Amended in Senate August 4, 2014

Amended in Senate July 3, 2014

Amended in Senate June 18, 2014

Amended in Senate June 9, 2014

Amended in Senate September 6, 2013

Amended in Senate August 22, 2013

California Legislature—2013–14 Regular Session

Assembly Bill No. 1399

Introduced by Assembly Members Medina and V. Manuel Pérez

March 11, 2013

An act to add Section 26011.9 to the Public Resources Code, begin delete and to amend Section 18410.2 of, end delete and to add and repeal Sections 12283, 17053.9, and 23622.9 begin delete of, end delete begin insert of end insert the Revenue and Taxation Code, relating to taxation, and making an appropriation therefor, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

AB 1399, as amended, Medina. Income taxation: insurance taxation: credits: California New Markets Tax Credit.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws. Existing law also creates the California Competes Tax Credit Committee, which has specified duties in regard to tax credits for economic development.

Existing law imposes an annual tax on the gross premiums of an insurer, as defined, doing business in this state at specified rates.

This bill would allow a credit under the Personal Income Tax Law and the Corporation Tax Law, and a credit against the tax imposed on an insurer, in modified conformity with a federal New Markets Tax Credit, for taxable years beginning on or after January 1, 2015, and before January 1, 2027, in a specified amount for investments in low-income communities. The bill would limit the total annual amount of credit allowed pursuant to these provisions to an amount equal to any portion not granted under a specified sales and use tax exclusion, not to exceed $40,000,000 per calendar year, and would limit the allocation of the credit to a cumulative total of no more than $200,000,000, as provided. This bill would impose specified duties on the California Competes Tax Credit Committee with regard to the application for, and allocation of, the credit. The bill would require the committee to establish and impose reasonable fees upon entities that apply for the allocation of the credit and use the revenue to defray the cost of administering the program, as specified, thereby making an appropriation.

This bill would take effect immediately as a tax levy.

Vote: majority. Appropriation: yes. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature finds and declares the following:

(a) While many areas of California have recovered from the
economic and community development impacts of the 2006
Financial Crisis and the 2010 global recession, Californians in a
number of communities and neighborhoods are still experiencing
their lingering effects. In some cases this has resulted in small and
medium businesses in low-income areas lacking sufficient access
to capital and technical assistance. Given that the state has many
needs and limited resources, moneys from the private sector are
necessary to fill this capital and investment gap.

(b) Initially enacted in 2000, the federal government established
the New Markets Tax Credit (NMTC) Program, which uses a
market-based approach for expanding capital and technical
assistance to businesses in lower income communities. The federal
program is jointly administered by the Community Development
Financial Institutions Fund (CDFI Fund) and the Internal Revenue
Service. The NMTC Program allocates federal tax incentives to
community development entities (CDE), which they then use to
attract private investors who contribute funds that can be used to
finance and invest in businesses and develop real estate in
low-income communities. Through begin delete May 2013 end delete begin insert the 2013-14 funding
round end insert , the CDFI Fund had awarded approximately
begin delete $36,500,000,000 end delete begin insert $40,000,000,000 end insert in NMTC in begin delete 749 end delete begin insert 836 end insert awards
including $3,000,000,000 in American Recovery and Investment
Act of 2009 awards and $1,000,000,000 of special allocation
authority to be used for the recovery and redevelopment of the
Gulf Opportunity Zone.

(c) The federal NMTC totals 39 percent of the original
investment amount in the CDE and is claimed over a period of
seven years (5 percent for each of the first three years, and 6
percent for each of the remaining four years). The investment by
the taxpayer in the CDE redeemed before the end of the seven-year
period will be recaptured.

(d) Fourteen states in the United States have adopted state
programs using the NMTC model including Alabama, Florida,
Illinois, Nevada, and Oregon. While some of the programs
substantially mirror the federal program, others vary in both the
percentage of the credit and some of the policies that form the
foundation of the credit. One of the reasons cited for establishing
state-level programs is to make their state more attractive to CDEs,
which results in increasing the amount of federal NMTCs being
utilized in their state. Further, several studies, including a January
1, 2011, case study by Pacific Community Ventures, showed that
for every dollar of forgone tax revenue, the federal NMTC
leverages $12 to $14 of private investment.

SEC. 2.  

Section 26011.9 is added to the Public Resources Code,
to read:

26011.9.  

The authority shall make a determination of the
amount of the one hundred million dollars ($100,000,000) in
exclusions not granted in the assigned calendar year pursuant to
Section 26011.8. An amount equal to that amount shall be granted
in the subsequent calendar year through the California New
Markets Tax Credit Program pursuant to Sections 12283, 17053.9,
and 23622.9 of the Revenue and Taxation Code. This section shall
not prevent a taxpayer granted an exclusion pursuant to Section
6010.8 of the Revenue and Taxation Code from applying for, and
receiving a refund for, taxes paid under Part 1 (commencing with
Section 6001) of Division 2 of the Revenue and Taxation Code.

SEC. 3.  

Section 12283 is added to the Revenue and Taxation
Code, to read:

12283.  

(a) There is hereby created the California New Markets
Tax Credit Program as provided in this section, Section 17053.9,
and Section 23622.9. The purpose of this program is to stimulate
private sector investment in lower income communities by
providing a tax incentive to begin delete qualified end delete community and economic
development entities that can be leveraged by the entity to attract
private sector investment that in turn will be deployed by providing
financing and technical assistance to small- and medium-size
businesses and the development of commercial, industrial, and
community development projects, including, but not limited to,
facilities for nonprofit service organizations, light manufacturing,
and mixed-use and transit-oriented development. The California
Competes Tax Credit Committee shall administer this program as
provided in this section, Section 17053.9, and Section 23622.9.

(b) (1) For taxable years beginning on or after January 1, 2015,
and before January 1, 2027, there shall be allowed as a credit
against the tax described in Sections 12201, 12204, 12206, and
12209, an amount determined in accordance with Section 45D of
the Internal Revenue Code, as amended by Public Law 111-5,
Public Law 111-312, and Public Law 112-240, as modified as set
forth in this section.

(2) This credit shall be allowed only if the taxpayer holds the
qualified equity investment, or has been allocated a credit pursuant
to paragraph (3), on the credit allowance date and each of the six
following anniversary dates of that date.

(3) A tax credit allowed under this section shall not be sold and
is not a refundable credit. Tax credits allowed or allocated begin delete to a
partnership, limited liability company, or “S” corporation end delete begin insert through
a pass-thru entity end insert may be allocated to the begin delete partners, members,
managers, end delete begin insert partners end insert or shareholders of such entity for their use in
accordance with the provisions of any agreement among such
begin delete partners, members, managers, end delete begin insert partners end insert or shareholders. Such
allocations shall not be considered a sale for the purposes of this
section.

begin insert

(A) The credit shall be allocated to the partners of a partnership
in accordance with the partnership agreement, regardless of how
the federal New Markets Tax Credit is allocated to the partners,
or whether the allocation of the credit under the terms of the
agreement has substantial economic effect, within the meaning of
Section 704(b) of the Internal Revenue Code.

end insert begin insert

(B) To the extent the allocation of the credit to a partner under
this section lacks substantial economic effect, any loss or deduction
otherwise allowable under this part that is attributable to the sale
or other disposition of that partner’s partnership interest made
prior to the expiration of the recapture period set forth in Section
45D(g)(1) of the Internal Revenue Code shall not be allowed in
the taxable year in which the sale or other disposition occurs, but
shall instead be deferred until and treated as if it occurred in the
first taxable year immediately following the taxable year in which
that recapture period expires.

end insert begin insert

(C) Credits awarded to an “S” corporation shall be allocated
among the shareholders of the “S” corporation pro rata in
accordance with their respective pro rata shares, determined in
accordance with Subchapter S of Chapter 1 of Subtitle A of the
Internal Revenue Code and the regulations promulgated
thereunder.

end insert

(c) Section 45D of the Internal Revenue Code is modified as
follows:

(1) (A) The references to “the Secretary” in Section 45D of the
Internal Revenue Code begin insert , other than in Sections 45D(c)(1)(C) and
45D(d)(1)(C), end insert are modified to read “the begin delete committee.” end delete begin insert committee.” end insert

(B) For purposes of this section, “committee” means the
California Competes Tax Credit Committee established under
Section 18410.2.

(2) Section 45D(a)(2) of the Internal Revenue Code, relating to
applicable percentage, is modified by substituting for “(A) 5
percent with respect to the first 3 credit allowance dates, and (B)
6 percent with respect to the remainder of the credit allowance
dates” with the following:

(A) Zero percent with respect to the first two credit allowance
dates.

(B) Seven percent with respect to the third credit allowance
date.

(C) Eight percent with respect to the remainder of the credit
allowance dates.

(3) Section 45D(b)(3) of the Internal Revenue Code, relating
to safe harbor for determining use of cash, is modified by
substituting “qualified low-income community investments in
California” for “qualified low-income community investments.”

(4)  (A) Section 45D(c)(1) of the Internal Revenue begin delete Code,
relating to qualified community development entities, end delete begin insert Code end insert is
modified to additionally include:

(i) A subsidiary community development entity of any such
qualified community development entity.

(ii) A nonprofit organization, pursuant to Section 23701,
certified by the committee as having a primary mission of serving
or providing investment capital in low-income communities and
the entity maintains accountability to residents of low-income
communities through their representation on any governing board
of the entity or on an advisory board of the entity. The committee
shall establish guidelines for certifying nonprofit organizations
pursuant to this subparagraph. The committee may include
reasonable conditions on the certification to effectuate the intent
of this section and may suspend or revoke a certification, after
affording the nonprofit organization notice and the opportunity to
be begin delete heard, end delete begin insert heard and appeal, end insert if the committee finds that the
nonprofit organization no longer meets the requirements for
certification. Such nonprofit organization is not subject to the
requirement of subparagraph (B).

(B) Section 45D(c)(1) of the Internal Revenue begin delete Code, relating
to a qualified community development entity, end delete begin insert Code end insert is modified
to only include a qualified community development entity that has
entered into an allocation agreement with the Community
Development Financial Institutions Fund of the United States
Treasury Department, with respect to credits authorized by Section
45D of the Internal Revenue Code, that includes California within
the service area and is dated on or after January 1, 2012.

(5)  Section 45D(d)(1)(A) of the Internal Revenue begin delete Code, relating
to qualified low-income community investments, end delete begin insert Code end insert is modified
to only include any capital or equity investment in, or loan to, a
qualified active low-income community business.

(6) The term “qualified active low-income community business,”
as defined in Section 45D(d)(2) of the Internal Revenue Code, is
modified as follows:

(A) Section 45D(d)(2)(A)(i) of the Internal Revenue begin delete Code,
relating to qualified active low-income community businesses, end delete
begin insert Code end insert is modified by substituting “any low-income community in
California” for “any low-income community.”

