BILL ANALYSIS �
SB 1128
Page 1
SENATE THIRD READING
SB 1128 (Padilla)
As Amended August 20, 2012
Majority vote
SENATE VOTE :38-0
REVENUE & TAXATION 8-0 ECONOMIC DEVELOPMENT 5-0
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|Ayes:|Perea, Harkey, Beall, |Ayes:|V. Manuel P�rez, Grove, |
| |Cedillo, Fletcher, | |Beall, Block, Hueso |
| |Fuentes, Gordon, Nestande | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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APPROPRIATIONS 16-0
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|Ayes:|Gatto, Harkey, | | |
| |Blumenfield, Bradford, | | |
| |Charles Calderon, Campos, | | |
| |Davis, Fuentes, Hall, | | |
| |Hill, Cedillo, Mitchell, | | |
| |Nielsen, Norby, Solorio, | | |
| |Wagner | | |
| | | | |
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SUMMARY : Expands temporarily the sales and use tax (SUT)
exemption under the California Alternative Energy and Advance
Transportation Financing Authority (CAEATFA) program by revising
the definition of "project" to include "advanced manufacturing
processes," as specified, and makes technical clarifying changes
to other provisions related to the program. Specifically, this
bill :
1)Requires the Governor's Office of Business and Economic
Development to consult with the Legislative Analyst's Office
(LAO), among others, to review and identify efficient and
cost-effective methods for the state to create jobs in
advanced manufacturing, and submit a report to the Legislature
by January 1, 2017.
2)Authorizes CAEATFA, until July 1, 2016, to grant financial
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assistance to eligible projects that promote the utilization
of "advanced manufacturing processes," as defined, therefore,
expanding the SUT exemption under the CAEATFA program.
3)Defines "advanced manufacturing processes" as manufacturing
that improve existing, or create entirely new, materials,
products, and process through the use of science, engineering,
or information technologies, high-precision tools and methods,
a high-performance workforce, and innovative business or
organization models in utilizing any of the following
technology areas: micro- and nano-electronics, including
semiconductors, advanced materials, integrated computational
materials engineering, nanotechnology, additive manufacturing,
or industrial biotechnology.
4)Specifies that the phrase "advanced manufacturing" includes
certain systems and technologies that:
a) Result from substantive advancement, beyond the current
industry standards, in the production of materials and
products (for example, 'smart' or 'intelligent'
manufacturing systems, which integrate computational
predictability and operational efficiency); or,
b) Are sustainable manufacturing systems and manufacturing
technologies that minimize the use of resources while
maintaining or improving cost and performance.
5)Provides that "sustainable manufacturing systems and
manufacturing technologies" do not include those required to
be undertaken pursuant to state or federal law or regulations,
air district rules or regulations, memoranda of understanding
with a governmental entity, or legally binding agreements or
documents. Requires the State Air Resources Board to advise
CAEATFA to ensure that these requirements are met.
6)Modifies the definition of "advanced transportation
technologies" to do all of the following:
a) Eliminate outdated references to specified technologies;
b) Specify that eligible technologies do not include those
projects that are required to be undertaken pursuant to
state or federal law or regulations, air district rules or
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regulations, or memoranda of understanding with a
governmental entity, or legally binding agreements or
documents; and,
c) Require the State Air Resources Board to advise CAEATFA
regarding projects that are excluded, as specified.
7)Revises the definition of "alternative sources" to align it
with the definition of "renewable electrical generation
facilities" of the Renewable Portfolio Standard and the
definition of "combined heat and power system" in the Waste
Heat and Carbon Emissions Reduction Act, as specified.
8)Narrows the definition of "financial assistance" by clarifying
that insurance and guarantees are limited to credit
enhancements - bond insurance and loan guarantees - and do not
include other forms of insurance or guarantees.
9)Specifies that only those applicants that qualify for
financial assistance under Public Resources Code (PRC) Section
26011.8 are eligible for the SUT exemption provided for in
Revenue and Taxation Code (R&TC) Section 6010.8.
10)States that the total amount of SUT exemptions granted for
projects approved by CAEATFA in each calendar year may not
exceed $100 million.
11)Clarifies CAEATFA's rulemaking authority and its authority to
delegate its powers and duties to the State Treasurer's
designee.
12)Requires CAEATFA to do all of the following:
a) Study the efficacy and cost benefit of the SUT exemption
as it relates to advanced manufacturing projects. The study
must include the number of jobs created, the costs of each
job, and the annual salary of each job and must consider a
dynamic analysis of the economic output to the state that
would occur without the exclusion.
b) Submit to the Legislature, prior to January 1, 2017, a
report outlining the results of the study.
c) Work, before January 1, 2014, and within six months of
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any significant change to the net benefits test, with the
University of California or the California State
University, to perform a peer review of the net benefit
test currently used to evaluate applicants applying for the
program.
d) Submit to the Legislature, prior to January 1, 2015, an
interim report on the efficacy of the program. The study
must include recommendations on program changes that would
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. Authorizes CAEATFA to work with the LAO in
preparing the report and its recommendations.
13)Revises provisions relating to conduit bond financing to
conform to current law and business practices.
14)Removes the existing $1 billion cap imposed on the total
amount of outstanding debt that CAEATFA is authorized to
incur.
15)Authorizes CAEATFA to refinance bonds, notes or other
evidence of indebtedness of any public agency, as provided.
16)Specifies that, if CAEATFA refunds bonds or evidences of
indebtedness not originally issued by the CAEATFA, it shall
make findings stating that the project being refinanced
qualifies as a "project" under the program.
