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: 8/22/14 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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Senate Floor Amendments of 8/22/14 allow GO-Biz to delegate
program administration to another entity within its
administration; specifies which development financial
institutions can accept deposits that generate credits, and adds
a requirement for CDE investments, trigger recapture provisions;
modifies fee language; and make other administrative, conforming
and technical changes.
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 hastens
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. GO-Biz may delegate the administration of the
program to any entity within GO-Biz.
2. Authorizes up to $40 million in tax credits annually to
taxpayers who make qualified equity investments in CDEs. It
is estimated that this bill will raise over $500 million in
new capital over the five years of the program: 2015 to
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2019.
3. Specifies that the 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.
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
this 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.
5. 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 been awarded federal New Market
Tax Credits on or after January 1, 2012.
6. Requires that investment moneys received from the taxpayer be
used to make loans and provide other financial assistance
beneficial to small business in eligible very low-income
areas. Eligible areas include census tracts with a median
household income at or below 60%, the poverty rate is at or
above 30%, or the unemployment rate is at least 150% above
the national average.
7. Requires at least 15% of qualified low income community
investments be made in partnership with or in consultation
with California nonprofits or CDEs with California service
areas, but which do not have a qualifying federal New Market
Tax Credit Allocation.
8. Requires each investment made by the CDE to have a positive
revenue impact on the state, based on a nationally recognized
economic assessment model.
9. Requires that credits be recaptured if key provisions of the
program are not met including, but not limited to, failing to
raise and deploy capital in qualifying local income areas,
withdrawing low income community investments prematurely,
failing to partner with California nonprofits, or failing to
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meet the positive state revenue impact requirements.
10.Requires GO-Biz to establish guidelines for implementing the
NMTC program and set fees to cover the aggregate costs for
administering the 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.
11.Requires the Legislature to take a subsequent action to
authorize the expenditure of application fees to pay for the
implementation of the program before an allocation round can
be announced.
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 8/25/14)
Advantage Capital Partners
Association of California Life and Health Insurance Companies
California Association for Local Economic Development
California Urban Partnership
Clearinghouse CDFI
Enhanced Capital
League of California Cities
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Southern California Investment Center (EB-5 Regional Center)
TELACU
U.S. Congressman Jim Costa
U.S. Congressman Juan Vargas
OPPOSITION : (Verified 8/25/14)
Department of Finance
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:d 8/25/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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