(B) Section 45D(d)(2)(A)(ii) of the Internal Revenue begin delete Code,
relating to qualified active low-income community businesses, end delete
begin insert Code end insert is modified as follows:

(i) Substituting “any low-income community in California” for
“any low-income community.”

(ii) In determining whether the qualified active low-income
community business uses a substantial portion of its tangible
personal property within any low-income community, the term
“substantial portion” shall mean “at least 40 percent” as calculated
by the average value of the tangible property owned or leased and
used within a California low-income community by the entity
divided by the average value of the total tangible property owned
or leased and used by the entity in California during the taxable
year. The value assigned to the leased property by the entity must
be reasonable.

(iii) Adding the provision that if the business meets the
requirements of a qualified low-income community business at
the time the investment is made, the business shall begin delete continue to
satisfy end delete begin insert be treated as satisfying end insert the requirements of Section
45D(d)(2)(A)(ii) for the duration of the investment.

begin insert

(C) An entity complies with Section 45D(d)(2)(A)(i) of the
Internal Revenue Code if, as calculated in subparagraph (B), it
uses 50 percent of its tangible property, whether owned or leased,
within any low-income community for any taxable year.

end insert begin delete

(C)

end delete

begin insert (D) end insert  Section 45D(d)(2)(A)(iii) of the Internal Revenue begin delete Code,
relating to qualified active low-income community business, a
substantial portion of the services of which are performed in a
low-income community, end delete begin insert Code end insert is modified to allow the services
of employees of a service-based qualified business to be performed
outside the low-income community. A service-based qualified
business is a business that primarily earns revenue through
providing intangible products and services.

begin delete

(D) An entity complies with Section 45D(d)(2)(A)(i) of the
Internal Revenue Code, relating to qualified active low-income
community business, if, as calculated in subparagraph (B), it uses
50 percent of its tangible property, whether owned or leased, within
any low-income community for any taxable year.

end delete

(E) (i) A qualified active low-income community business shall
exclude any business that derives, or projects to derive, 15 percent
or more of its annual revenue from the rental or sale of real estate.
This exclusion does not apply to a business that is controlled by,
or under common control with, another business if the second
business: (I) does not derive or project to derive 15 percent or more
of its annual revenue from the rental or sale of real estate; and (II)
is the primary tenant of the real estate leased from the first business.

(ii) A qualified active low-income community business shall
only include a business that, at the time the initial investment is
made, has 250 or fewer employees and is located in a California
low-income community. The operating business shall meet all
other conditions of a qualified active low-income business, except
as modified by this paragraph and paragraph (7).

(iii) A qualified active low-income community business shall
only include a business located in census tracts with a poverty rate
greater than 30 percent, or census tracts, if located within a
non-metropolitan area, with a median family income that does not
exceed 60 percent of median family income for the State of
California, or census tracts, if located within a metropolitan area,
with a median family income that does not exceed 60 percent of
the greater of the California median family income or the
metropolitan area median family income, or census tracts with
unemployment rates at least 1.5 times the national average.

(7) Section 45D(e)(1) of the Internal Revenue begin delete Code, relating to
determining the eligible low-income community, end delete begin insert Code end insert is modified
to add the following: “When the United States Census Bureau
discontinues using the decennial census to report median family
income on a census tract basis, census block group data shall be
used based on the American Community Survey.”

(8) The following shall apply in lieu of the provisions of Section
begin delete 45D(f)(1) end delete begin insert 45D(f) end insert of the Internal Revenue Code, relating to national
limitation on amount of investments designated: “The aggregate
amount of credit that may be allocated in any calendar year
pursuant to this section, Section 17053.9, and Section 23622.9
shall be an amount equal to any unused portion of the one hundred
million dollars ($100,000,000) in exclusions, authorized pursuant
to Section 6010.8, as determined by the California Alternative
Energy and Advanced Transportation Financing Authority and
reported to the committee, not to exceed forty million dollars
($40,000,000). The committee shall limit the allocation of credits
permitted under this section, Section 17053.9, and Section 23622.9
to a cumulative total of no more than two hundred million dollars
($200,000,000). Any unused credits shall be returned to the
committee begin delete on end delete begin insert by end insert March 1 of the year following allocation and the
value of the unused credit shall be available for allocation in the
following calendar years in accordance with the application
process. Any recaptured credits shall be returned to the committee
by March 1 of the year following recapture and the value of the
recaptured credit shall be available for allocation in the following
calendar years in accordance with subparagraph (B) of paragraph
(9). Reallocation credits shall not count against the forty million
dollars ($40,000,000) annual limit or the two hundred million
dollars ($200,000,000) cumulative limit.”

(9) Section 45D(g)(3) of the Internal Revenue Code, relating
to recapture event, does not apply and is replaced with the
following:

(A) The committee shall begin delete recapture, end delete begin insert establish a process, in
consultation with the Department of Insurance, for the recapture
of credits allowed under this section end insert from the entity that claimed
the credit on a begin delete return, the tax credit allowed under this section if
any of the following: end delete begin insert return. The recapture process shall be applied
if any of the following conditions set forth occur. end insert

(i) Any amount of a federal tax credit available with respect to
a qualified equity investment that is eligible for a credit under this
section is recaptured under Section 45D of the Internal Revenue
Code. begin insert The qualified community development entity shall send
notice to the committee within 30 calendar days of being notified
by the United States Treasury that any amount of a federal tax
credit available with respect to a qualified equity investment that
is eligible for a credit under this section is recaptured. The
committee shall send written acknowledgment within five calendar
days of receipt of the qualified community development entity’s
notice of potential noncompliance. end insert In such case the begin delete committee’s end delete
recapture shall be proportionate to the federal recapture with respect
to such qualified equity investment.

(ii) The qualified community development entity redeems or
makes principal repayment with respect to a qualified equity
investment prior to the seventh anniversary of the issuance of such
qualified equity investment. begin insert The qualified community development
entity shall send notice to the committee within 30 calendar days
of redeeming or making principal repayments with respect to a
qualified equity investment prior to the seventh anniversary of the
issuance of such qualified equity investment. The committee shall
send written acknowledgment within five calendar days of receipt
of the qualified community development entity’s notice of potential
noncompliance. end insert In such case the committee’s recapture shall be
proportionate to the amount of the redemption or repayment with
respect to such qualified equity investment.

(iii) The qualified community development entity fails to invest
an amount equal to at least 85 percent of the purchase price of the
qualified equity investment in qualified low-income community
investments in California within 12 months of the issuance of the
qualified equity investment and maintain at least 85 percent of
such level of investment in qualified low-income community
investments in California until the last credit allowance date for
the qualified equity investment. For purposes of this section, an
investment shall be considered held by a qualified community
development entity even if the investment has been sold or repaid
if the qualified community development entity reinvests an amount
equal to the capital returned to, or recovered by, the qualified
community development entity from the original investment,
exclusive of any profits realized, in another qualified low-income
community investment within 12 months of the receipt of such
capital. begin insert The qualified community development entity shall send
notice to the committee within 30 calendar days of the 12-month
deadline for the reinvestment if the entity fails to meet any of the
reinvestment requirements. The committee shall send written
acknowledgment within five calendar days of receipt of the
qualified community development entity’s notice of potential
noncompliance. end insert Periodic amounts received as repayment of
principal pursuant to regularly scheduled amortization payments
on a loan that is a qualified low-income community investment
shall be treated as continuously invested in a qualified low-income
community investment if the amounts are reinvested in one or
more qualified low-income community investments by the end of
the following calendar year. A qualified community development
entity shall not be required to reinvest capital returned from
qualified low-income community investments after the sixth
anniversary of the issuance of the qualified equity investment, and
the qualified low-income community investment shall be
considered held by the qualified community development entity
through the seventh anniversary of the qualified equity investment’s
issuance.

(B) Recaptured tax credits and the related qualified equity
investment authority revert back to the committee and shall be
reissued in the following order:

(i) First, pro rata to applicants whose qualified equity investment
allocations were reduced pursuant to subparagraph (B) of paragraph
(5) of subdivision (d) by the allocation limitation of forty million
dollars ($40,000,000) in paragraph (8) of subdivision (c).

(ii) Thereafter, in accordance with the application process.

(C)  begin insert (i) end insert begin insert   end insert Enforcement of each of the recapture provisions shall
be subject to a six-month cure period. begin delete No recapture end delete begin insert Recapture end insert
shall begin insert not end insert occur until the qualified community development entity
begin delete shall have been given end delete begin insert gives end insert notice of begin insert potential end insert noncompliance begin insert to
the committee end insert and begin insert is end insert afforded six months from the date of such
notice to cure the noncompliance. begin insert The six-month cure period shall
begin on the day the committee sends written acknowledgment of
the qualified community development entity’s notice of the potential
noncompliance. The qualified community development entity is
responsible for addressing the circumstances of the potential
noncompliance and providing all documentation to the committee
necessary to demonstrate, to the committee’s satisfaction, that
those conditions no longer exist. end insert

begin insert

(ii) Not more than 45 calendar days following the close of the
cure period, the committee shall make a final determination as to
whether the credit is to be recaptured. This determination shall
be based on the review of the notice, information submitted by the
qualified community development entity, and any other information
the committee deems relevant to this determination.

end insert begin insert

(iii) The committee shall post, and update monthly, a tally of
returned credits, pursuant to paragraph (8), and recaptured credits
pursuant to this paragraph. Within 30 calendar days of making
the final determination that the credit is to be recaptured, the
committee shall notify the Department of Insurance of the
determination including, but not limited to, the tax identification
number of the taxpayer.

end insert begin insert

(10) Section 45D(h) of the Internal Revenue Code, relating to
basis reduction, shall not apply.

end insert begin delete

(10)

end delete

begin insert (11) end insert  Section 45D(i) of the Internal Revenue Code, relating to
regulations, shall not apply.

begin delete

(11) Section 45D(h) of the Internal Revenue Code, relating to
basis, shall not apply.

end delete

(12)  If a qualified community development entity makes a
capital or equity investment or a loan with respect to a qualified
low-income building under the state Low-Income begin insert Housing end insert Tax
Credit Program, the investment or loan is not a qualified
low-income community investment under this section.

(d) (1) The committee shall adopt guidelines necessary or
appropriate to carry out the purposes of this section begin insert and meet the
requirements of Section 45D of the Internal Revenue Code, as
modified by this section end insert . The guidelines shall not disqualify a
low-income community investment for the single reason that public
or private incentives, loans, equity investments, technical
assistance, or other forms of support have been or continue to be
provided. The adoption of the guidelines shall not be subject to
the rulemaking provisions of the Administrative Procedure Act of
Chapter 3.5 (commencing with Section 11340) of Part 1 of Division
3 of Title 2 of the Government Code.

