BILL ANALYSIS �
AB 1530
Page A
Date of Hearing: April 23, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 1530 (Huffman) - As Amended: April 18, 2012
2/3 vote. Fiscal committee.
SUBJECT : Economic development: Clean Manufacturing and Job
Creation Incentive Act of 2012
SUMMARY : Establishes the Clean Manufacturing and Job Creation
Incentive Act of 2012. Specifically, this bill :
1)Contains the following findings and declarations:
a) California's economy is among the 10 largest in the
world, with a gross domestic product of almost $2 trillion;
b) Although the state unemployment rate remains over 11
percent, California still ranks first among all 50 states
in new branches of high-tech manufacturing and first in the
number of manufacturing industry jobs;
c) Economic development and job creation are essential
elements of California's fiscal recovery;
d) 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 businesses and jobs in a range of sectors;
e) California's environmental protections and public health
and safety standards are essential to ensure quality of
life and economic growth in this state;
f) One of the major obstacles identified by businesses to
opening new facilities in California is delays in acquiring
the licenses and permits necessary to operate, including
local and state business licenses and other regulatory
approvals; and,
g) The purpose of this act is to stimulate growth in the
manufacturing industry without compromising California's
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high environmental, public health, and safety standards by
creating clean manufacturing zones with preapproved permits
and licenses to accommodate new and expanding manufacturing
businesses.
2)Authorizes any city, county, or city and county to establish a
"clean manufacturing zone" within its boundaries by ordinance
or resolution for the purpose of providing incentives to
manufacturing businesses to locate within that city, county,
or city and county.
3)Defines a "clean manufacturing zone" as an area within a city,
county, or city and county that is designated by the
legislative body of the city, county, or city and county as a
clean manufacturing zone and is suitable for industrial use.
4)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
property that result in a greater service life or greater
functionality than that of the original property.
5)Provides that, for the 2013-14 fiscal year (FY) and for each
FY thereafter, "qualified personal property" used in a clean
manufacturing zone shall be exempt from property taxation.
6)Provides that the personal property tax exemption shall apply
in a clean manufacturing zone only if the legislative body of
the city, county or city and county that establishes the zone
approves this exemption, as specified.
7)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,
without limitation, equipment or devices used or required to
operate, control, regulate or maintain machinery and
equipment, including 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.
8)Requires any ordinance or resolution establishing a clean
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manufacturing zone to include all of the following:
a) A designated official point of contact for the zone;
b) A commitment by �the] city, county, or city and county
to maintain a designated ombudsman "for permit assistance
for a manufacturer in a zone";
c) The term of the designation, which shall not exceed
seven years;
d) The process by which the legislative body will set and
oversee measurable objectives for the city, county, or city
and county manufacturing-related activities in the zone;
e) The geographic boundaries of �the] zone in sufficient
detail for the county tax assessor to identify which
properties are within the zone;
f) Baseline data on the economic and business development
conditions. This data may include the number of
manufacturing facilities, number of available lots for new
or expanded facilities, status of infrastructure, facility
vacancy rates, and employment levels;
g) Key local and regional partnerships the city, county, or
city and county proposes to engage for the purpose of
providing incentives to manufacturing businesses to locate
within that city, county, or city and county; and,
h) A list of local and regional regulatory, tax, and
programmatic incentives available to manufacturers that
locate within the zone.
9)Specifies an extensive list of potential local incentives,
ranging from the suspension of "locally originated or
modified" zoning laws and rent controls, to the elimination or
reduction of the local government's share of business property
taxes, construction taxes, or business license taxes.
10)Authorizes the legislative body of a city, county, or city
and county to approve, by a majority vote, the exemption of
personal property within a manufacturing facility located
within the zone.
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11)Requires a copy of the resolution or ordinance to be
transmitted to the Governor's Office of Business and Economic
Development (GO-Biz) within 60 days of being approved.
12)Requires GO-Biz, within 30 days of receiving an ordinance, to
do all of the following:
a) Transmit an acknowledgement to the legislative body of
the city, county, or city and county that the document has
been received; and,
b) Host the resolution or ordinance on the office's
website.
13)Requires every city, county, or city and county that has
designated a zone to report annually to the Controller on the
amount of property taxes exempted, the property and sales
taxes generated within the zones, and the number of new jobs
created as a result of the assistance and incentives provided
in the clean manufacturing zone.
14)Sunsets the Government Code (GC) provisions of this bill
automatically on January 1, 2020.
15)Provides that if the Commission on State Mandates determines
that this bill contains costs mandated by the state,
reimbursement to local agencies and school districts shall be
made pursuant to GC Section 17500 et seq.
16)Provides that, notwithstanding existing law, the state shall
not reimburse any local agency for any property tax revenues
lost by it pursuant to this bill.
EXISTING LAW :
1)Provides for the following geographically-targeted economic
development areas (G-TEDAs): Enterprise Zones, Manufacturing
Enhancement Areas, Targeted Tax Areas, and Local Agency
Military Base Recovery Areas. Special tax incentives are
provided to taxpayers conducting business activities within a
G-TEDA. These incentives include a hiring credit equal to a
percentage of wages paid to qualified employees.
