BILL ANALYSIS �
SB 1128
Page 1
Date of Hearing: July 3, 2012
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel P�rez, Chair
SB 1128 (Padilla) - As Amended: June 18, 2012
SENATE VOTE : 38-0
SUBJECT : Energy: alternative energy financing
SUMMARY : Revises and recasts the provisions of the California
Alternative Energy and Advanced Transportation Financing
Authority (Finance Authority) and extends financing authority to
provide sales and use tax exclusion (SUTE) for projects that
promote the utilization of advanced manufacturing.
Specifically, this bill :
1)Updates Finance Authority legislative intent to more
proactively address issues of sustainable renewable energy
sources and advanced transportation technologies.
2)Expands the SUTE Program to include "advanced manufacturing"
and defines it through an extended multipart definition to
mean, among other things, that the manufacturing improves
existing, or creates new, materials, products, and processes
through the use of science, engineering, or information
technologies, high-precision tools and methods, a
high-performance workforce, and innovative business or
organizational models for certain technology areas, as
follows:
a) Micro- and nanoelectronics, including semiconductors;
b) Advanced materials;
c) Integrated computational materials engineers;
d) Nanotechnology;
e) Addictive manufacturing; and
f) Industrial manufacturing.
3)Excludes from the definition of "advanced manufacturing"
technologies and "advanced transportation technologies," those
technologies that are required to be undertaken pursuant to
state or federal law, regulations, as specified.
4)Revises the definition of "alternative sources" to align with
the Renewable Portfolio Standards definition of "renewable
electrical generation facilities." Further, the bill adds
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combined heat and power to the definition, which is consistent
with the definition in Waste and Heat and Carbon Emission
Reduction Act.
5)Excludes from the definition of financial assistance,
contribution of property, labor, or other items of value, and
qualifies the terms "insurance" and "guarantees" to only
include bond insurance and loan guarantees. The reference to
"any other type of assistance the authority deems appropriate"
is also removed.
6)Harmonizes the definition of "participating party" with the
definition of "pubic agency."
7)Consolidates the Finance Authority's rule making authority.
8)Changes a notice requirement for awarding more than $100
million in SUTE in a year to a limit of $100 million per year.
9)Requires the Finance Authority to study and report by January
1, 2017 on the efficacy and cost benefits of the sales SUTE as
it relates to advanced manufacturing including the number of
jobs created, the costs of each job, and the annual salary of
each job. The study is required to also consider a dynamic
analysis of the economic output to the state that would occur
without the sales and use tax exemption.
10)Requires the Finance Authority to work with the Legislative
Analyst's Office (LAO) to determine the most efficient and
cost-effective way for the state to create jobs in advanced
manufacturing.
11)Requires, prior to January 1, 2014, and within six months of
any significant change to the net benefit test, the Finance
Authority to work with the University of California or the
California State University to perform a peer review of the
net benefits test currently used in evaluating applications.
12)Requires the Finance Authority to study and provide an
interim report by January 1, 2015 on the efficacy of the
overall program including recommendations on how to increase
the program's efficacy in creating permanent and temporary
jobs, and whether eligibility for the program should be
extended or narrowed to other manufacturing types. The Finance
Authority is authorized to work with the LAO in preparing the
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report and its recommendations.
13)Limits the term of the advanced manufacturing component of
the SUTE to July 1, 2016, which is four and one half years
less than the overall SUTE program.
14)Repeals specific language that states that in carrying out
the provisions of this division, funds may only come from
those funds provided under the division. The Legislature has
added similar language to other financing authorities as a
means to indicate that the program or activity is not backed
by the full faith and credit of the state and therefore has no
claim to moneys in the General Fund.
15)Repeals a range of programmatic authorities and requirements
the Treasurer's Office says have not been used or for which
funding has not been provided in a number of years including
those related to financing hydroelectric facilities, providing
common bond reserve funds for bonds issued by small
businesses, and a renewable energy finance program.
16)Makes a series of changes to statute to bring, according to
the Treasurer's Office, conformity with state law and business
practices concerning conduit bond financing.
17)Moves the Property Tax Assessed Clean Energy (PACE) and Clean
Energy Financing Program from Division 16.2 (commencing with
Section 26100 of the Public Resources Code) to related
sections under the Finance Authority with conforming and
harmonizing changes.
18)Makes other technical and conforming changes to the
operations of the Finance Authority.
EXISTING LAW :
1)Creates the Finance Authority for the purpose of promoting the
development and utilization of alternative energy sources and
the development and commercialization of advanced
transportation technologies.