(2) The committee shall establish and impose reasonable fees
upon entities that apply for the allocation pursuant to this
subdivision and use the revenue to defray the cost of administering
the program. The committee shall establish the fees in a manner
that ensures that (A) the total amount collected equals the amount
reasonably necessary to defray the committee’s costs in performing
its administrative duties under this section, and (B) the amount
paid by each entity reasonably corresponds with the value of the
services provided to the entity.

(3) In developing guidelines the committee shall adopt an
allocation process that does all of the following:

(A) Creates an equitable distribution process that ensures that
low-income communities across the state have an opportunity to
benefit from the program.

(B) Sets minimum organizational capacity standards that
applicants must meet in order to receive an allocation of credits
including, but not limited to, its business strategy, begin insert targeted end insert
community outcomes, capitalization strategy, and management
capacity.

(4) (A) The committee shall begin accepting applications on
begin insert or before end insert March 15, 2015, and shall award credits at least two
times a year at dates set annually by the committee through 2019,
to the extent that allocations are available pursuant to Section
26011.9 of the Public Resources Code. To the extent reasonable
and consistent in carrying out the purposes of this section, the
committee shall consider how the timing of the state allocation
rounds correspond with the allocation schedule of the federal New
Markets Tax Credit Program.

(B) Within 20 calendar days after receipt of an application the
committee shall determine whether the application is complete or
whether additional information is necessary in order to fully
evaluate the application. If additional information is requested and
the qualified community development entity provides that
information within five business days, the application shall be
considered completed as of the original date of receipt. If the
qualified community development entity fails to provide the
information within the five-business-day period, the application
shall be denied and must be resubmitted in full with a new receipt
date.

(C) Within 20 calendar days after receipt of an application
determined to be complete by the committee, the committee shall
grant or deny the application in full or in part. If the committee
denies any part of the application, it shall inform the qualified
community development entity of the grounds for the denial.

(5) (A) The committee shall award tax credits to qualified
community development entities described in subparagraph (B)
of paragraph (4) of subdivision (c) in the order applications are
received by the committee begin insert , subject to clause (i) or on a competitive
basis, pursuant to clause (ii) end insert . begin delete Applications received on the same
day shall be deemed to have been received simultaneously. end delete

(i)  begin insert (I) end insert begin insert   end insert In 2015, the committee shall only award tax credits to a
qualified community development begin delete entity, exclusive of an entity
described in clause (ii) of subparagraph (A) of paragraph (4) of
subdivision (c) end delete begin insert entity in the order applications are received by the
committee end insert . In the 2016 to 2019 award cycles, inclusive, at least
60 percent of the credit allocation shall be awarded begin delete to a qualified
community development entity, exclusive of an entity described
in clause (ii) of subparagraph (A) of paragraph (4) of subdivision
(c) end delete begin insert in the order applications are received by the committee to a
qualified community development entity end insert . begin insert Applications received on
the same day shall be deemed to have been received
simultaneously. end insert At the committee’s discretion, a higher percentage
of credits may be begin delete targeted to applicants exclusive of an end delete begin insert awarded
in the order that they are received. Qualified community
development entities that receive tax credit awards pursuant to
this clause shall commit to making investments in a manner that
engages community-based partnerships and local grassroots
stakeholders. end insert

begin insert (II) end insert begin insert   end insert begin insert An end insert entity described in clause (ii) of subparagraph (A) of
paragraph (4) of subdivision (c) begin insert shall not receive a tax credit award
pursuant to this clause end insert .

(ii) The committee shall award up to 40 percent of the credit
allocation in the 2016 to 2019, inclusive, award cycles, to a
qualified community development entity, as described in clause
(ii) of subparagraph (A) of paragraph (4) of subdivision (c) and
subparagraph (B) of paragraph (4) of subdivision (c), on a
competitive basis using blind scoring and a review committee that
is comprised of at least a majority of community development
finance practitioners begin insert and at least one-third of the members having
demonstrated experience in assessing organizational business
strategy, community outcomes, capitalization strategy, and
management capacity end insert . A member of the review committee shall
not have a financial interest, which includes, but is not limited to,
asking, consenting, or agreeing to receive any commission,
emolument, gratuity, money, property, or thing of value for his or
her own use, benefit, or personal advantage for procuring or
endeavoring to procure for any person, partnership, joint venture,
association, or corporation any tax credit or other assistance from
any applicant. begin delete Priority end delete

begin insert (iii) end insert begin insert   end insert begin insert In awarding credits on a competitive basis, priority end insert shall
begin insert be end insert given to applications that can demonstrate that the credits will
allow the entity to undertake qualified low-income community
investments in a rural, suburban, or urban area that has been
historically underserved begin insert and result in the greatest benefit to the
hardest to serve lower income populations and most
undercapitalized, end insert or in newly established businesses begin insert , or in activities
that support neighborhood revitalization strategies driven by local
grassroots stakeholders in multiple low-income communities across
one or more regions or the state for the purpose of scaling
economic development activities that compliment regional industry
clusters end insert that begin delete results end delete begin insert result end insert in the greatest benefit to the largest
number of lower income individuals. begin insert All competitive applications
shall demonstrate strong linkages with communities and
neighborhoods in California low-income neighborhoods. end insert

(B)  For applications described in clause (i) of subparagraph
(A), in the event tax credit requests exceed the applicable annual
allocation limitation of up to forty million dollars ($40,000,000)
in paragraph (8) of subdivision (c), the committee shall certify,
consistent with remaining qualified equity investment capacity,
qualified equity investments of applicants in proportionate
percentages based upon the ratio of the amount of qualified equity
investments requested in such applications to the total amount of
qualified equity investments requested in all such applications
received on the same day.

(C) If a pending request cannot be fully certified due to this
limit, the committee shall certify the portion that may be certified
unless the qualified community development entity elects to
withdraw its request rather than receive partial certification.

(D) An approved applicant may transfer all or a portion of its
certified qualified equity investment authority to its controlling
entity or any subsidiary qualified community development entity
of the controlling entity, provided that the applicant and the
transferee notify the committee begin insert within 30 calendar days end insert of such
transfer and include the information required in the application
with respect to such transferee with such notice.

(E) Within 60 calendar days of the committee sending notice
of certification, the qualified community development entity or
any transferee, under subparagraph (D), shall issue the qualified
equity investment and receive cash in the amount of the certified
amount. The qualified community development entity or transferee,
under subparagraph (D), must provide the committee with evidence
of the receipt of the cash investment within 65 begin insert calendar end insert days of
the applicant receiving notice of certification. If the qualified
community development entity or any transferee, under
subparagraph (D), does not receive the cash investment and issue
the qualified equity investment within 60 calendar days of the
committee sending the certification notice, the certification shall
lapse and the entity may not issue the qualified equity investment
without reapplying to the committee for certification. Lapsed
certifications revert back to the committee and shall be reissued
in the following order:

(i) First, pro rata to applicants whose qualified equity investment
allocations were reduced pursuant to subparagraph (B) of paragraph
(5) under the annual allocation limitation of forty million dollars
($40,000,000) in paragraph (8) of subdivision (c).

(ii) Thereafter, in accordance with the application process.

(F) A qualified community development entity that issues
qualified equity investments must notify the committee of the
names of the entities that are eligible to utilize tax credits under
paragraph (3) of subdivision (b) pursuant to an allocation of tax
credits or change in allocation of tax credits or due to a transfer of
a qualified equity investment.

(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to the committee
within the first five business days after the first anniversary of the
initial credit allowance date that provides documentation as to the
investment of at least 85 percent of the purchase price in qualified
low-income community investments in qualified active low-income
community businesses located in California. Such report shall
include all of the following:

(i) A bank statement of such qualified community development
entity evidencing each qualified low-income community
investment.

(ii) Evidence that such business was a qualified active
low-income community business at the time of such qualified
low-income community investment.

(iii) Any other information required by the committee.

(B) Thereafter, the qualified community development entity
shall submit an annual report to the committee within 60 begin insert calendar end insert
days of the beginning of the calendar year during the seven years
following submittal of the report, pursuant to subparagraph (A).
No annual report shall be due prior to the first anniversary of the
initial credit allowance date. The report shall include, but is not
limited to, the following:

(i) The impact the credit had on the low-income community.

(ii) The amount of moneys used for qualified low-income
investments in qualified low-income community businesses.

(iii) The number of employment positions created and retained
as a result of qualified low-income community investments and
the average annual salary of such positions.

(iv) The number of operating businesses assisted as a result of
qualified low-income community investments, by industry and
number of employees.

(v) Number of owner-occupied real estate projects described in
subparagraph (E) of paragraph (6) of subdivision (c).

(vi) Location of the qualified low-income community businesses.

(e) In the case where the credit allowed by this section exceeds
the tax described in Sections 12201, 12204, 12206, and 12209, the
excess may be carried over to reduce that tax in the following year,
and the six succeeding years if necessary, until the credit is
exhausted.

(f) The committee shall annually report on its Internet Web site
the information provided by low-income community development
entities and on the geographic distribution of the credits.

(g) (1) The begin delete Franchise Tax Board end delete begin insert Insurance Commissioner end insert may
prescribe any rules or regulations that may be necessary or
appropriate to implement this section. The begin delete Franchise Tax Board end delete
begin insert Insurance Commissioner end insert shall have access to any documentation
held by the committee relative to the application and reporting of
a qualified community development entity.

(2) A qualifying community development entity shall provide
the committee with the name, address, and tax identification
number of each investor and entity for which a credit was allocated
by the qualifying community development entity, pursuant to
paragraph (3) of subdivision (b). The committee shall provide this
information to the Franchise Tax Board in a manner determined
by the Franchise Tax Board.

(h) This section shall remain in effect only until December 1,
2028, and as of that date is repealed.

SEC. 4.  

Section 17053.9 is added to the Revenue and Taxation
Code, to read:

17053.9.  

(a) There is hereby created the California New
Markets Tax Credit Program as provided in this section, Section
12283, and Section 23622.9. The purpose of this program is to
stimulate private sector investment in lower income communities
by providing a tax incentive to begin delete qualified end delete community and economic
development entities that can be leveraged by the entity to attract
private sector investment that in turn will be deployed by providing
financing and technical assistance to small- and medium-size
businesses and the development of commercial, industrial, and
community development projects, including, but not limited to,
facilities for nonprofit service organizations, light manufacturing,
and mixed-use and transit-oriented development. The California
Competes Tax Credit Committee shall administer this program as
provided in this section, Section 12283, and Section 23622.9.