2)Authorizes the Legislature to classify personal property for
differential taxation or for exemption by means of a statute
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approved by a 2/3 vote of the membership of each house.
3)Requires the Legislature to reimburse local agencies annually
for certain property tax revenues lost as a result of any
exemption or classification of property for purposes of ad
valorem property taxation.
FISCAL EFFECT : The State Board of Equalization has not yet
provided a revenue estimate for this bill. Committee staff
notes, however, that this bill could potentially impact the
General Fund (GF). Specifically, this bill adds Section 242 to
the Revenue and Taxation Code (R&TC) to provide a full property
tax exemption for qualified personal property used in a clean
manufacturing zone. Furthermore, R&TC Section 242 does not
expressly limit the exemption to property used in manufacturing
facilities. Rather, it only requires that property be newly
acquired for use in the zone. It is unknown how many cities and
counties would ultimately establish such zones. According to the
Legislative Analyst's Office, the statewide average share of
property tax revenues allocated to schools is 38%. Thus, 38% of
any revenue loss resulting from this bill would accrue to school
districts and, under Proposition 98, potentially be backfilled
by the GF.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
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 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
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remain here and expand.
This 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)Committee Staff Comments
a) This proposal : This bill allows any city or county to
establish a "clean manufacturing zone" within its
boundaries to provide incentives to manufacturing
businesses. Any ordinance or resolution establishing such
a zone would have to include, among other things, a list of
local and regional regulatory, tax, and programmatic
incentives available to manufacturers that locate within
the zone. Potential local incentives range from the
suspension of "locally originated or modified" zoning laws
and rent controls, to the elimination or reduction of the
"local government's share" of business property taxes,
construction taxes, or business license taxes.
This bill also provides that, for the 2013-14 FY and each FY
thereafter, qualified personal property used in a clean
manufacturing zone shall be exempt from property taxation
if the local government that established the zone approves
this exemption. Qualified personal property, in turn, is
defined as property purchased on or after January 1, 2013,
for use in a zone.
The author has introduced this bill as part of a
legislative package designed to create jobs and stimulate
economic recovery in California.
b) California's property tax : California's property tax is
levied on the assessed value of real property (land and
buildings) as well as personal property (boats, aircraft,
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equipment, and machinery). Unlike real property, personal
property is assessed each year at market value, adjusted
for depreciation. Property taxes are collected at the
county level and distributed to local governments - cities,
counties, schools, special districts, and until recently,
redevelopment agencies. Tax revenue generated from
property within a county does not leave that county.
However, county property taxes allocated to schools
generally offset state GF spending for K-14 programs.
c) Implementation concerns : Committee staff has identified
a number of policy and implementation concerns with this
bill. These concerns include the following:
i) Unlimited discretion in establishing zones : This
bill appears to vest cities and counties with nearly
unlimited discretion in designating zones. Indeed, this
bill defines a zone as any area within a city or county
that is so designated and that is suitable for industrial
use. Does this mean that zones would be confined to
areas officially designated for industrial uses or would
local governments be free to determine which areas are
"suitable"? For example, the City of Industry in Los
Angeles County is zoned 92% industrial and 8% commercial.
If the City of Industry were to establish a clean
manufacturing zone within its boundaries, would the zone
be limited to the city's 92% industrial area, or would
the city have the authority to also designate its
commercial zones as "suitable" areas for industrial use?
ii) Does this bill's list of potential local incentives
confer new authority to cities and counties? : As noted
above, this bill's GC provisions specify an extensive
list of potential local incentives available within a
zone. These range from the suspension of "locally
originated or modified" zoning laws and rent controls, to
the elimination or reduction of the local government's
share of business property taxes, construction taxes, or
business license taxes. It is unclear to Committee
staff, however, whether this list of potential benefits
is meant to confer new legal authority to cities and
counties, or whether it is simply meant to list those
incentives already within the power of local governments
to confer.
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iii) Who receives the benefit? : This bill's GC
provisions authorize cities and counties to establish
clean manufacturing zones to provide "incentives to
manufacturing businesses to locate" there. The bill's
R&TC provisions, however, exempt all qualified personal
property "used in a clean manufacturing zone . . . ."
Thus, it is not entirely clear whether the exemption
would apply only to personal property owned by a
manufacturing business, or whether the exemption would
apply to any personal property "used" in a zone,
irrespective of its owner. Moreover, this bill does not
define what is meant by the term "used". Does this mean
that the property must be primarily used in manufacturing
activities? Would incidental use suffice for the
exemption? If the property were used both inside and
outside the zone, would its exemption status depend on
its location on the lien date (i.e., January 1st)? These
issues should be addressed through clarifying amendments.
iv) Does clean mean green? : This bill does not confine
its benefits to any particular class of manufacturers.
Indeed, the author specifically notes that "�t]his bill
is not limited to specific types of manufacturing . . .
