BILL ANALYSIS �
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THIRD READING
Bill No: AB 1560
Author: Quirk-Silva (D), et al.
Amended: 8/27/14 in Senate
Vote: 27 - Urgency
SENATE GOVERNANCE & FINANCE COMMITTEE : 5-0, 8/29/14
AYES: Wolk, Beall, Hernandez, Liu, Walters
NO VOTE RECORDED: Knight, DeSaulnier
SENATE APPROPRIATIONS COMMITTEE : 6-0, 8/29/14
AYES: De Le�n, Walters, Gaines, Hill, Padilla, Steinberg
NO VOTE RECORDED: Lara
ASSEMBLY FLOOR : 74-2, 8/19/14 - See last page for vote
SUBJECT : California Competes Tax Credit
SOURCE : Author
DIGEST : This bill increases the total aggregate amount of the
California Competes Tax Credit (CCTC) that may be annually
allocated by the Governors Office of Business and Economic
Development (GO-Biz) to eligible businesses, as provided.
ANALYSIS :
Existing law:
1.Allows a credit against the taxes imposed under the
Corporation Tax (CT) Law and the Personal Income Tax (PIT) Law
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for each taxable year beginning on or after January 1, 2014,
and before January 1, 2025, in an amount as provided in a
written agreement between GO-Biz and the taxpayer, based on
certain specified factors, including the number of jobs the
taxpayer will create or retain in the state and the amount of
investment in the state by the taxpayer. The credit is
generally referred to as the "California Competes Tax Credit."
2.Authorizes GO-Biz to allocate the CCTC with respect to the
fiscal year (FY) 2013-14 and each FY thereafter, through and
including FY 2017-18.
3.Limits the aggregate amount of the CCTC that may be allocated
to taxpayers under both the CT and PIT laws to a certain
specified sum per fiscal year.
4.Allows a tax credit under the CT Law to a qualified taxpayer
in an amount equal to 17.5% of qualified wages paid by the
qualified taxpayer during the taxable year to qualified
employees ("Advanced Strategic Aircraft Tax Credit" [ASATC]).
Defines a "qualified taxpayer" as any taxpayer that is a major
first-tier subcontractor awarded a subcontract to manufacture
property for ultimate use in, or as a component of, a new
advanced strategic aircraft for the United States Air Force.
Defines "major first-tier subcontractor" as a subcontractor
that was awarded a subcontract in an amount of least 35% of
the amount of the initial prime contract awarded for the
manufacturing of a new advanced strategic aircraft for the
U.S. Air Force. The ASATC program is authorized for each
taxable year beginning on or after January 1, 2015, and before
1, 2030.
5.Reduces the aggregate amount of the CCTC that may be allocated
to taxpayers in the 2015-16 FY year, and each FY thereafter,
by the annual aggregate amount allowed under the ASATC program
for years one through ten of this credit program.
6.Provides that, if the amount available under the CCTC program
is less than the amount allowed under the ASATC program, then
the latter will not be decreased. Instead, the CCTC amount
allowed for the next FY shall be reduced by the amount of that
deficit.
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7.States legislative intent that the reductions in the aggregate
amount of the CCTC shall continue if the ASATC program is
extended beyond its existing repeal date.
This bill:
1.Authorizes the Director of the Department of Finance (DOF) to
increase the aggregate amount of the CCTC available for an
annual allocation by $25 million per each FY through FY
2017-18.
2.Specifies legislative intent that the Director of DOF increase
the aggregate amount of the CCTC in order to compensate for
the decrease in the CCTC program's funding due to the recently
enacted tax credit program for the aerospace industry.
3.Takes effect immediately as a tax levy.
Background
CCTC program . Last year, Governor Brown signed legislation that
reformed California's economic development policies. (AB 93,
Assembly Budget Committee, Chapter 69, Statutes of 2014). The
new law eliminated enterprise zones and other geographically
targeted economic development areas and, instead, created three
new tax benefits: (1) a temporary tax credit for wages paid by
taxpayers to qualified employees within former enterprise zones,
and other areas that suffer from high levels of poverty and
unemployment; (2) a temporary sales and use tax exemption on
purchases of manufacturing equipment made by qualified
taxpayers, capped at $200 million annually per taxpayer; and (3)
the CCTC program. Existing law limits the total annual amount
of these three tax incentives - the wage credit, the sales and
use tax exemption, and the CCTC - to $750 million.