(b) (1) For taxable years beginning on or after January 1, 2015,
and before January 1, 2027, there shall be allowed as a credit
against the “net tax,” as defined in Section 17039, an amount
determined in accordance with Section 45D of the Internal Revenue
Code, as amended by Public Law 111-5, Public Law 111-312, and
Public Law 112-240, as modified as set forth in this section.

(2) This credit shall be allowed only if the taxpayer holds the
qualified equity investment, or has been allocated a credit pursuant
to paragraph (3), on the credit allowance date and each of the six
following anniversary dates of that date.

(3) A tax credit allowed under this section shall not be sold and
is not a refundable credit. Tax credits allowed or allocated begin delete to a
partnership, limited liability company, or “S” corporation end delete begin insert through
a pass-thru entity end insert may be allocated to the partners begin delete , members,
managers, end delete or shareholders of such entity for their use in accordance
with the provisions of any agreement among such partners begin delete ,
members, managers, end delete or shareholders. Such allocations shall not
be considered a sale for the purposes of this section.

begin insert

(A) The credit shall be allocated to the partners of a partnership
in accordance with the partnership agreement, regardless of how
the federal New Markets Tax Credit is allocated to the partners,
or whether the allocation of the credit under the terms of the
agreement has substantial economic effect, within the meaning of
Section 704(b) of the Internal Revenue Code.

end insert begin insert

(B) To the extent the allocation of the credit to a partner under
this section lacks substantial economic effect, any loss or deduction
otherwise allowable under this part that is attributable to the sale
or other disposition of that partner’s partnership interest made
prior to the expiration of the recapture period set forth in Section
45D(g)(1) of the Internal Revenue Code shall not be allowed in
the taxable year in which the sale or other disposition occurs, but
shall instead be deferred until and treated as if it occurred in the
first taxable year immediately following the taxable year in which
that recapture period expires.

end insert begin insert

(C) Credits awarded to an “S” corporation shall be allocated
among the shareholders of the “S” corporation pro rata in
accordance with their respective pro rata shares, determined in
accordance with Subchapter S of Chapter 1 of Subtitle A of the
Internal Revenue Code and the regulations promulgated
thereunder.

end insert

(c) Section 45D of the Internal Revenue Code is modified as
follows:

(1) (A) The references to “the Secretary” in Section 45D of the
Internal Revenue Code begin insert , other than in Sections 45D(c)(1)(C) and
45D(d)(1)(C), end insert are modified to read “the begin delete committee.” end delete begin insert committee.” end insert

(B) For purposes of this section, “committee” means the
California Competes Tax Credit Committee established under
Section 18410.2.

(2) Section 45D(a)(2) of the Internal Revenue Code, relating to
applicable percentage, is modified by substituting for “(A)   5
percent with respect to the first 3 credit allowance dates, and (B)  
6 percent with respect to the remainder of the credit allowance
dates” with the following:

(A) Zero percent with respect to the first two credit allowance
dates.

(B) Seven percent with respect to the third credit allowance
date.

(C) Eight percent with respect to the remainder of the credit
allowance dates.

(3) Section 45D(b)(3) of the Internal Revenue Code, relating
to safe harbor for determining use of cash, is modified by
substituting “qualified low-income community investments in
California” for “qualified low-income community investments.”

(4) (A) Section 45D(c)(1) of the Internal Revenue begin delete Code, relating
to qualified community development entities, end delete begin insert Code end insert is modified to
additionally include:

(i) A subsidiary community development entity of any such
qualified community development entity.

(ii) A nonprofit organization, pursuant to Section 23701,
certified by the committee as having a primary mission of serving
or providing investment capital in low-income communities and
the entity maintains accountability to residents of low-income
communities through their representation on any governing board
of the entity or on an advisory board of the entity. The committee
shall establish guidelines for certifying nonprofit organizations
pursuant to this subparagraph. The committee may include
reasonable conditions on the certification to effectuate the intent
of this section and may suspend or revoke a certification, after
affording the nonprofit organization notice and the opportunity to
be begin delete heard, end delete begin insert heard and appeal, end insert if the committee finds that the
nonprofit organization no longer meets the requirements for
certification. Such nonprofit organization is not subject to the
requirement of subparagraph (B).

(B) Section 45D(c)(1) of the Internal Revenue begin delete Code, relating
to a qualified community development entity, end delete begin insert Code end insert is modified
to only include a qualified community development entity that has
entered into an allocation agreement with the Community
Development Financial Institutions Fund of the United States
Treasury Department, with respect to credits authorized by Section
45D of the Internal Revenue Code, that includes California within
the service area and is dated on or after January 1, 2012.

(5) Section 45D(d)(1)(A) of the Internal Revenue begin delete Code, relating
to qualified low-income community investments, end delete begin insert Code end insert is modified
to only include any capital or equity investment in, or loan to, a
qualified active low-income community business.

(6) The term “qualified active low-income community business,”
as defined in Section 45D(d)(2) of the Internal Revenue Code begin insert , end insert is
modified as follows:

(A) Section 45D(d)(2)(A)(i) of the Internal Revenue begin delete Code,
relating to qualified active low-income community businesses, end delete
begin insert Code end insert is modified by substituting “any low-income community in
California” for “any low-income community.”

(B) Section 45D(d)(2)(A)(ii) of the Internal Revenue begin delete Code,
relating to qualified active low-income community businesses, end delete
begin insert Code end insert is modified as follows:

(i) Substituting “any low-income community in California” for
“any low-income community.”

(ii) In determining whether the qualified active low-income
community business uses a substantial portion of its tangible
personal property within any low-income community, the term
“substantial portion” shall mean “at least 40 percent” as calculated
by the average value of the tangible property owned or leased and
used within a California low-income community by the entity
divided by the average value of the total tangible property owned
or leased and used by the entity in California during the taxable
year. The value assigned to the leased property by the entity must
be reasonable.

(iii) Adding the provision that if the business meets the
requirements of a qualified low-income community business at
the time the investment is made, the business shall begin delete continue to
satisfy end delete begin insert be treated as satisfying end insert the requirements of Section
45D(d)(2)(A)(ii) for the duration of the investment.

begin insert

(C) An entity complies with Section 45D(d)(2)(A)(i) of the
Internal Revenue Code if, as calculated in subparagraph (B), it
uses 50 percent of its tangible property, whether owned or leased,
within any low-income community for any taxable year.

end insert begin delete

(C)

end delete

begin insert (D) end insert  Section 45D(d)(2)(A)(iii) of the Internal Revenue begin delete Code,
relating to qualified active low-income community business, a
substantial portion of the services of which are performed in a
low-income community, end delete begin insert Code end insert is modified to allow the services
of employees of a service-based qualified business to be performed
outside the low-income community. A service-based qualified
business is a business that primarily earns revenue through
providing intangible products and services.

begin delete

(D) An entity complies with Section 45D(d)(2)(A)(i) of the
Internal Revenue Code, relating to qualified active low-income
community business, if, as calculated in subparagraph (B), it uses
50 percent of its tangible property, whether owned or leased, within
any low-income community for any taxable year.

end delete

(E) (i) A qualified active low-income community business shall
exclude any business that derives, or projects to derive, 15 percent
or more of its annual revenue from the rental or sale of real estate.
This exclusion does not apply to a business that is controlled by,
or under common control with, another business if the second
business: (I) does not derive or project to derive 15 percent or more
of its annual revenue from the rental or sale of real estate; and (II)
is the primary tenant of the real estate leased from the first business.

(ii) A qualified active low-income community business shall
only include a business that, at the time the initial investment is
made, has 250 or fewer employees and is located in a California
low-income community. The operating business shall meet all
other conditions of a qualified active low-income business, except
as modified by this paragraph and paragraph (7).

(iii) A qualified active low-income community business shall
only include a business located in census tracts with a poverty rate
greater than 30 percent, or census tracts, if located within a
non-metropolitan area, with a median family income that does not
exceed 60 percent of median family income for the State of
California, or census tracts, if located within a metropolitan area,
with a median family income that does not exceed 60 percent of
the greater of the California median family income or the
metropolitan area median family income, or census tracts with
unemployment rates at least 1.5 times the national average.

(7) Section 45D(e)(1) of the Internal Revenue begin delete Code, relating to
determining the eligible low-income community, end delete begin insert Code end insert is modified
to add the following: “When the United States Census Bureau
discontinues using the decennial census to report median family
income on a census tract basis, census block group data shall be
used based on the American Community Survey.”

(8) The following shall apply in lieu of the provisions of Section
begin delete 45D(f)(1) end delete begin insert 45D(f) end insert of the Internal Revenue Code, relating to national
limitation on amount of investments designated: “The aggregate
amount of credit that may be allocated in any calendar year
pursuant to this section, Section 12283, and Section 23622.9 shall
be an amount equal to any unused portion of the one hundred
million dollars ($100,000,000) in exclusions, authorized pursuant
to Section 6010.8, as determined by the California Alternative
Energy and Advanced Transportation Financing Authority and
reported to the committee, not to exceed forty million dollars
($40,000,000). The committee shall limit the allocation of credits
permitted under this section, Section 12283, and Section 23622.9
to a cumulative total of no more than two hundred million dollars
($200,000,000). Any unused credits shall be returned to the
committee begin delete on end delete begin insert by end insert March 1 of the year following allocation and the
value of the unused credit shall be available for allocation in the
following calendar years in accordance with the application
process. Any recaptured credits shall be returned to the committee
by March 1 of the year following recapture and the value of the
recaptured credit shall be available for allocation in the following
calendar years in accordance with clause (ii) of subparagraph (B)
of paragraph (9). Reallocation credits shall not count against the
forty million dollars ($40,000,000) annual limit or the two hundred
million dollars ($200,000,000) cumulative limit.”

(9) (A) Section 45D(g)(2)(B) of the Internal Revenue Code,
relating to credit recapture amount, is modified to substitute
“Section 19101 of this code” for “section 6621”.

(B) Section 45D(g)(3) of the Internal Revenue Code, relating
to recapture event, does not apply and is replaced with the
following:

(i) The committee shall begin delete recapture, end delete begin insert establish a process, in
consultation with the Franchise Tax Board, for the recapture of
credits allowed under this section end insert from the entity that claimed the
credit on a begin delete return, the tax credit allowed under this section if any
of the following: end delete begin insert return. The recapture process shall be applied
if any of the following conditions set forth occur. end insert

(I)  Any amount of a federal tax credit available with respect to
a qualified equity investment that is eligible for a credit under this
section is recaptured under Section 45D of the Internal Revenue
Code. begin insert The qualified community development entity shall send
notice to the committee within 30 calendar days of being notified
by the United States Treasury that any amount of a federal tax
credit available with respect to a qualified equity investment that
is eligible for a credit under this section is recaptured. The
committee shall send written acknowledgment within five calendar
days of receipt of the qualified community development entity’s
notice of potential noncompliance. end insert In such case the begin delete committee’s end delete
recapture shall be proportionate to the federal recapture with respect
to such qualified equity investment.

