AB 1715: International trade and investment offices.
- Session Year: 2017-2018
- House: Assembly
- Latest Version Date: 2018-08-29
Existing law requires the Governors Office of Business and Economic Development (GO-Biz) to develop and implement an International Trade and Investment Program that serves specified purposes. Existing law authorizes the Director of GO-Biz to establish and terminate international trade and investment offices outside of the United States if certain conditions are met. Existing law also authorizes GO-Biz to designate a nonprofit entity to operate international trade and investment offices outside of the United States.
This bill would require the Director of GO-Biz to establish a process for accepting letters of interest from public and private entities that are interested in partnering with the state to operate an international trade and investment office in a foreign country. The bill would require the office to review the letters of interest and determine whether they are complete within 30 days of submittal. The bill would also require the director to make a determination, within 90 days of receipt of a complete letter of interest, as to whether to request a full proposal, as specified, for the operation of the office.
Existing law authorizes GO-Biz to accept nonstate moneys for the purposes of operating an international trade and investment office. Existing law requires private sector moneys for these purposes to be deposited in the Economic Development and Trade Promotion Account, which is continuously appropriated to the Director of GO-Biz for these purposes.
This bill would additionally authorize the moneys in the account to be used for the support of the operation of an international trade and investment office. By expanding the purposes of a continuously appropriated fund, this bill would make an appropriation.
Existing law requires the Governors Office of Business and Economic Development (GO-Biz) to develop and implement an International Trade and Investment Program that serves specified purposes. Existing law authorizes the Director of GO-Biz to establish and terminate international trade and investment offices outside of the United States if certain conditions are met. Existing law also authorizes GO-Biz to designate a nonprofit entity to operate international trade and investment offices outside of the United States.
This bill would require the Director of GO-Biz to establish a process for accepting letters of interest from public and private entities that are interested in partnering with the state to operate an international trade and investment office in a foreign country. The bill would require the office to review the letters of interest and determine whether they are complete within 30 days of submittal. The bill would also require the director to make a determination, within 90 days of receipt of a complete letter of interest, as to whether to request a full proposal, as specified, for the operation of the office.
Existing law authorizes GO-Biz to accept nonstate moneys for the purposes of operating an international trade and investment office. Existing law requires private sector moneys for these purposes to be deposited in the Economic Development and Trade Promotion Account, which is continuously appropriated to the Director of GO-Biz for these purposes.
This bill would additionally authorize the moneys in the account to be used for the support of the operation of an international trade and investment office. By expanding the purposes of a continuously appropriated fund, this bill would make an appropriation.
Existing law requires the Governors Office of Business and Economic Development (GO-Biz) to develop and implement an International Trade and Investment Program that serves specified purposes. Existing law authorizes the Director of GO-Biz to establish and terminate international trade and investment offices outside of the United States if certain conditions are met. Existing law also authorizes GO-Biz to designate a nonprofit entity to operate international trade and investment offices outside of the United States.
This bill would require the Director of GO-Biz to establish a process for accepting letters of interest from public and private entities that are interested in partnering with the state to operate an international trade and investment office in a foreign country. The bill would require the office to review the letters of interest and determine whether they are complete within 30 days of submittal. The bill would also require the director to make a determination, within 90 days of receipt of a complete letter of interest, as to whether to request a full proposal, as specified, for the operation of the office.
Existing law authorizes GO-Biz to accept nonstate moneys for the purposes of operating an international trade and investment office. Existing law requires private sector moneys for these purposes to be deposited in the Economic Development and Trade Promotion Account, which is continuously appropriated to the Director of GO-Biz for these purposes.
This bill would additionally authorize the moneys in the account to be used for the support of the operation of an international trade and investment office. By expanding the purposes of a continuously appropriated fund, this bill would make an appropriation.
Existing law requires the Governors Office of Business and Economic Development (GO-Biz) to develop and implement an International Trade and Investment Program that serves specified purposes. Existing law authorizes the Director of GO-Biz to establish and terminate international trade and investment offices outside of the United States if certain conditions are met. Existing law also authorizes GO-Biz to designate a nonprofit entity to operate international trade and investment offices outside of the United States.
This bill would require the Director of GO-Biz to establish a process for accepting letters of interest from public and private entities that are interested in partnering with the state to operate an international trade and investment office in a foreign country. The bill would require the office to review the letters of interest and determine whether they are complete within 30 days of submittal. The bill would also require the director to make a determination, within 90 days of receipt of a complete letter of interest, as to whether to request a full proposal, as specified, for the operation of the office.
Existing law authorizes GO-Biz to accept nonstate moneys for the purposes of operating an international trade and investment office. Existing law requires private sector moneys for these purposes to be deposited in the Economic Development and Trade Promotion Account, which is continuously appropriated to the Director of GO-Biz for these purposes.
This bill would additionally authorize the moneys in the account to be used for the support of the operation of an international trade and investment office. By expanding the purposes of a continuously appropriated fund, this bill would make an appropriation.
(1)Existing federal law allows a New Markets Tax Credit to a taxpayer holding a qualified equity investment in an amount equal to the applicable percentage of the amount paid to the qualified community development entity for investment in low-income communities.The state Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws. Existing state constitutional law governing insurance taxation 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 California New Markets Tax Credit under the Personal Income Tax Law, the Corporation Tax Law, and the law governing the taxation of insurers, in modified conformity with the federal New Markets Tax Credit, for taxable years beginning on or after January 1, 2019, and before January 1, 2024, 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 $40,000,000 per calendar year. The bill would impose specified duties on the Responsible Tax Credit Administrator (RTCA), to be designated by the Governor, with regard to the application for, and allocation of, the credit. The bill would require the RTCA to establish and impose reasonable fees upon entities that apply for the allocation of the credit, to be deposited in the California New Markets Tax Credit Fund established by the bill, and use the revenue, upon annual appropriation by the Legislature, to defray the cost of applying to and administering the credits, as specified. The bill would only authorize the allocation for these credits for those taxable years for which moneys are appropriated to the RTCA to administer these credits for those taxable years.Existing law requires any bill authorizing a new personal income tax or corporation tax credit to contain, among other things, specific goals, purposes, and objectives that the tax credit will achieve, detailed performance indicators, and data collection requirements, as provided.This bill would also include that additional information required for any bill authorizing a new personal or corporation income tax credit.(2)The bill would provide that its provisions are severable.(3)This bill would take effect immediately as a tax levy.(1)Existing federal law allows a New Markets Tax Credit to a taxpayer holding a qualified equity investment in an amount equal to the applicable percentage of the amount paid to the qualified community development entity for investment in low-income communities.
The state Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws. Existing state constitutional law governing insurance taxation 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 California New Markets Tax Credit under the Personal Income Tax Law, the Corporation Tax Law, and the law governing insurance taxation, the taxation of insurers, in modified conformity with the federal New Markets Tax Credit, for taxable years beginning on or after January 1, 2018, 2019, and before January 1, 2023, 2024, 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 $40,000,000 per calendar year. The bill would impose specified duties on the Responsible Tax Credit Administrator (RTCA), to be designated by the Governor, with regard to the application for, and allocation of, the credit. The bill would require the RTCA to establish and impose reasonable fees upon entities that apply for the allocation of the credit, to be deposited in the California New Markets Tax Credit Fund established by the bill, and use the revenue, upon annual appropriation by the Legislature, to defray the cost of applying to and administering the credits, as specified. The bill would only authorize the allocation for these credits for those taxable years for which moneys are appropriated to the RTCA to administer these credits for those taxable years.
Existing law requires any bill authorizing a new personal income tax or corporation income tax credit to contain, among other things, specific goals, purposes, and objectives that the tax credit will achieve, detailed performance indicators, and data collection requirements, as provided.
This bill would also include that additional information required for any bill authorizing a new personal or corporation income tax credit.
(4)(2)The bill would provide that its provisions are severable.
(5)This bill would declare that it is to take effect immediately as an urgency statute.(3)This bill would take effect immediately as a tax levy.
(1)Existing law requires each admitted insurer with annual premiums written in California equal to or less than $100,000,000 to provide information to the Insurance Commissioner by July 1, 2016, on all of its community development investments, community development infrastructure investments, and green investments, as defined, in California. Existing law defines a community development investment as certain projects, developments, or activities where all or a portion of the investment has as its primary purpose community development for, or that directly benefits, low- or moderate-income individuals, families, or communities. Existing law defines community development infrastructure as California public debt where all or a portion of the debt has as its primary purpose community development for, or that directly benefits, low- or moderate-income communities consistent with the types of projects, developments, or activities specified as community development investments. Existing law defines green investments, among other things, as specified projects offering energy efficiency improvements and renewable energy generation. Existing law requires the insurer to list investments that are high impact, which is an investment that is innovative, responsive to community needs, not routinely provided by an insurer, or has a high degree of positive impact on the economic welfare of low- or moderate-income individuals, families, or communities in urban or rural areas of California.
This bill, among other things, would instead define a community development investment as certain projects, developments, or activities where all or a substantial portion of the investment has as its primary purpose community development for, or that directly benefits low- to moderate-income individuals, families, or communities. The bill would include investments in reservation-based communities and investments in rural areas, as defined, within community development investments. The bill would instead define community development infrastructure as all California debt where all or a portion of the debt has as its primary purpose community development for, or that directly benefits, low- to moderate-income communities. This bill would include water and waste management and sustainable agriculture projects in the definition of green investments. The bill would instead define a high-impact investment as an investment that is responsive to community needs and provides at least 51% social or environmental benefit to low-income individuals, families, or communities in the state. The bill would also define diverse investment managers as investment management organizations, including, but not limited to, corporations, groups and persons within corporations, partnerships, limited liability companies, and other special purpose vehicles that are either located in, or actively make and hold investments in, California and whose investment managers are comprised of at least 51% women, veterans, or minorities, or a combination of persons in those groups.
(2)Existing law imposes an annual tax on the gross premiums of an insurer, as defined, doing business in this state at specified rates. Existing law, allows a tax credit under the Personal Income Tax Law and the Corporation Tax Law for taxable years, beginning before January 1, 2017, and a credit against the tax imposed on an insurer for each year before January 1, 2017, in an amount equal to 20% of a qualified investment, as defined, made in a community development financial institution, as defined, but not to exceed, in the aggregate amount under all those laws, $50,000,000 per year and authorizes the California Organized Investment Network to certify investments for the credit until January 1, 2017, based on an application submitted by the community development financial institution. Existing law provides that if a qualified investment is reduced before the end of the 60th month, but not below $50,000, an amount equal to 20% of the total reduction for the year shall be added to the tax imposed on the taxpayer. Existing law also provides that if a qualified investment is withdrawn before the end of the 60th month and not reinvested in another community development financial institution within 60 days, the entire amount of any credit previously allowed for that taxable year is required to be added to the tax imposed on the taxpayer.
This bill, among other things, would extend the provisions relating to the authorization of the credit and certification by the California Organized Investment Network until January 1, 2019, and would modify the application requirements for certification of investments, as specified. The bill would require priority for the tax credit to be given to insurance company investors. The bill would delete the provision described above relating to a reduction of a qualified investment and would instead require that the provision regarding withdrawal, without reinvestment, of a qualified investment also apply when a qualified investment is reduced.
(3)Existing federal law allows a New Markets Tax Credit to a taxpayer holding a qualified equity investment in an amount equal to the applicable percentage of the amount paid to the qualified community development entity for investment in low-income communities.
The state Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws. Existing state constitutional law governing insurance taxation 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 California New Markets Tax Credit under the Personal Income Tax Law, the Corporation Tax Law, and the law governing insurance taxation, in modified conformity with the federal New Markets Tax Credit, for taxable years beginning on or after January 1, 2018, and before January 1, 2023, 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 $40,000,000 per calendar year. The bill would impose specified duties on the Responsible Tax Credit Administrator (RTCA), to be designated by the Governor, with regard to the application for, and allocation of, the credit. The bill would require the RTCA to establish and impose reasonable fees upon entities that apply for the allocation of the credit, to be deposited in the California New Markets Tax Credit Fund established by the bill, and use the revenue, upon annual appropriation by the Legislature, to defray the cost of applying to and administering the credits, as specified. The bill would only authorize the allocation for these credits for those taxable years for which moneys are appropriated to the RTCA to administer these credits for those taxable years.
Existing law requires any bill authorizing a new personal or corporation income tax credit to contain, among other things, specific goals, purposes, and objectives that the tax credit will achieve, detailed performance indicators, and data collection requirements, as provided.
This bill would also include that additional information required for any bill authorizing a new personal or corporation income tax credit.
(4)The bill would provide that its provisions are severable.
(5)This bill would declare that it is to take effect immediately as an urgency statute.
The Legislature finds and declares all of the following:
(a)Californias $2.6 trillion economy is supported by a diverse set of dominant and emerging industry sectors, many of which are recognized as global leaders in their field.
(b)With over 95 percent of the customer purchasing power located outside the United States, having a globally connected economy is essential for long-term economic growth.
(c)In 2016, exports from California were valued at $163.5 billion and represented 11.3 percent of total United States exports. Californias largest export market is Mexico, where the value of exports totaled $25.2 billion in 2016. After Mexico, Californias top export markets were: Canada ($16.2 billion); China ($14.3 billion); Japan ($11.7 billion); Hong Kong ($9.6 billion); South Korea ($8.2 billion); Taiwan ($6.9 billion); the Netherlands ($5.4 billion); the United Kingdom ($5.4 billion); and Germany ($5.3 billion).
(d)In 2015, 706,969 jobs were supported by goods exported from California, which represented 11 percent of all United States jobs supported by goods exported. In 2014, California had the highest number of small and medium-sized exporting companies at 72,591, followed by Florida with 58,404 exporting companies.
(e)In 2015, global foreign direct investment (FDI) reached $1.7 trillion, with the United States continuing to receive the largest amount of FDI in the world, totaling $384 billion (23 percent of global FDI). Japan, Canada, Switzerland, and the European Union contributed over 80 percent of FDI inflows to the United States.
SEC. 2.Section 13996.43 is added to the Government Code, to read:13996.43.(a)The director shall establish a process for accepting letters of interest from public and private entities that are interested in partnering with the state in operating an international trade and investment office in a foreign country.
(b)The director shall identify and make publicly available the requirements for submitting information within the letter of interest, which shall include, at a minimum, all of the following:
(1)The proposed location of the international trade and investment office.
(2)A preliminary market analysis of the proposed location, including export and import opportunities that would benefit California businesses.
(3)A list of resources and services that could be made available to California businesses and potential California investors at this location.
(4)A description of how the activities of the international trade and investment office are aligned with the international trade and investment strategy developed pursuant to Section 13996.55.
(5)An outline of a proposed management structure, including a description of staffing levels and the positions needed to operate the international trade and investment office.
(6)A list of potential key stakeholder partnerships that will support the operations and activities of the international trade and investment office.
(7)Potential funding opportunities.
(8)A preliminary first and second year budget.
(c)The Governors Office of Business and Economic Development shall review the letters of interest and determine whether they are complete within 30 days of submittal. Interested parties may submit additional information following the initial submittal to ensure that the office is able to review a complete letter of interest.
(d)The Governors Office of Business and Economic Development may facilitate discussions between key stakeholder groups in order to support the development of a letter of interest and other trade and investment purposes consistent with this chapter.
(e)The director or his or her designee shall meet with each entity or group of entities that submits a complete letter of interest. The director may request additional information prior to, during, or following that meeting.
(f)(1)The director shall determine within 90 days of receipt of a complete letter of interest whether to request the entities that submitted the letter to provide a full proposal for the operation of an international trade and investment office. A full proposal shall include sufficient evidence of support for any claims and representations made within the letter of interest.
(2)After the Governors Office of Business and Economic Development receives a full proposal, the director shall determine whether to establish an international trade and investment office pursuant to Section 13996.42 in partnership with the entities that submitted the letter of interest and full proposal.
(g)A potential partner in the operation of an international trade and investment office may submit more than one letter of interest.
SEC. 3.Section 13997 of the Government Code is amended to read:13997.(a)With respect to international trade and investment offices funded in whole or in part by nonstate funds pursuant to subdivision (e) of Section 13996.41, all of the following shall apply:
(1)The Governors Office of Business and Economic Development may accept nonstate moneys, including, but not limited to, federal and private sector funds, for the purposes of operating or supporting the operation of any international trade and investment office, subject to the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)). A donor shall not donate more than 25 percent of the annual budget of an international trade and investment office in a calendar year. The donor may specify the international trade and investment office for which the private sector moneys shall be used. The private sector moneys shall be deposited in the Economic Development and Trade Promotion Account, which is hereby established in the Special Deposit Fund (Article 2 (commencing with Section 16370) of Chapter 2 of Part 2 of Division 4) within the State Treasury. Notwithstanding Section 13340, the Director of the Governors Office of Business and Economic Development may expend moneys in the Economic Development and Trade Promotion Account, without regard to fiscal year, for the purposes of this subdivision. Moneys in the Economic Development and Trade Promotion Account may be allocated to an international trade and investment office, and if so allocated shall be maintained by that office in an account. Records of donations received and expenditures made pursuant to this section shall be subject to public disclosure.
(2)For each donation that it receives to fund an international trade and investment office, the Governors Office of Business and Economic Development shall post a report on its Internet Web site within 30 days of receiving that donation. The report shall contain all of the following information: name and address of the donor; amount of the donation; date the donation was made; name and address of the entity receiving or using the donation; a brief description of the goods or services provided or purchased, if any; and a description of the specific purpose or event for which the donation was made, if any.
(b)The Governors Office of Business and Economic Development may accept private moneys for the purposes of promoting international trade and investment events subject to the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)). The donor may specify the international trade and investment event for which the private sector moneys shall be used.
(1)The private sector moneys shall be deposited into the Economic Development and Trade Promotion Account. Notwithstanding Section 13340, the Director of the Governors Office of Business and Economic Development may expend moneys in the Economic Development and Trade Promotion Account without regard to fiscal year, for purposes of this subdivision. Records of donations received and expenditures made pursuant to this section shall be subject to public disclosure.
(2)For each donation that it receives to fund international trade and investment events, the Governors Office of Business and Economic Development shall post a report on its Internet Web site within 30 days of receiving that donation. The report shall contain the following information: name and address of the donor; amount of the donation; date the donation was made; name and address of the entity receiving or using the donation; a brief description of the goods or services provided or purchased, if any; and a description of the specific purpose or event for which the donation was made, if any.
(c)With respect to international trade and investment offices operated under contract with a nonprofit entity pursuant to subdivision (f) of Section 13996.41:
(1)A donor shall not donate more than 25 percent of the annual budget of an international trade and investment office in a calendar year.
(2)For each donation that it receives to fund an international trade and investment office, the Governors Office of Business and Economic Development shall post a report on its Internet Web site within 30 days of receiving that donation. The report shall contain all of the following information:
(A)The name and address of the donor.
(B)The amount of the donation.
(C)The date the donation was made.
(D)The name and address of the entity receiving or using the donation.
(E)A brief description of the goods or services provided or purchased, if any.
(F)A description of the specific purpose or event for which the donation was made, if any.
(d)Nothing in this section shall affect any requirement of the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)).
The Legislature finds and declares all of the following:
(a)Californias $2.6 trillion economy is supported by a diverse set of dominant and emerging industry sectors, many of which are recognized as global leaders in their field.
(b)With over 95 percent of the customer purchasing power located outside the United States, having a globally connected economy is essential for long-term economic growth.
(c)In 2016, exports from California were valued at $163.5 billion and represented 11.3 percent of total United States exports. California's largest export market is Mexico, where the value of exports totaled $25.2 billion in 2016. After Mexico, California's top export markets were: Canada ($16.2 billion); China ($14.3 billion); Japan ($11.7 billion); Hong Kong ($9.6 billion); South Korea ($8.2 billion); Taiwan ($6.9 billion); the Netherlands ($5.4 billion); the United Kingdom ($5.4 billion); and Germany ($5.3 billion).
(d)In 2015, 706,969 jobs were supported by goods exported from California, which represented 11 percent of all United States jobs supported by goods exported. In 2014, California had the highest number of small and medium-sized exporting companies at 72,591, followed by Florida with 58,404 exporting companies.
(e)In 2015, global foreign direct investment (FDI) reached $1.7 trillion, with the United States continuing to receive the largest amount of FDI in the world, totaling $384 billion (23 percent of global FDI). Japan, Canada, Switzerland, and the European Union contributed over 80 percent of FDI inflows to the United States.
SEC. 2.Section 13996.43 is added to the Government Code, to read:13996.43.(a)The director shall establish a process for accepting letters of interest from public and private entities that are interested in partnering with the state in operating an international trade and investment office in a foreign country.
(b)The director shall identify and make publicly available the requirements for submitting information within the letter of interest, which shall include, at a minimum, all of the following:
(1)The proposed location of the international trade and investment office.
(2)A preliminary market analysis of the proposed location, including export and import opportunities that would benefit California businesses.
(3)A list of resources and services that could be made available to California businesses and potential California investors at this location.
(4)A description of how the activities of the international trade and investment office are aligned with the international trade and investment strategy developed pursuant to Section 13996.55.
(5)An outline of a proposed management structure, including a description of staffing levels and the positions needed to operate the international trade and investment office.
(6)A list of potential key stakeholder partnerships that will support the operations and activities of the international trade and investment office.
(7)Potential funding opportunities.
(8)A preliminary first and second year budget.
(c)The Governors Office of Business and Economic Development shall review the letters of interest and determine whether they are complete within 30 days of submittal. Interested parties may submit additional information following the initial submittal to ensure that the office is able to review a complete letter of interest.
(d)The Governors Office of Business and Economic Development may facilitate discussions between key stakeholder groups in order to support the development of a letter of interest and other trade and investment purposes consistent with this chapter.
(e)The director or his or her designee shall meet with each entity or group of entities that submits a complete letter of interest. The director may request additional information prior to, during, or following that meeting.
(f)(1)The director shall determine within 90 days of receipt of a complete letter of interest whether to request the entities that submitted the letter to provide a full proposal for the operation of an international trade and investment office. A full proposal shall include sufficient evidence of support for any claims and representations made within the letter of interest.
(2)After the Governors Office of Business and Economic Development receives a full proposal, the director shall determine whether to establish an international trade and investment office pursuant to Section 13996.42 in partnership with the entities that submitted the letter of interest and full proposal.
(g)A potential partner in the operation of an international trade and investment office may submit more than one letter of interest.
SEC. 3.Section 13997 of the Government Code is amended to read:13997.(a)With respect to international trade and investment offices funded in whole or in part by nonstate funds pursuant to subdivision (e) of Section 13996.41, all of the following shall apply:
(1)The Governors Office of Business and Economic Development may accept nonstate moneys, including, but not limited to, federal and private sector funds, for the purposes of operating or supporting the operation of any international trade and investment office, subject to the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)). A donor shall not donate more than 25 percent of the annual budget of an international trade and investment office in a calendar year. The donor may specify the international trade and investment office for which the private sector moneys shall be used. The private sector moneys shall be deposited in the Economic Development and Trade Promotion Account, which is hereby established in the Special Deposit Fund (Article 2 (commencing with Section 16370) of Chapter 2 of Part 2 of Division 4) within the State Treasury. Notwithstanding Section 13340, the Director of the Governors Office of Business and Economic Development may expend moneys in the Economic Development and Trade Promotion Account, without regard to fiscal year, for the purposes of this subdivision. Moneys in the Economic Development and Trade Promotion Account may be allocated to an international trade and investment office, and if so allocated shall be maintained by that office in an account. Records of donations received and expenditures made pursuant to this section shall be subject to public disclosure.
(2)For each donation that it receives to fund an international trade and investment office, the Governors Office of Business and Economic Development shall post a report on its Internet Web site within 30 days of receiving that donation. The report shall contain all of the following information: name and address of the donor; amount of the donation; date the donation was made; name and address of the entity receiving or using the donation; a brief description of the goods or services provided or purchased, if any; and a description of the specific purpose or event for which the donation was made, if any.
(b)The Governors Office of Business and Economic Development may accept private moneys for the purposes of promoting international trade and investment events subject to the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)). The donor may specify the international trade and investment event for which the private sector moneys shall be used.
(1)The private sector moneys shall be deposited into the Economic Development and Trade Promotion Account. Notwithstanding Section 13340, the Director of the Governors Office of Business and Economic Development may expend moneys in the Economic Development and Trade Promotion Account without regard to fiscal year, for purposes of this subdivision. Records of donations received and expenditures made pursuant to this section shall be subject to public disclosure.
(2)For each donation that it receives to fund international trade and investment events, the Governors Office of Business and Economic Development shall post a report on its Internet Web site within 30 days of receiving that donation. The report shall contain the following information: name and address of the donor; amount of the donation; date the donation was made; name and address of the entity receiving or using the donation; a brief description of the goods or services provided or purchased, if any; and a description of the specific purpose or event for which the donation was made, if any.
(c)With respect to international trade and investment offices operated under contract with a nonprofit entity pursuant to subdivision (f) of Section 13996.41:
(1)A donor shall not donate more than 25 percent of the annual budget of an international trade and investment office in a calendar year.
(2)For each donation that it receives to fund an international trade and investment office, the Governors Office of Business and Economic Development shall post a report on its Internet Web site within 30 days of receiving that donation. The report shall contain all of the following information: name
(A)The name and address of the donor; donor.
(B)The amount of the donation; donation.
(C)The date the donation was made; made.
(D)The name and address of the entity receiving or using the donation; a donation.
(E)A brief description of the goods or services provided or purchased, if any; and a any.
(F)A description of the specific purpose or event for which the donation was made, if any.
(d)Nothing in this section shall affect any requirement of the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)).
The Legislature finds and declares all of the following:
(a)Californias $2.6 trillion economy is supported by a diverse set of dominant and emerging industry sectors, many of which are recognized as global leaders in their field.
(b)With over 95 percent of the customer purchasing power located outside the United States, having a globally connected economy is essential for long-term economic growth.
(c)In 2016, exports from California were valued at $163.5 billion and represented 11.3 percent of total United States exports. California's largest export market is Mexico, where the value of exports totaled $25.2 billion in 2016. After Mexico, California's top export markets were: Canada ($16.2 billion); China ($14.3 billion); Japan ($11.7 billion); Hong Kong ($9.6 billion); South Korea ($8.2 billion); Taiwan ($6.9 billion); the Netherlands ($5.4 billion); the United Kingdom ($5.4 billion); and Germany ($5.3 billion).
(d)In 2015, 706,969 jobs were supported by goods exported from California, which represented 11 percent of all United States jobs supported by goods exported. In 2014, California had the highest number of small and medium-sized exporting companies at 72,591, followed by Florida with 58,404 exporting companies.
(e)In 2015, global foreign direct investment (FDI) reached $1.7 trillion, with the United States continuing to receive the largest amount of FDI in the world, totaling $384 billion (23 percent of global FDI). Japan, Canada, Switzerland, and the European Union contributed over 80 percent of FDI inflows to the United States.
SEC. 2.Section 13996.43 is added to the Government Code, to read:13996.43.(a)The director shall establish a process for accepting letters of interest from public and private entities that are interested in partnering with the state in operating an international trade and investment office in a foreign country.
(b)The director shall identify and make publicly available the requirements for submitting information within the letter of interest, which shall include, at a minimum, all of the following:
(1)The proposed location of the international trade and investment office.
(2)A preliminary market analysis of the proposed location, including export and import opportunities that would benefit California businesses.
(3)A list of resources and services that could be made available to California businesses and potential California investors at this location.
(4)A description of how the activities of the international trade and investment office are aligned with the international trade and investment strategy developed pursuant to Section 13996.55.
(5)An outline of a proposed management structure, including a description of staffing levels and the positions needed to operate the international trade and investment office.
(6)A list of potential key stakeholder partnerships that will support the operations and activities of the international trade and investment office.
(7)Potential funding opportunities.
(8)A preliminary first and second year budget.
(c)The Governors Office of Business and Economic Development shall review the letters of interest and determine whether they are complete within 30 days of submittal. Interested parties may submit additional information following the initial submittal to ensure that the office is able to review a complete letter of interest.
(d)The Governors Office of Business and Economic Development may facilitate discussions between key stakeholder groups in order to support the development of a letter of interest and other trade and investment purposes consistent with this chapter.
(e)The director or his or her designee shall meet with each entity or group of entities that submits a complete letter of interest. The director may request additional information prior to, during, or following that meeting.
(f)(1)The director shall determine within 90 days of receipt of a complete letter of interest whether to request the entities that submitted the letter to provide a full proposal for the operation of an international trade and investment office. A full proposal shall include sufficient evidence of support for any claims and representations made within the letter of interest.
(2)After the Governors Office of Business and Economic Development receives a full proposal, the director shall determine whether to establish an international trade and investment office pursuant to Section 13996.42 in partnership with the entities that submitted the letter of interest and full proposal.
(g)A potential partner in the operation of an international trade and investment office donor may submit more than one letter of interest.
SEC. 3.Section 13997 of the Government Code is amended to read:13997.(a)With respect to international trade and investment offices funded in whole or in part by nonstate funds pursuant to subdivision (e) of Section 13996.41, all of the following shall apply:
(1)The Governors Office of Business and Economic Development may accept nonstate moneys, including, but not limited to, federal and private sector funds, for the purposes of operating or supporting the operation of any international trade and investment office, subject to the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)). A donor shall not donate more than 25 percent of the annual budget of an international trade and investment office in a calendar year. The donor may specify the international trade and investment office for which the private sector moneys shall be used. The private sector moneys shall be deposited in the Economic Development and Trade Promotion Account, which is hereby established in the Special Deposit Fund (Article 2 (commencing with Section 16370) of Chapter 2 of Part 2 of Division 4) within the State Treasury. Notwithstanding Section 13340, the Director of the Governors Office of Business and Economic Development may expend moneys in the Economic Development and Trade Promotion Account, without regard to fiscal year, for the purposes of this subdivision. Moneys in the Economic Development and Trade Promotion Account may be allocated to an international trade and investment office, and if so allocated shall be maintained by that office in an account. Records of donations received and expenditures made pursuant to this section shall be subject to public disclosure.
(2)For each donation that it receives to fund an international trade and investment office, the Governors Office of Business and Economic Development shall post a report on its Internet Web site within 30 days of receiving that donation. The report shall contain all of the following information: name and address of the donor; amount of the donation; date the donation was made; name and address of the entity receiving or using the donation; a brief description of the goods or services provided or purchased, if any; and a description of the specific purpose or event for which the donation was made, if any.
(b)The Governors Office of Business and Economic Development may accept private moneys for the purposes of promoting international trade and investment events subject to the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)). The donor may specify the international trade and investment event for which the private sector moneys shall be used.
(1)The private sector moneys shall be deposited into the Economic Development and Trade Promotion Account. Notwithstanding Section 13340, the Director of the Governors Office of Business and Economic Development may expend moneys in the Economic Development and Trade Promotion Account without regard to fiscal year, for purposes of this subdivision. Records of donations received and expenditures made pursuant to this section shall be subject to public disclosure.
(2)For each donation that it receives to fund international trade and investment events, the Governors Office of Business and Economic Development shall post a report on its Internet Web site within 30 days of receiving that donation. The report shall contain the following information: name and address of the donor; amount of the donation; date the donation was made; name and address of the entity receiving or using the donation; a brief description of the goods or services provided or purchased, if any; and a description of the specific purpose or event for which the donation was made, if any.
(c)With respect to international trade and investment offices operated under contract with a nonprofit entity pursuant to subdivision (f) of Section 13996.41:
(1)A donor shall not donate more than 25 percent of the annual budget of an international trade and investment office in a calendar year.
(2)For each donation that it receives to fund an international trade and investment office, the Governors Office of Business and Economic Development shall post a report on its Internet Web site within 30 days of receiving that donation. The report shall contain the following information: name and address of the donor; amount of the donation; date the donation was made; name and address of the entity receiving or using the donation; a brief description of the goods or services provided or purchased, if any; and a description of the specific purpose or event for which the donation was made, if any.
(d)Nothing in this section shall affect any requirement of the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)).
The Legislature finds and declares all of the following:
(a)Californias $2.6 trillion economy is supported by a diverse set of dominant and emerging industry sectors, many of which are recognized as global leaders in their field.
(b)With over 95 percent of the customer purchasing power located outside the United States, having a globally connected economy is essential for long-term economic growth.
(c)In 2016, exports from California were valued at $163.5 billion and represented 11.3 percent of total United States exports. California's largest export market is Mexico, where the value of exports totaled $25.2 billion in 2016. After Mexico, California's top export markets were: Canada ($16.2 billion); China ($14.3 billion); Japan ($11.7 billion); Hong Kong ($9.6 billion); South Korea ($8.2 billion); Taiwan ($6.9 billion); the Netherlands ($5.4 billion); the United Kingdom ($5.4 billion); and Germany ($5.3 billion).
(d)In 2015, 706,969 jobs were supported by goods exported from California, which represented 11 percent of all United States jobs supported by goods exported. In 2014, California had the highest number of small and medium-sized exporting companies at 72,591, followed by Florida with 58,404 exporting companies.
(e)In 2015, global foreign direct investment (FDI) reached $1.7 trillion, with the United States continuing to receive the largest amount of FDI in the world, totaling $384 billion (23 percent of global FDI). Japan, Canada, Switzerland, and the European Union contributed over 80 percent of FDI inflows to the United States.
SEC. 2.Section 13996.43 is added to the Government Code, to read:13996.43.(a)The director shall establish a process for accepting letters of interest from public and private entities that are interested in partnering with the state in operating an international trade and investment office in a foreign country.