." Some would argue, however, that the term "clean
manufacturing" informally connotes at least a certain
connection to manufacturing conducted in an
environmentally sensitive fashion or aimed at addressing
environmental concerns.
v) When do this bill's provisions sunset? : Per the
most recent set of amendments, this bill's GC provisions
automatically sunset on January 1, 2020. In addition,
this bill now provides that zone designations shall not
exceed seven years.<1> The bill's R&TC provisions,
however, confer a tax exemption for the 2013-14 FY and
for each FY thereafter, without a sunset. Thus, it is
not clear whether personal property used in a zone would
benefit from an exemption indefinitely or whether the
exemption would expire upon the underlying zone's
expiration.
-------------------------
<1> It is not clear whether cities and counties would be able to
reauthorize an additional seven-year term upon the expiration of
a zone's original term.
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vi) What is the intended scope of this bill's personal
property tax exemption? : As presently drafted, it is not
clear whether this bill provides for a partial or
complete exemption for personal property used in a clean
manufacturing zone. The bill's R&TC provisions confer a
complete exemption for qualified personal property used
in a clean manufacturing zone. At the same time,
however, this bill's GC provisions specify an extensive
list of potential local incentives available within a
zone, including the elimination or reduction of the local
government's share of business property taxes.
If this bill were interpreted to confer a complete
exemption, the consequences could be far-reaching. For
example, if a city were to establish a zone within its
boundaries, qualified personal property used within the
zone would be entirely exempt from property taxes. This
would result in decreased property tax revenues not only
for the city that established the zone, but for schools
and the county as well. Thus, one city could effectively
eliminate a sizable share of the property tax base for
not only itself but for an entire county.
If, conversely, this bill were interpreted to confer only
a partial exemption, there could be unintended
administrative complications. Specifically, qualified
personal property would remain on the tax rolls, but
revenue allocations would have to be adjusted to
eliminate or reduce only those revenues that would have
flowed to the local government that created the zone.
To address this particular concern, the author has
expressed a willingness to eliminate this bill's
exemption provisions in their entirety and to, instead,
authorize cities and counties to rebate their share of
personal property tax revenues directly to manufacturers
within a zone.
d) The state's prior tax rebate program : In 1993, the
Legislature authorized cities, counties, redevelopment
agencies, and special districts to rebate some or all of
their property tax revenues to the owners of "economic
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revitalization manufacturing property" for five FYs after
the property was placed in service. School districts could
not rebate their property tax revenues. A property tax
rebate required a majority vote of the local agency's
governing board. To qualify for the local tax rebate, the
economic revitalization manufacturing property had to: (1)
be directly involved in the manufacturing process; (2) lead
to the creation of at least 10 new, full-time manufacturing
jobs with salaries of at least $10 an hour, that last for
at least five years; (3) be qualified for the state's
manufacturing investment credit; and, (4) be placed in
service on or after January 1, 1994.
When the Legislature extended the program's sunset date to
January 1, 2003, it required the Legislative Analyst to
report the names of the local governments that gave tax
rebates, the amount of the tax rebates, the number of jobs
created, and a "reasoned estimate" of the number of jobs
that would have gone out of state or to another community
in California, but for these tax rebates.
In 2002, the Legislative Analyst noted that no local
governments had reported giving property tax rebates. The
rebate program was allowed to sunset on January 1, 2003.
It should also be noted that GC Section 51298 authorizes
cities and counties to establish a capital investment
incentive program. Under the program, local governments
are authorized to pay a "capital investment incentive
amount" to the proponent of a qualified manufacturing
facility for up to 15 consecutive FYs. To qualify, the
proponent's initial investment in the facility, as
specified, must exceed $150 million.
e) Related legislation :
i) AB 1789 (Corbett), of the 2003-04 legislative
session, would have authorized a county, upon a majority
vote of its board of supervisors, to exempt from property
taxation the qualified personal property of a qualified
life science entity during its startup period. AB 1789
was held on this Committee's suspense file.
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ii) SB 1767 (Ducheny), of the 2003-04 legislative
session, would have authorized local agencies, excluding
school districts, to provide an economic development
incentive to private manufacturing entities located, or
committed to locating, within the local agency's
jurisdiction. SB 1767 died in the Senate Committee on
Local Government.
f) Double-referral : This bill was double-referred with the
Assembly Committee on Jobs, Economic Development and the
Economy, and passed out of that committee by a vote of 4-0
on April 17, 2012. For further discussion of this bill,
please refer to that committee's analysis.
g) Suggested technical amendments :
i) On page 4, line 16, strike "but is not limited to"
and insert "without limitation";
ii) On page 4, line 18, strike "a city" and insert "the
city";
iii) On page 4, line 19, strike "for a" and insert "for
any";
iv) On page 4, line 20, strike "a zone" and insert "the
zone";
v) On page 4, line 22, strike "designation" and insert
"zone designation,";
vi) On page 4, line 27, strike "a zone" and insert "the
zone";
vii) On page 4, line 31, insert "in the zone" after
"conditions"; and,
viii) On page 5, line 9, strike "city's" and insert
"city's,".
REGISTERED SUPPORT / OPPOSITION :
Support
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None on file
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098