(II)  The qualified community development entity redeems or
makes principal repayment with respect to a qualified equity
investment prior to the seventh anniversary of the issuance of such
qualified equity investment. begin insert The qualified community development
entity shall send notice to the committee within 30 calendar days
of redeeming or making principal repayments with respect to a
qualified equity investment prior to the seventh anniversary of the
issuance of such qualified equity investment. The committee shall
send written acknowledgment within five calendar days of receipt
of the qualified community development entity’s notice of potential
noncompliance. end insert In such case the committee’s recapture shall be
proportionate to the amount of the redemption or repayment with
respect to such qualified equity investment.

(III)  The qualified community development entity fails to invest
an amount equal to at least 85 percent of the purchase price of the
qualified equity investment in qualified low-income community
investments in California within 12 months of the issuance of the
qualified equity investment and maintain at least 85 percent of
such level of investment in qualified low-income community
investments in California until the last credit allowance date for
the qualified equity investment. For purposes of this section, an
investment shall be considered held by a qualified community
development entity even if the investment has been sold or repaid
if the qualified community development entity reinvests an amount
equal to the capital returned to, or recovered by, the qualified
community development entity from the original investment,
exclusive of any profits realized, in another qualified low-income
community investment within 12 months of the receipt of such
capital. begin insert The qualified community development entity shall send
notice to the committee within 30 calendar days of the 12-month
deadline for the reinvestment if the entity fails to meet any of the
reinvestment requirements. The committee shall send written
acknowledgment within five calendar days of receipt of the
qualified community development entity’s notice of potential
noncompliance. end insert Periodic amounts received as repayment of
principal pursuant to regularly scheduled amortization payments
on a loan that is a qualified low-income community investment
shall be treated as continuously invested in a qualified low-income
community investment if the amounts are reinvested in one or
more qualified low-income community investments by the end of
the following calendar year. A qualified community development
entity shall not be required to reinvest capital returned from
qualified low-income community investments after the sixth
anniversary of the issuance of the qualified equity investment, and
the qualified low-income community investment shall be
considered held by the qualified community development entity
through the seventh anniversary of the qualified equity investment’s
issuance.

(ii)  Recaptured tax credits and the related qualified equity
investment authority revert back to the committee and shall be
reissued in the following order:

(I)  First, pro rata to applicants whose qualified equity
investment allocations were reduced pursuant to subparagraph (B)
of paragraph (5) of subdivision (d) by the allocation limitation of
forty million dollars ($40,000,000) in paragraph (8) of subdivision
(c).

(II)  Thereafter, in accordance with the application process.

(iii)  begin insert (I) end insert begin insert   end insert Enforcement of each of the recapture provisions shall
be subject to a six-month cure period. begin delete No recapture end delete begin insert Recapture end insert
shall begin insert not end insert occur until the qualified community development entity
begin delete shall have been given end delete begin insert gives end insert notice of begin insert potential end insert noncompliance begin insert to
the committee end insert and begin insert is end insert afforded six months from the date of such
notice to cure the noncompliance. begin insert The six-month cure period shall
begin on the day the committee sends written acknowledgment of
the qualified community development entity’s notice of the potential
noncompliance. The qualified community development entity is
responsible for addressing the circumstances of the potential
noncompliance and providing all documentation to the committee
necessary to demonstrate, to the committee’s satisfaction, that
those conditions no longer exist. end insert

begin insert

(II) Not more than 45 calendar days following the close of the
cure period, the committee shall make a final determination as to
whether the credit is to be recaptured. This determination shall
be based on the review of the notice, information submitted by the
qualified community development entity, and any other information
the committee deems relevant to this determination.

end insert begin insert

(III) The committee shall post, and update monthly, a tally of
returned credits, pursuant to paragraph (8), and recaptured credits
pursuant to this paragraph. Within 30 calendar days of making
the final determination that the credit is to be recaptured, the
committee shall notify the Department of Insurance of the
determination including, but not limited to, the tax identification
number of the taxpayer.

end insert

(10) Section 45D(i) of the Internal Revenue Code, relating to
regulations, shall not apply.

(11) If a qualified community development entity makes a
capital or equity investment or a loan with respect to a qualified
low-income building under the state Low-Income begin insert Housing end insert Tax
Credit Program, the investment or loan is not a qualified
low-income community investment under this section.

(d) (1) The committee shall adopt guidelines necessary or
appropriate to carry out the purposes of this section begin insert and meet the
requirements of Section 45D of the Internal Revenue Code, as
modified by this section end insert . The guidelines shall not disqualify a
low-income community investment for the single reason that public
or private incentives, loans, equity investments, technical
assistance, or other forms of support have been or continue to be
provided. The adoption of the guidelines shall not be subject to
the rulemaking provisions of the Administrative Procedure Act of
Chapter 3.5 (commencing with Section 11340) of Part 1 of Division
3 of Title 2 of the Government Code.

(2) The committee shall establish and impose reasonable fees
upon entities that apply for the allocation pursuant to this
subdivision and use the revenue to defray the cost of administering
the program. The committee shall establish the fees in a manner
that ensures that (A) the total amount collected equals the amount
reasonably necessary to defray the committee’s costs in performing
its administrative duties under this section, and (B) the amount
paid by each entity reasonably corresponds with the value of the
services provided to the entity.

(3) In developing guidelines the committee shall adopt an
allocation process that does all of the following:

(A) Creates an equitable distribution process that ensures that
low-income communities across the state have an opportunity to
benefit from the program.

(B) Sets minimum organizational capacity standards that
applicants must meet in order to receive an allocation of credits
including, but not limited to, its business strategy, begin insert targeted end insert
community outcomes, capitalization strategy, and management
capacity.

(4) (A) The committee shall begin accepting applications on
begin insert or before end insert March 15, 2015, and shall award credits at least two
times a year at dates set annually by the committee through 2019,
to the extent that allocations are available pursuant to Section
26011.9 of the Public Resources Code. To the extent reasonable
and consistent in carrying out the purposes of this section, the
committee shall consider how the timing of the state allocation
rounds correspond with the allocation schedule of the federal New
Markets Tax Credit Program.

(B) Within 20 calendar days after receipt of an application the
committee shall determine whether the application is complete or
whether additional information is necessary in order to fully
evaluate the application. If additional information is requested and
the qualified community development entity provides that
information within five business days, the application shall be
considered completed as of the original date of receipt. If the
qualified community development entity fails to provide the
information within the five-business-day period, the application
shall be denied and must be resubmitted in full with a new receipt
date.

(C) Within 20 calendar days after receipt of an application
determined to be complete by the committee, the committee shall
grant or deny the application in full or in part. If the committee
denies any part of the application, it shall inform the qualified
community development entity of the grounds for the denial.

(5) (A) The committee shall award tax credits to qualified
community development entities described in subparagraph (B)
of paragraph (4) of subdivision (c) in the order applications are
received by the committee begin insert , subject to clause (i) or on a competitive
basis, pursuant to clause (ii) end insert . begin delete Applications received on the same
day shall be deemed to have been received simultaneously. end delete

(i)  begin insert (I) end insert begin insert   end insert In 2015, the committee shall only award tax credits to a
qualified community development begin delete entity, exclusive of an entity
described in clause (ii) of subparagraph (A) of paragraph (4) of
subdivision (c) end delete begin insert entity in the order applications are received by the
committee end insert . In the 2016 to 2019 award cycles, inclusive, at least
60 percent of the credit allocation shall be awarded begin delete to a qualified
community development entity, exclusive of an entity described
in clause (ii) of subparagraph (A) of paragraph (4) of subdivision
(c) end delete begin insert in the order applications are received by the committee to a
qualified community development entity end insert . begin insert Applications received on
the same day shall be deemed to have been received
simultaneously. end insert At the committee’s discretion, a higher percentage
of credits may be begin delete targeted to applicants exclusive of an end delete begin insert awarded
in the order that they are received. Qualified community
development entities that receive tax credit awards pursuant to
this clause shall commit to making investments in a manner that
engages community-based partnerships and local grassroots
stakeholders. end insert

begin insert (II) end insert begin insert   end insert begin insert An end insert entity described in clause (ii) of subparagraph (A) of
paragraph (4) of subdivision (c) begin insert shall not receive a tax credit award
pursuant to this clause end insert .

(ii) The committee shall award up to 40 percent of the credit
allocation in the 2016 to 2019, inclusive, award cycles, to a
qualified community development entity, as described in clause
(ii) of subparagraph (A) of paragraph (4) of subdivision (c) and
subparagraph (B) of paragraph (4) of subdivision (c), on a
competitive basis using blind scoring and a review committee that
is comprised of at least a majority of community development
finance practitioners begin insert and at least one-third of the members having
demonstrated experience in assessing organizational business
strategy, community outcomes, capitalization strategy, and
management capacity end insert . A member of the review committee shall
not have a financial interest, which includes, but is not limited to,
asking, consenting, or agreeing to receive any commission,
emolument, gratuity, money, property, or thing of value for his or
her own use, benefit, or personal advantage for procuring or
endeavoring to procure for any person, partnership, joint venture,
association, or corporation any tax credit or other assistance from
any applicant. begin delete Priority end delete

begin insert (iii) end insert begin insert   end insert begin insert In awarding credits on a competitive basis, priority end insert shall
begin insert be end insert given to applications that can demonstrate that the credits will
allow the entity to undertake qualified low-income community
investments in a rural, suburban, or urban area that has been
historically underserved begin insert and result in the greatest benefit to the
hardest to serve lower income populations and most
undercapitalized, end insert or in newly established businesses begin insert , or in activities
that support neighborhood revitalization strategies driven by local
grassroots stakeholders in multiple low-income communities across
one or more regions or the state for the purpose of scaling
economic development activities that compliment regional industry
clusters end insert that begin delete results end delete begin insert result end insert in the greatest benefit to the largest
number of lower income individuals. begin insert All competitive applications
shall demonstrate strong linkages with communities and
neighborhoods in California low-income neighborhoods. end insert

(B)  For applications described in clause (i) of subparagraph
(A), in the event tax credit requests exceed the applicable annual
allocation limitation of up to forty million dollars ($40,000,000)
in paragraph (8) of subdivision (c), the committee shall certify,
consistent with remaining qualified equity investment capacity,
qualified equity investments of applicants in proportionate
percentages based upon the ratio of the amount of qualified equity
investments requested in such applications to the total amount of
qualified equity investments requested in all such applications
received on the same day.