(b)The director shall identify and make publicly available the requirements for submitting information within the letter of interest, which shall include, at a minimum, all of the following:
(1)The proposed location of the international trade and investment office.
(2)A preliminary market analysis of the proposed location, including export and import opportunities that would benefit California businesses.
(3)A list of resources and services that could be made available to California businesses and potential California investors at this location.
(4)A description of how the activities of the international trade and investment office are aligned with the international trade and investment strategy developed pursuant to Section 13996.55.
(5)An outline of a proposed management structure, including a description of staffing levels and the positions needed to operate the international trade and investment office.
(6)A list of potential key stakeholder partnerships that will support the operations and activities of the international trade and investment office.
(7)Potential funding opportunities.
(8)A preliminary first and second year budget.
(c)The Governors Office of Business and Economic Development shall review the letters of interest and determine whether they are complete within 30 days of submittal. Interested parties may submit additional information following the initial submittal to ensure that the office is able to review a complete letter of interest.
(d)The Governors Office of Business and Economic Development may facilitate discussions between key stakeholder groups in order to support the development of a letter of interest and other trade and investment purposes consistent with this chapter.
(e)The director or his or her designee shall meet with each entity or group of entities that submits a complete letter of interest. The director may request additional information prior to, during, or following that meeting.
(f)(1)The director shall determine within 90 days of receipt of a complete letter of interest whether to request the entities that submitted the letter to provide a full proposal for the operation of an international trade and investment office. A full proposal shall include sufficient evidence of support for any claims and representations made within the letter of interest.
(2)After the Governors Office of Business and Economic Development receives a full proposal, the director shall determine whether to establish an international trade and investment office pursuant to Section 13996.42 in partnership with the entities that submitted the letter of interest and full proposal.
(g)A potential international trade and investment office donor may submit more than one letter of interest.
SEC. 3.Section 13997 of the Government Code is amended to read:13997.(a)With respect to international trade and investment offices funded in whole or in part by nonstate funds pursuant to subdivision (e) of Section 13996.41, all of the following shall apply:
(1)The Governors Office of Business and Economic Development may accept nonstate moneys, including, but not limited to, federal and private sector funds, for the purposes of operating or supporting the operation of any international trade and investment office, subject to Title 9 the Political Reform Act of 1974 (Title 9 (commencing with Section 81000). 81000)). A donor shall not donate more than 25 percent of the annual budget of an international trade and investment office in a calendar year. The donor may specify the international trade and investment office for which the private sector moneys shall be used. The private sector moneys shall be deposited in the Economic Development and Trade Promotion Account, which is hereby established in the Special Deposit Fund (Art. (Article 2 (commencing with Section 16370), Ch. 2, Pt. 2, Div. 4) 16370) of Chapter 2 of Part 2 of Division 4) within the State Treasury. Notwithstanding Section 13340, the Director of the Governors Office of Business and Economic Development may expend moneys in the Economic Development and Trade Promotion Account, without regard to fiscal year, for the purposes of this subdivision. Moneys in the Economic Development and Trade Promotion Account may be allocated to an international trade and investment office, and if so allocated shall be maintained by that office in an account. Records of donations received and expenditures made pursuant to this section shall be subject to public disclosure.
(2)For each donation that it receives to fund an international trade and investment office, the Governors Office of Business and Economic Development shall post a report on its Internet Web site within 30 days of receiving that donation. The report shall contain all of the following information: name and address of the donor; amount of the donation; date the donation was made; name and address of the entity receiving or using the donation; a brief description of the goods or services provided or purchased, if any; and a description of the specific purpose or event for which the donation was made, if any.
(b)The Governors Office of Business and Economic Development may accept private moneys for the purposes of promoting international trade and investment events subject to Title 9 the Political Reform Act of 1974 (Title 9 (commencing with Section 81000). 81000)). The donor may specify the international trade and investment event for which the private sector moneys shall be used.
(1)The private sector moneys shall be deposited into the Economic Development and Trade Promotion Account. Notwithstanding Section 13340, the Director of the Governors Office of Business and Economic Development may expend moneys in the Economic Development and Trade Promotion Account without regard to fiscal year, for purposes of this subdivision. Records of donations received and expenditures made pursuant to this section shall be subject to public disclosure.
(2)For each donation that it receives to fund international trade and investment events, the Governors Office of Business and Economic Development shall post a report on its Internet Web site within 30 days of receiving that donation. The report shall contain the following information: name and address of the donor; amount of the donation; date the donation was made; name and address of the entity receiving or using the donation; a brief description of the goods or services provided or purchased, if any; and a description of the specific purpose or event for which the donation was made, if any.
(c)With respect to international trade and investment offices operated under contract with a nonprofit entity pursuant to subdivision (f) of Section 13996.41:
(1)A donor shall not donate more than 25 percent of the annual budget of an international trade and investment office in a calendar year.
(2)For each donation that it receives to fund an international trade and investment office, the Governors Office of Business and Economic Development shall post a report on its Internet Web site within 30 days of receiving that donation. The report shall contain the following information: name and address of the donor; amount of the donation; date the donation was made; name and address of the entity receiving or using the donation; a brief description of the goods or services provided or purchased, if any; and a description of the specific purpose or event for which the donation was made, if any.
(d)Nothing in this section shall affect any requirement of the Political Reform Act of 1974 (Title 9 (commencing with Section 81000)).
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 the 201314 funding round, the CDFI Fund had awarded approximately $40 billion in NMTC in 836 awards, including $3 billion in American Recovery and Investment Act of 2009 awards and $1 billion of special allocation authority to be used for the recovery and redevelopment of the Gulf Opportunity Zone.(c)Since 2003, the NMTC Program has created or retained an estimated 197,585 jobs nationally. It has also supported the construction of 32.4 million square feet of manufacturing space, 74.8 million square feet of office space, and 57.5 million square feet of retail space. The United States Department of the Treasury reports that a secondary benefit is that as these communities develop, they become more attractive to investors, catalyzing a ripple effect that spurs further investments and revitalization.(d)For every $1 invested by the federal government, the NMTC Program generates over $8 of private investment. The NMTC Program catalyzes investment in the most economically challenged areas of the state. Over 75 percent of New Markets Tax Credit investments have been made in highly distressed areas, meaning the household income was less than 60 percent of statewide median income and the poverty rate was higher than 30 percent.(e)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). Any investment by any taxpayer in the CDE redeemed before the end of the seven-year period will be recaptured.(f)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 a state more attractive to CDEs, which results in increasing the amount of federal NMTCs being utilized in a 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 twelve dollars ($12) to fourteen dollars ($14) of private investment.SEC. 2.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 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-sized 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. RTCA shall administer this program as provided in this section, Section 17053.9, and Section 23622.9.(b)(1)For each year beginning on or after January 1, 2019, and before January 1, 2024, and subject to subdivision (h), there shall be allowed as a credit against the tax described in Section 12201, in an amount determined in accordance with Section 45D of the Internal Revenue Code, relating to the new markets tax credit, as modified in this section.(2)For the purposes of this section, RTCA means the Responsible Tax Credit Administrator, as designated by the Governor.(c)Section 45D of the Internal Revenue Code is modified as follows:(1)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.(2)(A)Section 45D(c)(1) of the Internal Revenue Code, relating to qualified community development entity, is modified to only include a qualified community development entity, that is certified by the Secretary of the Treasury, and its subsidiary qualified community development entities that have 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.(B)Section 45D(c)(2) of the Internal Revenue Code, relating to special rules for certain organizations, is modified to only include a specialized small business investment company or community development financial institution that 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, 2013.(3)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)By substituting any low-income community in California for any low-income community every place it appears in Section 45D of the Internal Revenue Code.(B)A qualified active low-income community business shall not include 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.(C)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 one or more California low-income communities. The operating business shall meet all other conditions of a qualified active low-income community business, except as modified by this paragraph. This requirement does not apply to a business that is located in a reservation-based community. Reservation-based means an area of land managed by a Native American tribe under the jurisdiction of the federal Bureau of Indian Affairs, provided that the tribe is named on the most current list of Indian Entities Recognized and Eligible to Receive Services from the United States Bureau of Indian Affairs, or successor document, as published in the Federal Register by the United States Bureau of Indian Affairs.(D)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 nonmetropolitan area, with a median family income that does not exceed 60 percent of median family income for this state, 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.(E)A qualified active low-income community business shall not include any business that operates or derives revenues from the operation of a country club, gaming establishment, massage parlor, liquor store, or golf course.(F)A qualified active low-income community business shall not include a sexually oriented business. A sexually oriented business means a commercial enterprise that provides, or has provided in the 24 months prior to the date of the submission of an application described in subdivision (d) by the taxpayer, for an audience of two or more individuals live nude entertainment or live nude performances where the nudity is a function of everyday business operations and where nudity is a planned and intentional part of the entertainment or performance. Nude means clothed in a manner that leaves uncovered or visible, through less than fully opaque clothing, any portion of the genitals or, in the case of a female, any portion of the breasts below the top of the areola of the breasts.(G)A qualified active low-income community business shall not include a charter school.(4)Section 45D(f) of the Internal Revenue Code, relating to national limitation on amount of investments designated, is modified as follows:(A)The following shall apply in lieu of the provisions of Section 45D(f)(1) of the Internal Revenue Code: The aggregate amount of qualified equity investments that may be allocated in any calendar year for purposes of this section, Section 17053.9, and Section 23622.9 shall be forty million dollars ($40,000,000) per calendar year. The allocation of any undesignated qualified equity investments shall be returned to RTCA by March 1 of the year following allocation and the value of the undesignated qualified equity investment shall be available for allocation in the following calendar years in accordance with the application process. Any qualified equity investment attributable to recaptured credits shall be available to RTCA on March 1 of the year following recapture and shall be available for allocation in the following calendar years in accordance with subparagraph (C) of paragraph (5). Reallocated qualified equity investments attributable to recapture credits shall not count against the annual or the cumulative limit.(B)The references to the Secretary in Section 45D(f)(2) of the Internal Revenue Code, relating to allocation of limitation, is modified to read RTCA.(C)The last sentence of Section 45D(f)(3) of the Internal Revenue Code, relating to carryover of unused limitation, shall not apply.(5)Section 45D(g)(3) of the Internal Revenue Code, relating to recapture event, is modified to add the following:(A)The qualified community development entity fails to comply with subparagraph (D) of paragraph (5) of subdivision (d). In this case, recapture shall be 100 percent of the credit.(B)RTCA shall establish a process, in consultation with the Department of Insurance, for the recapture of credits allowed under this section from the entity that claimed the credit on a return.(C)Recaptured qualified equity investments revert back to RTCA and shall be reissued. The reissue shall not count toward the annual or cumulative allocation limitation. The reissue shall be done in the following order:(i)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) of paragraph (5) of subdivision (d) by the annual allocation limitation.(ii)Thereafter, in accordance with the application process.(D)Enforcement of each of the recapture provisions shall be subject to a six-month cure period.(d)(1)RTCA shall adopt guidelines necessary or appropriate to carry out its responsibilities with respect to the allocation, monitoring, and management of the tax credit program authorized by this section.(2)(A)RTCA shall establish and impose reasonable fees upon entities that apply for the allocation pursuant to this subdivision that in the aggregate defray the cost of reviewing applications for the program. RTCA may impose other reasonable fees upon entities that receive the allocation pursuant to this subdivision that in the aggregate defray the cost of administering the program.(B)The fees collected shall be deposited in the California New Markets Tax Credit Fund established in Section 18410.3.(3)In developing guidelines, RTCA shall adopt an allocation process that does all of the following:(A)Creates an equitable distribution process that ensures that low-income community populations 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 authority to designate qualified equity investments, including, but not limited to, its business strategy, targeted community outcomes, capitalization strategy, and management capacity.(C)Considers the qualified community development entitys prior qualified low-income community investments under Section 45D of the Internal Revenue Code.(D)Considers the qualified community development entitys prior qualified low-income community investments under this section, including subparagraph (D) of paragraph (5).(4)(A)Subject to subdivision (h), RTCA shall begin accepting applications on or before May 15, 2019, and shall award authority to designate qualified equity investments annually through 2023.(B)In the instance where RTCA determines that an application is incomplete, the qualified community development entity shall be given five business days to provide the omitted information.(5)(A)In the 2019 awards cycle, RTCA shall award authority to designate qualified equity investments to qualified community development entities described in paragraph (2) of subdivision (c) in the order applications are received by RTCA. Applications received on the same day shall be deemed to have been received simultaneously.(B)In the 2020 to 2023 award cycles, inclusive, at least 60 percent of the authority to designate qualified equity investments shall be awarded pursuant to subparagraph (A). At the discretion of RTCA, a higher percentage of authority to designate qualified equity investments may be awarded pursuant to subparagraph (A).(C)RTCA shall award up to 40 percent of the authority to designate qualified equity investments in the 2020 to 2023, inclusive, award cycles, to qualified community development entities on a competitive basis that meets the following criteria:(i)Awards shall be reviewed using blind scoring and a review committee that is composed of community development finance practitioners and members having demonstrated experience in assessing organizational business strategy, community outcomes, capitalization strategy, and management capacity.(ii)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 qualified equity investment or other assistance from any applicant.(iii)Priority shall be provided to both of the following:(I)Applications that commit to addressing the hardest to serve and undercapitalized lower income populations.(II)Applications that support neighborhood revitalization strategies driven by local grassroots stakeholders in multiple low-income communities across one or more regions or the state. These applications shall demonstrate how their investment activity provides a scalable economic development model.(D)For applications described in subparagraphs (A) and (B), applications for awards shall include a commitment to make at least 15 percent of qualified community development investments to a qualified community development entity with the assistance of a nonprofit organization, as documented by a cooperation agreement that states the terms and conditions of that assistance. For the purposes of this subparagraph, the following shall apply:(i)A qualified community development entity shall be certified under Section 45D of the Internal Revenue Code but has not received a federal New Markets Tax Credit allocation on or after January 1, 2012, and has either a local service area that includes one or more California communities or a California statewide service area, but excluding qualified community development entities with a national service area.(ii)A nonprofit organization shall meet all of the following requirements: Is tax exempt under Section 23701, is registered with the Registry of Charitable Trusts, which is administered by the Attorney General, has articles of incorporation or articles of organization that state the primary mission of the organization is focused on improving the economic well-being of low-income communities or individuals, and has bylaws that provide that the organization maintains accountability to residents of low-income communities through their representation on any governing board or on an advisory board of the nonprofit organization.(E)(i)For applications described in subparagraph (A), in the event requests for authority to designate qualified equity investments exceed the applicable annual allocation limitation, RTCA 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.(ii)If a pending request cannot be fully certified due to this limit, RTCA shall certify the portion that may be certified unless the qualified community development entity elects to withdraw its request rather than receive partial certification.(F)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 RTCA within 30 calendar days of such transfer and include the information required in the application with respect to such transferee with such notice. The transferee shall be subject to the same rules, requirements, and limitations applicable to the transferor.(G)Within 200 calendar days of RTCA sending notice of certification, the qualified community development entity or any transferee, under subparagraph (F), 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 (F), shall provide RTCA with evidence of the receipt of the cash investment within 205 calendar days of the applicant receiving notice of certification. If the qualified community development entity or any transferee, under subparagraph (F), does not receive the cash investment and issue the qualified equity investment within 200 calendar days of RTCA sending the certification notice, the certification shall lapse and the entity may not issue the qualified equity investment without reapplying to RTCA for certification. Lapsed certifications revert back to RTCA and shall be reissued in the following order:(i)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) under the annual allocation limitation of forty million dollars ($40,000,000) in paragraph (4) of subdivision (c).(ii)Thereafter, in accordance with the application process.(H)A qualified community development entity that issues qualified equity investments shall notify RTCA of the names of taxpayers that are eligible to utilize tax credits pursuant to this section and any transfer of a qualified equity investment.(6)(A)A qualified community development entity that issues qualified equity investments shall submit a report to RTCA that provides documentation as to the investment of at least 85 percent of the funds being deployed within one year 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)Evidence that the community development entity complied with subparagraph (D) of paragraph (5).(iv)Any other information required by RTCA as being necessary to meet the requirements of this section.(B)Thereafter, the qualified community development entity shall submit an annual report to RTCA 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 social, environmental, and economic impact the credit had on the low-income community during the report period and cumulatively.(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.(vi)Location of each qualified low-income community business assisted by a qualified low-income community investment.(vii)Summary of the outcomes of each of the revenue impact assessments undertaken by the qualified community development entity during the year.(viii)Any other information requested by RTCA.(e)(1)In the case where the credit allowed by this section exceeds the tax described in Section 12201, 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.(2)A taxpayer allowed a credit under this section for a qualified equity investment shall not be eligible for any other credit under this part with respect to that investment.(3)The credit allowed under this section may be in addition to any credit allowed under Section 45D of the Internal Revenue Code.(f)RTCA shall annually report on its Internet Web site the information provided by low-income community development entities and on the geographic distribution of the qualified active low-income community businesses assisted.(g)(1)The Insurance Commissioner may prescribe any rules or regulations that may be necessary or appropriate to implement this section. The Insurance Commissioner shall have access to any documentation held by RTCA relative to the application and reporting of a qualified community development entity.(2)A qualified community development entity shall provide RTCA with the name, address, and tax identification number of each investor and entity for which a qualified equity investment was designated by the qualified community development entity, pursuant to this section. RTCA shall provide this information to the Insurance Commissioner in a manner determined by the Insurance Commissioner.(h)(1)The credit authorized by this section shall only be allowed for those taxable years for which moneys are appropriated to RTCA to administer the California New Markets Tax Credit pursuant to 18410.3 for that taxable year. The appropriation shall specifically identify the California New Markets Tax Credit.(2)For those taxable years for which those moneys are appropriated pursuant to paragraph (1), RTCA shall post notice of the appropriation on the homepage of its Internet Web site and send notice of such appropriation to the Secretary of State and the Legislative Counsel.(i)This section shall be repealed on December 1, 2024.SEC. 3.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 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-sized 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. RTCA 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, 2019, and before January 1, 2024, and subject to subdivision (h), there shall be allowed as a credit against the net tax, as defined in Section 17039, in an amount determined in accordance with Section 45D of the Internal Revenue Code, relating to the new markets tax credit, as modified in this section.(2)For the purposes of this section, RTCA means the Responsible Tax Credit Administrator, as designated by the Governor.(c)Section 45D of the Internal Revenue Code is modified as follows:(1)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.(2)(A)Section 45D(c)(1) of the Internal Revenue Code, relating to qualified community development entity, is modified to only include a qualified community development entity, that is certified by the Secretary of the Treasury, and its subsidiary qualified community development entities that have 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.(B)Section 45D(c)(2) of the Internal Revenue Code, relating to special rules for certain organizations, is modified to only include a specialized small business investment company or community development financial institution that 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, 2013.(3)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)By substituting any low-income community in California for any low-income community every place it appears in Section 45D of the Internal Revenue Code.(B)A qualified active low-income community business shall not include 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.(C)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 one or more California low-income communities. The operating business shall meet all other conditions of a qualified active low-income community business, except as modified by this paragraph. This requirement does not apply to a business that is located in a reservation-based community. Reservation-based means an area of land managed by a Native American tribe under the jurisdiction of the federal Bureau of Indian Affairs, provided that the tribe is named on the most current list of Indian Entities Recognized and Eligible to Receive Services from the United States Bureau of Indian Affairs, or successor document, as published in the Federal Register by the United States Bureau of Indian Affairs.(D)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 nonmetropolitan area, with a median family income that does not exceed 60 percent of median family income for this state, 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.(E)A qualified active low-income community business shall not include any business that operates or derives revenues from the operation of a country club, gaming establishment, massage parlor, liquor store, or golf course.(F)A qualified active low-income community business shall not include a sexually oriented business. A sexually oriented business means a commercial enterprise that provides, or has provided in the 24 months prior to the date of the submission of an application described in subdivision (d) by the taxpayer, for an audience of two or more individuals live nude entertainment or live nude performances where the nudity is a function of everyday business operations and where nudity is a planned and intentional part of the entertainment or performance. Nude means clothed in a manner that leaves uncovered or visible, through less than fully opaque clothing, any portion of the genitals or, in the case of a female, any portion of the breasts below the top of the areola of the breasts.(G)A qualified active low-income community business shall not include a charter school.(4)Section 45D(f) of the Internal Revenue Code, relating to national limitation on amount of investments designated, is modified as follows:(A)The following shall apply in lieu of the provisions of Section 45D(f)(1) of the Internal Revenue Code: The aggregate amount of qualified equity investments that may be allocated in any calendar year for purposes of this section, Section 12283, and Section 23622.9 shall be forty million dollars ($40,000,000) per calendar year. The allocation of any undesignated qualified equity investments shall be returned to RTCA by March 1 of the year following allocation and the value of the undesignated qualified equity investment shall be available for allocation in the following calendar years in accordance with the application process. Any qualified equity investment attributable to recaptured credits shall be available to RTCA on March 1 of the year following recapture and shall be available for allocation in the following calendar years in accordance with clause (iii) of subparagraph (B) of paragraph (5). Reallocated qualified equity investments attributable to recapture credits shall not count against the annual or the cumulative limit.(B)The references to the Secretary in Section 45D(f)(2) of the Internal Revenue Code, relating to allocation of limitation, is modified to read RTCA.(C)The last sentence of Section 45D(f)(3) of the Internal Revenue Code, relating to carryover of unused limitation, shall not apply.(5)(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, is modified to add the following:(i)The qualified community development entity fails to comply with subparagraph (D) of paragraph (5) of subdivision (d). In this case, recapture shall be 100 percent of the credit.(ii)RTCA shall establish a process, in consultation with the Franchise Tax Board, for the recapture of credits allowed under this section from the entity that claimed the credit on a return.(iii)Recaptured qualified equity investments revert back to RTCA and shall be reissued. The reissue shall not count toward the annual or cumulative allocation limitation. The reissue shall be done in the following order:(I)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) of paragraph (5) of subdivision (d) by the annual allocation limitation.(II)Thereafter, in accordance with the application process.(iv)Enforcement of each of the recapture provisions shall be subject to a six-month cure period.(d)(1)RTCA shall adopt guidelines necessary or appropriate to carry out its responsibilities with respect to the allocation, monitoring, and management of the tax credit program authorized by this section.(2)(A)RTCA shall establish and impose reasonable fees upon entities that apply for the allocation pursuant to this subdivision that in the aggregate defray the cost of reviewing applications for the program. RTCA may impose other reasonable fees upon entities that receive the allocation pursuant to this subdivision that in the aggregate defray the cost of administering the program.(B)The fees collected shall be deposited in the California New Markets Tax Credit Fund established in Section 18410.3.(3)In developing guidelines, RTCA shall adopt an allocation process that does all of the following:(A)Creates an equitable distribution process that ensures that low-income community populations 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 authority to designate qualified equity investments, including, but not limited to, its business strategy, targeted community outcomes, capitalization strategy, and management capacity.(C)Considers the qualified community development entitys prior qualified low-income community investments under Section 45D of the Internal Revenue Code.(D)Considers the qualified community development entitys prior qualified low-income community investments under this section, including subparagraph (D) of paragraph (5).(4)(A)Subject to subdivision (h), RTCA shall begin accepting applications on or before May 15, 2019, and shall award authority to designate qualified equity investments annually through 2023.(B)In the instance where RTCA determines that an application is incomplete, the qualified community development entity shall be given five business days to provide the omitted information.(5)(A)In the 2019 awards cycle, RTCA shall award authority to designate qualified equity investments to qualified community development entities described in paragraph (2) of subdivision (c) in the order applications are received by RTCA. Applications received on the same day shall be deemed to have been received simultaneously.(B)In the 2020 to 2023 award cycles, inclusive, at least 60 percent of the authority to designate qualified equity investments shall be awarded pursuant to subparagraph (A). At the discretion of RTCA, a higher percentage of authority to designate qualified equity investments may be awarded pursuant to subparagraph (A).(C)RTCA shall award up to 40 percent of the authority to designate qualified equity investments in the 2020 to 2023, inclusive, award cycles, to qualified community development entities on a competitive basis that meets the following criteria:(i)Awards shall be reviewed using blind scoring and a review committee that is composed of community development finance practitioners and members having demonstrated experience in assessing organizational business strategy, community outcomes, capitalization strategy, and management capacity.(ii)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 qualified equity investment or other assistance from any applicant.(iii)Priority shall be provided to both of the following:(I)Applications that commit to addressing the hardest to serve and undercapitalized lower income populations.(II)Applications that support neighborhood revitalization strategies driven by local grassroots stakeholders in multiple low-income communities across one or more regions or the state. These applications shall demonstrate how their investment activity provides a scalable economic development model.(D)For applications described in subparagraphs (A) and (B), applications for awards shall include a commitment to make at least 15 percent of qualified community development investments to a qualified community development entity with the assistance of a nonprofit organization as documented by a cooperation agreement that states the terms and conditions of that assistance. For the purposes of this subparagraph, the following shall apply:(i)A qualified community development entity shall be certified under Section 45D of the Internal Revenue Code but has not received a federal New Markets Tax Credit allocation on or after January 1, 2012, and has either a local service area that includes one or more California communities or a California statewide service area, but excluding qualified community development entities with a national service area.(ii)A nonprofit organization shall meet all of the following requirements: Is tax exempt under Section 23701, is registered with the Registry of Charitable Trusts, which is administered by the Attorney General, has articles of incorporation or articles of organization that state the primary mission of the organization is focused on improving the economic well-being of low-income communities or individuals, and has bylaws that provide that the organization maintains accountability to residents of low-income communities through their representation on any governing board or on an advisory board of the nonprofit organization.(E)(i)For applications described in subparagraph (A), in the event requests for authority to designate qualified equity investments exceed the applicable annual allocation limitation, RTCA 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.(ii)If a pending request cannot be fully certified due to this limit, RTCA shall certify the portion that may be certified unless the qualified community development entity elects to withdraw its request rather than receive partial certification.(F)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 RTCA within 30 calendar days of such transfer and include the information required in the application with respect to such transferee with such notice. The transferee shall be subject to the same rules, requirements, and limitations applicable to the transferor.(G)Within 200 calendar days of RTCA sending notice of certification, the qualified community development entity or any transferee, under subparagraph (F), 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 (F), shall provide RTCA with evidence of the receipt of the cash investment within 205 calendar days of the applicant receiving notice of certification. If the qualified community development entity or any transferee, under subparagraph (F), does not receive the cash investment and issue the qualified equity investment within 200 calendar days of RTCA sending the certification notice, the certification shall lapse and the entity may not issue the qualified equity investment without reapplying to RTCA for certification. Lapsed certifications revert back to RTCA and shall be reissued in the following order:(i)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) under the annual allocation limitation of forty million dollars ($40,000,000) in paragraph (4) of subdivision (c).(ii)Thereafter, in accordance with the application process.(H)A qualified community development entity that issues qualified equity investments shall notify RTCA of the names of taxpayers that are eligible to utilize tax credits pursuant to this section and any transfer of a qualified equity investment.(6)(A)A qualified community development entity that issues qualified equity investments shall submit a report to RTCA that provides documentation as to the investment of at least 85 percent of the funds being deployed within one year 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)Evidence that the community development entity complied with subparagraph (D) of paragraph (5).(iv)Any other information required by RTCA as being necessary to meet the requirements of this section.(B)Thereafter, the qualified community development entity shall submit an annual report to RTCA 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 social, environmental, and economic impact the credit had on the low-income community during the report period and cumulatively.(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.(vi)Location of each qualified low-income community business assisted by a qualified low-income community investment.(vii)Summary of the outcomes of each of the revenue impact assessments undertaken by the qualified community development entity during the year.(viii)Any other information requested by RTCA.(e)(1)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.(2)A taxpayer allowed a credit under this section for a qualified equity investment shall not be eligible for any other credit under this part with respect to that investment.(3)The credit allowed under this section may be in addition to any credit allowed under Section 45D of the Internal Revenue Code.(f)RTCA shall annually report on its Internet Web site the information provided by low-income community development entities and on the geographic distribution of the qualified active low-income community businesses assisted.(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 RTCA relative to the application and reporting of a qualified community development entity.(2)A qualified community development entity shall provide RTCA with the name, address, and tax identification number of each investor and entity for which a qualified equity investment was designated by the qualified community development entity, pursuant to this section. RTCA shall provide this information to the Franchise Tax Board in a manner determined by the Franchise Tax Board.(h)(1)The credit authorized by this section shall only be allowed for those taxable years for which moneys are appropriated to RTCA to administer the California New Markets Tax Credit pursuant to 18410.3 for that taxable year. The appropriation shall specifically identify the California New Markets Tax Credit.(2)For those taxable years for which those moneys are appropriated pursuant to paragraph (1), RTCA shall post notice of the appropriation on the homepage of its Internet Web site and send notice of such appropriation to the Secretary of State and the Legislative Counsel.(i)This section shall be repealed on December 1, 2024.SEC. 4.Section 18410.3 is added to the Revenue and Taxation Code, to read:18410.3.(a)The California New Markets Tax Credit Fund is hereby established in the State Treasury.(b)Upon annual appropriation, moneys in the fund shall be used for the purposes described in subdivision (d) of Section 12283, subdivision (d) of Section 17053.9, and subdivision (d) of Section 23622.9.SEC. 5.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 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-sized 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. RTCA 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, 2019, and before January 1, 2024, and subject to subdivision (h), there shall be allowed as a credit against the tax, as defined in Section 23036, in an amount determined in accordance with Section 45D of the Internal Revenue Code, relating to the new markets tax credit, as modified in this section.(2)For the purposes of this section, RTCA means the Responsible Tax Credit Administrator, as designated by the Governor.(c)Section 45D of the Internal Revenue Code is modified as follows:(1)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.(2)(A)Section 45D(c)(1) of the Internal Revenue Code, relating to qualified community development entity, is modified to only include a qualified community development entity, that is certified by the Secretary of the Treasury, and its subsidiary qualified community development entities that have 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.(B)Section 45D(c)(2) of the Internal Revenue Code, relating to special rules for certain organizations, is modified to only include a specialized small business investment company or community development financial institution that 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, 2013.(3)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)By substituting any low-income community in California for any low-income community every place it appears in Section 45D of the Internal Revenue Code.(B)A qualified active low-income community business shall not include 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.(C)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 one or more California low-income communities. The operating business shall meet all other conditions of a qualified active low-income community business, except as modified by this paragraph. This requirement does not apply to a business that is located in a reservation-based community. Reservation-based means an area of land managed by a Native American tribe under the jurisdiction of the federal Bureau of Indian Affairs, provided that the tribe is named on the most current list of Indian Entities Recognized and Eligible to Receive Services from the United States Bureau of Indian Affairs, or successor document, as published in the Federal Register by the United States Bureau of Indian Affairs.(D)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 nonmetropolitan area, with a median family income that does not exceed 60 percent of median family income for this state, 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.(E)A qualified active low-income community business shall not include any business that operates or derives revenues from the operation of a country club, gaming establishment, massage parlor, liquor store, or golf course.(F)A qualified active low-income community business shall not include a sexually oriented business. A sexually oriented business means a commercial enterprise that provides, or has provided in the 24 months prior to the date of the submission of an application described in subdivision (d) by the taxpayer, for an audience of two or more individuals live nude entertainment or live nude performances where the nudity is a function of everyday business operations and where nudity is a planned and intentional part of the entertainment or performance. Nude means clothed in a manner that leaves uncovered or visible, through less than fully opaque clothing, any portion of the genitals or, in the case of a female, any portion of the breasts below the top of the areola of the breasts.(G)A qualified active low-income community business shall not include a charter school.(4)Section 45D(f) of the Internal Revenue Code, relating to national limitation on amount of investments designated, is modified as follows:(A)The following shall apply in lieu of the provisions of Section 45D(f)(1) of the Internal Revenue Code: The aggregate amount of qualified equity investments that may be allocated in any calendar year for purposes of this section, Section 12283, and Section 17053.9 shall be forty million dollars ($40,000,000) per calendar year. The allocation of any undesignated qualified equity investments shall be returned to RTCA by March 1 of the year following allocation and the value of the undesignated qualified equity investment shall be available for allocation in the following calendar years in accordance with the application process. Any qualified equity investment attributable to recaptured credits shall be available to RTCA on March 1 of the year following recapture and shall be available for allocation in the following calendar years in accordance with clause (iii) of subparagraph (B) of paragraph (5). Reallocated qualified equity investments attributable to recapture credits shall not count against the annual or the cumulative limit.(B)The references to the Secretary in Section 45D(f)(2) of the Internal Revenue Code, relating to allocation of limitation, is modified to read RTCA.(C)The last sentence of Section 45D(f)(3) of the Internal Revenue Code, relating to carryover of unused limitation, shall not apply.(5)(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, is modified to add the following:(i)The qualified community development entity fails to comply with subparagraph (D) of paragraph (5) of subdivision (d). In this case, recapture shall be 100 percent of the credit.(ii)RTCA shall establish a process, in consultation with the Franchise Tax Board, for the recapture of credits allowed under this section from the entity that claimed the credit on a return.(iii)Recaptured qualified equity investments revert back to RTCA and shall be reissued. The reissue shall not count toward the annual or cumulative allocation limitation. The reissue shall be done in the following order:(I)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) of paragraph (5) of subdivision (d) by the annual allocation limitation.(II)Thereafter, in accordance with the application process.(iv)Enforcement of each of the recapture provisions shall be subject to a six-month cure period.(d)(1)RTCA shall adopt guidelines necessary or appropriate to carry out its responsibilities with respect to the allocation, monitoring, and management of the tax credit program authorized by this section.(2)(A)RTCA shall establish and impose reasonable fees upon entities that apply for the allocation pursuant to this subdivision that in the aggregate defray the cost of reviewing applications for the program. RTCA may impose other reasonable fees upon entities that receive the allocation pursuant to this subdivision that in the aggregate defray the cost of administering the program.(B)The fees collected shall be deposited in the California New Markets Tax Credit Fund established in Section 18410.3.(3)In developing guidelines, RTCA shall adopt an allocation process that does all of the following:(A)Creates an equitable distribution process that ensures that low-income community populations 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 authority to designate qualified equity investments, including, but not limited to, its business strategy, targeted community outcomes, capitalization strategy, and management capacity.(C)Considers the qualified community development entitys prior qualified low-income community investments under Section 45D of the Internal Revenue Code.(D)Considers the qualified community development entitys prior qualified low-income community investments under this section, including subparagraph (D) of paragraph (5).(4)(A)Subject to subdivision (h), RTCA shall begin accepting applications on or before May 15, 2019, and shall award authority to designate qualified equity investments annually through 2023.(B)In the instance where RTCA determines that an application is incomplete, the qualified community development entity shall be given five business days to provide the omitted information.(5)(A)In the 2019 awards cycle, RTCA shall award authority to designate qualified equity investments to qualified community development entities described in paragraph (2) of subdivision (c) in the order applications are received by RTCA. Applications received on the same day shall be deemed to have been received simultaneously.(B)In the 2020 to 2023 award cycles, inclusive, at least 60 percent of the authority to designate qualified equity investments shall be awarded pursuant to subparagraph (A). At the discretion of RTCA, a higher percentage of authority to designate qualified equity investments may be awarded pursuant to subparagraph (A).(C)RTCA shall award up to 40 percent of the authority to designate qualified equity investments in the 2020 to 2023, inclusive, award cycles, to qualified community development entities on a competitive basis that meets the following criteria:(i)Awards shall be reviewed using blind scoring and a review committee that is composed of community development finance practitioners and members having demonstrated experience in assessing organizational business strategy, community outcomes, capitalization strategy, and management capacity.(ii)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 qualified equity investment or other assistance from any applicant.(iii)Priority shall be provided to both of the following:(I)Applications that commit to addressing the hardest to serve and undercapitalized lower income populations.(II)Applications that support neighborhood revitalization strategies driven by local grassroots stakeholders in multiple low-income communities across one or more regions or the state. These applications shall demonstrate how their investment activity provides a scalable economic development model.(D)For applications described in subparagraphs (A) and (B), applications for awards shall include a commitment to make at least 15 percent of qualified community development investments to a qualified community development entity with the assistance of a nonprofit organization as documented by a cooperation agreement that states the terms and conditions of that assistance. For the purposes of this subparagraph, the following shall apply:(i)A qualified community development entity shall be certified under Section 45D of the Internal Revenue Code but has not received a federal New Markets Tax Credit allocation on or after January 1, 2012, and has either a local service area that includes one or more California communities or a California statewide service area, but excluding qualified community development entities with a national service area.(ii)A nonprofit organization shall meet all of the following requirements: Is tax exempt under Section 23701, is registered with the Registry of Charitable Trusts, which is administered by the Attorney General, has articles of incorporation or articles of organization that state the primary mission of the organization is focused on improving the economic well-being of low-income communities or individuals, and has bylaws that provide that the organization maintains accountability to residents of low-income communities through their representation on any governing board or on an advisory board of the nonprofit organization.(E)(i)For applications described in subparagraph (A), in the event requests for authority to designate qualified equity investments exceed the applicable annual allocation limitation, RTCA 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.(ii)If a pending request cannot be fully certified due to this limit, RTCA shall certify the portion that may be certified unless the qualified community development entity elects to withdraw its request rather than receive partial certification.(F)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 RTCA within 30 calendar days of such transfer and include the information required in the application with respect to such transferee with such notice. The transferee shall be subject to the same rules, requirements, and limitations applicable to the transferor.(G)Within 200 calendar days of RTCA sending notice of certification, the qualified community development entity or any transferee, under subparagraph (F), 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 (F), shall provide RTCA with evidence of the receipt of the cash investment within 205 calendar days of the applicant receiving notice of certification. If the qualified community development entity or any transferee, under subparagraph (F), does not receive the cash investment and issue the qualified equity investment within 200 calendar days of RTCA sending the certification notice, the certification shall lapse and the entity may not issue the qualified equity investment without reapplying to RTCA for certification. Lapsed certifications revert back to RTCA and shall be reissued in the following order:(i)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) under the annual allocation limitation of forty million dollars ($40,000,000) in paragraph (4) of subdivision (c).(ii)Thereafter, in accordance with the application process.(H)A qualified community development entity that issues qualified equity investments shall notify RTCA of the names of taxpayers that are eligible to utilize tax credits pursuant to this section and any transfer of a qualified equity investment.(6)(A)A qualified community development entity that issues qualified equity investments shall submit a report to RTCA that provides documentation as to the investment of at least 85 percent of the funds being deployed within one year 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)Evidence that the community development entity complied with subparagraph (D) of paragraph (5).(iv)Any other information required by RTCA as being necessary to meet the requirements of this section.(B)Thereafter, the qualified community development entity shall submit an annual report to RTCA 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 social, environmental, and economic impact the credit had on the low-income community during the report period and cumulatively.(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.(vi)Location of each qualified low-income community business assisted by a qualified low-income community investment.(vii)Summary of the outcomes of each of the revenue impact assessments undertaken by the qualified community development entity during the year.(viii)Any other information requested by RTCA.(e)(1)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.(2)A taxpayer allowed a credit under this section for a qualified equity investment shall not be eligible for any other credit under this part with respect to that investment.(3)The credit allowed under this section may be in addition to any credit allowed under Section 45D of the Internal Revenue Code.(f)RTCA shall annually report on its Internet Web site the information provided by low-income community development entities and on the geographic distribution of the qualified active low-income community businesses assisted.(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 RTCA relative to the application and reporting of a qualified community development entity.(2)A qualified community development entity shall provide RTCA with the name, address, and tax identification number of each investor and entity for which a qualified equity investment was designated by the qualified community development entity, pursuant to this section. RTCA shall provide this information to the Franchise Tax Board in a manner determined by the Franchise Tax Board.(h)(1)The credit authorized by this section shall only be allowed for those taxable years for which moneys are appropriated to RTCA to administer the California New Markets Tax Credit pursuant to 18410.3 for that taxable year. The appropriation shall specifically identify the California New Markets Tax Credit.(2)For those taxable years for which those moneys are appropriated pursuant to paragraph (1), RTCA shall post notice of the appropriation on the homepage of its Internet Web site and send notice of such appropriation to the Secretary of State and the Legislative Counsel.(i)This section shall be repealed on December 1, 2024.SEC. 6.For the purposes of complying with Section 41 of the Revenue and Taxation Code, with respect to Sections 12283, 17053.9, and 23622.9 of the Revenue and Taxation Code, as proposed to be added by Sections 2, 3, and 5 of this act, the Legislature finds and declares as follows:(a)Specific goals, purposes, and objectives: attract private sector investment in lower income communities in California.(b)Performance indicators:(1)Amount of qualified low-income community investments issued.(2)Amount of dollars deployed in qualified low-income community investments.(3)Number of operating businesses assisted as a result of qualified low-income community investments. This data shall be compared to business development, including startups, tax revenues, and new investments within the most immediate geographic area for which data is reasonably available for the 12 and 24 months prior to the date on which any tax credits are allowed by Section 12283, 17053.9, or 23622.9 of the Revenue and Taxation Code.(4)Number of employment positions created and retained as a result of qualified low-income community investments and the average annual salary of those positions. These numbers shall be compared to the area median income and unemployment and poverty rates for the most immediate geographic areas for which data is reasonably available for the 12 and 24 months prior to the date on which any tax credits are allowed by Section 12283, 17053.9, or 23622.9 of the Revenue and Taxation Code.(c)Data collection requirements and baseline measurements:(1)The baseline measurements include:(A)The amount of tax credits issued in the year.(B)The unemployment rate of the area.(C)The poverty rate of the area.(2)Data to collect includes:(A)The amount of tax credits issued in the year.(B)The number of operating businesses located in a low-income community that are assisted.(C)The number of jobs created and retained as a result of qualified low-income community investments.SEC. 7.The provisions of this act are severable. If any provision of this act or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.SEC. 8.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.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 the 201314 funding round, the CDFI Fund had awarded approximately forty billion dollars ($40,000,000,000) $40 billion in NMTC in 836 awards, including three billion dollars ($3,000,000,000) $3 billion in American Recovery and Investment Act of 2009 awards and one billion dollars ($1,000,000,000) $1 billion of special allocation authority to be used for the recovery and redevelopment of the Gulf Opportunity Zone.
