BILL ANALYSIS � 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 1128 - Padilla Hearing Date:
April 24, 2012 S
As Amended: April 16, 2012 FISCAL B
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DESCRIPTION
Current law creates the California Alternative Energy and
Advanced Transportation Financing Authority (CAEATFA) for the
purpose of promoting the development and utilization of
alternative energy sources and the development and
commercialization of advanced transportation technologies and
authorizes up to $1 billion in revenue or prepayment bonds to
fund projects.
Current law authorizes CAEATFA to utilize a sale/lease-back
mechanism with manufacturers which results in a sales and use
tax exemption on tangible personal property utilized for the
design, manufacture, production, or assembly of advanced
transportation technologies or alternative energy source
products, components or systems. The sales and use tax
exemption sunsets on January 1, 2021.
This bill expands the sales and use tax exemption mechanism to
include advanced manufacturing (ADM), as defined, which would be
inoperative on July 1, 2016 and sunset on January 1, 2017.
This bill requires CAEATFA to study of the efficacy and cost
benefit of the sales and use tax exemption for ADM.
BACKGROUND
The California Alternative Energy Source Financing Authority was
created in 1980 with an authorization of $200 million in revenue
bonds to finance projects utilizing alternative sources of
energy, such as cogeneration, wind and geothermal power. It was
renamed in 1994 as the California Alternative Energy and
Advanced Transportation Financing Authority (CAEATFA) and its
charge expanded to include the financing of "advanced
transportation" technologies.
During the energy crisis of 2001, its authority was again
expanded, this time to provide financial assistance to public
power entities, independent generators, and others for new and
renewable energy sources, and to develop clean distributed
generation. CAEATFA's board, composed of the Treasurer,
Controller, Director of Finance, Chairperson of the Energy
Commission and President of the Public Utilities Commission,
decides which projects to assist.
In 2010 its authority was expanded by SB 71 (Padilla) which
allows CAEATFA to grant a sales and use tax exemption to an
eligible firm that purchases property necessary to design,
produce, manufacture, or assemble advanced transportation
technologies or alternative energy source products, components,
or systems. Selected firms purchase equipment without paying the
sales and use tax that would normally apply, lowering their cost
of capital. Neither CAEATFA nor the state is a creditor to the
selected firm in any way under the SB 71 program. Instead,
CAEATFA calculates whether the exemption will yield a net
environmental and economic benefit for the state. Thus far,
CAEATFA has approved $104 million to 33 firms that applied for
the SB 71 benefit, of which 33 firms have monetized $31.6
million in exemptions. Some of the firms have purchased the
property and deployed it in the manufacturing process, while
others have won the award, but not yet purchased the equipment.
To date, CAEATFA has approved financial assistance for private
entities in the following fields: electric vehicle
manufacturing, solar photovoltaic manufacturing, landfill gas
capture and production, biogas capture and production (dairies
and waste water treatment plants), demonstration hydrogen fuel
production, electric vehicle battery manufacturing, biomass
processing and fuel production, and others.
COMMENTS
1. Author's Purpose . California prospered for decades on
its ability to research, develop and manufacture products
for national and international markets. Manufacturing led
California's economic strength in the 20th century, pushing
the Golden State to rank among the top eight global
economies. Manufacturing provides employment for millions
of Californians.
However, California's manufacturing sector has declined.
Other states and nations invested in their manufacturing
sectors and created policies to attract and retain
business. At the turn of the 21st century it was cost
effective and easier for manufacturers to invest outside
California and overseas.
Last summer President Obama launched the Advanced
Manufacturing Program, to "invest in the emerging
technologies that will create high quality manufacturing
jobs". The program directed the U.S. Departments of
Commerce and Energy to invest more than $500 million to
expand manufacturing capabilities, expedite the production
of advanced materials, promote energy and resource
efficiency and provide high wage jobs. The Advanced
Manufacturing Program offers new opportunities for
California to draw down federal dollars, attract new
investment, and employ our workforce. States such as
Massachusetts, Michigan and Georgia are creating
collaborative centers between industry and government to
attract advanced manufactures and draw down the federal
dollars. California must act to remain competitive.
2. What is "Advanced Manufacturing ?" This Committee and
the Committee on Government and Finance held an
informational hearing on March 21st to discuss the
definition of advanced manufacturing. The committees
learned that the definition is still a work in progress and
many states and the federal government do not have a
consistent definition. The definition this bill uses
focuses on industries that manufacture more efficiently
while using sustainable standards that are above and beyond
those required in existing state and federal law. It draws
on three primary sources:
"Preparing for our future: Developing a common
strategy for key enabling technologies in the EU,"
September 30, 2009;
"High Level Group on Key Enabling
Technologies, Thematic Report by the Working Team on
Advanced Manufacturing Systems," December 9, 2010; and
"Emerging Global Trends in Advanced
Manufacturing," Institute for Defense Analyses, March
2012.
1. Study Deadline ? This bill requires the CAEATFA to study
the efficacy and benefit of the ADM sales and use tax
exemption but does not include a deadline for the study.
The committee should consider amending the bill to specify
a deadline of January 1, 2017 for that study which would
coincide with the sunset of the program.
2. Technical Amendment . The author's intent is that this
bill establish an additional manufacturing exemption with
criteria separate from the SB 71 green manufacturing
program. However this bill includes ADM as an additional
element of qualification for the SB 71 program. To ensure
the author's intent is met, the committee should consider
an amendment to strike the reference to ADM at page 15,
lines 21-23 and add ADM as another eligible project in the
definition of "project" in 26003(a)(8)(B) at page 8, lines
8 to 12.
3. Double Referral . This bill was approved by the Senate
Committee on Governance and Finance on April 11, 2012 by a
(9-0) vote.
POSITIONS
Sponsor:
Author
Support:
Applied Materials
BayBio
California Healthcare Institute
California Manufacturers and Technology Association, if amended
California State Association of Electrical Workers
California State Pipe Trades Council
Pharmaceutical Research and Manufacturers of America
Western States Council of Sheet Metal Workers
Oppose:
None on file
Kellie Smith
SB 1128 Analysis
Hearing Date: April 24, 2012