(C) If a pending request cannot be fully certified due to this
limit, the committee shall certify the portion that may be certified
unless the qualified community development entity elects to
withdraw its request rather than receive partial certification.

(D) An approved applicant may transfer all or a portion of its
certified qualified equity investment authority to its controlling
entity or any subsidiary qualified community development entity
of the controlling entity, provided that the applicant and the
transferee notify the committee begin insert within 30 calendar days end insert of such
transfer and include the information required in the application
with respect to such transferee with such notice.

(E) Within 60 calendar days of the committee sending notice
of certification, the qualified community development entity or
any transferee, under subparagraph (D), shall issue the qualified
equity investment and receive cash in the amount of the certified
amount. The qualified community development entity or transferee,
under subparagraph (D), must provide the committee with evidence
of the receipt of the cash investment within 65 begin insert calendar end insert days of
the applicant receiving notice of certification. If the qualified
community development entity or any transferee, under
subparagraph (D), does not receive the cash investment and issue
the qualified equity investment within 60 calendar days of the
committee sending the certification notice, the certification shall
lapse and the entity may not issue the qualified equity investment
without reapplying to the committee for certification. Lapsed
certifications revert back to the committee and shall be reissued
in the following order:

(i) First, pro rata to applicants whose qualified equity investment
allocations were reduced pursuant to subparagraph (B) of paragraph
(5) under the annual allocation limitation of forty million dollars
($40,000,000) in paragraph (8) of subdivision (c).

(ii) Thereafter, in accordance with the application process.

(F) A qualified community development entity that issues
qualified equity investments must notify the committee of the
names of the entities that are eligible to utilize tax credits under
paragraph (3) of subdivision (b) pursuant to an allocation of tax
credits or change in allocation of tax credits or due to a transfer of
a qualified equity investment.

(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to the committee
within the first five business days after the first anniversary of the
initial credit allowance date that provides documentation as to the
investment of at least 85 percent of the purchase price in qualified
low-income community investments in qualified active low-income
community businesses located in California. Such report shall
include all of the following:

(i) A bank statement of such qualified community development
entity evidencing each qualified low-income community
investment.

(ii) Evidence that such business was a qualified active
low-income community business at the time of such qualified
low-income community investment.

(iii) Any other information required by the committee.

(B) Thereafter, the qualified community development entity
shall submit an annual report to the committee within 60 begin insert calendar end insert
days of the beginning of the calendar year during the seven years
following submittal of the report, pursuant to subparagraph (A).
No annual report shall be due prior to the first anniversary of the
initial credit allowance date. The report shall include, but is not
limited to, the following:

(i) The impact the credit had on the low-income community.

(ii) The amount of moneys used for qualified low-income
investments in qualified low-income community businesses.

(iii) The number of employment positions created and retained
as a result of qualified low-income community investments and
the average annual salary of such positions.

(iv) The number of operating businesses assisted as a result of
qualified low-income community investments, by industry and
number of employees.

(v) Number of owner-occupied real estate projects described in
subparagraph (E) of paragraph (6) of subdivision (c).

(vi) Location of the qualified low-income community businesses.

(e) In the case where the credit allowed by this section exceeds
the “net tax,” the excess may be carried over to reduce the “net
tax” in the following year, and the six succeeding years if
necessary, until the credit is exhausted.

(f) The committee shall annually report on its Internet Web site
the information provided by low-income community development
entities and on the geographic distribution of the credits.

(g) (1) The Franchise Tax Board may prescribe any rules or
regulations that may be necessary or appropriate to implement this
section. The Franchise Tax Board shall have access to any
documentation held by the committee relative to the application
and reporting of a qualified community development entity.

(2) A qualifying community development entity shall provide
the committee with the name, address, and tax identification
number of each investor and entity for which a credit was allocated
by the qualifying community development entity, pursuant to
paragraph (3) of subdivision (b). The committee shall provide this
information to the Franchise Tax Board in a manner determined
by the Franchise Tax Board.

(h) This section shall remain in effect only until December 1,
2028, and as of that date is repealed.

begin delete

SEC. 5.  

Section 18410.2 of the Revenue and Taxation Code
is amended to read:

18410.2.  

(a) The California Competes Tax Credit Committee
is hereby established. The committee shall consist of the Treasurer,
the Director of Finance, and the Director of the Governor’s Office
of Business and Economic Development, who shall serve as chair
of the committee, or their designated representatives, and one
appointee each by the Speaker of the Assembly and the Senate
Committee on Rules. A Member of the Legislature shall not be
appointed.

(b) For purposes of Sections 12283, 17053.9, 17059.2, 23622.9,
and 23689 the California Competes Tax Credit Committee shall
do all of the following:

(1) Approve or reject any written agreement for a tax credit
allocation by resolution at a duly noticed public meeting held in
accordance with the Bagley-Keene Open Meeting Act (Article 9
(commencing with Section 11120) of Chapter 1 of Part 1 of
Division 3 of Title 2 of the Government Code), but only after
receipt of the fully executed written agreement between the
taxpayer and the Governor’s Office of Business and Economic
Development.

(2) Approve or reject any recommendation to recapture, in whole
or in part, a tax credit allocation by resolution at a duly noticed
public meeting held in accordance with the Bagley-Keene Open
Meeting Act (Article 9 (commencing with Section 11120) of
Chapter 1 of Part 1 of Division 3 of Title 2 of the Government
Code), but only after receipt of the recommendation from the
Governor’s Office of Business and Economic Development
pursuant to the terms of the fully executed written agreement.

end delete

begin delete SEC. 6. end delete
begin insert SEC. 5. end insert   

Section 23622.9 is added to the Revenue and Taxation
Code, to read:

23622.9.  

(a) There is hereby created the California New
Markets Tax Credit Program as provided in this section, Section
12283, and Section 17053.9. The purpose of this program is to
stimulate private sector investment in lower income communities
by providing a tax incentive to begin delete qualified end delete community and economic
development entities that can be leveraged by the entity to attract
private sector investment that in turn will be deployed by providing
financing and technical assistance to small- and medium-size
businesses and the development of commercial, industrial, and
community development projects, including, but not limited to,
facilities for nonprofit service organizations, light manufacturing,
and mixed-use and transit-oriented development. The California
Competes Tax Credit Committee shall administer this program as
provided in this section, Section 12283, and Section 17053.9.

(b) (1) For taxable years beginning on or after January 1, 2015,
and before January 1, 2027, there shall be allowed as a credit
against the “tax,” as defined in Section 23036, an amount
determined in accordance with Section 45D of the Internal Revenue
Code, as amended by Public Law 111-5, Public Law 111-312, and
Public Law 112-240, as modified as set forth in this section.

(2) This credit shall be allowed only if the taxpayer holds the
qualified equity investment, or has been allocated a credit pursuant
to paragraph (3), on the credit allowance date and each of the six
following anniversary dates of that date.

(3) A tax credit allowed under this section shall not be sold and
is not a refundable credit. Tax credits allowed or allocated begin delete to a
partnership, limited liability company, or “S” corporation end delete begin insert through
a pass-thru entity end insert may be allocated to the begin delete partners, members,
managers, end delete begin insert partners end insert or shareholders of such entity for their use in
accordance with the provisions of any agreement among such
begin delete partners, members, managers, end delete begin insert partners end insert or shareholders. Such
allocations shall not be considered a sale for the purposes of this
section.

begin insert

(A) The credit shall be allocated to the partners of a partnership
in accordance with the partnership agreement, regardless of how
the federal New Markets Tax Credit is allocated to the partners,
or whether the allocation of the credit under the terms of the
agreement has substantial economic effect, within the meaning of
Section 704(b) of the Internal Revenue Code.

end insert begin insert

(B) To the extent the allocation of the credit to a partner under
this section lacks substantial economic effect, any loss or deduction
otherwise allowable under this part that is attributable to the sale
or other disposition of that partner’s partnership interest made
prior to the expiration of the recapture period set forth in Section
45D(g)(1) of the Internal Revenue Code shall not be allowed in
the taxable year in which the sale or other disposition occurs, but
shall instead be deferred until and treated as if it occurred in the
first taxable year immediately following the taxable year in which
that recapture period expires.

end insert begin insert

(C) Credits awarded to an “S” corporation shall be allocated
among the shareholders of the “S” corporation pro rata in
accordance with their respective pro rata shares, determined in
accordance with Subchapter S of Chapter 1 of Subtitle A of the
Internal Revenue Code and the regulations promulgated
thereunder.

end insert

(c) Section 45D of the Internal Revenue Code is modified as
follows:

(1) (A) The references to “the Secretary” in Section 45D of the
Internal Revenue Code begin insert , other than in Sections 45D(c)(1)(C) and
45D(d)(1)(C), end insert are modified to read “the begin delete committee.” end delete begin insert committee.” end insert

(B) For purposes of this section, “committee” means the
California Competes Tax Credit Committee established under
Section 18410.2.

(2) Section 45D(a)(2) of the Internal Revenue Code, relating to
applicable percentage, is modified by substituting for “(A)   5
percent with respect to the first 3 credit allowance dates, and (B)  
6 percent with respect to the remainder of the credit allowance
dates” with the following:

(A) Zero percent with respect to the first two credit allowance
dates.

(B) Seven percent with respect to the third credit allowance
date.

(C) Eight percent with respect to the remainder of the credit
allowance dates.

(3) Section 45D(b)(3) of the Internal Revenue Code, relating
to safe harbor for determining use of cash, is modified by
substituting “qualified low-income community investments in
California” for “qualified low-income community investments.”

(4) (A) Section 45D(c)(1) of the Internal Revenue begin delete Code, relating
to qualified community development entities, end delete begin insert Code end insert is modified to
additionally include:

(i) A subsidiary community development entity of any such
qualified community development entity.

(ii) A nonprofit organization, pursuant to Section 23701,
certified by the committee as having a primary mission of serving
or providing investment capital in low-income communities and
the entity maintains accountability to residents of low-income
communities through their representation on any governing board
of the entity or on an advisory board of the entity. The committee
shall establish guidelines for certifying nonprofit organizations
pursuant to this subparagraph. The committee may include
reasonable conditions on the certification to effectuate the intent
of this section and may suspend or revoke a certification, after
affording the nonprofit organization notice and the opportunity to
be begin delete heard, end delete begin insert heard and appeal, end insert if the committee finds that the
nonprofit organization no longer meets the requirements for
certification. Such nonprofit organization is not subject to the
requirement of subparagraph (B).