(c)Since 2003, the NMTC Program has created or retained an estimated 197,585 jobs nationally. It has also supported the construction of 32.4 million square feet of manufacturing space, 74.8 million square feet of office space, and 57.5 million square feet of retail space. The United States Department of the Treasury reports that a secondary benefit is that as these communities develop, they become more attractive to investors, catalyzing a ripple effect that spurs further investments and revitalization.
(d)For every one dollar ($1) $1 invested by the federal government, the NMTC Program generates over eight dollars ($8) $8 of private investment. The NMTC Program catalyzes investment in the most economically challenged areas of the state. Over 75 percent of New Markets Tax Credit investments have been made in highly distressed areas, meaning the household income was less than 60 percent of statewide median income and the poverty rate was higher than 30 percent.
(e)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). Any investment by any taxpayer in the CDE redeemed before the end of the seven-year period will be recaptured.
(f)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 a state more attractive to CDEs, which results in increasing the amount of federal NMTCs being utilized in a 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 twelve dollars ($12) to fourteen dollars ($14) of private investment.
SEC. 2.Section 926.1 of the Insurance Code is amended to read:926.1.As used in this article, the following terms shall have the following meanings:(a)Area median income (AMI) means either of the following:(1)The median family income for the Metropolitan Statistical Area (MSA), if a person or geography is located in an MSA, or for the metropolitan division, if a person or geography is located in an MSA that has been subdivided into metropolitan divisions.(2)The statewide nonmetropolitan median family income, if a person or geography is located outside an MSA.(b)Community development investment means an investment where all or a substantial portion of the investment has as its primary purpose community development for, or that directly benefits, California low- to moderate-income individuals, families, or communities. Community development investment includes, but is not limited to, investments in California in the following:(1)Affordable housing, including multifamily rental and ownership housing, for low- to moderate-income individuals or families.(2)Community facilities or community services providers (including providers of education, health, or social services) directly benefiting low- to moderate-income individuals, families, or communities.(3)Economic development that demonstrates benefits, including, but not limited to, job creation, retention, or improvement, or provision of needed capital, to low- to moderate-income individuals, families, or communities, including urban or rural communities, or businesses or nonprofit community service organizations that serve these communities.(4)Activities that revitalize or stabilize low- to moderate-income communities.(5)Investments in or through California Organized Investment Network (COIN)-certified community development financial institutions (CDFIs) and investments made pursuant to the requirements of federal, state, or local community development investment programs or community development investment tax incentive programs, if these investments directly benefit low- to moderate-income individuals, families, and communities and are consistent with this article.(6)Community development infrastructure investments if these investments directly benefit low- to moderate-income individuals, families, or communities.(7)Investments in a commercial property or properties located in low- to moderate-income geographical areas that are consistent with this article.(8)Investments in reservation-based communities. Reservation-based means an area of land managed by a Native American tribe under the jurisdiction of the federal Bureau of Indian Affairs, provided that the tribe is named on the most current list of Indian Entities Recognized and Eligible to Receive Services from the Bureau of Indian Affairs, or successor document, as published in the Federal Register by the federal Bureau of Indian Affairs.(9)Investments in rural areas. Rural area means any open country or any place, town, village, or city which by itself and taken together with any other places, towns, villages, or cities that it is part of, or associated with, has either a population not exceeding 50,000 persons or has a population not exceeding 50,000 persons and is contained within a nonmetropolitan area. Rural area also means any open country, place, town, village, or city located within a Standard Metropolitan Statistical Area if the population of that area does not exceed 50,000 persons and that area is not part of, or associated with, an urban area and is rural in character.(c)Community development infrastructure means California public debt (including all debt issued by the State of California or a California state or local government agency) where all or a portion of the debt has as its primary purpose community development for, or that directly benefits, low- to moderate-income communities and is consistent with subdivision (b).(d)Diverse investment managers means investment management organizations, including, but not limited to, corporations, groups and persons within corporations, partnerships, limited liability companies, and other special purpose vehicles that are either located in, or actively make and hold investments in, California and whose investment managers are comprised of at least 51 percent women, veterans, or minorities, or a combination of persons in those groups.(e)Geography means a census tract delineated by the United States Bureau of the Census in the most recent decennial census.(f)Green investments means investments that emphasize renewable energy projects, economic development, and affordable housing focused on infill sites so as to reduce the degree of automobile dependency and promote the use and reuse of existing urbanized lands supplied with infrastructure for the purpose of accommodating new growth and jobs. Green investments also means investments that can help communities grow through new capital investment in the maintenance and rehabilitation of existing infrastructure so that the reuse and reinvention of city centers and existing transportation corridors and community space, including projects offering energy efficiency improvements and renewable energy generation, including, but not limited to, solar and wind power, water and waste management, sustainable agriculture, mixed-use development, affordable housing opportunities, multimodal transportation systems, and transit-oriented development, can advance economic development, jobs, and housing.(g)High-impact investments means investments that are responsive to community needs and provide at least 51 percent social or environmental benefit to low-income individuals, families, or communities in California.(h)Insurer means an admitted insurer as defined in Section 24, including the State Compensation Insurance Fund, or a domestic fraternal benefit society as defined in Section 10990.(i)Investment means a lawful equity or debt investment, or loan, or deposit obligation, or other investment or investment transaction allowed by the Insurance Code.(j)Low-income means an individual income that is less than 50 percent of the AMI, or a median family income that is less than 50 percent of the AMI in the case of a geographical area.(k)MSA means a metropolitan statistical area as defined by the Director of the Office of Management and Budget. (l)Moderate-income means an individual income that is at least 50 percent but less than 80 percent of the AMI, or a median family income that is at least 50 percent but less than 80 percent of the AMI in the case of a geographical area.(m)Nonmetropolitan area means any area that is not located in an MSA.SEC. 3.Section 12209 of the Revenue and Taxation Code is amended to read:12209.(a)For each year beginning on or after January 1, 1999, and before January 1, 2019, there shall be allowed as a credit against the amount of tax, as defined in Section 28 of Article XIII of the California Constitution, an amount equal to 20 percent of the amount of each qualified investment made by a taxpayer during the taxable year into a community development financial institution that is certified by the Department of Insurance, California Organized Investment Network, or any successor thereof.(b)For purposes of determining any tax that may be imposed under Section 685 of the Insurance Code on a taxpayer not organized under the laws of this state, the amount of the credit allowed by subdivision (a) shall be treated as a tax paid under Section 12201 or Section 28 of Article XIII of the California Constitution.(c)(1)Notwithstanding any other provision of this part, a credit shall not be allowed under this section unless the California Organized Investment Network, or its successor within the Department of Insurance, certifies that the investment described in subdivision (a) qualifies for the credit under this section and certifies the total amount of the credit allocated to the taxpayer pursuant to this section.(2)A credit shall not be allowed by this section unless the applicant and the taxpayer provide satisfactory substantiation to, and in the form and manner requested by, the Department of Insurance, California Organized Investment Network, or any successor thereof, that the investment is a qualified investment as defined in paragraph (1) of subdivision (h).(3)(A)The aggregate amount of qualified investments made by all taxpayers pursuant to this section, Section 17053.57, and Section 23657 shall not exceed fifty million dollars ($50,000,000) for each calendar year. However, if the aggregate amount of qualified investments made in any calendar year is less than fifty million dollars ($50,000,000), the difference may be carried over to the next year, and any succeeding year during which this section remains in effect, and added to the aggregate amount authorized for those years.(B)The total amount of qualified investments certified by the California Organized Investment Network in any calendar year to any one community development financial institution together with its affiliates, as defined in Section 1215 of the Insurance Code, shall not exceed 30 percent of the annual aggregate amount of qualified investments certified by the California Organized Investment Network. If, after October 1, the California Organized Investment Network has determined that the availability of tax credits exceed their demand, then a community development financial institution that has been allocated 30 percent of the annual aggregate amount of qualified investments shall become eligible to apply to be certified for any remaining tax credits in that calendar year.(C)Each year, 10 percent of the annual aggregate amount of qualified investments shall be reserved for investment amounts of less than or equal to two hundred thousand dollars ($200,000). If, after October 1, there remains an unallocated portion of the amount reserved for investments of less than or equal to two hundred thousand dollars ($200,000), then qualified investments in excess of two hundred thousand dollars ($200,000) may be eligible for that remaining unallocated portion.(4)Priority among housing applications shall be given to applications that support affordable rental housing, housing for veterans, mortgages for community-based residential programs, and self-help housing ahead of single-family owned housing.(5)Priority shall be given to insurance company investors over all other tax credit investors.(d)The community development financial institution shall do all of the following:(1)Apply to the Department of Insurance, California Organized Investment Network, or its successor, for certification of its status as a community development financial institution.(2)(A)Apply to the Department of Insurance, California Organized Investment Network, or its successor, on behalf of the taxpayer for certification of the amount of the investment and the credit amount allocated to the taxpayer, obtain the certification, and retain a copy of the certification.(B)Provide in the application a detailed description of the intended use of the investment funds including, but not limited to, the following:(i)All of the programs, projects, and services that would be funded.(ii)The percentage of the intended use of the investment funds that would directly benefit moderate-income, low-income, and very low income households.(iii)The percentage of the intended use of the investment funds that would directly benefit rural areas.(iv)The percentage of the intended use of the investment funds that is a green investment as defined in Section 926.1 of the Insurance Code.(v)The percentage of the intended use of the investment funds that would directly benefit a qualified low-income community business, as defined in paragraph (3) of subdivision (h).(3)(A)Provide in the application required in paragraph (2) the following information to the Department of Insurance, California Organized Investment Network, or its successor:(i)Name of the taxpayer.(ii)Postal address of the taxpayer, or residential address of the taxpayer if the taxpayer is an individual.(iii)Phone number of the taxpayer.(iv)Email address of the taxpayer.(v)The taxpayers California company identification number for tax administration purposes.(B)The information provided in subparagraph (A) shall be used only for internal purposes by the Department of Insurance, California Organized Investment Network, or its successor, and any public disclosure of that information shall be limited to the name of the taxpayer only.(4)Provide an annual listing to the State Board of Equalization, in the form and manner agreed upon by the State Board of Equalization and the Department of Insurance, California Organized Investment Network, or its successor, of the names and taxpayers California company identification numbers of any taxpayer who makes any withdrawal or partial withdrawal of a qualified investment before the expiration of 60 months from the date of the qualified investment.(5)Submit reports to the department, California Organized Investment Network, or any successor thereof, as required pursuant to subdivision (a) of Section 12939.1 of the Insurance Code.(e)The California Organized Investment Network may certify investments for the credit allowed by this section on or before January 1, 2019, but not after that date.(f)(1)The Insurance Commissioner may develop instructions, procedures, and standards for applications, and for administering the criteria for the evaluation of applications under this section. The Insurance Commissioner may, from time to time, adopt, amend, or repeal regulations to implement the provisions of this section.(2)The initial adoption of the regulations implementing this section shall be deemed to be an emergency and necessary in order to address a situation calling for immediate action to avoid serious harm to the public peace, health, safety, or general welfare.(3)Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, any emergency regulation adopted or amended by the Insurance Commissioner pursuant to this section shall remain in effect until amended or repealed by the department.(g)The Department of Insurance, California Organized Investment Network, or any successor thereof, shall do all of the following:(1)Accept and evaluate applications for certification from financial institutions and issue certificates that the applicant is a community development financial institution qualified to receive qualified investments. To receive a certificate, an applicant shall satisfy the Department of Insurance, California Organized Investment Network, or any successor thereof, that it meets the specific requirements to be a community development financial institution for this state program as defined in paragraph (2) of subdivision (h). The certificate may be issued for a specified period of time, and may include reasonable conditions to effectuate the intent of this section. The Insurance Commissioner may suspend or revoke a certification, after affording the institution notice and the opportunity to be heard, if the commissioner finds that an institution no longer meets the requirement for certification.(2)Accept and evaluate applications for certification from any community development financial institution on behalf of the taxpayer and issue certificates to taxpayers in an aggregate amount that shall not exceed the limit specified in subdivision (c), with highest priority granted to those applications where the intended use of the investments has the greatest aggregate benefit for low-income areas or households, high-impact areas or households, or rural areas or households. The certificate shall include the amount eligible to be made as an investment that qualifies for the credit and the total amount of the credit to which the taxpayer is entitled for the year. Applications for tax credits shall be accepted and evaluated throughout the year. The Insurance Commissioner shall establish tax credit issuance cycles throughout the year as necessary in order to issue tax credit certificates to those applications granted the highest priority.(3)Provide an annual listing to the State Board of Equalization, in the form or manner agreed upon by the State Board of Equalization and the Department of Insurance, California Organized Investment Network, or its successor, of the taxpayers who were issued certificates, their respective National Association of Insurance Commissioners company number and employers tax identification number, the amount of the qualified investment made by each taxpayer, and the total amount of qualified investments.(4)Include information specified pursuant to subdivision (b) of Section 12939.1 of the Insurance Code in the report required by Section 12922 of the Insurance Code.(h)For purposes of this section:(1)Qualified investment means an investment that is a deposit or loan that does not earn interest, or an equity investment, or an equity-like debt instrument that conforms to the specifications for these instruments as prescribed by the United States Department of the Treasury, Community Development Financial Institutions Fund, or its successor, or, in the absence of that prescription, as defined by the Insurance Commissioner. The investment must be equal to or greater than fifty thousand dollars ($50,000) and made for a minimum duration of 60 months. During that 60-month period, the community development financial institution shall have full use and control of the proceeds of the entire amount of the investment as well as any earnings on the investment for its community development purposes. The entire amount of the investment shall be received by the community development financial institution before the application for the tax credit is submitted. The community development financial institution shall use the proceeds of the investment for a purpose that is consistent with its community development mission and for the benefit of economically disadvantaged communities and low-income people in California.(2)Community development financial institution means a private financial institution located in this state that is certified by the Department of Insurance, California Organized Investment Network, or its successor, that, consistent with the legislative findings, declarations, and intent set forth in Section 12939 of the Insurance Code, has community development as its primary mission, and that lends in urban, rural, or reservation-based communities in this state. A community development financial institution may include a community development bank, a community development loan fund, a community development credit union, a microenterprise fund, a community development corporation-based lender, or a community development venture fund.(3)Qualified low-income community business means a business independently owned and operated, not dominant in its field of operation, with less than 100 employees. In order for a business to be a qualified low-income community business, it shall also be one of the following:(A)Exclusively located in a census tract with a poverty rate greater than 30 percent.(B)Located within a nonmetropolitan area with a median family income that does not exceed 60 percent of median family income for the State of California.(C)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.(D)A census tract with an unemployment rate at least 1.5 times the national average.(i)If a qualified investment is reduced or withdrawn before the end of the 60th month and not reinvested in another community development financial institution within 60 days, there shall be added to the tax, as defined in Section 28 of Article XIII of the California Constitution, for the year in which the withdrawal occurs, the entire amount of any credit previously allowed under this section.(j)In the case where the credit allowed by this section exceeds the tax, the excess may be carried over to reduce the tax for the next four years, or until the credit has been exhausted, whichever occurs first.(k)The State Board of Equalization shall, as requested by the Department of Insurance, California Organized Investment Network, or its successor, advise and assist in the administration of this section.(l)On or before June 30, 2016, the Legislative Analysts Office shall submit a report to the Legislature, in compliance with Section 9795 of the Government Code, on the effects of the tax credits allowed under this section, Section 17053.57, and Section 23657, with a focus on employment in low-to-moderate income and rural areas, and on the benefits of these tax credits to low-to-moderate income and rural persons.(m)This section shall remain in effect only until December 1, 2019, and as of that date is repealed.SEC. 4.SEC. 2.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 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-sized 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. RTCA shall administer this program as provided in this section, Section 17053.9, and Section 23622.9.
(b)(1)For taxable years each year beginning on or after January 1, 2018, 2019, and before January 1, 2023, 2024, and subject to subdivision (h), there shall be allowed as a credit against the tax described in Section 12201, in an amount determined in accordance with Section 45D of the Internal Revenue Code, relating to the new markets tax credit, as modified in this section.
(2)For the purposes of this section, RTCA means the Responsible Tax Credit Administrator, as designated by the Governor.
(c)Section 45D of the Internal Revenue Code is modified as follows:
(1)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.
(2)(A)Section 45D(c)(1) of the Internal Revenue Code, relating to qualified community development entity, is modified to only include a qualified community development entity, that is certified by the Secretary of the Treasury, and its subsidiary qualified community development entities that have 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.
(B)Section 45D(c)(2) of the Internal Revenue Code, relating to special rules for certain organizations, is modified to only include a specialized small business investment company or community development financial institution that 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, 2013.
(3)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)By substituting any low-income community in California for any low-income community every place it appears in Section 45D of the Internal Revenue Code.
(B)A qualified active low-income community business shall not include 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.
(C)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 one or more California low-income communities. The operating business shall meet all other conditions of a qualified active low-income community business, except as modified by this paragraph. This requirement does not apply to a business that is located in a reservation-based community. Reservation-based means an area of land managed by a Native American tribe under the jurisdiction of the federal Bureau of Indian Affairs, provided that the tribe is named on the most current list of Indian Entities Recognized and Eligible to Receive Services from the United States Bureau of Indian Affairs, or successor document, as published in the Federal Register by the United States Bureau of Indian Affairs.
(D)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 nonmetropolitan area, with a median family income that does not exceed 60 percent of median family income for this state, 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.
(E)A qualified active low-income community business shall not include any business that operates or derives revenues from the operation of a country club, gaming establishment, massage parlor, liquor store, or golf course.
(F)A qualified active low-income community business shall not include a sexually oriented business. A sexually oriented business means a commercial enterprise that provides, or has provided in the 24 months prior to the date of the submission of an application described in subdivision (d) by the taxpayer, for an audience of two or more individuals live nude entertainment or live nude performances where the nudity is a function of everyday business operations and where nudity is a planned and intentional part of the entertainment or performance. Nude means clothed in a manner that leaves uncovered or visible, through less than fully opaque clothing, any portion of the genitals or, in the case of a female, any portion of the breasts below the top of the areola of the breasts.
(G)A qualified active low-income community business shall not include a charter school.
(4)Section 45D(f) of the Internal Revenue Code, relating to national limitation on amount of investments designated, is modified as follows:
(A)The following shall apply in lieu of the provisions of Section 45D(f)(1) of the Internal Revenue Code: The aggregate amount of qualified equity investments that may be allocated in any calendar year for purposes of this section, Section 17053.9, and Section 23622.9 shall be forty million dollars ($40,000,000) per calendar year. The allocation of any undesignated qualified equity investments shall be returned to RTCA by March 1 of the year following allocation and the value of the undesignated qualified equity investment shall be available for allocation in the following calendar years in accordance with the application process. Any qualified equity investment attributable to recaptured credits shall be available to RTCA on March 1 of the year following recapture and shall be available for allocation in the following calendar years in accordance with subparagraph (C) of paragraph (5). Reallocated qualified equity investments attributable to recapture credits shall not count against the annual or the cumulative limit.
(B)The references to the Secretary in Section 45D(f)(2) of the Internal Revenue Code, relating to allocation of limitation, is modified to read RTCA.
(C)The last sentence of Section 45D(f)(3) of the Internal Revenue Code, relating to carryover of unused limitation, shall not apply.
(5)Section 45D(g)(3) of the Internal Revenue Code, relating to recapture event, is modified to add the following:
(A)The qualified community development entity fails to comply with subparagraph (D) of paragraph (5) of subdivision (d). In this case, recapture shall be 100 percent of the credit.
(B)RTCA shall establish a process, in consultation with the Department of Insurance, for the recapture of credits allowed under this section from the entity that claimed the credit on a return.
(C)Recaptured qualified equity investments revert back to RTCA and shall be reissued. The reissue shall not count toward the annual or cumulative allocation limitation. The reissue shall be done in the following order:
(i)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) of paragraph (5) of subdivision (d) by the annual allocation limitation.
(ii)Thereafter, in accordance with the application process.
(D)Enforcement of each of the recapture provisions shall be subject to a six-month cure period.
(d)(1)RTCA shall adopt guidelines necessary or appropriate to carry out its responsibilities with respect to the allocation, monitoring, and management of the tax credit program authorized by this section.
(2)(A)RTCA shall establish and impose reasonable fees upon entities that apply for the allocation pursuant to this subdivision that in the aggregate defray the cost of reviewing applications for the program. RTCA may impose other reasonable fees upon entities that receive the allocation pursuant to this subdivision that in the aggregate defray the cost of administering the program.
(B)The fees collected shall be deposited in the California New Markets Tax Credit Fund established in Section 18410.3.
(3)In developing guidelines, RTCA shall adopt an allocation process that does all of the following:
(A)Creates an equitable distribution process that ensures that low-income community populations 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 authority to designate qualified equity investments, including, but not limited to, its business strategy, targeted community outcomes, capitalization strategy, and management capacity.
(C)Considers the qualified community development entitys prior qualified low-income community investments under Section 45D of the Internal Revenue Code.
(D)Considers the qualified community development entitys prior qualified low-income community investments under this section, including subparagraph (D) of paragraph (5).
(4)(A)Subject to subdivision (h), RTCA shall begin accepting applications on or before May 15, 2018, 2019, and shall award authority to designate qualified equity investments annually through 2022. 2023.
(B)In the instance where RTCA determines that an application is incomplete, the qualified community development entity shall be given five business days to provide the omitted information.
(5)(A)In the 2018 2019 awards cycle, RTCA shall award authority to designate qualified equity investments to qualified community development entities described in paragraph (2) of subdivision (c) in the order applications are received by RTCA. Applications received on the same day shall be deemed to have been received simultaneously.
(B)In the 2019 to 2022 2020 to 2023 award cycles, inclusive, at least 60 percent of the authority to designate qualified equity investments shall be awarded pursuant to subparagraph (A). At the discretion of RTCA, a higher percentage of authority to designate qualified equity investments may be awarded pursuant to subparagraph (A).
(C)RTCA shall award up to 40 percent of the authority to designate qualified equity investments in the 2019 to 2022, 2020 to 2023, inclusive, award cycles, to qualified community development entities on a competitive basis that meets the following criteria:
(i)Awards shall be reviewed using blind scoring and a review committee that is composed of community development finance practitioners and members having demonstrated experience in assessing organizational business strategy, community outcomes, capitalization strategy, and management capacity.
(ii)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 qualified equity investment or other assistance from any applicant.
(iii)Priority shall be provided to both of the following:
(I)Applications that commit to addressing the hardest to serve and undercapitalized lower income populations.
(II)Applications that support neighborhood revitalization strategies driven by local grassroots stakeholders in multiple low-income communities across one or more regions or the state. These applications shall demonstrate how their investment activity provides a scalable economic development model.
(D)For applications described in subparagraphs (A) and (B), applications for awards shall include a commitment to make at least 15 percent of qualified community development investments to a qualified community development entity with the assistance of a nonprofit organization, as documented by a cooperation agreement that states the terms and conditions of that assistance. For the purposes of this subparagraph, the following shall apply:
(i)A qualified community development entity shall be certified under Section 45D of the Internal Revenue Code but has not received a federal New Markets Tax Credit allocation on or after January 1, 2012, and has either a local service area that includes one or more California communities or a California statewide service area, but excluding qualified community development entities with a national service area.
(ii)A nonprofit organization shall meet all of the following requirements: Is tax exempt under Section 23701, is registered with the Registry of Charitable Trusts, which is administered by the Attorney General, has articles of incorporation or articles of organization that state the primary mission of the organization is focused on improving the economic well-being of low-income communities or individuals, and has bylaws that provide that the organization maintains accountability to residents of low-income communities through their representation on any governing board or on an advisory board of the nonprofit organization.
(E)(i)For applications described in subparagraph (A), in the event requests for authority to designate qualified equity investments exceed the applicable annual allocation limitation, RTCA 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.
(ii)If a pending request cannot be fully certified due to this limit, RTCA shall certify the portion that may be certified unless the qualified community development entity elects to withdraw its request rather than receive partial certification.
(F)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 RTCA within 30 calendar days of such transfer and include the information required in the application with respect to such transferee with such notice. The transferee shall be subject to the same rules, requirements, and limitations applicable to the transferor.
(G)Within 200 calendar days of RTCA sending notice of certification, the qualified community development entity or any transferee, under subparagraph (F), 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 (F), shall provide RTCA with evidence of the receipt of the cash investment within 205 calendar days of the applicant receiving notice of certification. If the qualified community development entity or any transferee, under subparagraph (F), does not receive the cash investment and issue the qualified equity investment within 200 calendar days of RTCA sending the certification notice, the certification shall lapse and the entity may not issue the qualified equity investment without reapplying to RTCA for certification. Lapsed certifications revert back to RTCA and shall be reissued in the following order:
(i)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) under the annual allocation limitation of forty million dollars ($40,000,000) in paragraph (4) of subdivision (c).