2)Authorizes the Finance Authority to administer a state and
local sales tax exclusion program (SUTE Program) for tangible
personal property that is used for the design, manufacture,
production, or assembly of advanced transportation
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technologies or alternative source products, components or
systems. Alternative source products, components or systems
include cogeneration technology, energy conservation, solar,
biomass, wind, geothermal, specified hydro-electric, or any
other energy efficient technologies that reduce the use of
fossil and nuclear fuels. Alternative sources would also
include advanced electric distributive generation technology
and energy storage technology.
3)Requires the Finance Authority to evaluate the SUTE Program
project applications based on the extent to which: (a) the
project develops manufacturing facilities or purchases
equipment in California; (b) the benefits of the project to
the state equal or exceed the benefits to the project
applicant and other participants; (c) the project creates new
permanent jobs in California; (d) the project results in a
reduction in greenhouse gases, a reduction in air or water
pollution, an increase in energy efficiency, or a reduction in
energy consumption, beyond what is required by state or
federal law; (e) unemployment exists in the area in which the
proposed project is to be located; and (f) any other factors
deemed appropriate.
4)Establishes a renewable portfolio goal of 33% of total retail
sales of electricity by December 31, 2020.
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose of the Bill : According to the Author, "Last summer
President Obama launched the Advanced Manufacturing
Partnership, to 'invest in the emerging technologies that will
create high quality manufacturing jobs.' The program directs
more than $1billion to promoting advanced manufacturing. The
Advanced Manufacturing Partnership 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.
The California Alternative Energy and Advanced Transportation
Financing Authority (CAEATFA) is an existing authority within
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the Office of the State Treasurer that can attract and retain
manufacturers. In the first year alone the program approved 26
projects which generated $950 million in investments in
California. These investments are projected to create an
estimated 6,027 jobs; 3,936 permanent jobs and 2,091
construction jobs. CAEATFA is a successful model for
leveraging state dollars to create new jobs and investments.
SB 1128 will expand the success of the program by adding
"Advanced Manufacturing" as one of the top priority criteria
CAEATFA will use to determine the allocation of exemptions."
2)Double Referral : This bill was double referred to the
Assembly Committee on Revenue and Taxation (R&T) and the
Assembly Committee on Jobs, Economic Development, and the
Economy (JEDE). The R&T hearing is scheduled for July 2, 2012
and JEDE will hear the bill on July 3, 2012.
3)Background on the Finance Authority : The Finance Authority
was established in 1980 for the purpose of providing capital
for facilities utilizing alternative methods and sources of
energy and facilities needed for the development and
commercialization of advanced transportation technologies.
The Finance Authority overs a range of financial products
including conduit bond and revenue bond financings, loan
guarantees, loan loss reserve accounts among other financial
products that support the development and commercialization of
technologies that conserve energy, reduce air pollution, and
promote economic development and jobs.
Examples of some of the Finance Authority's more unique
financial products include $381 million in Qualified Energy
Conservation Bonds authorized under the federal American
Recovery and Reinvestment Act and the SB 77 Property Assessed
Clean Energy (PACE) Bond Program. Governor Arnold
Schwarzenegger, as another example, used the Finance Authority
to assist a joint venture between Tesla Motors and Toyota
Motors to purchase the Nummi assembly plant in Fremont,
California where the two companies focus on manufacturing
hybrid and electric vehicles, including the TESLA brand.
Most recently, the role of the Finance Authority was expanded
to include administration of a state sales and use tax
exclusion for property used in the "design, manufacture,
production, or assembly" of either advanced transportation
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technologies or alternative energy source products, components
or systems �SB 71 (Padilla), Chapter 10, Statutes of 2010].
The intent of the SUTE Program is to promote the creation of
California-based manufacturing, California-based jobs, and the
reduction of greenhouse gases, air and water pollution, or
energy consumption. Interest in the program was high at the
program's inception but has since tapered off, as indicated by
the fact that approximately 60% of the projects were approved
within the first eight months of the program.
The Finance Authority is overseen by a five-member board of
directors comprised of the Treasurer (chair), Controller,
Director of Finance, Chairperson of the Energy Commission, and
President of the Public Utilities Commission. The Finance
Authority meets on a monthly basis and members of the board
serve without compensation. The day-to-day activities of the
Finance Authority are overseen by an executive director, who
serves at the pleasure of the board.
4)Sustainable Change May Require More Balance : SB 1128
prohibits SUTE financing of advanced manufacturing and
advanced transportation technologies that are required to be
undertaken pursuant to state or federal law. Concerns have
been raised that this change could effectively remove a
growing number of emerging technologies, such as fuel cells
and advanced microturbines, which have already demonstrated
meaningful levels of greenhouse gas emission reductions and
air quality benefits. Further, the bill specifically allows
financing of combined heat and power technologies even though
these technologies are not necessarily powered by renewable
fuel sources.