(B) Section 45D(c)(1) of the Internal Revenue begin delete Code, relating
to a qualified community development entity, end delete begin insert Code end insert is modified
to only include a qualified community development entity that has
entered into an allocation agreement with the Community
Development Financial Institutions Fund of the United States
Treasury Department, with respect to credits authorized by Section
45D of the Internal Revenue Code, that includes California within
the service area and is dated on or after January 1, 2012.

(5) Section 45D(d)(1)(A) of the Internal Revenue begin delete Code, relating
to qualified low-income community investments, end delete begin insert Code end insert is modified
to only include any capital or equity investment in, or loan to, a
qualified active low-income community business.

(6) The term “qualified active low-income community business,”
as defined in Section 45D(d)(2) of the Internal Revenue Code begin insert , end insert is
modified as follows:

(A) Section 45D(d)(2)(A)(i) of the Internal Revenue begin delete Code,
relating to qualified active low-income community businesses, end delete
begin insert Code end insert is modified by substituting “any low-income community in
California” for “any low-income community.”

(B) Section 45D(d)(2)(A)(ii) of the Internal Revenue begin delete Code,
relating to qualified active low-income community businesses, end delete
begin insert Code end insert is modified as follows:

(i) Substituting “any low-income community in California” for
“any low-income community.”

(ii) In determining whether the qualified active low-income
community business uses a substantial portion of its tangible
personal property within any low-income community, the term
“substantial portion” shall mean “at least 40 percent” as calculated
by the average value of the tangible property owned or leased and
used within a California low-income community by the entity
divided by the average value of the total tangible property owned
or leased and used by the entity in California during the taxable
year. The value assigned to the leased property by the entity must
be reasonable.

(iii) Adding the provision that if the business meets the
requirements of a qualified low-income community business at
the time the investment is made, the business shall begin delete continue to
satisfy end delete begin insert be treated as satisfying end insert the requirements of Section
45D(d)(2)(A)(ii) for the duration of the investment.

begin insert

(C) An entity complies with Section 45D(d)(2)(A)(i) of the
Internal Revenue Code if, as calculated in subparagraph (B), it
uses 50 percent of its tangible property, whether owned or leased,
within any low-income community for any taxable year.

end insert begin delete

(C)

end delete

begin insert (D) end insert  Section 45D(d)(2)(A)(iii) of the Internal Revenue begin delete Code,
relating to qualified active low-income community business, a
substantial portion of the services of which are performed in a
low-income community, end delete begin insert Code end insert is modified to allow the services
of employees of a service-based qualified business to be performed
outside the low-income community. A service-based qualified
business is a business that primarily earns revenue through
providing intangible products and services.

begin delete

(D) An entity complies with Section 45D(d)(2)(A)(i) of the
Internal Revenue Code, relating to qualified active low-income
community business, if, as calculated in subparagraph (B), it uses
50 percent of its tangible property, whether owned or leased, within
any low-income community for any taxable year.

end delete

(E) (i) A qualified active low-income community business shall
exclude any business that derives, or projects to derive, 15 percent
or more of its annual revenue from the rental or sale of real estate.
This exclusion does not apply to a business that is controlled by,
or under common control with, another business if the second
business: (I) does not derive or project to derive 15 percent or more
of its annual revenue from the rental or sale of real estate; and (II)
is the primary tenant of the real estate leased from the first business.

(ii) A qualified active low-income community business shall
only include a business that, at the time the initial investment is
made, has 250 or fewer employees and is located in a California
low-income community. The operating business shall meet all
other conditions of a qualified active low-income business, except
as modified by this paragraph and paragraph (7).

(iii) A qualified active low-income community business shall
only include a business located in census tracts with a poverty rate
greater than 30 percent, or census tracts, if located within a
non-metropolitan area, with a median family income that does not
exceed 60 percent of median family income for the State of
California, or census tracts, if located within a metropolitan area,
with a median family income that does not exceed 60 percent of
the greater of the California median family income or the
metropolitan area median family income, or census tracts with
unemployment rates at least 1.5 times the national average.

(7) Section 45D(e)(1) of the Internal Revenue begin delete Code, relating to
determining the eligible low-income community end delete begin insert Code end insert is modified
to add the following: “When the United States Census Bureau
discontinues using the decennial census to report median family
income on a census tract basis, census block group data shall be
used based on the American Community Survey.”

(8) The following shall apply in lieu of the provisions of Section
begin delete 45D(f)(1) end delete begin insert 45D(f) end insert of the Internal Revenue Code, relating to national
limitation on amount of investments designated: “The aggregate
amount of credit that may be allocated in any calendar year
pursuant to this section, Section 12283, and Section 17053.9 shall
be an amount equal to any unused portion of the one hundred
million dollars ($100,000,000) in exclusions, authorized pursuant
to Section 6010.8, as determined by the California Alternative
Energy and Advanced Transportation Financing Authority and
reported to the committee, not to exceed forty million dollars
($40,000,000). The committee shall limit the allocation of credits
permitted under this section, Section 12283, and Section 17053.9
to a cumulative total of no more than two hundred million dollars
($200,000,000). Any unused credits shall be returned to the
committee begin delete on end delete begin insert by end insert March 1 of the year following allocation and the
value of the unused credit shall be available for allocation in the
following calendar years in accordance with the application
process. Any recaptured credits shall be returned to the committee
by March 1 of the year following recapture and the value of the
recaptured credit shall be available for allocation in the following
calendar years in accordance with clause (ii) of subparagraph (B)
of paragraph (9). Reallocation credits shall not count against the
forty million dollars ($40,000,000) annual limit or the two hundred
million dollars ($200,000,000) cumulative limit.”

(9) (A) Section 45D(g)(2)(B) of the Internal Revenue Code,
relating to credit recapture amount, is modified to substitute
“Section 19101 of this code” for “section 6621”.

(B) Section 45D(g)(3) of the Internal Revenue Code, relating
to recapture event, does not apply and is replaced with the
following:

(i) The committee shall begin delete recapture, end delete begin insert establish a process, in
consultation with the Franchise Tax Board, for the recapture of
credits allowed under this section end insert from the entity that claimed the
credit on a begin delete return, the tax credit allowed under this section if any
of the following: end delete begin insert return. The recapture process shall be applied
if any of the following conditions set forth occur. end insert

(I) Any amount of a federal tax credit available with respect to
a qualified equity investment that is eligible for a credit under this
section is recaptured under Section 45D of the Internal Revenue
Code. begin insert The qualified community development entity shall send
notice to the committee within 30 calendar days of being notified
by the United States Treasury that any amount of a federal tax
credit available with respect to a qualified equity investment that
is eligible for a credit under this section is recaptured. The
committee shall send written acknowledgment within five calendar
days of receipt of the qualified community development entity’s
notice of potential noncompliance. end insert In such case the begin delete committee’s end delete
recapture shall be proportionate to the federal recapture with respect
to such qualified equity investment.

(II) The qualified community development entity redeems or
makes principal repayment with respect to a qualified equity
investment prior to the seventh anniversary of the issuance of such
qualified equity investment. begin insert The qualified community development
entity shall send notice to the committee within 30 calendar days
of redeeming or making principal repayments with respect to a
qualified equity investment prior to the seventh anniversary of the
issuance of such qualified equity investment. The committee shall
send written acknowledgment within five calendar days of receipt
of the qualified community development entity’s notice of potential
noncompliance. end insert In such case the committee’s recapture shall be
proportionate to the amount of the redemption or repayment with
respect to such qualified equity investment.

(III) The qualified community development entity fails to invest
an amount equal to at least 85 percent of the purchase price of the
qualified equity investment in qualified low-income community
investments in California within 12 months of the issuance of the
qualified equity investment and maintain at least 85 percent of
such level of investment in qualified low-income community
investments in California until the last credit allowance date for
the qualified equity investment. For purposes of this section, an
investment shall be considered held by a qualified community
development entity even if the investment has been sold or repaid
if the qualified community development entity reinvests an amount
equal to the capital returned to, or recovered by, the qualified
community development entity from the original investment,
exclusive of any profits realized, in another qualified low-income
community investment within 12 months of the receipt of such
capital. begin insert The qualified community development entity shall send
notice to the committee within 30 calendar days of the 12-month
deadline for the reinvestment if the entity fails to meet any of the
reinvestment requirements. The committee shall send written
acknowledgment within five calendar days of receipt of the
qualified community development entity’s notice of potential
noncompliance. end insert Periodic amounts received as repayment of
principal pursuant to regularly scheduled amortization payments
on a loan that is a qualified low-income community investment
shall be treated as continuously invested in a qualified low-income
community investment if the amounts are reinvested in one or
more qualified low-income community investments by the end of
the following calendar year. A qualified community development
entity shall not be required to reinvest capital returned from
qualified low-income community investments after the sixth
anniversary of the issuance of the qualified equity investment, and
the qualified low-income community investment shall be
considered held by the qualified community development entity
through the seventh anniversary of the qualified equity investment’s
issuance.

(ii) Recaptured tax credits and the related qualified equity
investment authority revert back to the committee and shall be
reissued in the following order:

(I) First, pro rata to applicants whose qualified equity investment
allocations were reduced pursuant to subparagraph (B) of paragraph
(5) of subdivision (d) by the allocation limitation of forty million
dollars ($40,000,000) in paragraph (8) of subdivision (c).

(II) Thereafter, in accordance with the application process.

(iii)  begin insert (I) end insert begin insert   end insert Enforcement of each of the recapture provisions shall
be subject to a six month cure period. begin delete No recapture end delete begin insert Recapture end insert shall
begin insert not end insert occur until the qualified community development entity shall
begin delete have been given end delete begin insert gives end insert notice of begin insert potential end insert noncompliance begin insert to the
committee end insert and begin insert is end insert afforded six months from the date of such notice
to cure the noncompliance. begin insert The six-month cure period shall begin
on the day the committee sends written acknowledgment of the
qualified community development entity’s notice of the potential
noncompliance. The qualified community development entity is
responsible for addressing the circumstances of the potential
noncompliance and providing all documentation to the committee
necessary to demonstrate, to the committee’s satisfaction, that
those conditions no longer exist. end insert

begin insert

(II) Not more than 45 calendar days following the close of the
cure period, the committee shall make a final determination as to
whether the credit is to be recaptured. This determination shall
be based on the review of the notice, information submitted by the
qualified community development entity, and any other information
the committee deems relevant to this determination.

end insert begin insert

(III) The committee shall post, and update monthly, a tally of
returned credits, pursuant to paragraph (8), and recaptured credits
pursuant to this paragraph. Within 30 calendar days of making
the final determination that the credit is to be recaptured, the
committee shall notify the Department of Insurance of the
determination including, but not limited to, the tax identification
number of the taxpayer.

end insert

(10) Section 45D(i) of the Internal Revenue Code, relating to
regulations, shall not apply.