(ii)Thereafter, in accordance with the application process.
(H)A qualified community development entity that issues qualified equity investments shall notify RTCA of the names of taxpayers that are eligible to utilize tax credits pursuant to this section and any transfer of a qualified equity investment.
(6)(A)A qualified community development entity that issues qualified equity investments shall submit a report to RTCA that provides documentation as to the investment of at least 85 percent of the funds being deployed within one year 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)Evidence that the community development entity complied with subparagraph (D) of paragraph (5).
(iv)Any other information required by RTCA as being necessary to meet the requirements of this section.
(B)Thereafter, the qualified community development entity shall submit an annual report to RTCA 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 social, environmental, and economic impact the credit had on the low-income community during the report period and cumulatively.
(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.
(vi)Location of each qualified low-income community business assisted by a qualified low-income community investment.
(vii)Summary of the outcomes of each of the revenue impact assessments undertaken by the qualified community development entity during the year.
(viii)Any other information requested by RTCA.
(e)(1)In the case where the credit allowed by this section exceeds the tax described in Section 12201, 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.
(2)A taxpayer allowed a credit under this section for a qualified equity investment shall not be eligible for any other credit under this part with respect to that investment.
(3)The credit allowed under this section may be in addition to any credit allowed under Section 45D of the Internal Revenue Code.
(f)RTCA shall annually report on its Internet Web site the information provided by low-income community development entities and on the geographic distribution of the qualified active low-income community businesses assisted.
(g)(1)The Insurance Commissioner may prescribe any rules or regulations that may be necessary or appropriate to implement this section. The Insurance Commissioner shall have access to any documentation held by RTCA relative to the application and reporting of a qualified community development entity.
(2)A qualified community development entity shall provide RTCA with the name, address, and tax identification number of each investor and entity for which a qualified equity investment was designated by the qualified community development entity, pursuant to this section. RTCA shall provide this information to the Insurance Commissioner in a manner determined by the Insurance Commissioner.
(h)(1)The credit authorized by this section shall only be allowed for those taxable years for which moneys are appropriated to RTCA to administer the California New Markets Tax Credit pursuant to 18410.3 for that taxable year. The appropriation shall specifically identify the California New Markets Tax Credit.
(2)For those taxable years for which those moneys are appropriated pursuant to paragraph (1), RTCA shall post notice of the appropriation on the homepage of its Internet Web site and send notice of such appropriation to the Secretary of State and the Legislative Counsel.
(i)This section shall be repealed on December 1, 2023. 2024.
SEC. 5.SEC. 3.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 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-sized 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. RTCA 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, 2018, 2019, and before January 1, 2023, 2024, and subject to subdivision (h), there shall be allowed as a credit against the net tax, as defined in Section 17039, in an amount determined in accordance with Section 45D of the Internal Revenue Code, relating to the new markets tax credit, as modified in this section.
(2)For the purposes of this section, RTCA means the Responsible Tax Credit Administrator, as designated by the Governor.
(c)Section 45D of the Internal Revenue Code is modified as follows:
(1)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.
(2)(A)Section 45D(c)(1) of the Internal Revenue Code, relating to qualified community development entity, is modified to only include a qualified community development entity, that is certified by the Secretary of the Treasury, and its subsidiary qualified community development entities that have 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.
(B)Section 45D(c)(2) of the Internal Revenue Code, relating to special rules for certain organizations, is modified to only include a specialized small business investment company or community development financial institution that 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, 2013.
(3)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)By substituting any low-income community in California for any low-income community every place it appears in Section 45D of the Internal Revenue Code.
(B)A qualified active low-income community business shall not include 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.
(C)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 one or more California low-income communities. The operating business shall meet all other conditions of a qualified active low-income community business, except as modified by this paragraph. This requirement does not apply to a business that is located in a reservation-based community. Reservation-based means an area of land managed by a Native American tribe under the jurisdiction of the federal Bureau of Indian Affairs, provided that the tribe is named on the most current list of Indian Entities Recognized and Eligible to Receive Services from the United States Bureau of Indian Affairs, or successor document, as published in the Federal Register by the United States Bureau of Indian Affairs.
(D)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 nonmetropolitan area, with a median family income that does not exceed 60 percent of median family income for this state, 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.
(E)A qualified active low-income community business shall not include any business that operates or derives revenues from the operation of a country club, gaming establishment, massage parlor, liquor store, or golf course.
(F)A qualified active low-income community business shall not include a sexually oriented business. A sexually oriented business means a commercial enterprise that provides, or has provided in the 24 months prior to the date of the submission of an application described in subdivision (d) by the taxpayer, for an audience of two or more individuals live nude entertainment or live nude performances where the nudity is a function of everyday business operations and where nudity is a planned and intentional part of the entertainment or performance. Nude means clothed in a manner that leaves uncovered or visible, through less than fully opaque clothing, any portion of the genitals or, in the case of a female, any portion of the breasts below the top of the areola of the breasts.
(G)A qualified active low-income community business shall not include a charter school.
(4)Section 45D(f) of the Internal Revenue Code, relating to national limitation on amount of investments designated, is modified as follows:
(A)The following shall apply in lieu of the provisions of Section 45D(f)(1) of the Internal Revenue Code: The aggregate amount of qualified equity investments that may be allocated in any calendar year for purposes of this section, Section 12283, and Section 23622.9 shall be forty million dollars ($40,000,000) per calendar year. The allocation of any undesignated qualified equity investments shall be returned to RTCA by March 1 of the year following allocation and the value of the undesignated qualified equity investment shall be available for allocation in the following calendar years in accordance with the application process. Any qualified equity investment attributable to recaptured credits shall be available to RTCA on March 1 of the year following recapture and shall be available for allocation in the following calendar years in accordance with clause (iii) of subparagraph (B) of paragraph (5). Reallocated qualified equity investments attributable to recapture credits shall not count against the annual or the cumulative limit.
(B)The references to the Secretary in Section 45D(f)(2) of the Internal Revenue Code, relating to allocation of limitation, is modified to read RTCA.
(C)The last sentence of Section 45D(f)(3) of the Internal Revenue Code, relating to carryover of unused limitation, shall not apply.
(5)(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, is modified to add the following:
(i)The qualified community development entity fails to comply with subparagraph (D) of paragraph (5) of subdivision (d). In this case, recapture shall be 100 percent of the credit.
(ii)RTCA shall establish a process, in consultation with the Franchise Tax Board, for the recapture of credits allowed under this section from the entity that claimed the credit on a return.
(iii)Recaptured qualified equity investments revert back to RTCA and shall be reissued. The reissue shall not count toward the annual or cumulative allocation limitation. The reissue shall be done in the following order:
(I)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) of paragraph (5) of subdivision (d) by the annual allocation limitation.
(II)Thereafter, in accordance with the application process.
(iv)Enforcement of each of the recapture provisions shall be subject to a six-month cure period.
(d)(1)RTCA shall adopt guidelines necessary or appropriate to carry out its responsibilities with respect to the allocation, monitoring, and management of the tax credit program authorized by this section.
(2)(A)RTCA shall establish and impose reasonable fees upon entities that apply for the allocation pursuant to this subdivision that in the aggregate defray the cost of reviewing applications for the program. RTCA may impose other reasonable fees upon entities that receive the allocation pursuant to this subdivision that in the aggregate defray the cost of administering the program.
(B)The fees collected shall be deposited in the California New Markets Tax Credit Fund established in Section 18410.3.
(3)In developing guidelines, RTCA shall adopt an allocation process that does all of the following:
(A)Creates an equitable distribution process that ensures that low-income community populations 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 authority to designate qualified equity investments, including, but not limited to, its business strategy, targeted community outcomes, capitalization strategy, and management capacity.
(C)Considers the qualified community development entitys prior qualified low-income community investments under Section 45D of the Internal Revenue Code.
(D)Considers the qualified community development entitys prior qualified low-income community investments under this section, including subparagraph (D) of paragraph (5).
(4)(A)Subject to subdivision (h), RTCA shall begin accepting applications on or before May 15, 2018, 2019, and shall award authority to designate qualified equity investments annually through 2022. 2023.
(B)In the instance where RTCA determines that an application is incomplete, the qualified community development entity shall be given five business days to provide the omitted information.
(5)(A)In the 2018 2019 awards cycle, RTCA shall award authority to designate qualified equity investments to qualified community development entities described in paragraph (2) of subdivision (c) in the order applications are received by RTCA. Applications received on the same day shall be deemed to have been received simultaneously.
(B)In the 2019 to 2022 2020 to 2023 award cycles, inclusive, at least 60 percent of the authority to designate qualified equity investments shall be awarded pursuant to subparagraph (A). At the discretion of RTCA, a higher percentage of authority to designate qualified equity investments may be awarded pursuant to subparagraph (A).
(C)RTCA shall award up to 40 percent of the authority to designate qualified equity investments in the 2019 to 2022, 2020 to 2023, inclusive, award cycles, to qualified community development entities on a competitive basis that meets the following criteria:
(i)Awards shall be reviewed using blind scoring and a review committee that is composed of community development finance practitioners and members having demonstrated experience in assessing organizational business strategy, community outcomes, capitalization strategy, and management capacity.
(ii)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 qualified equity investment or other assistance from any applicant.
(iii)Priority shall be provided to both of the following:
(I)Applications that commit to addressing the hardest to serve and undercapitalized lower income populations.
(II)Applications that support neighborhood revitalization strategies driven by local grassroots stakeholders in multiple low-income communities across one or more regions or the state. These applications shall demonstrate how their investment activity provides a scalable economic development model.
(D)For applications described in subparagraphs (A) and (B), applications for awards shall include a commitment to make at least 15 percent of qualified community development investments to a qualified community development entity with the assistance of a nonprofit organization as documented by a cooperation agreement that states the terms and conditions of that assistance. For the purposes of this subparagraph, the following shall apply:
(i)A qualified community development entity shall be certified under Section 45D of the Internal Revenue Code but has not received a federal New Markets Tax Credit allocation on or after January 1, 2012, and has either a local service area that includes one or more California communities or a California statewide service area, but excluding qualified community development entities with a national service area.
(ii)A nonprofit organization shall meet all of the following requirements: Is tax exempt under Section 23701, is registered with the Registry of Charitable Trusts, which is administered by the Attorney General, has articles of incorporation or articles of organization that state the primary mission of the organization is focused on improving the economic well-being of low-income communities or individuals, and has bylaws that provide that the organization maintains accountability to residents of low-income communities through their representation on any governing board or on an advisory board of the nonprofit organization.
(E)(i)For applications described in subparagraph (A), in the event requests for authority to designate qualified equity investments exceed the applicable annual allocation limitation, RTCA 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.
(ii)If a pending request cannot be fully certified due to this limit, RTCA shall certify the portion that may be certified unless the qualified community development entity elects to withdraw its request rather than receive partial certification.
(F)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 RTCA within 30 calendar days of such transfer and include the information required in the application with respect to such transferee with such notice. The transferee shall be subject to the same rules, requirements, and limitations applicable to the transferor.
(G)Within 200 calendar days of RTCA sending notice of certification, the qualified community development entity or any transferee, under subparagraph (F), 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 (F), shall provide RTCA with evidence of the receipt of the cash investment within 205 calendar days of the applicant receiving notice of certification. If the qualified community development entity or any transferee, under subparagraph (F), does not receive the cash investment and issue the qualified equity investment within 200 calendar days of RTCA sending the certification notice, the certification shall lapse and the entity may not issue the qualified equity investment without reapplying to RTCA for certification. Lapsed certifications revert back to RTCA and shall be reissued in the following order:
(i)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) under the annual allocation limitation of forty million dollars ($40,000,000) in paragraph (4) of subdivision (c).
(ii)Thereafter, in accordance with the application process.
(H)A qualified community development entity that issues qualified equity investments shall notify RTCA of the names of taxpayers that are eligible to utilize tax credits pursuant to this section and any transfer of a qualified equity investment.
(6)(A)A qualified community development entity that issues qualified equity investments shall submit a report to RTCA that provides documentation as to the investment of at least 85 percent of the funds being deployed within one year 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)Evidence that the community development entity complied with subparagraph (D) of paragraph (5).
(iv)Any other information required by RTCA as being necessary to meet the requirements of this section.
(B)Thereafter, the qualified community development entity shall submit an annual report to RTCA 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 social, environmental, and economic impact the credit had on the low-income community during the report period and cumulatively.
(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.
(vi)Location of each qualified low-income community business assisted by a qualified low-income community investment.
(vii)Summary of the outcomes of each of the revenue impact assessments undertaken by the qualified community development entity during the year.
(viii)Any other information requested by RTCA.
(e)(1)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.
(2)A taxpayer allowed a credit under this section for a qualified equity investment shall not be eligible for any other credit under this part with respect to that investment.
(3)The credit allowed under this section may be in addition to any credit allowed under Section 45D of the Internal Revenue Code.
(f)RTCA shall annually report on its Internet Web site the information provided by low-income community development entities and on the geographic distribution of the qualified active low-income community businesses assisted.
(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 RTCA relative to the application and reporting of a qualified community development entity.
(2)A qualified community development entity shall provide RTCA with the name, address, and tax identification number of each investor and entity for which a qualified equity investment was designated by the qualified community development entity, pursuant to this section. RTCA shall provide this information to the Franchise Tax Board in a manner determined by the Franchise Tax Board.
(h)(1)The credit authorized by this section shall only be allowed for those taxable years for which moneys are appropriated to RTCA to administer the California New Markets Tax Credit pursuant to 18410.3 for that taxable year. The appropriation shall specifically identify the California New Markets Tax Credit.
(2)For those taxable years for which those moneys are appropriated pursuant to paragraph (1), RTCA shall post notice of the appropriation on the homepage of its Internet Web site and send notice of such appropriation to the Secretary of State and the Legislative Counsel.
(i)This section shall be repealed on December 1, 2023. 2024.
SEC. 6.Section 17053.57 of the Revenue and Taxation Code is amended to read:17053.57.(a)For each taxable year beginning on or after January 1, 1997, and before January 1, 2019, there shall be allowed as a credit against the amount of net tax, as defined in Section 17039, an amount equal to 20 percent of the amount of each qualified investment made by a taxpayer during the taxable year into a community development financial institution that is certified by the Department of Insurance, California Organized Investment Network, or any successor thereof.(b)(1)Notwithstanding any other provision of this part, a credit shall not be allowed under this section unless the California Organized Investment Network, or its successor within the Department of Insurance, certifies that the investment described in subdivision (a) qualifies for the credit under this section and certifies the total amount of the credit allocated to the taxpayer pursuant to this section.(2)A credit shall not be allowed by this section unless the applicant and the taxpayer provide satisfactory substantiation to, and in the form and manner requested by, the Department of Insurance, California Organized Investment Network, or any successor thereof, that the investment is a qualified investment, as defined in paragraph (1) of subdivision (g).(3)(A)The aggregate amount of qualified investments made by all taxpayers pursuant to this section, Section 12209, and Section 23657 shall not exceed fifty million dollars ($50,000,000) for each calendar year. However, if the aggregate amount of qualified investments made in any calendar year is less than fifty million dollars ($50,000,000), the difference may be carried over to the next year, and any succeeding year during which this section remains in effect, and added to the aggregate amount authorized for those years.(B)The total amount of qualified investments certified by the California Organized Investment Network in any calendar year to any one community development financial institution together with its affiliates, as defined in Section 1215 of the Insurance Code, shall not exceed 30 percent of the annual aggregate amount of qualified investments certified by the California Organized Investment Network. If, after October 1, the California Organized Investment Network has determined that the availability of tax credits exceed their demand, then a community development financial institution that has been allocated 30 percent of the annual aggregate amount of qualified investments shall become eligible to apply to be certified for any remaining tax credits in that calendar year.(C)Each year, 10 percent of the annual aggregate amount of qualified investments shall be reserved for investment amounts of less than or equal to two hundred thousand dollars ($200,000). If, after October 1, there remains an unallocated portion of the amount reserved for investments of less than or equal to two hundred thousand dollars ($200,000), then qualified investments in excess of two hundred thousand dollars ($200,000) may be eligible for that remaining unallocated portion.(4)Priority among housing applications shall be given to applications that support affordable rental housing, housing for veterans, mortgages for community-based residential programs, and self-help housing ahead of single-family owned housing.(5)Priority shall be given to insurance company investors over all other tax credit investors.(c)The community development financial institution shall do all of the following:(1)Apply to the Department of Insurance, California Organized Investment Network, or its successor, for certification of its status as a community development financial institution.(2)(A)Apply to the Department of Insurance, California Organized Investment Network, or its successor, on behalf of the taxpayer, for certification of the amount of the investment and the credit amount allocated to the taxpayer, obtain the certification, and retain a copy of the certification.(B)Provide in the application a detailed description of the intended use of the investment funds including, but not limited to, the following:(i)All of the programs, projects, and services that would be funded.(ii)The percentage of the intended use of the investment funds that would directly benefit moderate-income, low-income, and very low income households.(iii)The percentage of the intended use of the investment funds that would directly benefit rural areas.(iv)The percentage of the intended use of the investment funds that is a green investment as defined in Section 926.1 of the Insurance Code.(v)The percentage of the intended use of the investment funds that would directly benefit a qualified low-income community business, as defined in paragraph (3) of subdivision (g).(3)(A)Provide in the application required in paragraph (2) the following information to the Department of Insurance, California Organized Investment Network, or its successor:(i)Name of the taxpayer.(ii)Postal address of the taxpayer, or residential address of the taxpayer if the taxpayer is an individual.(iii)Phone number of the taxpayer.(iv)Email address of the taxpayer.(v)The taxpayers identification number, or in the case of a partnership, the taxpayer identification numbers of all the partners for tax administration purposes.(B)The information provided in subparagraph (A) shall be used only for internal purposes by the Department of Insurance, California Organized Investment Network, or its successor, and any network or its successor shall limit all public disclosure of that information to the name of the taxpayer only.(4)Provide an annual listing to the Franchise Tax Board, in the form and manner agreed upon by the Franchise Tax Board and the Department of Insurance, California Organized Investment Network, or its successor, of the names and taxpayer identification numbers of any taxpayer who makes any withdrawal or partial withdrawal of a qualified investment before the expiration of 60 months from the date of the qualified investment.(5)Submit reports to the Department of Insurance, California Organized Investment Network, or any successor thereof, as required pursuant to subdivision (a) of Section 12939.1 of the Insurance Code.(d)(1)The Insurance Commissioner may develop instructions, procedures, and standards for applications, and for administering the criteria for the evaluation of applications under this section. The Insurance Commissioner may, from time to time, adopt, amend, or repeal regulations to implement the provisions of this section.(2)The initial adoption of the regulations implementing this section shall be deemed to be an emergency and necessary in order to address a situation calling for immediate action to avoid serious harm to the public peace, health, safety, or general welfare.(3)Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, any emergency regulation adopted or amended by the Insurance Commissioner pursuant to this section shall remain in effect until amended or repealed by the department.(e)The California Organized Investment Network may certify investments for the credit allowed by this section on or before January 1, 2019, but not after that date.(f)The Department of Insurance, California Organized Investment Network, or any successor thereof, shall do all of the following:(1)Accept and evaluate applications for certification from financial institutions and issue certificates that the applicant is a community development financial institution qualified to receive qualified investments. To receive a certificate, an applicant shall satisfy the Department of Insurance, California Organized Investment Network, or any successor thereof, that it meets the specific requirements to be a community development financial institution for this state program as defined in paragraph (2) of subdivision (g). The certificate may be issued for a specified period of time, and may include reasonable conditions to effectuate the intent of this section. The Insurance Commissioner may suspend or revoke a certification, after affording the institution notice and the opportunity to be heard, if the commissioner finds that an institution no longer meets the requirement for certification.(2)Accept and evaluate applications for certification from a community development financial institution on behalf of the taxpayer and issue certificates to taxpayers in an aggregate amount that shall not exceed the limit specified in subdivision (b), with highest priority granted to those applications where the intended use of the investments has the greatest aggregate benefit for low-income areas or households, high-impact areas or households, or rural areas or households. The certificate shall include the amount eligible to be made as an investment that qualifies for the credit and the total amount of the credit to which the taxpayer is entitled for the taxable year. Applications for tax credits shall be accepted and evaluated throughout the year. The Insurance Commissioner shall establish tax credit issuance cycles throughout the year as necessary in order to issue tax credit certificates to those applications granted the highest priority.(3)Provide an annual listing to the Franchise Tax Board, in the form or manner agreed upon by the Franchise Tax Board and the Department of Insurance, California Organized Investment Network, or its successor, of the taxpayers who were issued certificates, their respective tax identification numbers, the amount of the qualified investment made by each taxpayer, and the total amount of qualified investments.(4)Include information specified pursuant to subdivision (b) of Section 12939.1 of the Insurance Code in the report required by Section 12922 of the Insurance Code.(g)For purposes of this section:(1)Qualified investment means an investment that is a deposit or loan that does not earn interest, or an equity investment, or an equity-like debt instrument that conforms to the specifications for these instruments as prescribed by the United States Department of the Treasury, Community Development Financial Institutions Fund, or its successor, or, in the absence of that prescription, as defined by the Insurance Commissioner. The investment must be equal to or greater than fifty thousand dollars ($50,000) and made for a minimum duration of 60 months. During that 60-month period, the community development financial institution shall have full use and control of the proceeds of the entire amount of the investment as well as any earnings on the investment for its community development purposes. The entire amount of the investment shall be received by the community development financial institution before the application for the tax credit is submitted. The community development financial institution shall use the proceeds of the investment for a purpose that is consistent with its community development mission and for the benefit of economically disadvantaged communities and low-income people in California.(2)Community development financial institution means a private financial institution located in this state that is certified by the Department of Insurance, California Organized Investment Network, or its successor, that, consistent with the legislative findings, declarations, and intent set forth in Section 12939 of the Insurance Code, has community development as its primary mission, and that lends in urban, rural, or reservation-based communities in this state. A community development financial institution may include a community development bank, a community development loan fund, a community development credit union, a microenterprise fund, a community development corporation-based lender, or a community development venture fund.(3)Qualified low-income community business means a business independently owned and operated, not dominant in its field of operation, with less than 100 employees. In order for a business to be a qualified low-income community business, it shall also be one of the following:(A)Exclusively located in a census tract with a poverty rate greater than 30 percent.(B)Located within a nonmetropolitan area with a median family income that does not exceed 60 percent of median family income for the State of California.(C)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.(D)A census tract with an unemployment rate at least 1.5 times the national average.(h)If a qualified investment is reduced or withdrawn before the end of the 60th month and not reinvested in another community development financial institution within 60 days, there shall be added to the net tax, as defined in Section 17039, for the taxable year in which the withdrawal occurs, the entire amount of any credit previously allowed under this section.(i)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 for the next four taxable years, or until the credit has been exhausted, whichever occurs first.(j)The Franchise Tax Board shall, as requested by the Department of Insurance, California Organized Investment Network, or its successor, advise and assist in the administration of this section.(k)On or before June 30, 2016, the Legislative Analysts Office shall submit a report to the Legislature, in compliance with Section 9795 of the Government Code, on the effects of the tax credits allowed under this section, Section 12209, and Section 23657, with a focus on employment in low-to-moderate income and rural areas, and on the benefits of these tax credits to low-to-moderate income and rural persons.(l)This section shall remain in effect only until December 1, 2019, and as of that date is repealed.SEC. 7.SEC. 4.Section 18410.3 is added to the Revenue and Taxation Code, to read:18410.3.(a)The California New Markets Tax Credit Fund is hereby established in the State Treasury.
(b)Upon annual appropriation, moneys in the fund shall be used for the purposes described in subdivision (d) of Section 12283, subdivision (d) of Section 17053.9, and subdivision (d) of Section 23622.9.
SEC. 8.SEC. 5.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 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-sized 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. RTCA 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, 2018, 2019, and before January 1, 2023, 2024, and subject to subdivision (h), there shall be allowed as a credit against the tax, as defined in Section 23036, in an amount determined in accordance with Section 45D of the Internal Revenue Code, relating to the new markets tax credit, as modified in this section.
(2)For the purposes of this section, RTCA means the Responsible Tax Credit Administrator, as designated by the Governor.
(c)Section 45D of the Internal Revenue Code is modified as follows:
(1)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.
(2)(A)Section 45D(c)(1) of the Internal Revenue Code, relating to qualified community development entity, is modified to only include a qualified community development entity, that is certified by the Secretary of the Treasury, and its subsidiary qualified community development entities that have 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.
(B)Section 45D(c)(2) of the Internal Revenue Code, relating to special rules for certain organizations, is modified to only include a specialized small business investment company or community development financial institution that 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, 2013.
(3)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)By substituting any low-income community in California for any low-income community every place it appears in Section 45D of the Internal Revenue Code.
(B)A qualified active low-income community business shall not include 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.
(C)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 one or more California low-income communities. The operating business shall meet all other conditions of a qualified active low-income community business, except as modified by this paragraph. This requirement does not apply to a business that is located in a reservation-based community. Reservation-based means an area of land managed by a Native American tribe under the jurisdiction of the federal Bureau of Indian Affairs, provided that the tribe is named on the most current list of Indian Entities Recognized and Eligible to Receive Services from the United States Bureau of Indian Affairs, or successor document, as published in the Federal Register by the United States Bureau of Indian Affairs.
(D)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 nonmetropolitan area, with a median family income that does not exceed 60 percent of median family income for this state, 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.
(E)A qualified active low-income community business shall not include any business that operates or derives revenues from the operation of a country club, gaming establishment, massage parlor, liquor store, or golf course.
(F)A qualified active low-income community business shall not include a sexually oriented business. A sexually oriented business means a commercial enterprise that provides, or has provided in the 24 months prior to the date of the submission of an application described in subdivision (d) by the taxpayer, for an audience of two or more individuals live nude entertainment or live nude performances where the nudity is a function of everyday business operations and where nudity is a planned and intentional part of the entertainment or performance. Nude means clothed in a manner that leaves uncovered or visible, through less than fully opaque clothing, any portion of the genitals or, in the case of a female, any portion of the breasts below the top of the areola of the breasts.
(G)A qualified active low-income community business shall not include a charter school.
(4)Section 45D(f) of the Internal Revenue Code, relating to national limitation on amount of investments designated, is modified as follows:
(A)The following shall apply in lieu of the provisions of Section 45D(f)(1) of the Internal Revenue Code: The aggregate amount of qualified equity investments that may be allocated in any calendar year for purposes of this section, Section 12283, and Section 17053.9 shall be forty million dollars ($40,000,000) per calendar year. The allocation of any undesignated qualified equity investments shall be returned to RTCA by March 1 of the year following allocation and the value of the undesignated qualified equity investment shall be available for allocation in the following calendar years in accordance with the application process. Any qualified equity investment attributable to recaptured credits shall be available to RTCA on March 1 of the year following recapture and shall be available for allocation in the following calendar years in accordance with clause (iii) of subparagraph (B) of paragraph (5). Reallocated qualified equity investments attributable to recapture credits shall not count against the annual or the cumulative limit.
(B)The references to the Secretary in Section 45D(f)(2) of the Internal Revenue Code, relating to allocation of limitation, is modified to read RTCA.
(C)The last sentence of Section 45D(f)(3) of the Internal Revenue Code, relating to carryover of unused limitation, shall not apply.
(5)(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, is modified to add the following:
(i)The qualified community development entity fails to comply with subparagraph (D) of paragraph (5) of subdivision (d). In this case, recapture shall be 100 percent of the credit.
(ii)RTCA shall establish a process, in consultation with the Franchise Tax Board, for the recapture of credits allowed under this section from the entity that claimed the credit on a return.
(iii)Recaptured qualified equity investments revert back to RTCA and shall be reissued. The reissue shall not count toward the annual or cumulative allocation limitation. The reissue shall be done in the following order:
(I)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) of paragraph (5) of subdivision (d) by the annual allocation limitation.
(II)Thereafter, in accordance with the application process.
(iv)Enforcement of each of the recapture provisions shall be subject to a six-month cure period.
(d)(1)RTCA shall adopt guidelines necessary or appropriate to carry out its responsibilities with respect to the allocation, monitoring, and management of the tax credit program authorized by this section.
(2)(A)RTCA shall establish and impose reasonable fees upon entities that apply for the allocation pursuant to this subdivision that in the aggregate defray the cost of reviewing applications for the program. RTCA may impose other reasonable fees upon entities that receive the allocation pursuant to this subdivision that in the aggregate defray the cost of administering the program.
(B)The fees collected shall be deposited in the California New Markets Tax Credit Fund established in Section 18410.3.
(3)In developing guidelines, RTCA shall adopt an allocation process that does all of the following:
(A)Creates an equitable distribution process that ensures that low-income community populations 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 authority to designate qualified equity investments, including, but not limited to, its business strategy, targeted community outcomes, capitalization strategy, and management capacity.
(C)Considers the qualified community development entitys prior qualified low-income community investments under Section 45D of the Internal Revenue Code.
(D)Considers the qualified community development entitys prior qualified low-income community investments under this section, including subparagraph (D) of paragraph (5).
(4)(A)Subject to subdivision (h), RTCA shall begin accepting applications on or before May 15, 2018, 2019, and shall award authority to designate qualified equity investments annually through 2022. 2023.
(B)In the instance where RTCA determines that an application is incomplete, the qualified community development entity shall be given five business days to provide the omitted information.
(5)(A)In the 2018 2019 awards cycle, RTCA shall award authority to designate qualified equity investments to qualified community development entities described in paragraph (2) of subdivision (c) in the order applications are received by RTCA. Applications received on the same day shall be deemed to have been received simultaneously.
(B)In the 2019 to 2022 2020 to 2023 award cycles, inclusive, at least 60 percent of the authority to designate qualified equity investments shall be awarded pursuant to subparagraph (A). At the discretion of RTCA, a higher percentage of authority to designate qualified equity investments may be awarded pursuant to subparagraph (A).
(C)RTCA shall award up to 40 percent of the authority to designate qualified equity investments in the 2019 to 2022, 2020 to 2023, inclusive, award cycles, to qualified community development entities on a competitive basis that meets the following criteria:
(i)Awards shall be reviewed using blind scoring and a review committee that is composed of community development finance practitioners and members having demonstrated experience in assessing organizational business strategy, community outcomes, capitalization strategy, and management capacity.
(ii)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 qualified equity investment or other assistance from any applicant.
(iii)Priority shall be provided to both of the following:
(I)Applications that commit to addressing the hardest to serve and undercapitalized lower income populations.
(II)Applications that support neighborhood revitalization strategies driven by local grassroots stakeholders in multiple low-income communities across one or more regions or the state. These applications shall demonstrate how their investment activity provides a scalable economic development model.
(D)For applications described in subparagraphs (A) and (B), applications for awards shall include a commitment to make at least 15 percent of qualified community development investments to a qualified community development entity with the assistance of a nonprofit organization as documented by a cooperation agreement that states the terms and conditions of that assistance. For the purposes of this subparagraph, the following shall apply:
(i)A qualified community development entity shall be certified under Section 45D of the Internal Revenue Code but has not received a federal New Markets Tax Credit allocation on or after January 1, 2012, and has either a local service area that includes one or more California communities or a California statewide service area, but excluding qualified community development entities with a national service area.
(ii)A nonprofit organization shall meet all of the following requirements: Is tax exempt under Section 23701, is registered with the Registry of Charitable Trusts, which is administered by the Attorney General, has articles of incorporation or articles of organization that state the primary mission of the organization is focused on improving the economic well-being of low-income communities or individuals, and has bylaws that provide that the organization maintains accountability to residents of low-income communities through their representation on any governing board or on an advisory board of the nonprofit organization.
(E)(i)For applications described in subparagraph (A), in the event requests for authority to designate qualified equity investments exceed the applicable annual allocation limitation, RTCA 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.
(ii)If a pending request cannot be fully certified due to this limit, RTCA shall certify the portion that may be certified unless the qualified community development entity elects to withdraw its request rather than receive partial certification.
(F)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 RTCA within 30 calendar days of such transfer and include the information required in the application with respect to such transferee with such notice. The transferee shall be subject to the same rules, requirements, and limitations applicable to the transferor.
(G)Within 200 calendar days of RTCA sending notice of certification, the qualified community development entity or any transferee, under subparagraph (F), 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 (F), shall provide RTCA with evidence of the receipt of the cash investment within 205 calendar days of the applicant receiving notice of certification. If the qualified community development entity or any transferee, under subparagraph (F), does not receive the cash investment and issue the qualified equity investment within 200 calendar days of RTCA sending the certification notice, the certification shall lapse and the entity may not issue the qualified equity investment without reapplying to RTCA for certification. Lapsed certifications revert back to RTCA and shall be reissued in the following order:
(i)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) under the annual allocation limitation of forty million dollars ($40,000,000) in paragraph (4) of subdivision (c).
(ii)Thereafter, in accordance with the application process.
(H)A qualified community development entity that issues qualified equity investments shall notify RTCA of the names of taxpayers that are eligible to utilize tax credits pursuant to this section and any transfer of a qualified equity investment.
(6)(A)A qualified community development entity that issues qualified equity investments shall submit a report to RTCA that provides documentation as to the investment of at least 85 percent of the funds being deployed within one year 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)Evidence that the community development entity complied with subparagraph (D) of paragraph (5).
(iv)Any other information required by RTCA as being necessary to meet the requirements of this section.
(B)Thereafter, the qualified community development entity shall submit an annual report to RTCA 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 social, environmental, and economic impact the credit had on the low-income community during the report period and cumulatively.
(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.
