BILL ANALYSIS �
AB 2037
Page 1
Date of Hearing: August 8, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2037 (Davis) - As Amended: May 3, 2012
Policy Committee: Revenue and
Taxation Vote: 8-0
JEDE 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 the 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 the Tax Credit Allocation Fee
Account to the TCAC for the purpose of administering the new
tax credit program. These moneys are only available for
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expenditure until January 1, 2020 and it is the Legislature's
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 FTB estimates that this bill would result in General Fund
revenue losses of $2.7 million in FY 2012-13, $33 million in
FY 2013-14, and $6 million in FY 2014-15. This is a net loss
of revenues when compared to the use of the existing hiring
tax credit.
3)The current hiring credit is capped at $400 million and the
author intends that funds for this credit come from this
allocation and not result in the state taking on any
additional obligations. However, AB 2037 accelerates 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 tax credit program
to jump-start economic productivity in our low-income areas.
Such a program, the author notes, 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. According to the author, 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. The
author argues AB 2037 means community empowerment because the
program in question has a proven track record of job creation.
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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
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.
President Obama's budget proposes to reauthorize the New
Markets Tax Credit Program in 2012 and 2013-$5 billion in
allocation authority for each year.
3)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, use of the SBHC as of early May had reached a
cumulative credits value of $114 million.
4)Implementation concerns . FTB reported a number of
implementation concerns with AB 2037. In addition, the amount
of the SBHC credit already claimed exceeds the amount allowed
in AB 2037. This bill is a suspense candidate and the author
has indicated a willingness to adopt amendments that would
address these issues, including reducing the allocation for AB
2037 from $300 million to $200 million.
5)Relevant legislation. The slow pace of using the existing
small business hiring credit program has led to the
introduction of numerous bills none of which have been
chaptered, that would use the allocation more rapidly either
by relaxing the requirements on the existing credit or
allocating it for different purposes. These bills follow:
a) AB 11 (Portantino), 2011, transfers $200 million of the
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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 was held on the Assembly Revenue and Taxation
Committee's Suspense File.
b) AB 234 (Wieckowski), 2011, expands the existing small
business hiring credit to encourage the employment of the
chronically unemployed. AB 234 was held on the Assembly
Revenue and Taxation Committee's Suspense File.
c) AB 236 (Swanson), 2011, would have reallocated $50
million from the New Jobs Tax Credit to establish a new
credit designed to encourage the hiring of the chronically
unemployed. AB 236 was held on this Committee's Suspense
File.
d) AB 248 (Perea), 2011, 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 was held on this Committee's
Suspense File.
e) AB 643 (Davis), 2011, is very similar to AB 2037. AB
643 was held on this Committee's Suspense File.
f) AB 1009 (Wieckowski), 2011, modifies the jobs tax credit
to allow employers with 100 or fewer employees to be
eligible. AB 1009 was held on the Assembly Revenue and
Taxation Committee's Suspense File.
g) AB 1195 (Allen), 2011, 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.
h) AB 1596 (Cook), 2011, would modify the New Jobs Tax
Credit by allowing the credit to employers with up to 50
employees. AB 1596 was held on the Assembly Revenue and
Taxation Committee's Suspense File.
i) SB 156 (Emmerson), 2011, would have modified the New
Jobs Tax Credit by allowing the credit to employers with up
to 50 employees. SB 156 was subsequently amended to a
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different subject.
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