(11) If a qualified community development entity makes a
capital or equity investment or a loan with respect to a qualified
low-income building under the state Low-Income begin insert Housing end insert Tax
Credit Program, the investment or loan is not a qualified
low-income community investment under this section.

(d) (1) The committee shall adopt guidelines necessary or
appropriate to carry out the purposes of this section begin insert and meet the
requirements of Section 45D of the Internal Revenue Code, as
modified by this section end insert . The guidelines shall not disqualify a
low-income community investment for the single reason that public
or private incentives, loans, equity investments, technical
assistance, or other forms of support have been or continue to be
provided. The adoption of the guidelines shall not be subject to
the rulemaking provisions of the Administrative Procedure Act of
Chapter 3.5 (commencing with Section 11340) of Part 1 of Division
3 of Title 2 of the Government Code.

(2) The committee shall establish and impose reasonable fees
upon entities that apply for the allocation pursuant to this
subdivision and use the revenue to defray the cost of administering
the program. The committee shall establish the fees in a manner
that ensures that (A) the total amount collected equals the amount
reasonably necessary to defray the committee’s costs in performing
its administrative duties under this section, and (B) the amount
paid by each entity reasonably corresponds with the value of the
services provided to the entity.

(3) In developing guidelines the committee shall adopt an
allocation process that does all of the following:

(A) Creates an equitable distribution process that ensures that
low-income communities across the state have an opportunity to
benefit from the program.

(B) Sets minimum organizational capacity standards that
applicants must meet in order to receive an allocation of credits
including, but not limited to, its business strategy, begin insert targeted end insert
community outcomes, capitalization strategy, and management
capacity.

(4) (A) The committee shall begin accepting applications on
begin insert or before end insert March 15, 2015, and shall award credits at least two
times a year at dates set annually by the committee through 2019,
to the extent that allocations are available pursuant to Section
26011.9 of the Public Resources Code. To the extent reasonable
and consistent in carrying out the purposes of this section, the
committee shall consider how the timing of the state allocation
rounds correspond with the allocation schedule of the federal New
Markets Tax Credit Program.

(B) Within 20 calendar days after receipt of an application the
committee shall determine whether the application is complete or
whether additional information is necessary in order to fully
evaluate the application. If additional information is requested and
the qualified community development entity provides that
information within five business days, the application shall be
considered completed as of the original date of receipt. If the
qualified community development entity fails to provide the
information within the five-business-day period, the application
shall be denied and must be resubmitted in full with a new receipt
date.

(C) Within 20 calendar days after receipt of an application
determined to be complete by the committee, the committee shall
grant or deny the application in full or in part. If the committee
denies any part of the application, it shall inform the qualified
community development entity of the grounds for the denial.

(5) (A) The committee shall award tax credits to qualified
community development entities described in subparagraph (B)
of paragraph (4) of subdivision (c) in the order applications are
received by the committee begin insert , subject to clause (i) or on a competitive
basis, pursuant to clause (ii) end insert . begin delete Applications received on the same
day shall be deemed to have been received simultaneously. end delete

(i) In 2015, the committee shall only award tax credits to a
qualified community development begin delete entity, exclusive of an entity
described in clause (ii) of subparagraph (A) of paragraph (4) of
subdivision (c) end delete begin insert entity in the order applications are received by the
committee end insert . In the 2016 to 2019 award cycles, inclusive, at least
60 percent of the credit allocation shall be awarded begin delete to a qualified
community development entity, exclusive of an entity described
in clause (ii) of subparagraph (A) of paragraph (4) of subdivision
(c) end delete begin insert in the order applications are received by the committee to a
qualified community development entity end insert . begin insert Applications received on
the same day shall be deemed to have been received
simultaneously. end insert At the committee’s discretion, a higher percentage
of credits may be begin delete targeted to applicants exclusive of an end delete begin insert awarded
in the order that they are received. Qualified community
development entities that receive tax credit awards pursuant to
this clause shall commit to making investments in a manner that
engages community-based partnerships and local grassroots
stakeholders. end insert

begin insert (II) end insert begin insert   end insert begin insert An end insert entity described in clause (ii) of subparagraph (A) of
paragraph (4) of subdivision (c) begin insert shall not receive a tax credit award
pursuant to this clause end insert .

(ii) The committee shall award up to 40 percent of the credit
allocation in the 2016 to begin delete 2019 award cycles, end delete begin insert 2019, end insert inclusive, begin insert award
cycles, end insert to a qualified community development entity, as described
in clause (ii) of subparagraph (A) of paragraph (4) of subdivision
(c) and subparagraph (B) of paragraph (4) of subdivision (c), on
a competitive basis using blind scoring and a review committee
that is comprised of at least a majority of community development
finance practitioners begin insert and at least one-third of the members having
demonstrated experience in assessing organizational business
strategy, community outcomes, capitalization strategy, and
management capacity end insert . A member of the review committee shall
not have a financial interest, which includes, but is not limited to,
asking, consenting, or agreeing to receive any commission,
emolument, gratuity, money, property, or thing of value for his or
her own use, benefit, or personal advantage for procuring or
endeavoring to procure for any person, partnership, joint venture,
association, or corporation any tax credit or other assistance from
any applicant. begin delete Priority end delete

begin insert (iii) end insert begin insert   end insert begin insert In awarding credits on a competitive basis, priority end insert shall
begin insert be end insert given to applications that can demonstrate that the credits will
allow the entity to undertake qualified low-income community
investments in a rural, suburban, or urban area that has been
historically underserved begin insert and result in the greatest benefit to the
hardest to serve lower income populations and most
undercapitalized, end insert or in newly established begin delete businesses end delete begin insert businesses,
or in activities that support neighborhood revitalization strategies
driven by local grassroots stakeholders in multiple low-income
communities across one or more regions or the state for the
purpose of scaling economic development activities that
compliment regional industry clusters end insert that begin delete results end delete begin insert result end insert in the
greatest benefit to the largest number of lower income individuals.
begin insert All competitive applications shall demonstrate strong linkages
with communities and neighborhoods in California low-income
neighborhoods. end insert

(B)  For applications described in clause (i) of subparagraph
(A), in the event tax credit requests exceed the applicable annual
allocation limitation of up to forty million dollars ($40,000,000)
in paragraph (8) of subdivision (c), the committee shall certify,
consistent with remaining qualified equity investment capacity,
qualified equity investments of applicants in proportionate
percentages based upon the ratio of the amount of qualified equity
investments requested in such applications to the total amount of
qualified equity investments requested in all such applications
received on the same day.

(C) If a pending request cannot be fully certified due to this
limit, the committee shall certify the portion that may be certified
unless the qualified community development entity elects to
withdraw its request rather than receive partial certification.

(D) An approved applicant may transfer all or a portion of its
certified qualified equity investment authority to its controlling
entity or any subsidiary qualified community development entity
of the controlling entity, provided that the applicant and the
transferee notify the committee begin insert within 30 calendar days end insert of such
transfer and include the information required in the application
with respect to such transferee with such notice.

(E) Within 60 calendar days of the committee sending notice
of certification, the qualified community development entity or
any transferee, under subparagraph (D), shall issue the qualified
equity investment and receive cash in the amount of the certified
amount. The qualified community development entity or transferee,
under subparagraph (D), must provide the committee with evidence
of the receipt of the cash investment within 65 begin insert calendar end insert days of
the applicant receiving notice of certification. If the qualified
community development entity or any transferee, under
subparagraph (D), does not receive the cash investment and issue
the qualified equity investment within 60 calendar days of the
committee sending the certification notice, the certification shall
lapse and the entity may not issue the qualified equity investment
without reapplying to the committee for certification. Lapsed
certifications revert back to the committee and shall be reissued
in the following order:

(i) First, pro rata to applicants whose qualified equity investment
allocations were reduced pursuant to subparagraph (B) of paragraph
(5) under the annual allocation limitation of forty million dollars
($40,000,000) in paragraph (8) of subdivision (c).

(ii) Thereafter, in accordance with the application process.

(F) A qualified community development entity that issues
qualified equity investments must notify the committee of the
names of the entities that are eligible to utilize tax credits under
paragraph (3) of subdivision (b) pursuant to an allocation of tax
credits or change in allocation of tax credits or due to a transfer of
a qualified equity investment.

(6) (A) A qualified community development entity that issues
qualified equity investments shall submit a report to the committee
within the first five business days after the first anniversary of the
initial credit allowance date that provides documentation as to the
investment of at least 85 percent of the purchase price in qualified
low-income community investments in qualified active low-income
community businesses located in California. Such report shall
include all of the following:

(i) A bank statement of such qualified community development
entity evidencing each qualified low-income community
investment.

(ii) Evidence that such business was a qualified active
low-income community business at the time of such qualified
low-income community investment.

(iii) Any other information required by the committee.

(B) Thereafter, the qualified community development entity
shall submit an annual report to the committee within 60 begin insert calendar end insert
days of the beginning of the calendar year during the seven years
following submittal of the report, pursuant to subparagraph (A).
No annual report shall be due prior to the first anniversary of the
initial credit allowance date. The report shall include, but is not
limited to, the following:

(i) The impact the credit had on the low-income community.

(ii) The amount of moneys used for qualified low-income
investments in qualified low-income community businesses.

(iii) The number of employment positions created and retained
as a result of qualified low-income community investments and
the average annual salary of such positions.

(iv) The number of operating businesses assisted as a result of
qualified low-income community investments, by industry and
number of employees.

(v) Number of owner-occupied real estate projects described in
subparagraph (E) of paragraph (6) of subdivision (c).

(vi) Location of the qualified low-income community businesses.

(e) In the case where the credit allowed by this section exceeds
the “tax,” the excess may be carried over to reduce the “tax” in
the following year, and the six succeeding years if necessary, until
the credit is exhausted.

(f) The committee shall annually report on its Internet Web site
the information provided by low-income community development
entities and on the geographic distribution of the credits.

(g) (1) The Franchise Tax Board may prescribe any rules or
regulations that may be necessary or appropriate to implement this
section. The Franchise Tax Board shall have access to any
documentation held by the committee relative to the application
and reporting of a qualified community development entity.

(2) A qualifying community development entity shall provide
the committee with the name, address, and tax identification
number of each investor and entity for which a credit was allocated
by the qualifying community development entity, pursuant to
paragraph (3) of subdivision (b). The committee shall provide this
information to the Franchise Tax Board in a manner determined
by the Franchise Tax Board.

(h) This section shall remain in effect only until December 1,
2028, and as of that date is repealed.

begin delete SEC. 7. end delete
begin insert SEC. 6. end insert   

This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.