17)Recast and restructure the existing provisions relating to
the Property Assessed Clean Energy and Clean Energy Financing
Program and makes corresponding clarifying changes.
18)Repeals obsolete provisions relating to several programs that
have never been implemented nor funded.
19)Makes several technical non-substantive changes.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, this bill will result in uncertain, potential losses
to the General Fund beginning in 2013-14 through 2015-16, due to
increase loss of sales tax. However, there could be offsetting
savings because of the bill's imposition of a hard cap of $100
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million for the exemption program. In addition, it is estimated
that, as the result of this bill' enactment, the state will
incur several hundred thousand dollars of costs, to be paid by a
loan from the General Fund for the development of emergency
regulations and reporting costs. These costs may eventually be
recovered through fees on applicants to the program, depending
on the level of program participation.
COMMENTS :
Author's Statement . The author states that, "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 $1
billion 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
the Office of the State Treasure 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."
CAEATFA: Background . The California Alternative Energy Source
Financing Authority was established in 1980 with an
authorization of $200 million in revenue bonds to finance
projects utilizing alternative or renewable energy sources, such
as wind, solar, cogeneration and geothermal. In 1994, the
authority was renamed as CAEATFA and its charge was expanded to
include the financing of "advanced transportation" technologies.
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During the energy crisis of 2001, CAEATFA's authority was
expanded again to provide financial assistance to public power
entities, independent generators, and others for new and
renewable energy sources, and to develop clean distributed
generation. The CAEATFA board consists of five members: the
Treasurer, Controller, Director of Finance, Chairperson of the
Energy Commission, and President of the Public Utilities
Commission.
CAEATFA may provide financial assistance to approved projects
via the issuance of bonds, loans, loan guarantees and credit
enhancements. It may authorize up to $1 billion in revenue or
prepayment bonds to fund projects. Over the last few years,
CAEATFA has provided financial assistance through various
programs, including qualified energy conservation bonds for
projects that promote the use of alternative energy and energy
efficiency in state, local and tribal government facilities as
well as clean renewable energy bonds for renewable energy
projects. In addition, with the passage of SB 71 (Padilla),
Chapter 10, Statutes of 2010, CAEATFA is allowed to grant a SUT
exemption to provide financial assistance for the purchase of
equipment that is used for the design, manufacture, production,
or assembly of "advanced transportation technologies" or
"alternative source" products, components, or systems (SB 71
Program). Alternative source products 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 also include advanced electric
distributive generation technology and energy storage
technology. The SB 71 Program sunsets on January 1, 2021.
The SB 71 Program . According to the CAEATFA's 2011 annual
report to the Legislature, as of December 31, 2011, it had
approved 39 projects under the SB 71 Program, which include,
among others, electric vehicles and solar photovoltaic
manufacturing, biomass processing and fuel production, and
biogas capture and production. Out of those 39 projects, nine
are inactive and are not moving forward. The 30 active projects
have been approved for $937.7 million in anticipated qualified
property purchases, estimated to result in approximately $80.3
million in SUT exemptions (of which $25 million were utilized by
Solyndra that filed for bankruptcy on September 6, 2011). These
projects are located across 12 counties. The CAEATFA staff
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estimated that the projects will produce $37.2 million in
environmental benefits and $108.4 million in fiscal benefits,
resulting in approximately $65.2 million of "net benefits."
But, at the October 11, 2011, joint informational hearing held
by the Senate Governance and Finance Committee and the Energy,
Utilities, and Communications Committee, the Committees learned
that the current SB 71 Program costs about $153,000 per job
created, including the Solyndra allocation.
The SB 71 Program requires more data and information from
applicants than any other tax incentive programs. However, it
is still difficult to measure the efficacy of the existing
program. Thus, this measure proposes a peer review approach of
the net benefits test currently used to evaluate applicants
applying for the SUT exemption. It would require CAEATFA to
work with the University of California or the California State
University to perform a review of the test before January 1,
2014, and within six month of any significant change to the
test.
The SUT Exemption . While this measure expands the types of
projects that may qualify as eligible for CAEAFTA's financial
assistance, it also imposes a hard cap of $100 million on the
total amount of SUT exemptions that may be granted by CAEATFA in
any given year and clarifies that only those projects that are
authorized under the SB 71 Program qualify for the exemption.
This bill also revises R&TC Section 6010.8, which authorizes the
SUT exemption, to allow a participating party to purchase or
lease qualified tangible personal property (TPP) directly from
the seller, removing the need for CAEATFA to act as an
intermediary. Typically, in order to qualify for the exemption,
the participating party would have to purchase the property
without payment of tax and then resell the equipment to CAEATFA.
The transfer would be excluded from the SUT as a transfer from
a participating party to CAEATFA. The participating party and
CAEATFA would then enter into a lease agreement and upon
complete installation of the TPP, ownership of that property
would be transferred from the CAEATFA to the participating
party. Alternatively, CAEATFA may purchase the specified
equipment on behalf of the participating party, financing the
purchase through a bond or loan, and the participating party
would lease the equipment from CAEATFA. As the purchaser of the
equipment, the CAEATFA will pay no sales tax on the purchase,
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nor will it be required to collect the use tax on the lease
receipts. This bill would simplify these complicated sale-lease
transactions that may not be feasible for business reasons by
providing that a lease or transfer of TPP constituting a
"project" under the SB 71 Program to a participating party is
exempt from the SUT.
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
FN: 0005067