BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 1399|
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THIRD READING
Bill No: AB 1399
Author: Medina (D) and V. Manuel P�rez (D)
Amended: 8/19/14 in Senate
Vote: 21
PRIOR VOTES NOT RELEVANT
SENATE GOVERNANCE & FINANCE COMMITTEE : 7-0, 6/25/14
AYES: Wolk, Knight, Beall, DeSaulnier, Hernandez, Liu, Walters
SENATE APPROPRIATIONS COMMITTEE : 5-0, 8/14/14
AYES: De Le�n, Hill, Lara, Padilla, Steinberg
NO VOTE RECORDED: Walters, Gaines
SUBJECT : Income taxation: insurance taxation: credits:
California New
Markets Tax Credit
SOURCE : Author
DIGEST : This bill authorizes the creation of the New Markets
Tax Credit (NMTC) Program, administered through the Governors
Office of Business and Economic Development (GO-Biz) and the
California Competes Tax Credit Allocation Committee (Committee),
for the purpose of allocating tax credits in tax years 2015
through 2019 to a qualified community development entity (CDE).
This bill authorizes the Committee to allocate up to $40 million
in tax credits annually to qualified CDEs for a total allocation
of $200 million
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ANALYSIS : California law allows various income tax credits,
deductions, and sales and use tax exemptions to provide
incentives to compensate taxpayers that incur certain expenses,
such as child adoption, or to influence behavior, including
business practices and decisions, such as research and
development credits. The Legislature typically enacts such tax
incentives to encourage taxpayers to do something that but for
the tax credit, they will not do. The Department of Finance is
required to annually publish a list of tax expenditures,
currently totaling around $50 billion per year.
Housed in the office of the State Treasurer, California
Alternative Energy and Advanced Transportation Financing
Authority (CAEATFA) provides financing through conduit or
revenue bonds, loan guarantees, loan loss reserves and a sales
and use tax exemption for facilities that use alternative energy
sources and technologies.
This bill creates a $200 million state NMTC Program for the
purpose of stimulating economic development and hasten
California's economic recovery. In general, the new state
credit parallels the federal NMTC. Tax expenditure authority
for this bill is provided through the reallocation of previously
authorized expenditures from the California State Sales and Use
Tax Exclusion Program. Specifically, this bill:
1. Authorizes the creation of the NMTC Program, administered
through GO-Biz and the Committee, for the purpose of
allocating tax credits in tax years 2015 through 2019 to a
qualified CDE.
2. Authorizes the Committee to allocate up to $40 million in tax
credits annually to qualified CDEs for a total allocation of
$200 million. As a condition of receiving the credits, CDEs
must annually report to the Committee on the use and impact
of the credits. Unused credits are to be returned for
reallocation.
3. Authorizes a qualified CDE to re-award these credits to
private investors who make a qualified equity investment in
the CDE. Monies received from these investments are to be
used to make qualified low-income community investments,
which may include loans and capital investments in
businesses, and other qualified CDEs that undertake
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development projects in eligible low-income areas. Eligible
areas include census tracts with a median household income
below 60% and poverty at or above 30%.
4. Authorizes the 39% credit, spread over seven years, to be
applied against the tax payer's personal and corporate tax
liability or insurance premium and retaliatory taxes. Under
the NMTC Program, there is no credit allowance in the first
two years, 7% for the third year; and 8% for each of the
final four years. This bill provides for the recapture of
the value of the credit if the investment is withdrawn from
the CDE prior to the close of the seventh year, as specified.
5. Defines qualified low-income community investments to mean:
A. Any capital or equity investment in, or loan to a
qualified low-income business, as defined;
B. The purchase of a loan from another CDE that meets
the other requirements for a low-income community
investment;
C. Financial counseling and other services in support
of business activities to businesses and residents of a
low-income community; or
D. Any equity investment in, or a loan to, a CDE.
6. Defines a qualified CDE as a domestic corporation or
partnership that has a primary mission of serving or
providing investment capital for low-income communities or
low-income persons; has low-income residents on its governing
or advisory board; and has either been awarded a federal NMTC
on or after January 1, 2012, or is certified by the
Committee.
7. Requires the GO-Biz to establish guidelines for implementing
the NMTC program and set fees to cover the costs for
administering the NMTC Program. These guidelines will
include the allocation process, which, among other things, is
required to create an equitable distribution of the credits
throughout the state.
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8. Requires CAEATFA to annually determine the difference between
the $100 million statutory limitation on State Sales and Use
Tax Exclusion and the amount assigned during the calendar
year. This difference is made available to the Committee for
award to qualified CDEs in the following calendar year under
the NMTC Program.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee (assuming
future legislative action implements the NMTC Program):
The Franchise Tax Board (FTB) indicates that this bill will
result in a General Fund revenue loss of $1.6 million in
2016-17, $5.7 million in 2017-18, and $10 million in 2018-19.
The FTB will incur costs of $131,000 in 2015-16 for IT
programming changes, and $13,000 on-going annually thereafter
(General Fund).
GO-Biz estimates that it will require 11 positions and $1.3
million annually to administer the program, for compliance
monitoring, program administration and enforcement (General
Fund).
SUPPORT : (Verified 8/19/14)
Advantage Capital Partners
Association of California Life and Health Insurance Companies
California Urban Partnership
Clearinghouse CDFI
Enhanced Capital
League of California Cities
Southern California Investment Center (EB-5 Regional Center)
TELACU
U.S. Congressman Jim Costa
U.S. Congressman Juan Vargas
OPPOSITION : (Verified 8/19/14)
Department of Finance
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ARGUMENTS IN SUPPORT : According to the author, "Small
businesses create jobs in our communities and are key economic
drivers within California's $2 trillion economy. Central to
their success is accessing debt and equity financing. Small
businesses rely on adequate short-term (working capital) and
long-term debt, as well as, equity financing to build and expand
facilities, purchase new equipment, replenish inventories, and
market their services. While financial institutions routinely
extend working capital and long-term debt to larger businesses,
smaller size businesses located in historically underserved
areas are often bypassed. [AB 1399] creates a $200 million
state New Markets Tax Credit Program for the purpose of
attracting federal New Market Tax Credit activities and other
state investments in order to stimulate economic development and
investment
in lower income areas of California. For a $200 million
investment over five years, these lower income communities will
gain access to over $500 million in capital."
AB:dk 8/19/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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