With California businesses continuing to face significant
challenges in accessing capital, even profitable companies
find it difficult to finance the retooling and upgrading of
production lines. Many of these challenges remain
substantively out of the control of the business including the
effect of reduced revenues resulting from lower consumer
demand, reductions in the real estate value of collateral that
could be used to access new debt, a growing ability of
cleantech capital to flow globally rather than remain in
California, and stricter federal regulations on the balance
sheets of traditional sources of capital, such as banks.
While it is a laudable goal for the state to support
manufacturers that produce technologies that only result in
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higher than mandated environmental standards, it may be
premature to restrict state resources in this manner.
New and more flexible sources of capital are necessary to the
extent that California wants to leverage California-grown R&D,
expand manufacturing of products that result in a cleaner
environment, and increase quality jobs, while still improving
air quality and producing less greenhouse gas emissions.
State policies will need to reflect sustainable values whereby
programs are socially, environmentally and economically
viable.
5)Updating Statute without Public or Stakeholder Engagement :
Amendments taken on June 19, 2012 propose to modernize the
Finance Authority statute in order to better meet the changing
needs of California businesses. Generally, when these types
of comprehensive updates are undertaken, the amendments are
placed in a bill well before the final policy hearing of the
session, a stakeholder working group might be formed, the
sponsoring government body may hold a hearing to vet the
changes among program users, or, at a minimum, a draft of the
changes would be circulated among interested parties to
solicit written comments. In the case of SB 1128, committee
staff is unaware that any of these types of actions occurred.
Although the language has only been in print for one week,
several affected industry groups have expressed concerns that
the most recent amendments go beyond technical and include
significant policy shifts for the Finance Authority. Other
language proposes to remove programs because they have not
been funded for a number of years. Examples of eliminated
programs include the common bond reserve fund program targeted
to small businesses and a renewable energy finance program.
While some of these changes may be appropriate, full
discussion and adequate time for public input on modernization
changes is very important. Sometimes concerns can be resolved
through discourse, while others may require amendments or
removal from a technical clean-up bill.
6)Purpose of the Finance Authority : The State Treasurer serves
as the Chairperson for a number of state financing authorities
including, but not limited to, the:
a) California Pollution Control Financing Authority;
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b) California Educational Facilities Financing Authority;
c) California Health Facilities Financing Authority;
d) California Industrial Development Financing Advisory
Committee;
e) California School Finance Authority; and
f) California Transportation Finance Authority.
While most of these financing entities have specific and
distinct areas of expertise, several have overlapping missions
and programs. The finance authority which has, perhaps, the
least clear mission is the subject of this measure. New
programs have been added, without a clear understanding of why
a clean technology project would go to one of the financing
entities rather than another. Alternatively, why do several
of the financing entities operate loss reserve account or loan
guarantee programs? While this may be too broad of an issue
for the Committee to consider at the last policy hearing of
the 2011-12 legislative session - SB 1128 brings this long
lingering issue to a head for one financing entity.
7)Manufacturing in California : 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 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
estimate that California lost 613,000 manufacturing jobs from
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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%).
Similar findings were made in a June 2010 report by the Milken
Institute, "Manufacturing 2.0: A More Prosperous California,"
which also found that 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.
8)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.
Below are examples of three 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 has 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.
b) Arizona Clean Technology Property Tax Reduction and Tax
Credit : The goal of the program (enacted in 2009) is to
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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 paying wages above the
state's annual median wage, paying certain health care
costs and making annual investments in equipment.
c) 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.
9)Technical Issues : Whenever a measure proposes to revise and
recast significant portions of law, it is not unusual for
there to be a variety of technical issues. It is suggested
that the Committee direct staff to work with the author and
the Finance Authority to make a number of technical changes
including, but not limited to, correcting cross references,
harmonizing potentially repetitive studies, codifying the net
benefit test, inserting a statement that limits exposure of
the General Fund to the Finance Authority activities, and
redirecting economic development studies away from the Finance
Authority and the LAO to the Governor's Office of Business and
Economic Development.
10)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
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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
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.
e) SB 71 (Padilla) Sales and Use Tax Exemption : This bill
authorizes the Finance Authority to administer a state and
local sales tax exclusion program for tangible personal
property that is used for the design, manufacture,
production, or assembly of advanced transportation
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technologies or alternative source products, components or
systems. Status: The bill was signed by the Governor,
Chapter 10, Statues of 2010.
REGISTERED SUPPORT / OPPOSITION :
Support
Applied Materials
BayBio
Boeing
Boehringer-Ingelheim
California Health Care Institute
Pharmaceutical Research and Manufacturers of America
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090