(vi)Location of each qualified low-income community business assisted by a qualified low-income community investment.
(vii)Summary of the outcomes of each of the revenue impact assessments undertaken by the qualified community development entity during the year.
(viii)Any other information requested by RTCA.
(e)(1)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.
(2)A taxpayer allowed a credit under this section for a qualified equity investment shall not be eligible for any other credit under this part with respect to that investment.
(3)The credit allowed under this section may be in addition to any credit allowed under Section 45D of the Internal Revenue Code.
(f)RTCA shall annually report on its Internet Web site the information provided by low-income community development entities and on the geographic distribution of the qualified active low-income community businesses assisted.
(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 RTCA relative to the application and reporting of a qualified community development entity.
(2)A qualified community development entity shall provide RTCA with the name, address, and tax identification number of each investor and entity for which a qualified equity investment was designated by the qualified community development entity, pursuant to this section. RTCA shall provide this information to the Franchise Tax Board in a manner determined by the Franchise Tax Board.
(h)(1)The credit authorized by this section shall only be allowed for those taxable years for which moneys are appropriated to RTCA to administer the California New Markets Tax Credit pursuant to 18410.3 for that taxable year. The appropriation shall specifically identify the California New Markets Tax Credit.
(2)For those taxable years for which those moneys are appropriated pursuant to paragraph (1), RTCA shall post notice of the appropriation on the homepage of its Internet Web site and send notice of such appropriation to the Secretary of State and the Legislative Counsel.
(i)This section shall be repealed on December 1, 2023. 2024.
SEC. 9.Section 23657 of the Revenue and Taxation Code is amended to read:23657.(a)For each taxable year beginning on or after January 1, 1997, and before January 1, 2019, there shall be allowed as a credit against the amount of tax, as defined in Section 23036, an amount equal to 20 percent of the amount of each qualified investment made by a taxpayer during the taxable year into a community development financial institution that is certified by the Department of Insurance, California Organized Investment Network, or any successor thereof.(b)(1)Notwithstanding any other provision of this part, a credit shall not be allowed under this section unless the California Organized Investment Network, or its successor within the Department of Insurance, certifies that the investment described in subdivision (a) qualifies for the credit under this section and certifies the total amount of the credit allocated to the taxpayer pursuant to this section.(2)A credit shall not be allowed by this section unless the applicant and the taxpayer provide satisfactory substantiation to, and in the form and manner requested by, the Department of Insurance, California Organized Investment Network, or any successor thereof, that the investment is a qualified investment, as defined in paragraph (1) of subdivision (g).(3)(A)The aggregate amount of qualified investments made by all taxpayers pursuant to this section, Section 12209, and Section 17053.57 shall not exceed fifty million dollars ($50,000,000) for each calendar year. However, if the aggregate amount of qualified investments made in any calendar year is less than fifty million dollars ($50,000,000), the difference may be carried over to the next year, and any succeeding year during which this section remains in effect, and added to the aggregate amount authorized for those years.(B)The total amount of qualified investments certified by the California Organized Investment Network in any calendar year to any one community development financial institution together with its affiliates, as defined in Section 1215 of the Insurance Code, shall not exceed 30 percent of the annual aggregate amount of qualified investments certified by the California Organized Investment Network. If, after October 1, the California Organized Investment Network has determined that the availability of tax credits exceed their demand, then a community development financial institution that has been allocated 30 percent of the annual aggregate amount of qualified investments shall become eligible to apply to be certified for any remaining tax credits in that calendar year.(C)Each year, 10 percent of the annual aggregate amount of qualified investments shall be reserved for investment amounts of less than or equal to two hundred thousand dollars ($200,000). If, after October 1, there remains an unallocated portion of the amount reserved for investments of less than or equal to two hundred thousand dollars ($200,000), then qualified investments in excess of two hundred thousand dollars ($200,000) may be eligible for that remaining unallocated portion.(4)Priority among housing applications shall be given to applications that support affordable rental housing, housing for veterans, mortgages for community-based residential programs, and self-help housing ahead of single-family owned housing.(5)Priority shall be given to insurance company investors over all other tax credit investors.(c)The community development financial institution shall do all of the following:(1)Apply to the Department of Insurance, California Organized Investment Network, or its successor, for certification of its status as a community development financial institution.(2)(A)Apply to the Department of Insurance, California Organized Investment Network, or its successor, on behalf of the taxpayer, for certification of the amount of the investment and the credit amount allocated to the taxpayer, obtain the certification, and retain a copy of the certification.(B)Provide in the application a detailed description of the intended use of the investment funds including, but not limited to, the following:(i)All of the programs, projects, and services that would be funded.(ii)The percentage of the intended use of the investment funds that would directly benefit moderate-income, low-income, and very low income households.(iii)The percentage of the intended use of the investment funds that would directly benefit rural areas.(iv)The percentage of the intended use of the investment funds that is a green investment as defined in Section 926.1 of the Insurance Code.(v)The percentage of the intended use of the investment funds that would directly benefit a qualified low-income community business, as defined in paragraph (3) of subdivision (g).(3)(A)Provide in the application required in paragraph (2) the following information to the Department of Insurance, California Organized Investment Network, or its successor:(i)Name of the taxpayer.(ii)Postal address of the taxpayer, or residential address of the taxpayer if the taxpayer is an individual.(iii)Phone number of the taxpayer.(iv)Email address of the taxpayer.(v)The taxpayers California company identification number for tax administration purposes, or in the case of an S corporation, the taxpayer identification numbers of all the shareholders for tax administration purposes.(B)The information provided in subparagraph (A) shall be used only for internal purposes by the Department of Insurance, California Organized Investment Network, or its successor, and any public disclosure of that information shall be limited to the name of the taxpayer only.(4)Provide an annual listing to the Franchise Tax Board, in the form and manner agreed upon by the Franchise Tax Board and the Department of Insurance, California Organized Investment Network, or its successor, of the names and taxpayer identification numbers of any taxpayer who makes any withdrawal or partial withdrawal of a qualified investment before the expiration of 60 months from the date of the qualified investment.(5)Submit reports to the department, California Organized Investment Network, or any successor thereof, as required pursuant to subdivision (a) of Section 12939.1 of the Insurance Code.(d)The California Organized Investment Network may certify investments for the credit allowed by this section on or before January 1, 2019, but not after that date.(e)(1)The Insurance Commissioner may develop instructions, procedures, and standards for applications, and for administering the criteria for the evaluation of applications under this section. The Insurance Commissioner may, from time to time, adopt, amend, or repeal regulations to implement the provisions of this section.(2)The initial adoption of the regulations implementing this section shall be deemed to be an emergency and necessary in order to address a situation calling for immediate action to avoid serious harm to the public peace, health, safety, or general welfare.(3)Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, any emergency regulation adopted or amended by the Insurance Commissioner pursuant to this section shall remain in effect until amended or repealed by the department.(f)The Department of Insurance, California Organized Investment Network, or any successor thereof, shall do all of the following:(1)Accept and evaluate applications for certification from financial institutions and issue certificates that the applicant is a community development financial institution qualified to receive qualified investments. To receive a certificate, an applicant shall satisfy the Department of Insurance, California Organized Investment Network, or any successor thereof, that it meets the specific requirements to be a community development financial institution for this state program as defined in paragraph (2) of subdivision (g). The certificate may be issued for a specified period of time, and may include reasonable conditions to effectuate the intent of this section. The Insurance Commissioner may suspend or revoke a certification, after affording the institution notice and the opportunity to be heard, if the commissioner finds that an institution no longer meets the requirement for certification.(2)Accept and evaluate applications for certification from any community development financial institution on behalf of the taxpayer and issue certificates to taxpayers in an aggregate amount that shall not exceed the limit specified in subdivision (b), with highest priority granted to those applications where the intended use of the investments has the greatest aggregate benefit for low-income areas or households, high-impact areas or households, or rural areas or households. The certificate shall include the amount eligible to be made as an investment that qualifies for the credit and the total amount of the credit to which the taxpayer is entitled for the taxable year. Applications for tax credits shall be accepted and evaluated throughout the year. The Insurance Commissioner shall establish tax credit issuance cycles throughout the year as necessary in order to issue tax credit certificates to those applications granted the highest priority.(3)Provide an annual listing to the Franchise Tax Board, in the form or manner agreed upon by the Franchise Tax Board and the Department of Insurance, California Organized Investment Network, or its successor, of the taxpayers who were issued certificates, their respective tax identification numbers, the amount of the qualified investment made by each taxpayer, and the total amount of qualified investments.(4)Include information specified pursuant to subdivision (b) of Section 12939.1 of the Insurance Code in the report required by Section 12922 of the Insurance Code.(g)For purposes of this section:(1)Qualified investment means an investment that is a deposit or loan that does not earn interest, or an equity investment, or an equity-like debt instrument that conforms to the specifications for these instruments as prescribed by the United States Department of the Treasury, Community Development Financial Institutions Fund, or its successor, or, in the absence of that prescription, as defined by the Insurance Commissioner. The investment must be equal to or greater than fifty thousand dollars ($50,000) and made for a minimum duration of 60 months. During that 60-month period, the community development financial institution shall have full use and control of the proceeds of the entire amount of the investment as well as any earnings on the investment for its community development purposes. The entire amount of the investment shall be received by the community development financial institution before the application for the tax credit is submitted. The community development financial institution shall use the proceeds of the investment for a purpose that is consistent with its community development mission and for the benefit of economically disadvantaged communities and low-income people in California.(2)Community development financial institution means a private financial institution located in this state that is certified by the Department of Insurance, California Organized Investment Network, or its successor, that, consistent with the legislative findings, declarations, and intent set forth in Section 12939 of the Insurance Code, has community development as its primary mission, and that lends in urban, rural, or reservation-based communities in this state. A community development financial institution may include a community development bank, a community development loan fund, a community development credit union, a microenterprise fund, a community development corporation-based lender, or a community development venture fund.(3)Qualified low-income community business means a business independently owned and operated, not dominant in its field of operation, with less than 100 employees. In order for a business to be a qualified low-income community business, it shall also be one of the following:(A)Exclusively located in a census tract with a poverty rate greater than 30 percent.(B)Located within a nonmetropolitan area with a median family income that does not exceed 60 percent of median family income for the State of California.(C)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.(D)A census tract with an unemployment rate at least 1.5 times the national average.(h)If a qualified investment is reduced or withdrawn before the end of the 60th month and not reinvested in another community development financial institution within 60 days, there shall be added to the tax, as defined in Section 23036, for the taxable year in which the withdrawal occurs, the entire amount of any credit previously allowed under this section.(i)In the case where the credit allowed by this section exceeds the tax, the excess may be carried over to reduce the tax for the next four taxable years, or until the credit has been exhausted, whichever occurs first.(j)The Franchise Tax Board shall, as requested by the Department of Insurance, California Organized Investment Network, or its successor, advise and assist in the administration of this section.(k)On or before June 30, 2016, the Legislative Analysts Office shall submit a report to the Legislature, in compliance with Section 9795 of the Government Code, on the effects of the tax credits allowed under this section, Section 12209, and Section 17053.57, with a focus on employment in low-to-moderate income and rural areas, and on the benefits of these tax credits to low-to-moderate income and rural persons.(l)This section shall remain in effect only until December 1, 2019, and as of that date is repealed.SEC. 10.SEC. 6.For the purposes of complying with Section 41 of the Revenue and Taxation Code, with respect to Sections 12283, 17053.9, and 23622.9 of the Revenue and Taxation Code, as proposed to be added by Sections 4, 5, and 8 2, 3, and 5 of this act, the Legislature finds and declares as follows:
(a)Specific goals, purposes, and objectives: attract private sector investment in lower income communities in California.
(b)Performance indicators:
(1)Amount of qualified low-income community investments issued.
(2)Amount of dollars deployed in qualified low-income community investments.
(3)Number of operating businesses assisted as a result of qualified low-income community investments. This data shall be compared to business development, including startups, tax revenues, and new investments within the most immediate geographic area for which data is reasonably available for the 12 and 24 months prior to the date on which any tax credits are allowed by Section 12283, 17053.9, or 23622.9 of the Revenue and Taxation Code.
(4)Number of employment positions created and retained as a result of qualified low-income community investments and the average annual salary of those positions. These numbers shall be compared to the area median income and unemployment and poverty rates for the most immediate geographic areas for which data is reasonably available for the 12 and 24 months prior to the date on which any tax credits are allowed by Section 12283, 17053.9, or 23622.9 of the Revenue and Taxation Code.
(c)Data collection requirements and baseline measurements:
(1)The baseline measurements include:
(A)The amount of tax credits issued in the year.
(B)The unemployment rate of the area.
(C)The poverty rate of the area.
(2)Data to collect includes:
(A)The amount of tax credits issued in the year.
(B)The number of operating businesses located in a low-income community that are assisted.
(C)The number of jobs created and retained as a result of qualified low-income community investments.
SEC. 11.SEC. 7.The provisions of this act are severable. If any provision of this act or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.
SEC. 12.This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the California Constitution and shall go into immediate effect. The facts constituting the necessity are:In order to preserve, at the earliest possible time, a program that spurs investment in, and positive impact on, economically vulnerable individuals, families, and communities in this state, it is necessary that this act take effect immediately.SEC. 8.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
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 the 201314 funding round, the CDFI Fund had awarded approximately forty billion dollars ($40,000,000,000) in NMTC in 836 awards, including three billion dollars ($3,000,000,000) in American Recovery and Investment Act of 2009 awards and one billion dollars ($1,000,000,000) of special allocation authority to be used for the recovery and redevelopment of the Gulf Opportunity Zone.
(c)Since 2003, the NMTC Program has created or retained an estimated 197,585 jobs nationally. It has also supported the construction of 32.4 million square feet of manufacturing space, 74.8 million square feet of office space, and 57.5 million square feet of retail space. The United States Department of the Treasury reports that a secondary benefit is that as these communities develop, they become more attractive to investors, catalyzing a ripple effect that spurs further investments and revitalization.
(d)For every one dollar ($1) invested by the federal government, the NMTC Program generates over eight dollars ($8) of private investment. The NMTC Program catalyzes investment in the most economically challenged areas of the state. Over 75 percent of New Markets Tax Credit investments have been made in highly distressed areas, meaning the household income was less than 60 percent of statewide median income and the poverty rate was higher than 30 percent.
(e)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). Any investment by any taxpayer in the CDE redeemed before the end of the seven-year period will be recaptured.
(f)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 a state more attractive to CDEs, which results in increasing the amount of federal NMTCs being utilized in a 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 twelve dollars ($12) to fourteen dollars ($14) of private investment.
SEC. 2.Section 926.1 of the Insurance Code is amended to read:926.1.As used in this article, the following terms shall have the following meanings:
(a)Area median income (AMI) means either of the following:
(1)The median family income for the Metropolitan Statistical Area (MSA), if a person or geography is located in an MSA, or for the metropolitan division, if a person or geography is located in an MSA that has been subdivided into metropolitan divisions.
(2)The statewide nonmetropolitan median family income, if a person or geography is located outside an MSA.
(b)Community development investment means an investment where all or a substantial portion of the investment has as its primary purpose community development for, or that directly benefits, California low- or to moderate-income individuals, families, or communities. Community development investment includes, but is not limited to, investments in California in the following:
(1)Affordable housing, including multifamily rental and ownership housing, for low- or to moderate-income individuals or families.
(2)Community facilities or community services providers (including providers of education, health, or social services) directly benefiting low- or to moderate-income individuals, families, or communities.
(3)Economic development that demonstrates benefits, including, but not limited to, job creation, retention, or improvement, or provision of needed capital, to low- or to moderate-income individuals, families, or communities, including urban or rural communities, or businesses or nonprofit community service organizations that serve these communities.
(4)Activities that revitalize or stabilize low- or to moderate-income communities.
(5)Investments in or through California Organized Investment Network (COIN)-certified community development financial institutions (CDFIs) and investments made pursuant to the requirements of federal, state, or local community development investment programs or community development investment tax incentive programs, including green investments, if these investments directly benefit low- or to moderate-income individuals, families, and communities and are consistent with this article.
(6)Community development infrastructure investments. investments if these investments directly benefit low- to moderate-income individuals, families, or communities.
(7)Investments in a commercial property or properties located in low- or to moderate-income geographical areas and that are consistent with this article.
(8)Investments in reservation-based communities. Reservation-based means an area of land managed by a Native American tribe under the jurisdiction of the federal Bureau of Indian Affairs, provided that the tribe is named on the most current list of Indian Entities Recognized and Eligible to Receive Services from the Bureau of Indian Affairs, or successor document, as published in the Federal Register by the federal Bureau of Indian Affairs.
(9)Investments in rural areas. Rural area means any open country or any place, town, village, or city which by itself and taken together with any other places, towns, villages, or cities that it is part of, or associated with, has either a population not exceeding 50,000 persons or has a population not exceeding 50,000 persons and is contained within a nonmetropolitan area. Rural area also means any open country, place, town, village, or city located within a Standard Metropolitan Statistical Area if the population of that area does not exceed 50,000 persons and that area is not part of, or associated with, an urban area and is rural in character.
(c)Community development infrastructure means California public debt (including all debt issued by the State of California or a California state or local government agency) where all or a portion of the debt has as its primary purpose community development for, or that directly benefits, low- or to moderate-income communities and is consistent with subdivision (b).
(d)Diverse investment managers means investment management organizations, including, but not limited to, corporations, groups and persons within corporations, partnerships, limited liability companies, and other special purpose vehicles that are either located in, or actively make and hold investments in, California and whose investment managers are comprised of at least 51 percent women, veterans, or minorities, or a combination of persons in those groups.
(d)(e)Geography means a census tract delineated by the United States Bureau of the Census in the most recent decennial census.
(e)(f)Green investments means investments that emphasize renewable energy projects, economic development, and affordable housing focused on infill sites so as to reduce the degree of automobile dependency and promote the use and reuse of existing urbanized lands supplied with infrastructure for the purpose of accommodating new growth and jobs. Green investments also means investments that can help communities grow through new capital investment in the maintenance and rehabilitation of existing infrastructure so that the reuse and reinvention of city centers and existing transportation corridors and community space, including projects offering energy efficiency improvements and renewable energy generation, including, but not limited to, solar and wind power, water and waste management, sustainable agriculture, mixed-use development, affordable housing opportunities, multimodal transportation systems, and transit-oriented development, can advance economic development, jobs, and housing.
(f)(g)High-impact investments means investments that are innovative, responsive to community needs, not routinely provided by insurers, or have a high degree of positive impact on the economic welfare of low- or moderate-income responsive to community needs and provide at least 51 percent social or environmental benefit to low-income individuals, families, or communities in urban or rural areas of California.
(g)(h)Insurer means an admitted insurer as defined in Section 24, including the State Compensation Insurance Fund, or a domestic fraternal benefit society as defined in Section 10990.
(h)(i)Investment means a lawful equity or debt investment, or loan, or deposit obligation, or other investment or investment transaction allowed by the Insurance Code.
(i)(j)Low-income means an individual income that is less than 50 percent of the AMI, or a median family income that is less than 50 percent of the AMI in the case of a geographical area.
(j)(k)MSA means a metropolitan statistical area as defined by the Director of the Office of Management and Budget.
(k)(l)Moderate-income means an individual income that is at least 50 percent but less than 80 percent of the AMI, or a median family income that is at least 50 percent but less than 80 percent of the AMI in the case of a geographical area.
(l)(m)Nonmetropolitan area means any area that is not located in an MSA.
SEC. 3.Section 12209 of the Revenue and Taxation Code is amended to read:12209.(a)For each year beginning on or after January 1, 1999, and before January 1, 2017, 2019, there shall be allowed as a credit against the amount of tax, as defined in Section 28 of Article XIII of the California Constitution, an amount equal to 20 percent of the amount of each qualified investment made by a taxpayer during the taxable year into a community development financial institution that is certified by the Department of Insurance, California Organized Investment Network, or any successor thereof.
(b)For purposes of determining any tax that may be imposed under Section 685 of the Insurance Code on a taxpayer not organized under the laws of this state, the amount of the credit allowed by subdivision (a) shall be treated as a tax paid under Section 12201 or Section 28 of Article XIII of the California Constitution.
(c)(1)Notwithstanding any other provision of this part, a credit shall not be allowed under this section unless the California Organized Investment Network, or its successor within the Department of Insurance, certifies that the investment described in subdivision (a) qualifies for the credit under this section and certifies the total amount of the credit allocated to the taxpayer pursuant to this section.
(2)A credit shall not be allowed by this section unless the applicant and the taxpayer provide satisfactory substantiation to, and in the form and manner requested by, the Department of Insurance, California Organized Investment Network, or any successor thereof, that the investment is a qualified investment as defined in paragraph (1) of subdivision (h).
(3)(A)The aggregate amount of qualified investments made by all taxpayers pursuant to this section, Section 17053.57, and Section 23657 shall not exceed fifty million dollars ($50,000,000) for each calendar year. However, if the aggregate amount of qualified investments made in any calendar year is less than fifty million dollars ($50,000,000), the difference may be carried over to the next year, and any succeeding year during which this section remains in effect, and added to the aggregate amount authorized for those years.
(B)The total amount of qualified investments certified by the California Organized Investment Network in any calendar year to any one community development financial institution together with its affiliates, as defined in Section 1215 of the Insurance Code, shall not exceed 30 percent of the annual aggregate amount of qualified investments certified by the California Organized Investment Network. If, after October 1, the California Organized Investment Network has determined that the availability of tax credits exceed their demand, then a community development financial institution that has been allocated 30 percent of the annual aggregate amount of qualified investments shall become eligible to apply to be certified for any remaining tax credits in that calendar year.
(C)Each year, 10 percent of the annual aggregate amount of qualified investments shall be reserved for investment amounts of less than or equal to two hundred thousand dollars ($200,000). If, after October 1, there remains an unallocated portion of the amount reserved for investments of less than or equal to two hundred thousand dollars ($200,000), then qualified investments in excess of two hundred thousand dollars ($200,000) may be eligible for that remaining unallocated portion.
(4)Priority among housing applications shall be given to applications that support affordable rental housing, housing for veterans, mortgages for community-based residential programs, and self-help housing ahead of single-family owned housing.
(5)Priority shall be given to insurance company investors over all other tax credit investors.
(d)The community development financial institution shall do all of the following:
(1)Apply to the Department of Insurance, California Organized Investment Network, or its successor, for certification of its status as a community development financial institution.
(2)(A)Apply to the Department of Insurance, California Organized Investment Network, or its successor, on behalf of the taxpayer for certification of the amount of the investment and the credit amount allocated to the taxpayer, obtain the certification, and retain a copy of the certification.
(B)Provide in the application a detailed description of the intended use of the investment funds including, but not limited to, the following:
(i)All of the programs, projects, and services that would be funded.
(ii)The percentage of the intended use of the investment funds that would directly benefit low-to-moderate income moderate-income, low-income, and very low income households.
(iii)The percentage of the intended use of the investment funds that would directly benefit rural areas.
(iv)The percentage of the intended use of the investment funds that is a green investment as defined in Section 926.1 of the Insurance Code.
(v)The percentage of the intended use of the investment funds that would directly benefit a qualified low-income community business, as defined in paragraph (3) of subdivision (h).
(3)(A)Provide in the application required in paragraph (2) the following information to the Department of Insurance, California Organized Investment Network, or its successor:
(i)Name of the taxpayer.
(ii)Postal address of the taxpayer, or residential address of the taxpayer if the taxpayer is an individual.
(iii)Phone number of the taxpayer.
(iv)Email address of the taxpayer.
(v)The taxpayers California company identification number for tax administration purposes.
(B)The information provided in subparagraph (A) shall be used only for internal purposes by the Department of Insurance, California Organized Investment Network, or its successor, and any public disclosure of that information shall be limited to the name of the taxpayer only.
(4)Provide an annual listing to the State Board of Equalization, in the form and manner agreed upon by the State Board of Equalization and the Department of Insurance, California Organized Investment Network, or its successor, of the names and taxpayers California company identification numbers of any taxpayer who makes any withdrawal or partial withdrawal of a qualified investment before the expiration of 60 months from the date of the qualified investment.
(5)Submit reports to the department, California Organized Investment Network, or any successor thereof, as required pursuant to subdivision (a) of Section 12939.1 of the Insurance Code.
(e)The California Organized Investment Network may certify investments for the credit allowed by this section on or before January 1, 2017, 2019, but not after that date.
(f)(1)The Insurance Commissioner may develop instructions, procedures, and standards for applications, and for administering the criteria for the evaluation of applications under this section. The Insurance Commissioner may, from time to time, adopt, amend, or repeal regulations to implement the provisions of this section.
(2)The initial adoption of the regulations implementing this section shall be deemed to be an emergency and necessary in order to address a situation calling for immediate action to avoid serious harm to the public peace, health, safety, or general welfare.
(3)Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, any emergency regulation adopted or amended by the Insurance Commissioner pursuant to this section shall remain in effect until amended or repealed by the department.
(g)The Department of Insurance, California Organized Investment Network, or any successor thereof, shall do all of the following:
(1)Accept and evaluate applications for certification from financial institutions and issue certificates that the applicant is a community development financial institution qualified to receive qualified investments. To receive a certificate, an applicant shall satisfy the Department of Insurance, California Organized Investment Network, or any successor thereof, that it meets the specific requirements to be a community development financial institution for this state program as defined in paragraph (2) of subdivision (h). The certificate may be issued for a specified period of time, and may include reasonable conditions to effectuate the intent of this section. The Insurance Commissioner may suspend or revoke a certification, after affording the institution notice and the opportunity to be heard, if the commissioner finds that an institution no longer meets the requirement for certification.
(2)Accept and evaluate applications for certification from any community development financial institution on behalf of the taxpayer and issue certificates to taxpayers in an aggregate amount that shall not exceed the limit specified in subdivision (c), with highest priority granted to those applications where the intended use of the investments has the greatest aggregate benefit for low-to-moderate income low-income areas or households households, high-impact areas or households, or rural areas or households. The certificate shall include the amount eligible to be made as an investment that qualifies for the credit and the total amount of the credit to which the taxpayer is entitled for the year. Applications for tax credits shall be accepted and evaluated throughout the year. The Insurance Commissioner shall establish tax credit issuance cycles throughout the year as necessary in order to issue tax credit certificates to those applications granted the highest priority.
(3)Provide an annual listing to the State Board of Equalization, in the form or manner agreed upon by the State Board of Equalization and the Department of Insurance, California Organized Investment Network, or its successor, of the taxpayers who were issued certificates, their respective National Association of Insurance Commissioners company number and employers tax identification number, the amount of the qualified investment made by each taxpayer, and the total amount of qualified investments.
(4)Include information specified pursuant to subdivision (b) of Section 12939.1 of the Insurance Code in the report required by Section 12922 of the Insurance Code.
(h)For purposes of this section:
(1)Qualified investment means an investment that is a deposit or loan that does not earn interest, or an equity investment, or an equity-like debt instrument that conforms to the specifications for these instruments as prescribed by the United States Department of the Treasury, Community Development Financial Institutions Fund, or its successor, or, in the absence of that prescription, as defined by the Insurance Commissioner. The investment must be equal to or greater than fifty thousand dollars ($50,000) and made for a minimum duration of 60 months. During that 60-month period, the community development financial institution shall have full use and control of the proceeds of the entire amount of the investment as well as any earnings on the investment for its community development purposes. The entire amount of the investment shall be received by the community development financial institution before the application for the tax credit is submitted. The community development financial institution shall use the proceeds of the investment for a purpose that is consistent with its community development mission and for the benefit of economically disadvantaged communities and low-income people in California.
(2)Community development financial institution means a private financial institution located in this state that is certified by the Department of Insurance, California Organized Investment Network, or its successor, that, consistent with the legislative findings, declarations, and intent set forth in Section 12939 of the Insurance Code, has community development as its primary mission, and that lends in urban, rural, or reservation-based communities in this state. A community development financial institution may include a community development bank, a community development loan fund, a community development credit union, a microenterprise fund, a community development corporation-based lender, or a community development venture fund.
(3)Qualified low-income community business means a business independently owned and operated, not dominant in its field of operation, with less than 100 employees. In order for a business to be a qualified low-income community business, it shall also be one of the following:
(A)Exclusively located in a census tract with a poverty rate greater than 30 percent.
(B)Located within a nonmetropolitan area with a median family income that does not exceed 60 percent of median family income for the State of California.
(C)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.
(D)A census tract with an unemployment rate at least 1.5 times the national average.
(i)(1)If a qualified investment is reduced or withdrawn before the end of the 60th month and not reinvested in another community development financial institution within 60 days, there shall be added to the tax, as defined in Section 28 of Article XIII of the California Constitution, for the year in which the withdrawal occurs, the entire amount of any credit previously allowed under this section.
(2)If a qualified investment is reduced before the end of the 60th month, but not below fifty thousand dollars ($50,000), there shall be added to the tax, as defined in Section 28 of Article XIII of the California Constitution, for the taxable year in which the reduction occurs, an amount equal to 20 percent of the total reduction for the year.(j)In the case where the credit allowed by this section exceeds the tax, the excess may be carried over to reduce the tax for the next four years, or until the credit has been exhausted, whichever occurs first.
(k)The State Board of Equalization shall, as requested by the Department of Insurance, California Organized Investment Network, or its successor, advise and assist in the administration of this section.
(l)On or before June 30, 2016, the Legislative Analysts Office shall submit a report to the Legislature, in compliance with Section 9795 of the Government Code, on the effects of the tax credits allowed under this section, Section 17053.57, and Section 23657, with a focus on employment in low-to-moderate income and rural areas, and on the benefits of these tax credits to low-to-moderate income and rural persons.
(m)This section shall remain in effect only until December 1, 2017, 2019, and as of that date is repealed.
SEC. 4.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 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-sized 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. RTCA 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, 2018, and before January 1, 2023, and subject to subdivision (h), there shall be allowed as a credit against the tax described in Section 12201, in an amount determined in accordance with Section 45D of the Internal Revenue Code, relating to the new markets tax credit, as modified in this section.
(2)For the purposes of this section, RTCA means the Responsible Tax Credit Administrator, as designated by the Governor.
(c)Section 45D of the Internal Revenue Code is modified as follows:
(1)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.
(2)(A)Section 45D(c)(1) of the Internal Revenue Code, relating to qualified community development entity, is modified to only include a qualified community development entity, that is certified by the Secretary of the Treasury, and its subsidiary qualified community development entities that have 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.
(B) Section 45D(c)(2) of the Internal Revenue Code, relating to special rules for certain organizations, is modified to only include a specialized small business investment company or community development financial institution that 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, 2013.
(3)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)By substituting any low-income community in California for any low-income community every place it appears in Section 45D of the Internal Revenue Code.
(B)A qualified active low-income community business shall not include 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.
(C)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 one or more California low-income communities. The operating business shall meet all other conditions of a qualified active low-income community business, except as modified by this paragraph. This requirement does not apply to a business that is located in a reservation-based community. Reservation-based means an area of land managed by a Native American tribe under the jurisdiction of the federal Bureau of Indian Affairs, provided that the tribe is named on the most current list of Indian Entities Recognized and Eligible to Receive Services from the United States Bureau of Indian Affairs, or successor document, as published in the Federal Register by the United States Bureau of Indian Affairs.
(D)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 nonmetropolitan area, with a median family income that does not exceed 60 percent of median family income for this state, 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.
(E)A qualified active low-income community business shall not include any business that operates or derives revenues from the operation of a country club, gaming establishment, massage parlor, liquor store, or golf course.
(F)A qualified active low-income community business shall not include a sexually oriented business. A sexually oriented business means a commercial enterprise that provides, or has provided in the 24 months prior to the date of the submission of an application described in subdivision (d) by the taxpayer, for an audience of two or more individuals live nude entertainment or live nude performances where the nudity is a function of everyday business operations and where nudity is a planned and intentional part of the entertainment or performance. Nude means clothed in a manner that leaves uncovered or visible, through less than fully opaque clothing, any portion of the genitals or, in the case of a female, any portion of the breasts below the top of the areola of the breasts.
(G)A qualified active low-income community business shall not include a charter school.
(4)Section 45D(f) of the Internal Revenue Code, relating to national limitation on amount of investments designated, is modified as follows:
(A)The following shall apply in lieu of the provisions of Section 45D(f)(1) of the Internal Revenue Code: The aggregate amount of qualified equity investments that may be allocated in any calendar year for purposes of this section, Section 17053.9, and Section 23622.9 shall be forty million dollars ($40,000,000) per calendar year. The allocation of any undesignated qualified equity investments shall be returned to RTCA by March 1 of the year following allocation and the value of the undesignated qualified equity investment shall be available for allocation in the following calendar years in accordance with the application process. Any qualified equity investment attributable to recaptured credits shall be available to RTCA on March 1 of the year following recapture and shall be available for allocation in the following calendar years in accordance with subparagraph (C) of paragraph (5). Reallocated qualified equity investments attributable to recapture credits shall not count against the annual or the cumulative limit.
(B)The references to the Secretary in Section 45D(f)(2) of the Internal Revenue Code, relating to allocation of limitation, is modified to read RTCA.
(C)The last sentence of Section 45D(f)(3) of the Internal Revenue Code, relating to carryover of unused limitation, shall not apply.
(5)Section 45D(g)(3) of the Internal Revenue Code, relating to recapture event, is modified to add the following:
(A)The qualified community development entity fails to comply with subparagraph (D) of paragraph (5) of subdivision (d). In this case, recapture shall be 100 percent of the credit.