While the CCTC program is scheduled to sunset on January 1,
2025, GO-Biz is only authorized to award this credit to
qualified taxpayers until FY 2018-19 up to an annually capped
amount. The amount equals $30 million for the FY 2013-14, $150
million for the FY 2014-15, and $200 million for the FY 2015-16,
FY 2016-17, and FY 2017-18, plus certain statutorily prescribed
adjustments. Out of the $30 million available for allocation in
FY 2013-14, $28.9 million was awarded. Due to the unallocated
credit adjustment, the Director of DOF has estimated the annual
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allocation of the CCTC for FY 2014-15 to be $151.1 million.
In FY 2013-14, the California Competes tax credit was granted
to 30 companies (out of 390 companies that applied), including
11 small businesses. According to the information submitted
by the companies that received the credit, approximately 6,000
jobs and more than $2 billion in investment across California
will be created as a result of the credit award. The
companies represent various industries, including
manufacturing, biotech, agriculture, food processing, high
tech, etc.
ASATC program . On July 10, 2014, Governor Brown signed
legislation that, among other things, created a CT credit
program for the aerospace industry. (AB 2389, Fox, Chapter 116,
Statutes of 2014.) The credit amount is equal to 17.5% of the
wages paid to employees of a qualified taxpayer engaged in
manufacturing of property for ultimate use in, or as a component
of, a new advanced strategic aircraft for the U.S. Air Force.
The credit program includes a 15-year sunset provision, and the
credit is allowed only for wages paid to individuals employed in
California. The annual amount of the ASATC is limited to $25
million for the first five years, $28 million during the next
five years and $31 million for the remaining five years,
totaling $420 million over the life of the program. It appears
that only two parties are competing for the prime contract to
manufacture such aircraft - Northrop Grumman and a team
comprised of Boeing (as a prime contractor) and Lockheed Martin
(as major first-tier subcontractor).
Restoring the funding . As originally drafted, the ASATC program
would have resulted in a General Fund (GF) revenue loss.
However, the Senate voted to limit the GF revenue loss and
reduced the funding for the CCTC program as a way to compensate
for the projected loss. It was argued that firms eligible for
ASATC may also apply for the CCTC, since both tax credit
programs seek to increase employment in the state. Thus, the
CCTC Committee could have simply awarded Lockheed Martin a CCTC,
since the credit was specifically meant for this type of
negotiation between the Governor's office and individual
companies.
But, the author argues that in order for the state to remain
competitive and attract new businesses, the Legislature needs to
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increase the amount of funding available for the CCTC program.
According to the author, the program was oversubscribed by $470
million in its first year and, thus, a reduction in the
program's funding would have a negative impact on California's
ability to compete with other states for jobs. This bill
restores funding for the CCTC program by expressly authorizing
the Director of DOF to increase the annual amount of the credit
available for allocation under the program for every fiscal year
through FY 2017-18, by up to $25 million per year. This amount
is identical to the aggregate annual amount of the credit
allowed under the ASATC program for the first five calendar
years.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Assembly Appropriations Committee, estimated GF
revenue decreases in the low tens of millions of dollars per FY
through FY 2017-18.
SUPPORT : (Verified 8/29/14)
California Chamber of Commerce
California Manufacturers & Technology Association
Orange County Business Council
ASSEMBLY FLOOR : 74-2, 8/19/14
AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Ch�vez, Conway, Cooley, Dababneh,
Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier,
Beth Gaines, Garcia, Gonzalez, Gordon, Gorell, Gray, Grove,
Hagman, Hall, Harkey, Roger Hern�ndez, Holden, Jones,
Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein,
Mansoor, Medina, Melendez, Mullin, Muratsuchi, Nazarian,
Nestande, Olsen, Pan, Patterson, Perea, John A. P�rez, V.
Manuel P�rez, Quirk, Quirk-Silva, Rendon, Ridley-Thomas,
Rodriguez, Salas, Skinner, Ting, Wagner, Waldron, Weber,
Wieckowski, Wilk, Williams, Atkins
NOES: Gatto, Stone
NO VOTE RECORDED: Chesbro, Gomez, Yamada, Vacancy
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JA:k 8/29/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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