and state permits.
3)The California economy and manufacturing : California is one
of the largest and most diversified economies in the world
with a state gross domestic product (GDP) of nearly $1.9
trillion in 2010. 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; and its culture of innovation and
entrepreneurship, particularly in the area of high technology.
If California were a country, its 2010 GDP would place it 9th
in the world.
Manufacturing is one of the state's top five private industry
sectors, responsible for employing 1.24 million workers (8.9%)
and contributing over $206.2 billion to the state's $1.9
trillion GDP. Manufacturing employment is sometimes referred
to as the gold standard because it pays high wages (usually
with benefits), supports the state's access to the broader
global market and provides a key link in the extended network
of small- and medium-sized businesses that participate in the
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production, distribution and retail supply chain. Further,
the Milken Institute estimates that every job created in
manufacturing supports 2.5 jobs in other sectors. In some
industry sectors, such as the electronic computer
manufacturing, the multiplier effect is 16 to one.
Manufacturing in California, however, even prior to the
current economic recession, faced many challenges maintaining
global and domestic competitiveness, including accessing 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. The California
Manufacturers and Technology Association estimates that
California lost 613,000 manufacturing jobs from its peak in
January 2001 to September 2011. While part of this reduction
reflects the loss of high-tech jobs in 2001 and 2002 and the
current recession, the industry as a whole is suffering.
California's loss of manufacturing jobs is not unusual among
Western states. It is, however, more severe with California's
loss reported to be -34% between 2001 to 2010, as compared to
Arizona (-30%), Nevada (-12%), Oregon (-29%) and Texas (-21%).
4)Amendments : Committee staff understands the following
amendments are proposed to be offered in committee:
a) Authorize a city, county, or city and county to serve as
the initial permit applicant for the use of a manufacturing
facility. This application and permit would then be
eligible for transfer to the final user of the
manufacturing space.
b) Require, as a condition of zone designation, that the
city, county, or city and county have a designated staff
person (ombudsperson) to facilitate local, regional and
state permit approvals for manufacturing facilities in the
zone.
c) Make the qualified property tax exclusion optional for
jurisdictions and limit the exemption to jurisdiction's own
portion of the property tax assessment.
d) Require the Governor's Office of Business and Economic
Development to assist the local manufacturing ombudsperson
in facilitating state and regional permits.
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e) Require state permitting agencies to prioritize permit
approvals from clean manufacturing zones.
f) Require jurisdictions to annual report to the state
Controller on the amount of property taxes exempted, the
property and sales tax generated by facilities within the
zone, and the number of jobs created.
g) Require, as a condition of receiving any benefits, that
the manufacturer advertise employment opportunities at the
local One-Stop Career Center. This does not limit the
manufacturer from advertising in other locations.
h) Modify the number of the added code section to avoid a
conflict with SB 949, which proposes to add the same
chapter and section numbers.
i) Add co-authors: Senator Vargas and Assembly Members
Wieckowski, Nestande, Solorio, Chesbro, and Fletcher.
j) Sunset the program on January 1, 2020.
5)Related legislation : Below is a list of related bills from
the current and previous sessions.
a) AB 231 (V. Manuel P�rez and Alejo) Enterprise Zone
Reforms : This bill makes a number of key changes to the
enterprise zone program to make it more accountable and
effective in reducing poverty and strengthening the
economies of lower income communities. Among other
reforms, the bill increases the value of the hire credit
for manufacturing jobs from 150% of minimum wage to 202%.
Status: The bill was retained with the Assembly Committee
on Jobs, Economic Development and the Economy, January
2012. The compromise will be included in AB 1411 (V.
Manuel P�rez and Alejo).
b) AB 894 (V. Manuel P�rez) California Manufacturing Act
of 2011 : This bill would have authorized the establishment
of the California Manufacturing Competitiveness Act of 2011
for the purpose of supporting the retooling and expansion
of California's manufacturing facilities, enhancing the
state's logistics network, and retaining and creating jobs.
Status: The bill was vetoed by the Governor in October
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2011.
c) AB 904 (V. Manuel P�rez) Capital Investment Incentive :
This bill expands the definition of a qualified
manufacturing facility eligible for local capital
investment incentive payments to include a facility
operated by a business engaged in the manufacturing of
parts or components related to the production of
electricity using solar, wind, biomass, hydropower, or
geothermal resources on or after July 1, 2010. Under this
program, manufacturers that make capital investments of
over $150 million are eligible for a specified property tax
rebate. Status: The bill was signed by the Governor,
Chapter 486, Statutes of 2009.
d) AB 2437 (V. Manuel P�rez) California Manufacturing
Competitiveness Act of 2010 : This bill would have
authorized the establishment of the California
Manufacturing Competitiveness Act of 2011 for the purpose
of supporting the retooling and expansion of California's
manufacturing facilities, enhancing the state's logistics
network, and retaining and creating jobs. Status: The
bill was vetoed by the Governor in October 2010.
9)Double referral : The Assembly Committee on Rules voted to
refer this measure to JEDE and the Assembly Committee on
Revenue and Taxation. Should this measure be approved at the
April 17, 2012 hearing, the bill will be referred to the
second policy committee for additional policy consideration.
REGISTERED SUPPORT / OPPOSITION :
Support
None Received
Opposition
None Received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090
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