(B)RTCA shall establish a process, in consultation with the Department of Insurance, for the recapture of credits allowed under this section from the entity that claimed the credit on a return.
(C)Recaptured qualified equity investments revert back to RTCA and shall be reissued. The reissue shall not count toward the annual or cumulative allocation limitation. The reissue shall be done in the following order:
(i)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) of paragraph (5) of subdivision (d) by the annual allocation limitation.
(ii)Thereafter, in accordance with the application process.
(D)Enforcement of each of the recapture provisions shall be subject to a six-month cure period.
(d)(1)RTCA shall adopt guidelines necessary or appropriate to carry out its responsibilities with respect to the allocation, monitoring, and management of the tax credit program authorized by this section.
(2)(A)RTCA shall establish and impose reasonable fees upon entities that apply for the allocation pursuant to this subdivision that in the aggregate defray the cost of reviewing applications for the program. RTCA may impose other reasonable fees upon entities that receive the allocation pursuant to this subdivision that in the aggregate defray the cost of administering the program.
(B)The fees collected shall be deposited in the California New Markets Tax Credit Fund established in Section 18410.3.
(3)In developing guidelines, RTCA shall adopt an allocation process that does all of the following:
(A)Creates an equitable distribution process that ensures that low-income community populations 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 authority to designate qualified equity investments, including, but not limited to, its business strategy, targeted community outcomes, capitalization strategy, and management capacity.
(C)Considers the qualified community development entitys prior qualified low-income community investments under Section 45D of the Internal Revenue Code.
(D)Considers the qualified community development entitys prior qualified low-income community investments under this section, including subparagraph (D) of paragraph (5).
(4)(A)Subject to subdivision (h), RTCA shall begin accepting applications on or before May 15, 2018, and shall award authority to designate qualified equity investments annually through 2022.
(B)In the instance where RTCA determines that an application is incomplete, the qualified community development entity shall be given five business days to provide the omitted information.
(5)(A)In the 2018 awards cycle, RTCA shall award authority to designate qualified equity investments to qualified community development entities described in paragraph (2) of subdivision (c) in the order applications are received by RTCA. Applications received on the same day shall be deemed to have been received simultaneously.
(B)In the 2019 to 2022 award cycles, inclusive, at least 60 percent of the authority to designate qualified equity investments shall be awarded pursuant to subparagraph (A). At the discretion of RTCA, a higher percentage of authority to designate qualified equity investments may be awarded pursuant to subparagraph (A).
(C)RTCA shall award up to 40 percent of the authority to designate qualified equity investments in the 2019 to 2022, inclusive, award cycles, to qualified community development entities on a competitive basis that meets the following criteria:
(i)Awards shall be reviewed using blind scoring and a review committee that is composed of community development finance practitioners and members having demonstrated experience in assessing organizational business strategy, community outcomes, capitalization strategy, and management capacity.
(ii)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 qualified equity investment or other assistance from any applicant.
(iii)Priority shall be provided to both of the following:
(I)Applications that commit to addressing the hardest to serve and undercapitalized lower income populations.
(II)Applications that support neighborhood revitalization strategies driven by local grassroots stakeholders in multiple low-income communities across one or more regions or the state. These applications shall demonstrate how their investment activity provides a scalable economic development model.
(D)For applications described in subparagraphs (A) and (B), applications for awards shall include a commitment to make at least 15 percent of qualified community development investments to a qualified community development entity with the assistance of a nonprofit organization, as documented by a cooperation agreement that states the terms and conditions of that assistance. For the purposes of this subparagraph, the following shall apply:
(i)A qualified community development entity shall be certified under Section 45D of the Internal Revenue Code but has not received a federal New Markets Tax Credit allocation on or after January 1, 2012, and has either a local service area that includes one or more California communities or a California statewide service area, but excluding qualified community development entities with a national service area.
(ii)A nonprofit organization shall meet all of the following requirements: Is tax exempt under Section 23701, is registered with the Registry of Charitable Trusts, which is administered by the Attorney General, has articles of incorporation or articles of organization that state the primary mission of the organization is focused on improving the economic well-being of low-income communities or individuals, and has bylaws that provide that the organization maintains accountability to residents of low-income communities through their representation on any governing board or on an advisory board of the nonprofit organization.
(E)(i)For applications described in subparagraph (A), in the event requests for authority to designate qualified equity investments exceed the applicable annual allocation limitation, RTCA 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.
(ii)If a pending request cannot be fully certified due to this limit, RTCA shall certify the portion that may be certified unless the qualified community development entity elects to withdraw its request rather than receive partial certification.
(F)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 RTCA within 30 calendar days of such transfer and include the information required in the application with respect to such transferee with such notice. The transferee shall be subject to the same rules, requirements, and limitations applicable to the transferor.
(G)Within 200 calendar days of RTCA sending notice of certification, the qualified community development entity or any transferee, under subparagraph (F), 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 (F), shall provide RTCA with evidence of the receipt of the cash investment within 205 calendar days of the applicant receiving notice of certification. If the qualified community development entity or any transferee, under subparagraph (F), does not receive the cash investment and issue the qualified equity investment within 200 calendar days of RTCA sending the certification notice, the certification shall lapse and the entity may not issue the qualified equity investment without reapplying to RTCA for certification. Lapsed certifications revert back to RTCA and shall be reissued in the following order:
(i)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) under the annual allocation limitation of forty million dollars ($40,000,000) in paragraph (4) of subdivision (c).
(ii)Thereafter, in accordance with the application process.
(H)A qualified community development entity that issues qualified equity investments shall notify RTCA of the names of taxpayers that are eligible to utilize tax credits pursuant to this section and any transfer of a qualified equity investment.
(6)(A)A qualified community development entity that issues qualified equity investments shall submit a report to RTCA that provides documentation as to the investment of at least 85 percent of the funds being deployed within one year 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)Evidence that the community development entity complied with subparagraph (D) of paragraph (5).
(iv)Any other information required by RTCA as being necessary to meet the requirements of this section.
(B)Thereafter, the qualified community development entity shall submit an annual report to RTCA 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 social, environmental, and economic impact the credit had on the low-income community during the report period and cumulatively.
(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.
(vi)Location of each qualified low-income community business assisted by a qualified low-income community investment.
(vii)Summary of the outcomes of each of the revenue impact assessments undertaken by the qualified community development entity during the year.
(viii)Any other information requested by RTCA.
(e)(1)In the case where the credit allowed by this section exceeds the tax described in Section 12201, 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.
(2)A taxpayer allowed a credit under this section for a qualified equity investment shall not be eligible for any other credit under this part with respect to that investment.
(3)The credit allowed under this section may be in addition to any credit allowed under Section 45D of the Internal Revenue Code.
(f)RTCA shall annually report on its Internet Web site the information provided by low-income community development entities and on the geographic distribution of the qualified active low-income community businesses assisted.
(g)(1)The Insurance Commissioner may prescribe any rules or regulations that may be necessary or appropriate to implement this section. The Insurance Commissioner shall have access to any documentation held by RTCA relative to the application and reporting of a qualified community development entity.
(2)A qualified community development entity shall provide RTCA with the name, address, and tax identification number of each investor and entity for which a qualified equity investment was designated by the qualified community development entity, pursuant to this section. RTCA shall provide this information to the Insurance Commissioner in a manner determined by the Insurance Commissioner.
(h)(1)The credit authorized by this section shall only be allowed for those taxable years for which moneys are appropriated to RTCA to administer the California New Markets Tax Credit pursuant to 18410.3 for that taxable year. The appropriation shall specifically identify the California New Markets Tax Credit.
(2)For those taxable years for which those moneys are appropriated pursuant to paragraph (1), RTCA shall post notice of the appropriation on the homepage of its Internet Web site and send notice of such appropriation to the Secretary of State and the Legislative Counsel.
(i)This section shall be repealed on December 1, 2023.
SEC. 5.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 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-sized 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. RTCA 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, 2018, and before January 1, 2023, and subject to subdivision (h), there shall be allowed as a credit against the net tax, as defined in Section 17039, in an amount determined in accordance with Section 45D of the Internal Revenue Code, relating to the new markets tax credit, as modified in this section.
(2)For the purposes of this section, RTCA means the Responsible Tax Credit Administrator, as designated by the Governor.
(c)Section 45D of the Internal Revenue Code is modified as follows:
(1)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.
(2)(A)Section 45D(c)(1) of the Internal Revenue Code, relating to qualified community development entity, is modified to only include a qualified community development entity, that is certified by the Secretary of the Treasury, and its subsidiary qualified community development entities that have 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.
(B)Section 45D(c)(2) of the Internal Revenue Code, relating to special rules for certain organizations, is modified to only include a specialized small business investment company or community development financial institution that 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, 2013.
(3)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)By substituting any low-income community in California for any low-income community every place it appears in Section 45D of the Internal Revenue Code.
(B)A qualified active low-income community business shall not include 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.
(C)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 one or more California low-income communities. The operating business shall meet all other conditions of a qualified active low-income community business, except as modified by this paragraph. This requirement does not apply to a business that is located in a reservation-based community. Reservation-based means an area of land managed by a Native American tribe under the jurisdiction of the federal Bureau of Indian Affairs, provided that the tribe is named on the most current list of Indian Entities Recognized and Eligible to Receive Services from the United States Bureau of Indian Affairs, or successor document, as published in the Federal Register by the United States Bureau of Indian Affairs.
(D)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 nonmetropolitan area, with a median family income that does not exceed 60 percent of median family income for this state, 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.
(E)A qualified active low-income community business shall not include any business that operates or derives revenues from the operation of a country club, gaming establishment, massage parlor, liquor store, or golf course.
(F)A qualified active low-income community business shall not include a sexually oriented business. A sexually oriented business means a commercial enterprise that provides, or has provided in the 24 months prior to the date of the submission of an application described in subdivision (d) by the taxpayer, for an audience of two or more individuals live nude entertainment or live nude performances where the nudity is a function of everyday business operations and where nudity is a planned and intentional part of the entertainment or performance. Nude means clothed in a manner that leaves uncovered or visible, through less than fully opaque clothing, any portion of the genitals or, in the case of a female, any portion of the breasts below the top of the areola of the breasts.
(G)A qualified active low-income community business shall not include a charter school.
(4)Section 45D(f) of the Internal Revenue Code, relating to national limitation on amount of investments designated, is modified as follows:
(A)The following shall apply in lieu of the provisions of Section 45D(f)(1) of the Internal Revenue Code: The aggregate amount of qualified equity investments that may be allocated in any calendar year for purposes of this section, Section 12283, and Section 23622.9 shall be forty million dollars ($40,000,000) per calendar year. The allocation of any undesignated qualified equity investments shall be returned to RTCA by March 1 of the year following allocation and the value of the undesignated qualified equity investment shall be available for allocation in the following calendar years in accordance with the application process. Any qualified equity investment attributable to recaptured credits shall be available to RTCA on March 1 of the year following recapture and shall be available for allocation in the following calendar years in accordance with clause (iii) of subparagraph (B) of paragraph (5). Reallocated qualified equity investments attributable to recapture credits shall not count against the annual or the cumulative limit.
(B)The references to the Secretary in Section 45D(f)(2) of the Internal Revenue Code, relating to allocation of limitation, is modified to read RTCA.
(C)The last sentence of Section 45D(f)(3) of the Internal Revenue Code, relating to carryover of unused limitation, shall not apply.
(5)(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, is modified to add the following:
(i)The qualified community development entity fails to comply with subparagraph (D) of paragraph (5) of subdivision (d). In this case, recapture shall be 100 percent of the credit.
(ii)RTCA shall establish a process, in consultation with the Franchise Tax Board, for the recapture of credits allowed under this section from the entity that claimed the credit on a return.
(iii) Recaptured qualified equity investments revert back to RTCA and shall be reissued. The reissue shall not count toward the annual or cumulative allocation limitation. The reissue shall be done in the following order:
(I) First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) of paragraph (5) of subdivision (d) by the annual allocation limitation.
(II) Thereafter, in accordance with the application process.
(iv)Enforcement of each of the recapture provisions shall be subject to a six-month cure period.
(d)(1)RTCA shall adopt guidelines necessary or appropriate to carry out its responsibilities with respect to the allocation, monitoring, and management of the tax credit program authorized by this section.
(2)(A)RTCA shall establish and impose reasonable fees upon entities that apply for the allocation pursuant to this subdivision that in the aggregate defray the cost of reviewing applications for the program. RTCA may impose other reasonable fees upon entities that receive the allocation pursuant to this subdivision that in the aggregate defray the cost of administering the program.
(B)The fees collected shall be deposited in the California New Markets Tax Credit Fund established in Section 18410.3.
(3)In developing guidelines, RTCA shall adopt an allocation process that does all of the following:
(A)Creates an equitable distribution process that ensures that low-income community populations 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 authority to designate qualified equity investments, including, but not limited to, its business strategy, targeted community outcomes, capitalization strategy, and management capacity.
(C)Considers the qualified community development entitys prior qualified low-income community investments under Section 45D of the Internal Revenue Code.
(D)Considers the qualified community development entitys prior qualified low-income community investments under this section, including subparagraph (D) of paragraph (5).
(4)(A)Subject to subdivision (h), RTCA shall begin accepting applications on or before May 15, 2018, and shall award authority to designate qualified equity investments annually through 2022.
(B)In the instance where RTCA determines that an application is incomplete, the qualified community development entity shall be given five business days to provide the omitted information.
(5)(A)In the 2018 awards cycle, RTCA shall award authority to designate qualified equity investments to qualified community development entities described in paragraph (2) of subdivision (c) in the order applications are received by RTCA. Applications received on the same day shall be deemed to have been received simultaneously.
(B)In the 2019 to 2022 award cycles, inclusive, at least 60 percent of the authority to designate qualified equity investments shall be awarded pursuant to subparagraph (A). At the discretion of RTCA, a higher percentage of authority to designate qualified equity investments may be awarded pursuant to subparagraph (A).
(C)RTCA shall award up to 40 percent of the authority to designate qualified equity investments in the 2019 to 2022, inclusive, award cycles, to qualified community development entities on a competitive basis that meets the following criteria:
(i)Awards shall be reviewed using blind scoring and a review committee that is composed of community development finance practitioners and members having demonstrated experience in assessing organizational business strategy, community outcomes, capitalization strategy, and management capacity.
(ii)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 qualified equity investment or other assistance from any applicant.
(iii)Priority shall be provided to both of the following:
(I)Applications that commit to addressing the hardest to serve and undercapitalized lower income populations.
(II)Applications that support neighborhood revitalization strategies driven by local grassroots stakeholders in multiple low-income communities across one or more regions or the state. These applications shall demonstrate how their investment activity provides a scalable economic development model.
(D)For applications described in subparagraphs (A) and (B), applications for awards shall include a commitment to make at least 15 percent of qualified community development investments to a qualified community development entity with the assistance of a nonprofit organization as documented by a cooperation agreement that states the terms and conditions of that assistance. For the purposes of this subparagraph, the following shall apply:
(i)A qualified community development entity shall be certified under Section 45D of the Internal Revenue Code but has not received a federal New Markets Tax Credit allocation on or after January 1, 2012, and has either a local service area that includes one or more California communities or a California statewide service area, but excluding qualified community development entities with a national service area.
(ii)A nonprofit organization shall meet all of the following requirements: Is tax exempt under Section 23701, is registered with the Registry of Charitable Trusts, which is administered by the Attorney General, has articles of incorporation or articles of organization that state the primary mission of the organization is focused on improving the economic well-being of low-income communities or individuals, and has bylaws that provide that the organization maintains accountability to residents of low-income communities through their representation on any governing board or on an advisory board of the nonprofit organization.
(E)(i)For applications described in subparagraph (A), in the event requests for authority to designate qualified equity investments exceed the applicable annual allocation limitation, RTCA 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.
(ii)If a pending request cannot be fully certified due to this limit, RTCA shall certify the portion that may be certified unless the qualified community development entity elects to withdraw its request rather than receive partial certification.
(F)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 RTCA within 30 calendar days of such transfer and include the information required in the application with respect to such transferee with such notice. The transferee shall be subject to the same rules, requirements, and limitations applicable to the transferor.
(G)Within 200 calendar days of RTCA sending notice of certification, the qualified community development entity or any transferee, under subparagraph (F), 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 (F), shall provide RTCA with evidence of the receipt of the cash investment within 205 calendar days of the applicant receiving notice of certification. If the qualified community development entity or any transferee, under subparagraph (F), does not receive the cash investment and issue the qualified equity investment within 200 calendar days of RTCA sending the certification notice, the certification shall lapse and the entity may not issue the qualified equity investment without reapplying to RTCA for certification. Lapsed certifications revert back to RTCA and shall be reissued in the following order:
(i)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) under the annual allocation limitation of forty million dollars ($40,000,000) in paragraph (4) of subdivision (c).
(ii)Thereafter, in accordance with the application process.
(H)A qualified community development entity that issues qualified equity investments shall notify RTCA of the names of taxpayers that are eligible to utilize tax credits pursuant to this section and any transfer of a qualified equity investment.
(6)(A)A qualified community development entity that issues qualified equity investments shall submit a report to RTCA that provides documentation as to the investment of at least 85 percent of the funds being deployed within one year 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)Evidence that the community development entity complied with subparagraph (D) of paragraph (5).
(iv)Any other information required by RTCA as being necessary to meet the requirements of this section.
(B)Thereafter, the qualified community development entity shall submit an annual report to RTCA 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 social, environmental, and economic impact the credit had on the low-income community during the report period and cumulatively.
(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.
(vi)Location of each qualified low-income community business assisted by a qualified low-income community investment.
(vii)Summary of the outcomes of each of the revenue impact assessments undertaken by the qualified community development entity during the year.
(viii)Any other information requested by RTCA.
(e)(1)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.
(2)A taxpayer allowed a credit under this section for a qualified equity investment shall not be eligible for any other credit under this part with respect to that investment.
(3)The credit allowed under this section may be in addition to any credit allowed under Section 45D of the Internal Revenue Code.
(f)RTCA shall annually report on its Internet Web site the information provided by low-income community development entities and on the geographic distribution of the qualified active low-income community businesses assisted.
(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 RTCA relative to the application and reporting of a qualified community development entity.
(2)A qualified community development entity shall provide RTCA with the name, address, and tax identification number of each investor and entity for which a qualified equity investment was designated by the qualified community development entity, pursuant to this section. RTCA shall provide this information to the Franchise Tax Board in a manner determined by the Franchise Tax Board.
(h)(1)The credit authorized by this section shall only be allowed for those taxable years for which moneys are appropriated to RTCA to administer the California New Markets Tax Credit pursuant to 18410.3 for that taxable year. The appropriation shall specifically identify the California New Markets Tax Credit.
(2)For those taxable years for which those moneys are appropriated pursuant to paragraph (1), RTCA shall post notice of the appropriation on the homepage of its Internet Web site and send notice of such appropriation to the Secretary of State and the Legislative Counsel.
(i)This section shall be repealed on December 1, 2023.
SEC. 6.Section 17053.57 of the Revenue and Taxation Code is amended to read:17053.57.(a)For each taxable year beginning on or after January 1, 1997, and before January 1, 2017, 2019, there shall be allowed as a credit against the amount of net tax, as defined in Section 17039, an amount equal to 20 percent of the amount of each qualified investment made by a taxpayer during the taxable year into a community development financial institution that is certified by the Department of Insurance, California Organized Investment Network, or any successor thereof.
(b)(1)Notwithstanding any other provision of this part, a credit shall not be allowed under this section unless the California Organized Investment Network, or its successor within the Department of Insurance, certifies that the investment described in subdivision (a) qualifies for the credit under this section and certifies the total amount of the credit allocated to the taxpayer pursuant to this section.
(2)A credit shall not be allowed by this section unless the applicant and the taxpayer provide satisfactory substantiation to, and in the form and manner requested by, the Department of Insurance, California Organized Investment Network, or any successor thereof, that the investment is a qualified investment, as defined in paragraph (1) of subdivision (g).
(3)(A)The aggregate amount of qualified investments made by all taxpayers pursuant to this section, Section 12209, and Section 23657 shall not exceed fifty million dollars ($50,000,000) for each calendar year. However, if the aggregate amount of qualified investments made in any calendar year is less than fifty million dollars ($50,000,000), the difference may be carried over to the next year, and any succeeding year during which this section remains in effect, and added to the aggregate amount authorized for those years.
(B)The total amount of qualified investments certified by the California Organized Investment Network in any calendar year to any one community development financial institution together with its affiliates, as defined in Section 1215 of the Insurance Code, shall not exceed 30 percent of the annual aggregate amount of qualified investments certified by the California Organized Investment Network. If, after October 1, the California Organized Investment Network has determined that the availability of tax credits exceed their demand, then a community development financial institution that has been allocated 30 percent of the annual aggregate amount of qualified investments shall become eligible to apply to be certified for any remaining tax credits in that calendar year.
(C)Each year, 10 percent of the annual aggregate amount of qualified investments shall be reserved for investment amounts of less than or equal to two hundred thousand dollars ($200,000). If, after October 1, there remains an unallocated portion of the amount reserved for investments of less than or equal to two hundred thousand dollars ($200,000), then qualified investments in excess of two hundred thousand dollars ($200,000) may be eligible for that remaining unallocated portion.
(4)Priority among housing applications shall be given to applications that support affordable rental housing, housing for veterans, mortgages for community-based residential programs, and self-help housing ahead of single-family owned housing.
(5)Priority shall be given to insurance company investors over all other tax credit investors.
(c)The community development financial institution shall do all of the following:
(1)Apply to the Department of Insurance, California Organized Investment Network, or its successor, for certification of its status as a community development financial institution.
(2)(A)Apply to the Department of Insurance, California Organized Investment Network, or its successor, on behalf of the taxpayer, for certification of the amount of the investment and the credit amount allocated to the taxpayer, obtain the certification, and retain a copy of the certification.
(B)Provide in the application a detailed description of the intended use of the investment funds including, but not limited to, the following:
(i)All of the programs, projects, and services that would be funded.
(ii)The percentage of the intended use of the investment funds that would directly benefit low-to-moderate income moderate-income, low-income, and very low income households.
(iii)The percentage of the intended use of the investment funds that would directly benefit rural areas.
(iv)The percentage of the intended use of the investment funds that is a green investment as defined in Section 926.1 of the Insurance Code.
(v)The percentage of the intended use of the investment funds that would directly benefit a qualified low-income community business, as defined in paragraph (3) of subdivision (g).
(3)(A)Provide in the application required in paragraph (2) the following information to the Department of Insurance, California Organized Investment Network, or its successor:
(i)Name of the taxpayer.
(ii)Postal address of the taxpayer, or residential address of the taxpayer if the taxpayer is an individual.
(iii)Phone number of the taxpayer.
(iv)Email address of the taxpayer.
(v)The taxpayers identification number, or in the case of a partnership, the taxpayer identification numbers of all the partners for tax administration purposes.
(B)The information provided in subparagraph (A) shall be used only for internal purposes by the Department of Insurance, California Organized Investment Network, or its successor, and any network or its successor shall limit all public disclosure of that information to the name of the taxpayer only.
(4)Provide an annual listing to the Franchise Tax Board, in the form and manner agreed upon by the Franchise Tax Board and the Department of Insurance, California Organized Investment Network, or its successor, of the names and taxpayer identification numbers of any taxpayer who makes any withdrawal or partial withdrawal of a qualified investment before the expiration of 60 months from the date of the qualified investment.
(5)Submit reports to the Department of Insurance, California Organized Investment Network, or any successor thereof, as required pursuant to subdivision (a) of Section 12939.1 of the Insurance Code.
(d)(1)The Insurance Commissioner may develop instructions, procedures, and standards for applications, and for administering the criteria for the evaluation of applications under this section. The Insurance Commissioner may, from time to time, adopt, amend, or repeal regulations to implement the provisions of this section.
(2)The initial adoption of the regulations implementing this section shall be deemed to be an emergency and necessary in order to address a situation calling for immediate action to avoid serious harm to the public peace, health, safety, or general welfare.
(3)Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, any emergency regulation adopted or amended by the Insurance Commissioner pursuant to this section shall remain in effect until amended or repealed by the department.
(e)The California Organized Investment Network may certify investments for the credit allowed by this section on or before January 1, 2017, 2019, but not after that date.
(f)The Department of Insurance, California Organized Investment Network, or any successor thereof, shall do all of the following:
(1)Accept and evaluate applications for certification from financial institutions and issue certificates that the applicant is a community development financial institution qualified to receive qualified investments. To receive a certificate, an applicant shall satisfy the Department of Insurance, California Organized Investment Network, or any successor thereof, that it meets the specific requirements to be a community development financial institution for this state program as defined in paragraph (2) of subdivision (g). The certificate may be issued for a specified period of time, and may include reasonable conditions to effectuate the intent of this section. The Insurance Commissioner may suspend or revoke a certification, after affording the institution notice and the opportunity to be heard, if the commissioner finds that an institution no longer meets the requirement for certification.
(2)Accept and evaluate applications for certification from a community development financial institution on behalf of the taxpayer and issue certificates to taxpayers in an aggregate amount that shall not exceed the limit specified in subdivision (b), with highest priority granted to those applications where the intended use of the investments has the greatest aggregate benefit for low-to-moderate income low-income areas or households households, high-impact areas or households, or rural areas or households. The certificate shall include the amount eligible to be made as an investment that qualifies for the credit and the total amount of the credit to which the taxpayer is entitled for the taxable year. Applications for tax credits shall be accepted and evaluated throughout the year. The Insurance Commissioner shall establish tax credit issuance cycles throughout the year as necessary in order to issue tax credit certificates to those applications granted the highest priority.
(3)Provide an annual listing to the Franchise Tax Board, in the form or manner agreed upon by the Franchise Tax Board and the Department of Insurance, California Organized Investment Network, or its successor, of the taxpayers who were issued certificates, their respective tax identification numbers, the amount of the qualified investment made by each taxpayer, and the total amount of qualified investments.
(4)Include information specified pursuant to subdivision (b) of Section 12939.1 of the Insurance Code in the report required by Section 12922 of the Insurance Code.
(g)For purposes of this section:
(1)Qualified investment means an investment that is a deposit or loan that does not earn interest, or an equity investment, or an equity-like debt instrument that conforms to the specifications for these instruments as prescribed by the United States Department of the Treasury, Community Development Financial Institutions Fund, or its successor, or, in the absence of that prescription, as defined by the Insurance Commissioner. The investment must be equal to or greater than fifty thousand dollars ($50,000) and made for a minimum duration of 60 months. During that 60-month period, the community development financial institution shall have full use and control of the proceeds of the entire amount of the investment as well as any earnings on the investment for its community development purposes. The entire amount of the investment shall be received by the community development financial institution before the application for the tax credit is submitted. The community development financial institution shall use the proceeds of the investment for a purpose that is consistent with its community development mission and for the benefit of economically disadvantaged communities and low-income people in California.
(2)Community development financial institution means a private financial institution located in this state that is certified by the Department of Insurance, California Organized Investment Network, or its successor, that, consistent with the legislative findings, declarations, and intent set forth in Section 12939 of the Insurance Code, has community development as its primary mission, and that lends in urban, rural, or reservation-based communities in this state. A community development financial institution may include a community development bank, a community development loan fund, a community development credit union, a microenterprise fund, a community development corporation-based lender, or a community development venture fund.
(3)Qualified low-income community business means a business independently owned and operated, not dominant in its field of operation, with less than 100 employees. In order for a business to be a qualified low-income community business, it shall also be one of the following:
(A)Exclusively located in a census tract with a poverty rate greater than 30 percent.
(B)Located within a nonmetropolitan area with a median family income that does not exceed 60 percent of median family income for the State of California.
(C)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.
(D)A census tract with an unemployment rate at least 1.5 times the national average.
(h)(1)If a qualified investment is reduced or withdrawn before the end of the 60th month and not reinvested in another community development financial institution within 60 days, there shall be added to the net tax, as defined in Section 17039, for the taxable year in which the withdrawal occurs, the entire amount of any credit previously allowed under this section.
(2)If a qualified investment is reduced before the end of the 60th month, but not below fifty thousand dollars ($50,000), there shall be added to the net tax, as defined in Section 17039, for the taxable year in which the reduction occurs, an amount equal to 20 percent of the total reduction for the taxable year.(i)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 for the next four taxable years, or until the credit has been exhausted, whichever occurs first.
(j)The Franchise Tax Board shall, as requested by the Department of Insurance, California Organized Investment Network, or its successor, advise and assist in the administration of this section.
(k)On or before June 30, 2016, the Legislative Analysts Office shall submit a report to the Legislature, in compliance with Section 9795 of the Government Code, on the effects of the tax credits allowed under this section, Section 12209, and Section 23657, with a focus on employment in low-to-moderate income and rural areas, and on the benefits of these tax credits to low-to-moderate income and rural persons.
(l)This section shall remain in effect only until December 1, 2017, 2019, and as of that date is repealed.
SEC. 7.Section 18410.3 is added to the Revenue and Taxation Code, to read:18410.3.(a)The California New Markets Tax Credit Fund is hereby established in the State Treasury.
(b)Upon annual appropriation, moneys in the fund shall be used for the purposes described in subdivision (d) of Section 12283, subdivision (d) of Section 17053.9, and subdivision (d) of Section 23622.9.
SEC. 8.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 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-sized 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. RTCA 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, 2018, and before January 1, 2023, and subject to subdivision (h), there shall be allowed as a credit against the tax, as defined in Section 23036, in an amount determined in accordance with Section 45D of the Internal Revenue Code, relating to the new markets tax credit, as modified in this section.
(2)For the purposes of this section, RTCA means the Responsible Tax Credit Administrator, as designated by the Governor.
(c)Section 45D of the Internal Revenue Code is modified as follows:
(1)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.
(2)(A)Section 45D(c)(1) of the Internal Revenue Code, relating to qualified community development entity, is modified to only include a qualified community development entity, that is certified by the Secretary of the Treasury, and its subsidiary qualified community development entities that have 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.
(B)Section 45D(c)(2) of the Internal Revenue Code, relating to special rules for certain organizations, is modified to only include a specialized small business investment company or community development financial institution that 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, 2013.
(3)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)By substituting any low-income community in California for any low-income community every place it appears in Section 45D of the Internal Revenue Code.
(B)A qualified active low-income community business shall not include 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.
(C)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 one or more California low-income communities. The operating business shall meet all other conditions of a qualified active low-income community business, except as modified by this paragraph. This requirement does not apply to a business that is located in a reservation-based community. Reservation-based means an area of land managed by a Native American tribe under the jurisdiction of the federal Bureau of Indian Affairs, provided that the tribe is named on the most current list of Indian Entities Recognized and Eligible to Receive Services from the United States Bureau of Indian Affairs, or successor document, as published in the Federal Register by the United States Bureau of Indian Affairs.
(D)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 nonmetropolitan area, with a median family income that does not exceed 60 percent of median family income for this state, 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.
(E)A qualified active low-income community business shall not include any business that operates or derives revenues from the operation of a country club, gaming establishment, massage parlor, liquor store, or golf course.
(F)A qualified active low-income community business shall not include a sexually oriented business. A sexually oriented business means a commercial enterprise that provides, or has provided in the 24 months prior to the date of the submission of an application described in subdivision (d) by the taxpayer, for an audience of two or more individuals live nude entertainment or live nude performances where the nudity is a function of everyday business operations and where nudity is a planned and intentional part of the entertainment or performance. Nude means clothed in a manner that leaves uncovered or visible, through less than fully opaque clothing, any portion of the genitals or, in the case of a female, any portion of the breasts below the top of the areola of the breasts.
(G)A qualified active low-income community business shall not include a charter school.
(4)Section 45D(f) of the Internal Revenue Code, relating to national limitation on amount of investments designated, is modified as follows:
(A)The following shall apply in lieu of the provisions of Section 45D(f)(1) of the Internal Revenue Code: The aggregate amount of qualified equity investments that may be allocated in any calendar year for purposes of this section, Section 12283, and Section 17053.9 shall be forty million dollars ($40,000,000) per calendar year. The allocation of any undesignated qualified equity investments shall be returned to RTCA by March 1 of the year following allocation and the value of the undesignated qualified equity investment shall be available for allocation in the following calendar years in accordance with the application process. Any qualified equity investment attributable to recaptured credits shall be available to RTCA on March 1 of the year following recapture and shall be available for allocation in the following calendar years in accordance with clause (iii) of subparagraph (B) of paragraph (5). Reallocated qualified equity investments attributable to recapture credits shall not count against the annual or the cumulative limit.
(B)The references to the Secretary in Section 45D(f)(2) of the Internal Revenue Code, relating to allocation of limitation, is modified to read RTCA.
(C)The last sentence of Section 45D(f)(3) of the Internal Revenue Code, relating to carryover of unused limitation, shall not apply.
(5)(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, is modified to add the following:
(i)The qualified community development entity fails to comply with subparagraph (D) of paragraph (5) of subdivision (d). In this case, recapture shall be 100 percent of the credit.
(ii)RTCA shall establish a process, in consultation with the Franchise Tax Board, for the recapture of credits allowed under this section from the entity that claimed the credit on a return.
(iii)Recaptured qualified equity investments revert back to RTCA and shall be reissued. The reissue shall not count toward the annual or cumulative allocation limitation. The reissue shall be done in the following order:
(I)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) of paragraph (5) of subdivision (d) by the annual allocation limitation.
(II)Thereafter, in accordance with the application process.
(iv)Enforcement of each of the recapture provisions shall be subject to a six-month cure period.
(d)(1)RTCA shall adopt guidelines necessary or appropriate to carry out its responsibilities with respect to the allocation, monitoring, and management of the tax credit program authorized by this section.
(2)(A)RTCA shall establish and impose reasonable fees upon entities that apply for the allocation pursuant to this subdivision that in the aggregate defray the cost of reviewing applications for the program. RTCA may impose other reasonable fees upon entities that receive the allocation pursuant to this subdivision that in the aggregate defray the cost of administering the program.
(B)The fees collected shall be deposited in the California New Markets Tax Credit Fund established in Section 18410.3.
(3)In developing guidelines, RTCA shall adopt an allocation process that does all of the following:
(A)Creates an equitable distribution process that ensures that low-income community populations 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 authority to designate qualified equity investments, including, but not limited to, its business strategy, targeted community outcomes, capitalization strategy, and management capacity.
(C)Considers the qualified community development entitys prior qualified low-income community investments under Section 45D of the Internal Revenue Code.
(D)Considers the qualified community development entitys prior qualified low-income community investments under this section, including subparagraph (D) of paragraph (5).
(4)(A)Subject to subdivision (h), RTCA shall begin accepting applications on or before May 15, 2018, and shall award authority to designate qualified equity investments annually through 2022.
(B)In the instance where RTCA determines that an application is incomplete, the qualified community development entity shall be given five business days to provide the omitted information.
(5)(A)In the 2018 awards cycle, RTCA shall award authority to designate qualified equity investments to qualified community development entities described in paragraph (2) of subdivision (c) in the order applications are received by RTCA. Applications received on the same day shall be deemed to have been received simultaneously.
(B)In the 2019 to 2022 award cycles, inclusive, at least 60 percent of the authority to designate qualified equity investments shall be awarded pursuant to subparagraph (A). At the discretion of RTCA, a higher percentage of authority to designate qualified equity investments may be awarded pursuant to subparagraph (A).
(C)RTCA shall award up to 40 percent of the authority to designate qualified equity investments in the 2019 to 2022, inclusive, award cycles, to qualified community development entities on a competitive basis that meets the following criteria:
(i)Awards shall be reviewed using blind scoring and a review committee that is composed of community development finance practitioners and members having demonstrated experience in assessing organizational business strategy, community outcomes, capitalization strategy, and management capacity.
(ii)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 qualified equity investment or other assistance from any applicant.
(iii)Priority shall be provided to both of the following:
(I)Applications that commit to addressing the hardest to serve and undercapitalized lower income populations.
(II)Applications that support neighborhood revitalization strategies driven by local grassroots stakeholders in multiple low-income communities across one or more regions or the state. These applications shall demonstrate how their investment activity provides a scalable economic development model.
(D)For applications described in subparagraphs (A) and (B), applications for awards shall include a commitment to make at least 15 percent of qualified community development investments to a qualified community development entity with the assistance of a nonprofit organization as documented by a cooperation agreement that states the terms and conditions of that assistance. For the purposes of this subparagraph, the following shall apply:
(i)A qualified community development entity shall be certified under Section 45D of the Internal Revenue Code but has not received a federal New Markets Tax Credit allocation on or after January 1, 2012, and has either a local service area that includes one or more California communities or a California statewide service area, but excluding qualified community development entities with a national service area.
(ii)A nonprofit organization shall meet all of the following requirements: Is tax exempt under Section 23701, is registered with the Registry of Charitable Trusts, which is administered by the Attorney General, has articles of incorporation or articles of organization that state the primary mission of the organization is focused on improving the economic well-being of low-income communities or individuals, and has bylaws that provide that the organization maintains accountability to residents of low-income communities through their representation on any governing board or on an advisory board of the nonprofit organization.
(E)(i)For applications described in subparagraph (A), in the event requests for authority to designate qualified equity investments exceed the applicable annual allocation limitation, RTCA 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.
(ii)If a pending request cannot be fully certified due to this limit, RTCA shall certify the portion that may be certified unless the qualified community development entity elects to withdraw its request rather than receive partial certification.
(F)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 RTCA within 30 calendar days of such transfer and include the information required in the application with respect to such transferee with such notice. The transferee shall be subject to the same rules, requirements, and limitations applicable to the transferor.
(G)Within 200 calendar days of RTCA sending notice of certification, the qualified community development entity or any transferee, under subparagraph (F), 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 (F), shall provide RTCA with evidence of the receipt of the cash investment within 205 calendar days of the applicant receiving notice of certification. If the qualified community development entity or any transferee, under subparagraph (F), does not receive the cash investment and issue the qualified equity investment within 200 calendar days of RTCA sending the certification notice, the certification shall lapse and the entity may not issue the qualified equity investment without reapplying to RTCA for certification. Lapsed certifications revert back to RTCA and shall be reissued in the following order:
(i)First, pro rata to applicants whose qualified equity investment allocations were reduced pursuant to subparagraph (E) under the annual allocation limitation of forty million dollars ($40,000,000) in paragraph (4) of subdivision (c).
(ii)Thereafter, in accordance with the application process.
(H)A qualified community development entity that issues qualified equity investments shall notify RTCA of the names of taxpayers that are eligible to utilize tax credits pursuant to this section and any transfer of a qualified equity investment.
(6)(A)A qualified community development entity that issues qualified equity investments shall submit a report to RTCA that provides documentation as to the investment of at least 85 percent of the funds being deployed within one year 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)Evidence that the community development entity complied with subparagraph (D) of paragraph (5).
(iv)Any other information required by RTCA as being necessary to meet the requirements of this section.
(B)Thereafter, the qualified community development entity shall submit an annual report to RTCA 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 social, environmental, and economic impact the credit had on the low-income community during the report period and cumulatively.
(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.
(vi)Location of each qualified low-income community business assisted by a qualified low-income community investment.
(vii)Summary of the outcomes of each of the revenue impact assessments undertaken by the qualified community development entity during the year.
(viii)Any other information requested by RTCA.
(e)(1)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.
(2)A taxpayer allowed a credit under this section for a qualified equity investment shall not be eligible for any other credit under this part with respect to that investment.
(3)The credit allowed under this section may be in addition to any credit allowed under Section 45D of the Internal Revenue Code.
(f)RTCA shall annually report on its Internet Web site the information provided by low-income community development entities and on the geographic distribution of the qualified active low-income community businesses assisted.
(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 RTCA relative to the application and reporting of a qualified community development entity.
(2)A qualified community development entity shall provide RTCA with the name, address, and tax identification number of each investor and entity for which a qualified equity investment was designated by the qualified community development entity, pursuant to this section. RTCA shall provide this information to the Franchise Tax Board in a manner determined by the Franchise Tax Board.
(h)(1)The credit authorized by this section shall only be allowed for those taxable years for which moneys are appropriated to RTCA to administer the California New Markets Tax Credit pursuant to 18410.3 for that taxable year. The appropriation shall specifically identify the California New Markets Tax Credit.
(2)For those taxable years for which those moneys are appropriated pursuant to paragraph (1), RTCA shall post notice of the appropriation on the homepage of its Internet Web site and send notice of such appropriation to the Secretary of State and the Legislative Counsel.
(i)This section shall be repealed on December 1, 2023.
SEC. 9.Section 23657 of the Revenue and Taxation Code is amended to read:23657.(a)For each taxable year beginning on or after January 1, 1997, and before January 1, 2017, 2019, there shall be allowed as a credit against the amount of tax, as defined in Section 23036, an amount equal to 20 percent of the amount of each qualified investment made by a taxpayer during the taxable year into a community development financial institution that is certified by the Department of Insurance, California Organized Investment Network, or any successor thereof.
(b)(1)Notwithstanding any other provision of this part, a credit shall not be allowed under this section unless the California Organized Investment Network, or its successor within the Department of Insurance, certifies that the investment described in subdivision (a) qualifies for the credit under this section and certifies the total amount of the credit allocated to the taxpayer pursuant to this section.
(2)A credit shall not be allowed by this section unless the applicant and the taxpayer provide satisfactory substantiation to, and in the form and manner requested by, the Department of Insurance, California Organized Investment Network, or any successor thereof, that the investment is a qualified investment, as defined in paragraph (1) of subdivision (g).
(3)(A)The aggregate amount of qualified investments made by all taxpayers pursuant to this section, Section 12209, and Section 17053.57 shall not exceed fifty million dollars ($50,000,000) for each calendar year. However, if the aggregate amount of qualified investments made in any calendar year is less than fifty million dollars ($50,000,000), the difference may be carried over to the next year, and any succeeding year during which this section remains in effect, and added to the aggregate amount authorized for those years.
(B)The total amount of qualified investments certified by the California Organized Investment Network in any calendar year to any one community development financial institution together with its affiliates, as defined in Section 1215 of the Insurance Code, shall not exceed 30 percent of the annual aggregate amount of qualified investments certified by the California Organized Investment Network. If, after October 1, the California Organized Investment Network has determined that the availability of tax credits exceed their demand, then a community development financial institution that has been allocated 30 percent of the annual aggregate amount of qualified investments shall become eligible to apply to be certified for any remaining tax credits in that calendar year.
(C)Each year, 10 percent of the annual aggregate amount of qualified investments shall be reserved for investment amounts of less than or equal to two hundred thousand dollars ($200,000). If, after October 1, there remains an unallocated portion of the amount reserved for investments of less than or equal to two hundred thousand dollars ($200,000), then qualified investments in excess of two hundred thousand dollars ($200,000) may be eligible for that remaining unallocated portion.
(4)Priority among housing applications shall be given to applications that support affordable rental housing, housing for veterans, mortgages for community-based residential programs, and self-help housing ahead of single-family owned housing.
(5)Priority shall be given to insurance company investors over all other tax credit investors.
(c)The community development financial institution shall do all of the following:
(1)Apply to the Department of Insurance, California Organized Investment Network, or its successor, for certification of its status as a community development financial institution.
(2)(A)Apply to the Department of Insurance, California Organized Investment Network, or its successor, on behalf of the taxpayer, for certification of the amount of the investment and the credit amount allocated to the taxpayer, obtain the certification, and retain a copy of the certification.
(B)Provide in the application a detailed description of the intended use of the investment funds including, but not limited to, the following:
(i)All of the programs, projects, and services that would be funded.
(ii)The percentage of the intended use of the investment funds that would directly benefit low-to-moderate income moderate-income, low-income, and very low income households.
(iii)The percentage of the intended use of the investment funds that would directly benefit rural areas.
(iv)The percentage of the intended use of the investment funds that is a green investment as defined in Section 926.1 of the Insurance Code.
(v)The percentage of the intended use of the investment funds that would directly benefit a qualified low-income community business, as defined in paragraph (3) of subdivision (g).
(3)(A)Provide in the application required in paragraph (2) the following information to the Department of Insurance, California Organized Investment Network, or its successor:
(i)Name of the taxpayer.
(ii)Postal address of the taxpayer, or residential address of the taxpayer if the taxpayer is an individual.
(iii)Phone number of the taxpayer.
(iv)Email address of the taxpayer.
(v)The taxpayers California company identification number for tax administration purposes, or in the case of an S corporation, the taxpayer identification numbers of all the shareholders for tax administration purposes.
(B)The information provided in subparagraph (A) shall be used only for internal purposes by the Department of Insurance, California Organized Investment Network, or its successor, and any public disclosure of that information shall be limited to the name of the taxpayer only.
(4)Provide an annual listing to the Franchise Tax Board, in the form and manner agreed upon by the Franchise Tax Board and the Department of Insurance, California Organized Investment Network, or its successor, of the names and taxpayer identification numbers of any taxpayer who makes any withdrawal or partial withdrawal of a qualified investment before the expiration of 60 months from the date of the qualified investment.
(5)Submit reports to the department, California Organized Investment Network, or any successor thereof, as required pursuant to subdivision (a) of Section 12939.1 of the Insurance Code.
(d)The California Organized Investment Network may certify investments for the credit allowed by this section on or before January 1, 2017, 2019, but not after that date.
(e)(1)The Insurance Commissioner may develop instructions, procedures, and standards for applications, and for administering the criteria for the evaluation of applications under this section. The Insurance Commissioner may, from time to time, adopt, amend, or repeal regulations to implement the provisions of this section.
(2)The initial adoption of the regulations implementing this section shall be deemed to be an emergency and necessary in order to address a situation calling for immediate action to avoid serious harm to the public peace, health, safety, or general welfare.
(3)Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, any emergency regulation adopted or amended by the Insurance Commissioner pursuant to this section shall remain in effect until amended or repealed by the department.
(f)The Department of Insurance, California Organized Investment Network, or any successor thereof, shall do all of the following:
(1)Accept and evaluate applications for certification from financial institutions and issue certificates that the applicant is a community development financial institution qualified to receive qualified investments. To receive a certificate, an applicant shall satisfy the Department of Insurance, California Organized Investment Network, or any successor thereof, that it meets the specific requirements to be a community development financial institution for this state program as defined in paragraph (2) of subdivision (g). The certificate may be issued for a specified period of time, and may include reasonable conditions to effectuate the intent of this section. The Insurance Commissioner may suspend or revoke a certification, after affording the institution notice and the opportunity to be heard, if the commissioner finds that an institution no longer meets the requirement for certification.
(2)Accept and evaluate applications for certification from any community development financial institution on behalf of the taxpayer and issue certificates to taxpayers in an aggregate amount that shall not exceed the limit specified in subdivision (b), with highest priority granted to those applications where the intended use of the investments has the greatest aggregate benefit for low-to-moderate income low-income areas or households households, high-impact areas or households, or rural areas or households. The certificate shall include the amount eligible to be made as an investment that qualifies for the credit and the total amount of the credit to which the taxpayer is entitled for the taxable year. Applications for tax credits shall be accepted and evaluated throughout the year. The Insurance Commissioner shall establish tax credit issuance cycles throughout the year as necessary in order to issue tax credit certificates to those applications granted the highest priority.
(3)Provide an annual listing to the Franchise Tax Board, in the form or manner agreed upon by the Franchise Tax Board and the Department of Insurance, California Organized Investment Network, or its successor, of the taxpayers who were issued certificates, their respective tax identification numbers, the amount of the qualified investment made by each taxpayer, and the total amount of qualified investments.
(4)Include information specified pursuant to subdivision (b) of Section 12939.1 of the Insurance Code in the report required by Section 12922 of the Insurance Code.
(g)For purposes of this section:
(1)Qualified investment means an investment that is a deposit or loan that does not earn interest, or an equity investment, or an equity-like debt instrument that conforms to the specifications for these instruments as prescribed by the United States Department of the Treasury, Community Development Financial Institutions Fund, or its successor, or, in the absence of that prescription, as defined by the Insurance Commissioner. The investment must be equal to or greater than fifty thousand dollars ($50,000) and made for a minimum duration of 60 months. During that 60-month period, the community development financial institution shall have full use and control of the proceeds of the entire amount of the investment as well as any earnings on the investment for its community development purposes. The entire amount of the investment shall be received by the community development financial institution before the application for the tax credit is submitted. The community development financial institution shall use the proceeds of the investment for a purpose that is consistent with its community development mission and for the benefit of economically disadvantaged communities and low-income people in California.
(2)Community development financial institution means a private financial institution located in this state that is certified by the Department of Insurance, California Organized Investment Network, or its successor, that, consistent with the legislative findings, declarations, and intent set forth in Section 12939 of the Insurance Code, has community development as its primary mission, and that lends in urban, rural, or reservation-based communities in this state. A community development financial institution may include a community development bank, a community development loan fund, a community development credit union, a microenterprise fund, a community development corporation-based lender, or a community development venture fund.
(3)Qualified low-income community business means a business independently owned and operated, not dominant in its field of operation, with less than 100 employees. In order for a business to be a qualified low-income community business, it shall also be one of the following:
(A)Exclusively located in a census tract with a poverty rate greater than 30 percent.
(B)Located within a nonmetropolitan area with a median family income that does not exceed 60 percent of median family income for the State of California.
(C)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.
(D)A census tract with an unemployment rate at least 1.5 times the national average.
(h)(1)If a qualified investment is reduced or withdrawn before the end of the 60th month and not reinvested in another community development financial institution within 60 days, there shall be added to the tax, as defined in Section 23036, for the taxable year in which the withdrawal occurs, the entire amount of any credit previously allowed under this section.
(2)If a qualified investment is reduced before the end of the 60th month, but not below fifty thousand dollars ($50,000), there shall be added to the tax, as defined in Section 23036, for the taxable year in which the reduction occurs, an amount equal to 20 percent of the total reduction for the taxable year.(i)In the case where the credit allowed by this section exceeds the tax, the excess may be carried over to reduce the tax for the next four taxable years, or until the credit has been exhausted, whichever occurs first.
(j)The Franchise Tax Board shall, as requested by the Department of Insurance, California Organized Investment Network, or its successor, advise and assist in the administration of this section.
(k)On or before June 30, 2016, the Legislative Analysts Office shall submit a report to the Legislature, in compliance with Section 9795 of the Government Code, on the effects of the tax credits allowed under this section, Section 12209, and Section 17053.57, with a focus on employment in low-to-moderate income and rural areas, and on the benefits of these tax credits to low-to-moderate income and rural persons.
(l)This section shall remain in effect only until December 1, 2017, 2019, and as of that date is repealed.
SEC. 10.For the purposes of complying with Section 41 of the Revenue and Taxation Code, with respect to Sections 12283, 17053.9, and 23622.9 of the Revenue and Taxation Code, as proposed to be added by Sections 4, 5, and 8 of this act, the Legislature finds and declares as follows:
(a)Specific goals, purposes, and objectives: attract private sector investment in lower income communities in California.
(b)Performance indicators:
(1)Amount of qualified low-income community investments issued.
(2)Amount of dollars deployed in qualified low-income community investments.
(3)Number of operating businesses assisted as a result of qualified low-income community investments. This data shall be compared to business development, including startups, tax revenues, and new investments within the most immediate geographic area for which data is reasonably available for the 12 and 24 months prior to the date on which any tax credits are allowed by Section 12283, 17053.9, or 23622.9 of the Revenue and Taxation Code.
(4)Number of employment positions created and retained as a result of qualified low-income community investments and the average annual salary of those positions. These numbers shall be compared to the area median income and unemployment and poverty rates for the most immediate geographic areas for which data is reasonably available for the 12 and 24 months prior to the date on which any tax credits are allowed by Section 12283, 17053.9, or 23622.9 of the Revenue and Taxation Code.
(c)Data collection requirements and baseline measurements:
(1)The baseline measurements include:
(A)The amount of tax credits issued in the year.
(B)The unemployment rate of the area.
(C)The poverty rate of the area.
(2)Data to collect includes:
(A)The amount of tax credits issued in the year.
(B)The number of operating businesses located in a low-income community that are assisted.
(C)The number of jobs created and retained as a result of qualified low-income community investments.
SEC. 11.The provisions of this act are severable. If any provision of this act or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.
SEC. 12.This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the California Constitution and shall go into immediate effect. The facts constituting the necessity are:
In order to preserve, at the earliest possible time, a program that spurs investment in, and positive impact on, economically vulnerable individuals, families, and communities in this state, it is necessary that this act take effect immediately.
|
Date
|
Status
|
|---|---|
| Sep 11, 2018 | Vetoed by Governor. |
| Sep 4, 2018 | Enrolled and presented to the Governor at 3 p.m. |
| Aug 27, 2018 | Senate amendments concurred in. To Engrossing and Enrolling. |
| Aug 22, 2018 | In Assembly. Concurrence in Senate amendments pending. May be considered on or after August 24 pursuant to Assembly Rule 77. |
| Aug 21, 2018 | Read third time. Passed. Ordered to the Assembly. |
| Aug 20, 2018 | Read second time. Ordered to third reading. |
| Aug 17, 2018 | From committee: Amend, and do pass as amended. (Ayes 7. Noes 0.) (August 16). |
| Jun 25, 2018 | In committee: Referred to APPR. suspense file. |
| May 7, 2018 | From committee: Do pass and re-refer to Com. on APPR. (Ayes 8. Noes 0.) (May 7). Re-referred to Com. on APPR. |
| Feb 14, 2018 | Referred to Com. on B., P. & E.D. |
| Jan 29, 2018 | In Senate. Read first time. To Com. on RLS. for assignment. |
| Jan 29, 2018 | Read third time. Passed. Ordered to the Senate. |
| Jan 22, 2018 | Read second time. Ordered to third reading. |
| Jan 18, 2018 | In committee: Set, first hearing. Referred to APPR. suspense file. |
| Jan 12, 2018 | Re-referred to Com. on APPR. |
| Jan 11, 2018 | Read second time and amended. |
| Jan 10, 2018 | From committee: Amend, and do pass as amended and re-refer to Com. on APPR. with recommendation: To Consent Calendar. (Ayes 6. Noes 0.) (January 9). |
| Jan 8, 2018 | Re-referred to Com. on J., E.D., & E. |
| Jan 4, 2018 | From committee chair, with author's amendments: Amend, and re-refer to Com. on J., E.D., & E. Read second time and amended. |
| Apr 25, 2017 | Re-referred to Com. on J., E.D., & E. |
| Apr 24, 2017 | Referred to Coms. on J., E.D., & E. and REV. & TAX. |
| Mar 16, 2017 | From printer. May be heard in committee April 15. |
| Mar 15, 2017 | Read first time. To print. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| Aug 27, 2018 | AB 1715 QUIRK-SILVA Concurrence in Senate Amendments | Assembly Floor |
Passed |
|
| Aug 21, 2018 | Assembly 3rd Reading AB1715 Quirk-Silva et al. By Portantino | Senate Floor |
Passed |
|
| Aug 16, 2018 | Do pass as amended | Senate Standing Committee on Appropriations |
Passed |
|
| Jun 25, 2018 | Placed on suspense file | Senate Standing Committee on Appropriations |
Passed |
|
| May 7, 2018 | Do pass, but first be re-referred to the Committee on [Appropriations] | Senate Standing Committee on Business, Professions and Economic Development |
Passed |
|
| Jan 29, 2018 | AB 1715 QUIRK-SILVA Assembly Third Reading | Assembly Floor |
Passed |
|
| Jan 18, 2018 | Do pass. | Assembly Standing Committee on Appropriations |
Passed |
|
| Jan 9, 2018 | Do pass as amended, and be re-referred to the Committee on [Appropriations] with recommendation: To Consent Calendar | Assembly Standing Committee on Jobs, Economic Development, and the Economy |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
GOVERNOR'S VETO
GV Bill Id:AB 1715
Author:(Quirk-Silva, et al.)
As Enrolled Ver:September 4, 2018
2/3 vote
ASSEMBLY: | 76-0 | (January 29, 2018) | SENATE: | 39-0 | (August 21, 2018) |
ASSEMBLY | 80-0 | (August 27, 2018) |
Original Committee Reference: J., E.D., & E.
SUMMARY: Requires the Governor's Office of Business and Economic Development (GO-Biz) to develop and implement a process for engaging with public and private entities that are interested in partnering with the State of California in operating a trade and investment office in a foreign country. At a minimum, the process is required to include:
- A list of information that is to be included in the initial letter of interest.
- A response from GO-Biz within 30 calendar days of submittal as to whether any information is missing from the letter of interest. Information is allowed to be added in order for GO-Biz to have a complete letter of interest for review.
- A meeting with GO-Biz to discuss each fully compliant letter of interest.
- A determination within 90 calendar days of receiving a complete letter of interest as to whether to request a full proposal.
- After receiving the full proposal, GO-Biz is required to make a determination as to whether to move forward with the establishment of the trade and investment office, as specified.
The Senate amendments make technical, nonsubstantive changes.
EXISTING LAW:
- Establishes GO-Biz within the Governor's Office for the purpose of serving as the state's principal entity for issues relating to international trade and foreign investment, excluding agricultural issues. GO-Biz is led by a director, which is appointed by the Governor.
- Authorizes the Director of GO-Biz to establish and terminate trade offices outside the United States, as he or she determines appropriate and that specific requirements are met. These requirements include:
- Making a determination that the country where an international trade and investment office would be located is among those with the greatest potential for direct foreign investment in California, export growth, or both.
- Inclusion of the new international trade and investment office in GO-Biz' annual program budget, strategy, and business plan, as specified.
- Authorizes trade offices to be funded in whole or in part by nonstate funds.
- Authorizes GO-Biz to contract with a nonprofit entity to operate an international trade and investment office. The contract shall, among other provisions, require the nonprofit entity to provide GO-Biz with information sufficient to satisfy the donor reporting requirements, as specified. Appropriate reporting is required within 30 days of receipt by the nonprofit entity of each donation used to fund an international trade and investment office.
- Requires that the International Trade and Investment Program's annual budget, strategy and business plan, and review of the prior year's activities be submitted to specified legislative offices in the Assembly and the Senate, including the Chief Clerk in each House, the Office of the Speaker and pro Tempore, and the standing committee in each House with international trade oversight responsibilities.
FISCAL EFFECT: According to the Senate Appropriations Committee, GO-Biz reports the following costs for implementation:
- The range of costs for one to two new positions to support the intake of applications, review applications, manage stakeholders, and provide recommendations to the Director about the need for engagement with interested parties, is estimated to be $140,000 to $260,000 annually.
- To the extent the bill prompts additional trade offices to be opened, GO-Biz estimates for each new office, the annual operating cost would be approximately $780,000, depending on the country, the cost of office space, and cost of international travel.
- In addition, there is likely to be some General Fund pressure from the bill, whether partially or entirely since the bill clarifies that GO-Biz may accept non-state moneys, including, but not limited to, federal and private sector funds for the purposes of operating or supporting the operation of any international trade and investment office. No single donor can contribute more than 25% of the annual budget of any trade office in a given year. To the extent nonstate funds are not raised, the fiscal estimates provided would likely be General Fund.
COMMENTS: Trade and foreign investment play an important role within California's $2.6 trillion economy. Since the elimination of the state's foreign trade offices in 2003, the public and Members of the Legislature have expressed interest in their re-establishment. Current law provides GO-Biz with the authority to establish foreign offices and specifies which actions GO-Biz is to take once a determination to move forward has been made. Existing law, however, is silent as to how outside economic development entities can recommend and propose the establishment of jointly administered foreign trade offices. While GO-Biz has testified that they are very flexible in how proposals can be brought forward, stakeholder groups testify that confusion remains and that more structure would be useful.
This bill provides a framework for filing an initial letter of interest, discussing its applicability with GO-Biz, and then receiving a determination as to whether a full proposal should be developed and submitted. In doing so, the bill clarifies the level of specificity and funding commitments that need to be in place in order to engage with GO-Biz. Nothing in the bill limits the authority of GO-Biz to select partners, locations, or open foreign trade and investment offices.
This bill establishes a process for the Governor's Office of Business and Economic Development to accept proposals from public and private entities that are interested in collaborating with the state to operate an international trade and investment office in a foreign country.
Nothing prohibits any public or private entity from submitting a letter of interest for establishing an international trade and investment office in a foreign nation. I am not convinced the legislatively mandated process sought by this bill to establish trade offices will improve the state's ability to pursue successful partnerships with other countries.
Analysis Prepared by: Toni Symonds / J., E.D., & E. / (916) 319-2090 FN: 0005238
CONCURRENCE IN SENATE AMENDMENTS
CSA1 Bill Id:AB 1715
Author:(Quirk-Silva, et al.)
As Amended Ver:August 17, 2018
Majority vote
ASSEMBLY: | 76-0 | (January 29, 2018) | SENATE: | 39-0 | (August 21, 2018) |
Original Committee Reference: J., E.D., & E.
SUMMARY: Requires the Governor's Office of Business and Economic Development (GO-Biz) to develop and implement a process for engaging with public and private entities that are interested in partnering with the State of California in operating a trade and investment office in a foreign country. At a minimum, the process is required to include:
- A list of information that is to be included in the initial letter of interest.
- A response from GO-Biz within 30 calendar days of submittal as to whether any information is missing from the letter of interest. Information is allowed to be added in order for GO-Biz to have a complete letter of interest for review.
- A meeting with GO-Biz to discuss each fully compliant letter of interest.
- A determination within 90 calendar days of receiving a complete letter of interest as to whether to request a full proposal.
- After receiving the full proposal, GO-Biz is required to make a determination as to whether to move forward with the establishment of the trade and investment office, as specified.
The Senate amendments make technical, nonsubstantive changes.
EXISTING LAW:
- Establishes GO-Biz within the Governor's Office for the purpose of serving as the state's principal entity for issues relating to international trade and foreign investment, excluding agricultural issues. GO-Biz is led by a director, which is appointed by the Governor.
- Authorizes the Director of GO-Biz to establish and terminate trade offices outside the United States, as he or she determines appropriate and that specific requirements are met. These requirements include:
- Making a determination that the country where an international trade and investment office would be located is among those with the greatest potential for direct foreign investment in California, export growth, or both.
- Inclusion of the new international trade and investment office in GO-Biz' annual program budget, strategy, and business plan, as specified.
- Authorizes trade offices to be funded in whole or in part by nonstate funds.
- Authorizes GO-Biz to contract with a nonprofit entity to operate an international trade and investment office. The contract shall, among other provisions, require the nonprofit entity to provide GO-Biz with information sufficient to satisfy the donor reporting requirements, as specified. Appropriate reporting is required within 30 days of receipt by the nonprofit entity of each donation used to fund an international trade and investment office.
- Requires that the International Trade and Investment Program's annual budget, strategy and business plan, and review of the prior year's activities be submitted to specified legislative offices in the Assembly and the Senate, including the Chief Clerk in each House, the Office of the Speaker and pro Tempore, and the standing committee in each House with international trade oversight responsibilities.
FISCAL EFFECT: According to the Senate Appropriations Committee, GO-Biz reports the following costs for implementation:
- The range of costs for one to two new positions to support the intake of applications, review applications, manage stakeholders, and provide recommendations to the Director about the need for engagement with interested parties, is estimated to be $140,000 to $260,000 annually.
- To the extent the bill prompts additional trade offices to be opened, GO-Biz estimates for each new office, the annual operating cost would be approximately $780,000, depending on the country, the cost of office space, and cost of international travel.
- In addition, there is likely to be some General Fund pressure from the bill, whether partially or entirely since the bill clarifies that GO-Biz may accept non-state moneys, including, but not limited to, federal and private sector funds for the purposes of operating or supporting the operation of any international trade and investment office. No single donor can contribute more than 25% of the annual budget of any trade office in a given year. To the extent nonstate funds are not raised, the fiscal estimates provided would likely be General Fund.
COMMENTS: Trade and foreign investment play an important role within California's $2.6 trillion economy. Since the elimination of the state's foreign trade offices in 2003, the public and Members of the Legislature have expressed interest in their re-establishment. Current law provides GO-Biz with the authority to establish foreign offices and specifies which actions GO-Biz is to take once a determination to move forward has been made. Existing law, however, is silent as to how outside economic development entities can recommend and propose the establishment of jointly administered foreign trade offices. While GO-Biz has testified that they are very flexible in how proposals can be brought forward, stakeholder groups testify that confusion remains and that more structure would be useful.
This bill provides a framework for filing an initial letter of interest, discussing its applicability with GO-Biz, and then receiving a determination as to whether a full proposal should be developed and submitted. In doing so, the bill clarifies the level of specificity and funding commitments that need to be in place in order to engage with GO-Biz. Nothing in the bill limits the authority of GO-Biz to select partners, locations, or open foreign trade and investment offices.
Analysis Prepared by: Toni Symonds / J., E.D., & E. / (916) 319-2090 FN: 0004298
Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 | AB |
THIRD READING
Bill No: AB 1715
: Senate
SENATE BUS., PROF. & ECON. DEV. COMMITTEE: 8-0, 5/7/18
AYES: Hill, Fuller, Dodd, Galgiani, Glazer, Hernandez, Newman, Pan
NO VOTE RECORDED: Wilk
SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/16/18
AYES: Portantino, Bates, Beall, Bradford, Hill, Nielsen, Wiener
ASSEMBLY FLOOR: 76-0, 1/29/18 - See last page for vote
DIGEST:
This bill establishes a process for the Governor’s Office of Business and Economic Development (GO-Biz) to accept proposals from public and private entities that are interested in partnering with the state to operate an international trade and investment (ITI) office in a foreign country.
Existing law:
- Specifies that GO-Biz is the primary state agency authorized to attract foreign investments, cooperate in international public infrastructure projects, and support California businesses in accessing markets, and requires the Director of GO-Biz to develop an international trade and investment program (Program) attracting employment-producing direct foreign investment to the state and provides support for California businesses in accessing international markets and increasing exports. (GC § 13996.41)
- Authorizes GO-Biz to establish ITI offices outside of the U.S. according to certain requirements. (GC § 13996.42)
This bill:
- Requires GO-Biz to establish a process for accepting letters from public and private entities that are interested in partnering with the state to operate an ITI office in a foreign country. Requires GO-Biz to identify and make publicly available the requirements for submitting information within the letter of interest.
- Requires GO-Biz to review the letters and determine if they are complete within 30 days of submittal and allows for additional information to be submitted.
- Requires the Director of GO-Biz, or a designee, to meet with each entity or group of entities that submit a complete letter of interest and to request additional information.
Background
GO-Biz has authority for undertaking international trade and foreign investment activities, including establishing any ITI office. GO-Biz has partnered with the Bay Area Council to open a California-China Trade and Investment office (CCTO) in Shanghai's downtown Yangpu district. The 2015 CCTO Annual Report noted that “In fulfilling this mission the CCTO engages with California companies seeking to enter into or expand in the Chinese market as well as with Chinese entities looking to invest in California. The CCTO has had direct engagement with 69 entities between January 2014 and October 2015.” The report outlined efforts to expand opportunities and to increase the state’s presence in China to other cities and provide a broader representation of regions in California.
The International Trade and Investment Strategy prepared by GO-Biz in 2014 notes that as part of meeting its strategic objective to “develop a comprehensive, coordinated and cohesive strategy development framework with a clear vision to expand trade and investment which includes other relevant state agencies”, GO-Biz engaged in ongoing efforts to “identify foreign markets with the greatest potential for export expansion including our top trading partners such as Canada, Mexico and China…[and] utilize the public-private sector trade and investment working group to identify and target new foreign sources of investment with likely potential to invest in California.” Since 2013, Governor Brown has entered into a Memorandum of Understanding with entities in eight countries, including China, India, Israel, Japan, Mexico, Netherlands, Peru, and Spain. According to GO-Biz’s website, these international agreements are bilateral or multilateral accords meant to express mutual cooperation for a common goal undertaken by two or more parties.
ITI Offices. As part of its mission, the former Technology Trade and Commerce Agency (TTCA) worked to promote international trade and foreign investment through trade missions, trade shows, loan guarantees, and technical assistance. Additionally, TTCA was charged with overseeing the state's ITI offices, which by 2003 included five contract offices and seven state-staffed offices throughout the world.
In 2003, the Orange County Register issued a series of reports claiming that foreign trade offices may have purposefully misled lawmakers and the public about their effectiveness, citing $44.2 million in false or overblown success claims. In 2003, the Legislative Analyst's Office recommended that the Legislature eliminate all ITI offices, noting that the offices had failed to demonstrate a clear impact on exports or foreign investment in California. The Legislature, in the approved 2003-04 budget, eliminated TTCA along with the foreign trade offices (except for a privately-funded trade office in Armenia, which was transferred to BTH), effective January 1, 2004.
Following the elimination of TTCA, a number of bills were introduced to extend the operation of, or create new, ITI offices, including the Armenia office (SB 515, Scott of 2007 sought to extend the operation of the office but was vetoed); an office in Johannesburg, South Africa (SB 1525, Murray of 2006 was held in the Assembly Committee on Jobs, Economic Development and the Economy); and offices in Asia, the Middle East, Europe and Mexico (AB 2233, Chan of 2006 was held in the Assembly Committee on Jobs, Economic Development and the Economy).
In recent years, legislative efforts have continued to focus on trade promotion with specific entities, including African and Caribbean countries (AB 923 Ridley-Thomas of 2017 was held in the Senate Appropriations Committee); Israel (AB 1166, Blumenfield of 2013 was never heard in a policy committee); South Korea (AB 2713 Quirk-Silva of 2014 was held in the Senate Appropriations Committee); Japan (AB 1088 Muratsuchi of 2013 was never heard in a policy committee); and Mexico (SB 928, Correa of 2014 was almost identical to this bill, but was vetoed by Governor Brown who wrote in his veto message that "We are working directly with the Mexican government and the business community on increasing bilateral trade and other initiatives. I am not convinced we need a legislatively-mandated trade office to continue our growing partnership with Mexico.").
FISCAL EFFECT: Appropriation: Fiscal Com.: Local:
According to the Senate Appropriations Committee analysis dated August 16, 2018, this bill would have estimated costs from $140,000 to $260,000 annually for one to two new positions to support provisions of this bill; approximately $780,000 in annual operating costs per trade office to the extent that the bill prompts additional trade offices to be opened; and some likely General Fund pressures.
None received
OPPOSITION: (Verified 8/17/18)
None received
ASSEMBLY FLOOR: 76-0, 1/29/18
AYES: Acosta, Aguiar-Curry, Travis Allen, Arambula, Baker, Berman, Bigelow, Bloom, Bonta, Brough, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Jones-Sawyer, Kalra, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon
NO VOTE RECORDED: McCarty
8/19/18 14:02:34
**** END ****
SENATE COMMITTEE ON
Senator Anthony Portantino, Chair
2017 - 2018 Regular Session
AB 1715 (Quirk-Silva) - International trade and investment offices
Version: | Policy Vote: |
Urgency: | Mandate: |
Hearing Date: | Consultant: |
Bill Summary:
Assembly Bill 1715 establishes a process for the Governor’s Office of Business and Economic Development (GO-Biz) to accept proposals from public and private entities that are interested in partnering with the state to operate an international trade and investment (ITI) office in a foreign country.
*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********
The following information is revised to reflect amendments
adopted by the committee on August 16, 2018
Fiscal Impact:
According to GO-Biz:
- The range of costs for one to two new positions to support the intake of applications, review applications, manage stakeholders, and provide recommendations to the Director about the need for engagement with interested parties, is estimated to be $140,000 to $260,000 annually.
- To the extent the bill prompts additional trade offices to be opened, GO-Biz estimates for each new office, the annual operating cost would be approximately $780,000, depending on the country, the cost of office space, and cost of international travel.
- In addition, there is likely to be some General Fund pressure from the bill, whether partially or entirely since the bill clarifies that GO-Biz may accept non-state moneys, including, but not limited to, federal and private sector funds for the purposes of operating or supporting the operation of any international trade and investment office. No single donor can contribute more than 25 percent of the annual budget of any trade office in a given year. To the extent nonstate funds are not raised, the fiscal estimates provided would likely be General Fund.
Committee Amendments:
Add a coauthor.
-- END --
SENATE COMMITTEE ON APPROPRIATIONS
Senator Anthony Portantino, Chair
2017 - 2018 Regular Session
AB 1715 (Quirk-Silva) - International trade and investment offices
Version: January 11, 2018 | Policy Vote: B., P. & E.D. 8 - 0 |
Urgency: No | Mandate: No |
Hearing Date: June 25, 2018 | Consultant: Samantha Lui |
This bill meets the criteria for referral to the Suspense File.
Bill Summary:
Assembly Bill 1715 establishes a process for the Governor’s Office of Business and Economic Development (GO-Biz) to accept proposals from public and private entities that are interested in partnering with the state to operate an international trade and investment (ITI) office in a foreign country.
Fiscal Impact:
According to GO-Biz:
- The range of costs for one to two new positions to support the intake of applications, review applications, manage stakeholders, and provide recommendations to the Director about the need for engagement with interested parties, is estimated to be $140,000 to $260,000 annually.
- To the extent the bill prompts additional trade offices to be opened, GO-Biz estimates for each new office, the annual operating cost would be approximately $780,000, depending on the country, the cost of office space, and cost of international travel.
- In addition, there is likely to be some General Fund pressure from the bill, whether partially or entirely since the bill clarifies that GO-Biz may accept non-state moneys, including, but not limited to, federal and private sector funds for the purposes of operating or supporting the operation of any international trade and investment office. No single donor can contribute more than 25 percent of the annual budget of any trade office in a given year. To the extent nonstate funds are not raised, the fiscal estimates provided would likely be General Fund.
Background:
In April 2010, Governor Schwarzenegger issued Executive Order S-05-10 as a means to operationalize the report recommendations including the creation of the Governor's Office of Economic Development (GOED). In October 2011, the Governor signed AB 29 (John A. Pérez, Chapter 475, Statutes of 2011), which effectively codified GOED and changed its name to GO-Biz. Since its inception, the office has served thousands of businesses, 95 percent of which are small businesses. The most frequent types of assistance include help with permit streamlining, starting a business, relocation and expansion of businesses, and regulatory challenges.
Since 2013, Governor Brown has entered into a Memorandum of Understanding with entities in eight countries, including China, India, Israel, Japan, Mexico, Netherlands, Peru, and Spain. According to GO-Biz’s website, these international agreements are bilateral or multilateral accords meant to express mutual cooperation for a common goal undertaken by two or more parties.
Proposed Law:
The bill includes the following provisions:
- Requires the Director of GO-Biz to establish a process to accept letters of interest from public and private entities interested in partnering with the state in operating an international trade and investment office in a foreign country. The letters must include, at a minimum, all of the following:
- The proposed location of the international trade and investment office.
- A preliminary market analysis of the proposed location, including export and import opportunities that would benefit California businesses.
- A list of resources and services that could be made available to California businesses and potential California investors at this location.
- A description of how the activities of the international trade and investment office are aligned with the international trade and investment strategy developed pursuant to Section 13996.55.
- An outline of a proposed management structure, including a description of staffing levels and the positions needed to operate the international trade and investment office.
- A list of potential key stakeholder partnerships that will support the operations and activities of the international trade and investment office.
- Potential funding opportunities.
- A preliminary first and second year budget.
- Establishes a process by which GO-Biz must review letters of interest for completion within 30 days of receipt; by which the Director of GO-Biz must determine whether to request a full proposal for operation of an international trade an investment office within 90 days of receipt of a complete letter; and by which the Director must determine whether to establish an international trade and investment office per statute, and requires the Director of GO-Biz to decide whether to establish a trade office in a foreign nation.
- Authorizes GO-Biz to facilitate discussions between key stakeholder groups in order to support the development of a letter of interest and other trade and investment purposes.
Related Legislation:
- AB 29 (John A. Pérez, Feuer and V. Manuel Pérez), Chapter 475, Statutes of 2011, established GO-Biz, to be administered by a director appointed by the Governor.
- SB 357 (Hueso and De León) would have required the establishment of a California foreign trade and investment office in Mexico City, Mexico. The Governor vetoed the bill, stating: “Our relationship with Mexico is fundamental to our mutual prosperity. Through memorandums of understanding, we are directly working with the Mexican government and business community on climate change, trade, transportation, tourism, and education. As I stated in 2014 when I vetoed a nearly identical bill, I remain unconvinced that California needs a legislatively-mandated trade office to continue our ongoing and enduring partnership with Mexico."
Staff Comments:
In recent years, legislative efforts have continued to focus on trade promotion with specific entities, including African and Caribbean countries (AB 923 Ridley-Thomas of 2017 was held in the Senate Appropriations Committee); Israel (AB 1166, Blumenfield of 2013 was never heard in a policy committee); South Korea (AB 2713 Quirk-Silva of 2014 was held in the Senate Appropriations Committee); Japan (AB 1088 Muratsuchi of 2013 was never heard in a policy committee); and Mexico (SB 928, Correa of 2014 was almost identical to this bill, but was vetoed by Governor Brown.
-- END --
SENATE COMMITTEE ON
BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT
Senator Jerry Hill, Chair
2017 - 2018 Regular
Bill No: AB 1715 Hearing Date: May 7, 2018
Author: | Quirk-Silva | ||
Version: |
| ||
Urgency: | Fiscal: | ||
Consultant: | , Anissa Badea | ||
Subject: International trade and investment offices
SUMMARY:
Establishes a process for the Governor’s Office of Business and Economic Development (GO-Biz) to accept proposals from public and private entities that are interested in partnering with the state to operate an international trade and investment (ITI) office in a foreign country.
Existing law:
- Establishes GO-Biz within the Governor's office for the purpose of serving as the lead state entity for economic strategy and marketing of California on issues relating to business development, private sector investment and economic growth. (Government Code (GC) §§ 12096 – 12098.5)
- Specifies that GO-Biz is the primary state agency authorized to attract foreign investments, cooperate in international public infrastructure projects, and support California businesses in accessing markets, and requires the Director of GO-Biz to develop an international trade and investment program (Program) attracting employment-producing direct foreign investment to the state and provides support for California businesses in accessing international markets and increasing exports. (GC § 13996.41)
- Authorizes GO-Biz to establish ITI offices outside of the U.S. according to certain requirements. (GC § 13996.42)
- Requires GO-Biz to provide to the Legislature a strategy for ITI by February 1, 2019, updated once every five years. (GC § 13996.55)
- Requires the Director of GO-Biz to prepare and transmit the following to the Chief Clerk of the Assembly, Secretary of the Senate, Speaker of the Assembly, President pro Tempore of the Senate, the Chair of the Assembly Committee on Jobs, Economic Development and the Economy and the Chair of the Senate Committee on Business, Professions and Economic Development:
(GC § 13996.65) - A budget for the Program and a separately stated budget for each ITI office, with specified information.
- A strategy and business plan for the Program, with specified information, that is developed with input from California businesses that shall include, but not be limited to, measurable goals, objectives, and outcomes and timelines necessary to attract employment-producing direct foreign investment to the state and increase California exports.
- A written review of the implementation of the prior year’s strategy and business plan for the Program that addresses the performance of the program and each ITI Office.
- Establishes processes and accountability measures for GO-Biz to accept private monies to fund, establish, and operate ITI offices. (GC § 13997)
This bill:
- Makes findings and declarations that California’s $2.6 trillion economy is supported by a diverse set of dominant and emerging industry sectors
- Requires GO-Biz to establish a process for accepting letters from public and private entities that are interested in partnering with the state to operate an ITI office in a foreign country.
- Requires GO-Biz to identify and make publicly available the requirements for submitting information within the letter of interest, including:
- The proposed location of the ITI office.
- A preliminary market analysis of the proposed location.
- A list of resources and services that could be made available to California businesses and potential California investors at the location.
- A description of the how the activities of the ITI office are aligned with the strategy for international trade and investment established by GO-Biz pursuant to GC § 13996.55.
- An outline of a proposed management structure.
- A list of potential key stakeholder partnerships that will support the operations of the office.
- Potential funding opportunities.
- A preliminary budget for the office’s first and second year.
- Requires GO-Biz to review the letters and determine if they are complete within
30 days of submittal and allows for additional information to be submitted. - Permits GO-Biz to facilitate discussions between stakeholders in order to support the submission of a letter.
- Requires the Director of GO-Biz, or a designee, to meet with each entity or group of entities that submit a complete letter of interest and to request additional information.
- Requires the Director to determine within 90 days of the receipt of a complete letter of interest if a full proposal for the operation of the ITI office will be requested and if a proposal is requested, requires the director to determine if an ITI office should be established in partnership with the entities that submitted the letter and proposal.
- Permits an entity to submit more than one letter of interest.
- Makes various technical changes.
FISCAL EFFECT:
This bill is keyed fiscal by Legislative Counsel. According to the Assembly Appropriations Committee analysis dated January 18, 2018, this bill would cost GO-Biz approximately $150,000 to establish procedures outlined in the bill, including working with stakeholders, and $326,000 for two additional staff to manage a new office. The bill assumes public and private funds will be donated to establish and operate the trade and foreign investment office.
COMMENTS:
- Purpose. The Author is the sponsor of this bill. According to the Author, “GO-Biz has the authority to establish offices, but no method for the public to use in requesting the establishment of a new foreign trade office, including becoming an administrative partner. While GO-Biz is consistently stated that they are flexible in how these requests can be made, the Assembly Jobs, Economy, and Economic Development Committee has repeatedly heard testimony from organizations that they remain unclear on how best to move forward. AB 1715 sets a minimum framework with reasonable timelines for expressing interest in jointly operating a trade office and submitting a full proposal, including identification of committed funding.”
- Governor's Office of Business and Economic Development (GO-Biz) and Current International Trade Activities. In February 2010, the Little Hoover Commission undertook a review of the state's economic and workforce development programs. In its final report, Making up for Lost Ground: Creating a Governor's Office of Economic Development, it analyzed the status and effectiveness of current programs since the 2003 demise of the Technology, Trade and Commerce Agency (TTCA) and recommended the creation of a new governmental entity to fill the void left by the dismantled agency.
The report called for a single entity that would promote greater economic development, foster job creation, serve as a policy advisor and deliver specific services (i.e., permitting, tax, regulatory, and other information) directly to the California business community. In April 2010, Governor Schwarzenegger issued Executive Order S-05-10 as a means to operationalize the report recommendations including the creation of the Governor's Office of Economic Development (GOED).
In October 2011, the Governor signed AB 29 (John A. Pérez, Chapter 475, Statutes of 2011), which effectively codified GOED and changed its name to GO-Biz. Since its inception, the office has served thousands of businesses, 95 percent of which are small businesses. The most frequent types of assistance include help with permit streamlining, starting a business, relocation and expansion of businesses, and regulatory challenges.
In March 2012, Governor Brown initiated a reorganization process to realign the state's administrative structure. Key changes include dismantling of the Business, Transportation and Housing Agency and the shifting of a number of key programs to GO-Biz including the Small Business Loan Guarantee Program, the California Travel and Tourism Commission, the California Film Commission, the Film California First Program, and the Infrastructure and Economic Development Bank (IBank). GO-Biz also administers the “Made In California” program for the purpose of encouraging consumer product awareness and to foster the purchases of products manufactured in California. A key initiative of GO-Biz is the "strike teams" which can be mobilized to help attract and/or retain specific businesses. Among these other programs, GO-Biz also administers the Innovation Hub (iHub) program, an effort to harness and enhance California's innovative spirit. The iHubs aim to improve the state's national and global competitiveness by stimulating partnerships, economic development, and job creation around specific research clusters through state-designated iHubs.
GO-Biz also administers the California Competes Tax Credit Program under which “businesses who want to come, stay, or grow in California”, as noted on the GO-Biz website, can receive and income tax credit. Tax credit agreements are negotiated between GO-Biz and the taxpayer, and approved by a committee, consisting of the State Treasurer, the Director of the Department of Finance, the Director of GO-Biz, and one appointee each by the Speaker of the Assembly and Senate Committee on Rules. Allocations are based on certain specified factors, but mainly focus on the amount of investment, the impact of a project, and the number of jobs the taxpayer will create or retain in California. The program is open to taxpayers of all sizes but creates preferential treatment for “small businesses”, defined as those making less than $2 million in revenue per year.
GO-Biz has authority for undertaking international trade and foreign investment activities, including establishing any ITI office. GO-Biz has partnered with the Bay Area Council to open a California-China Trade and Investment office (CCTO) in Shanghai's downtown Yangpu district. The 2015 CCTO Annual Report noted that “In fulfilling this mission the CCTO engages with California companies seeking to enter into or expand in the Chinese market as well as with Chinese entities looking to invest in California. The CCTO has had direct engagement with 69 entities between January 2014 and October 2015.” The report outlined efforts to expand opportunities and to increase the state’s presence in China to other cities and provide a broader representation of regions in California.
The International Trade and Investment Strategy prepared by GO-Biz in 2014 notes that as part of meeting its strategic objective to “develop a comprehensive, coordinated and cohesive strategy development framework with a clear vision to expand trade and investment which includes other relevant state agencies”, GO-Biz engaged in ongoing efforts to “identify foreign markets with the greatest potential for export expansion including our top trading partners such as Canada, Mexico and China…[and] utilize the public-private sector trade and investment working group to identify and target new foreign sources of investment with likely potential to invest in California.” Since 2013, Governor Brown has entered into a Memorandum of Understanding with entities in eight countries, including China, India, Israel, Japan, Mexico, Netherlands, Peru, and Spain. According to GO-Biz’s website, these international agreements are bilateral or multilateral accords meant to express mutual cooperation for a common goal undertaken by two or more parties.
- ITI Offices. As part of its mission, the former TTCA worked to promote international trade and foreign investment through trade missions, trade shows, loan guarantees, and technical assistance. Additionally, TTCA was charged with overseeing the state's ITI offices, which by 2003 included five contract offices and seven state-staffed offices throughout the world.
In 2003, the Orange County Register issued a series of reports claiming that foreign trade offices may have purposefully misled lawmakers and the public about their effectiveness, citing $44.2 million in false or overblown success claims. In 2003, the Legislative Analyst's Office recommended that the Legislature eliminate all ITI offices, noting that the offices had failed to demonstrate a clear impact on exports or foreign investment in California. The Legislature, in the approved 2003-04 budget, eliminated TTCA along with the foreign trade offices (except for a privately-funded trade office in Armenia, which was transferred to BTH), effective January 1, 2004.
Following the elimination of TTCA, a number of bills were introduced to extend the operation of, or create new, ITI offices, including the Armenia office (SB 515, Scott of 2007 sought to extend the operation of the office but was vetoed); an office in Johannesburg, South Africa (SB 1525, Murray of 2006 was held in the Assembly Committee on Jobs, Economic Development and the Economy); and offices in Asia, the Middle East, Europe and Mexico (AB 2233, Chan of 2006 was held in the Assembly Committee on Jobs, Economic Development and the Economy).
In recent years, legislative efforts have continued to focus on trade promotion with specific entities, including African and Caribbean countries (AB 923 Ridley-Thomas of 2017 was held in the Senate Appropriations Committee); Israel (AB 1166, Blumenfield of 2013 was never heard in a policy committee); South Korea (AB 2713 Quirk-Silva of 2014 was held in the Senate Appropriations Committee); Japan (AB 1088 Muratsuchi of 2013 was never heard in a policy committee); and Mexico (SB 928, Correa of 2014 was almost identical to this bill, but was vetoed by Governor Brown who wrote in his veto message that "We are working directly with the Mexican government and the business community on increasing bilateral trade and other initiatives. I am not convinced we need a legislatively-mandated trade office to continue our growing partnership with Mexico.").
- Prior Related Legislation. SB 357 (Hueso) of 2017 would have required GO-Biz to establish and operate, or create a public-private partnership to establish and operate, an international trade and investment office in Mexico city, Mexico, by July 1, 2018. (Status: This bill was vetoed by the Governor. The Governor’s veto message stated, “California and Mexico have a proven partnership of trade, commerce, and the exchange of culture that runs long and deep. Our relationship with Mexico is fundamental to our mutual prosperity. Through memorandums of understanding, we are directly working with the Mexican government and business community on climate change, trade, transportation, tourism, and education. As I stated in 2014 when I vetoed a nearly identical bill, I remain unconvinced that California needs a legislatively-mandated trade office to continue our ongoing and enduring partnership with Mexico.)
AB 826 (Chau) of 2016 would have required GO-Biz’s official website to include links to federally-approved regional centers of the EB-5 visa program operating in California, would have defined regional center and would have expanded the role of the California Business Investment Services Program within GO-Biz. (Status: The bill was never set for a hearing in a policy committee of the Senate.)
SCR 25 (Block, CHR 127, Statues of 2015) stated the Legislature’s recognition and support for the memorandum of understanding for strategic partnerships for joint innovation, exchanges, and cooperation between California and Israel.
SB 511 (Lieu) of 2014 would have established the California Export Finance Office within the I-Bank and would have required GO-Biz to convene a statewide business partnership to discuss the promotion and greater utilization of California ports. (Status: This bill was held in the Assembly Committee on Appropriations.)
SB 928 (Correa) of 2014 was almost identical to SB 357 above. (Status: The measure was also vetoed by the Governor who indicated in his veto message “We are working directly with the Mexican government and the business community on increasing bilateral trade and other initiatives. I am not convinced we need a legislatively-mandated trade office to continue our growing partnership with Mexico.”)
AB 337 (Allen, Chapter 776, Statutes of 2014) updated requirements for the ITI strategy prepared by GO-Biz to be based on current and emerging market conditions and the needs of investors, businesses, and workers to be competitive in global markets.
AB 690 (Campos, Chapter 716, Statutes of 2014) repealed and recast statutory provisions relating to California and Mexico relations including adding the Director of the GO-Biz to the membership of the California-Mexico Border Relations Council and designating him or her as Chair.
SB 592 (Price) of 2013 included the same language as SB 511, but also required GO-Biz to provide a port trade promotion strategy to the Legislature on or before April 1, 2014. (Status: The bill was held in the Assembly Committee on Appropriations.)
AB 412 (Allen) of 2013 would have required GO-Biz to undertake a study of the potential roles for the state in global markets. (Status: This bill was held in the Assembly Committee on Appropriations.)
AB 1067 (Medina, Chapter 535, Statutes of 2013) established the California Foreign Investment Program within GO-Biz as the lead entity for overseeing the state’s participation in the U.S. Citizenship Immigration Services’ EB-5 Investment Program (EB-5 Program).
AB 2012 (Perez, Chapter 294, Statutes of 2012) transferred the authority for undertaking international trade and foreign investment activities from BT&H to GO-Biz, including establishing any international trade and investment office.
SB 460 (Price) of 2011 included similar language as contained in SB 511 and
SB 592 above. (Status: The bill was held in the Assembly Committee on Appropriations.)
AB 1137 (V. Manuel Pérez) of 2011 would have codified the EB-5 Program, updated the law relating to free trade zones, and authorized the use of new federal funds under the Small Business Jobs Act of 2010. (Status: The bill was held in Senate Committee on Appropriations in 2012.)
AB 1409 (Jobs, Economic Development and the Economy Committee) of 2011 would have required that the next update of the ITI strategy prepared by BTH to include policy goals, objectives and recommendations from the state Goods Movement Action Plan. (Status: The bill was amended to deal with another subject matter and held in the Senate Committee on Rules in 2012.)
AB 1558 (Assembly Committee on Jobs, 2009) aimed to recodify and reorganize sections of the Government Code to create one comprehensive code for the state's international trade activities and programs. The measure was amended to deal with reorganization of the state’s economic development programs. (Status: The bill was held in the Senate Committee on Appropriations in 2010.)
SB 1513 (Romero, Chapter 663, Statutes of 2006) provided new authority for BTH to undertake international trade and investment activities, and as a condition of that new authority, directed the development of a comprehensive ITI policy for California.
SUPPORT AND OPPOSITION:
Support:
None on file as of May 1, 2018.
Opposition:
None on file as of May 1, 2018.
-- END --
ASSEMBLY THIRD READING
ATR Bill Id:AB 1715
Author:(Quirk-Silva, et al.)
As Amended Ver:January 11, 2018
Majority vote
Committee | Votes | Ayes | Noes |
Jobs | 6-0 | Quirk-Silva, Travis Allen, Berman, Cervantes, Patterson, Rodriguez | |
Appropriations | 17-0 | Gonzalez Fletcher, Bigelow, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Eggman, Fong, Friedman, Gallagher, Eduardo Garcia, Jones-Sawyer, Obernolte, Quirk, Reyes |
|
SUMMARY: Requires the Governor's Office of Business and Economic Development (GO-Biz) for engaging with public and private entities that are interested in partnering with the State of California in operating a trade and investment office in a foreign country. At a minimum, the process is required to include:
- A list of information that is to be included in the initial letter of interest.
- A response from GO-Biz within 30 calendar days of submittal as to whether any information is missing from the letter of interest. Information is allowed to be added in order for GO-Biz to have a complete letter of interest for review.
- A meeting with GO-Biz to discuss each fully compliant letter of interest.
- A determination within 90 calendar days of receiving a compete letter of interest as to whether to request a full proposal.
- After receiving the full proposal, GO-Biz is required to make a determination as to whether to move forward with the establishment of the trade and investment office, as specified.
EXISTING STATE LAW:
- Establishes GO-Biz within the Governor's Office for the purpose of serving as the state's principal entity for issues relating to international trade and foreign investment, excluding agricultural issues. GO-Biz is led by a director, which is appointed by the Governor.
- Authorizes the Director of GO-Biz to establish and terminate trade offices outside the United States, as he or she determines appropriate and specific requirements are met. These requirements include:
- Making a determination that the country where an international trade and investment office would be located is among those with the greatest potential for direct foreign investment in California, export growth, or both;
- Inclusion of the new international trade and investment office in GO-Biz' annual program budget, strategy, and business plan, as specified.
- Authorizes trade offices to be funded in whole or in part by nonstate funds.
- Authorizes GO-Biz to contract with a nonprofit entity to operate an international trade and investment office. The contract shall, among other provisions, require the nonprofit entity to provide GO-Biz with information sufficient to satisfy the donor reporting requirements, as specified. Appropriate reporting is required within 30 days of receipt by the nonprofit entity of each donation used to fund an international trade and investment office.
- Requires that the International Trade and Investment Program's annual budget, strategy and business plan, and review of the prior year's activities be submitted to specified legislative offices in the Assembly and the Senate, including the Chief Clerk in each House, the Office of the Speaker and pro Tempore, and the standing committee in each House with international trade oversight responsibilities.
FISCAL EFFECT: According to the Assembly Appropriations Committee, approximately $150,000 for GO-Biz to establish procedures outlined in the bill, including working with stakeholders, and $326,000 for two additional staff to manage a new office. The bill assumes public and private funds will be donated to establish and operate the trade and foreign investment office. Existing law authorizes GO-Biz to establish trade offices and pursue public and private funds. To date, no public or private funders have expressed interest in donating funds for this purpose.
COMMENTS: Trade and foreign investment play an important role within California's $2.6 trillion economy. Since the elimination of the state's foreign trade offices in 2003, the public and Members of the Legislature have expressed interest in their re-establishment. Current law provides GO-Biz with the authority to establish foreign offices and specifies which actions GO-Biz is to take once a determination to move forward has been made. Existing law, however, is silent as to how outside economic development entities can recommend and propose the establishment of jointly administered foreign trade offices. While GO-Biz has testified that they are very flexible in how proposals can be brought forward, stakeholder groups testify that confusion remains and that more structure would be useful.
This bill provides a framework for filing an initial letter of interest, discussing its applicability with GO-Biz, and then receiving a determination as to whether a full proposal should be developed and submitted. In doing so, the bill clarifies the level of specificity and funding commitments that need to be in place in order to engage with GO-Biz. Nothing in the bill limits the authority of GO-Biz to select partners, locations, or open foreign trade and investment offices.
Analysis Prepared by: Toni Symonds / J., E.D., & E. / (916) 319-2090 FN: 0002539
Date of Hearing: January 18, 2018
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez Fletcher, Chair
ABPCA Bill Id:AB 1715
Author:(Quirk-Silva) – As Amended Ver:January 11, 2018
Policy Committee: | Jobs, Economic Development, and the Economy | Vote: | 6 - 0 |
|
| ||
|
|
Urgency: No State Mandated Local Program: No Reimbursable: No
SUMMARY:
This bill requires the Governor's Office of Business and Economic Development (GO-Biz) to develop a process for accepting public or private donations in order to operate an international trade and foreign investment office. Specifically, this bill:
- Authorizes GO-Biz to facilitate discussions between key stakeholder groups in order to support the development of a letter of interest.
- Requires GO-Biz to release guidelines for letter of interest.
- Requires Go-Biz to meet with each entity that submits a complete letter of interest and to make a determination within 90 calendar days of receiving a complete letter of interest.
- Authorizes a prospective donor to submit a letters of interest more than once.
- Requires GO-Biz to post donor information on their website within 30 days, including donor information, donation amounts, and a description of goods or services provided or purchased.
FISCAL EFFECT:
Approximately $150,000 for GO-Biz to establish procedures outlined in the bill, including working with stakeholders, and $326,000 for two additional staff to manage a new office. The bill assumes public and private funds will be donated to establish and operate the trade and foreign investment office. Existing law authorizes GO-Biz to establish trade offices and pursue public and private funds. To date, no public or private funders have expressed interest in donating funds for this purpose.
COMMENTS:
- Background. State law establishes GO-Biz within the Governor's Office for the purpose of serving as the state's principal entity for issues relating to international trade and foreign investment, excluding agricultural issues. Existing state law also authorizes the Director of GO-Biz to establish and terminate trade offices outside the U.S. and for trade offices to be funded in whole or in part by non-state funds.
- Purpose. The author believes that this bill is necessary because state law is, “silent as to how outside economic development entities can recommend and propose the establishment of jointly administered foreign trade offices.”
- Prior Legislation. AB 29 (John A. Pérez, Feuer and V. Manuel Pérez), Chapter 475, Statutes of 2011, established GO-Biz, to be administered by a director appointed by the Governor.
SB 357 (Hueso and De León) would have required the establishment of a California foreign trade and investment office in Mexico City, Mexico. The Governor vetoed the bill and stated, “Our relationship with Mexico is fundamental to our mutual prosperity. Through memorandums of understanding, we are directly working with the Mexican government and business community on climate change, trade, transportation, tourism, and education. As I stated in 2014 when I vetoed a nearly identical bill, I remain unconvinced that California needs a legislatively-mandated trade office to continue our ongoing and enduring partnership with Mexico."
Analysis Prepared by: Daisy Gonzales / APPR. / (916) 319-2081
Date of Hearing: January 9, 2018
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Sharon Quirk-Silva, Chair
ABPCA Bill Id:AB 1715 (
Author:Quirk-Silva, Berman, Cervantes, and Rodriguez) – As Amended Ver:January 4, 2018
SUBJECT: International Trade and Foreign Investment Office
SUMMARY: Establishes a process and timeline for submitting proposals to the Governor's Office of Business and Economic Development (GO-Biz) on the establishment of a partnership agreement to operate an international trade and foreign investment office. Specifically, this bill:
- Expresses legislative findings and declarations, which include:
- California's $2.6 trillion economy is supported by a diverse set of dominant and emerging industry sectors, many of which are recognized as global leaders in their field;
- With over 95% of the customer purchasing power located outside the U.S. having a globally connected economy is essential for the state's long-term economy growth;
- In 2016 exports from California were valued at $163.5 billion and represented 11.3% of total U.S. exports. California's largest export market is Mexico, where the value of exports totaled $25.2 billion in 2016. After Mexico, California's top export markets were: Canada ($16.2 billion); China ($14.3 billion); Japan ($11.7 billion); Hong Kong ($9.6 billion); South Korea ($8.2 billion); Taiwan ($6.9 billion); the Netherlands ($5.4 billion); the United Kingdom ($5.4 billion); and Germany ($5.3 billion);
- In 2015, 706,969 jobs were supported by goods exported in California. This represents 11% of all U.S. jobs supported by the export of goods. In 2014, California had the highest number of small and medium-sized exporting companies at 72,591, followed by Florida with 58,404 exporting companies; and
- In 2015, global foreign direct investment (FDI) reached $1.7 trillion, with the U.S continuing to receive the largest amount of FDI in the world, totally $384 billion (23% of global FDI). Japan, Canada, Switzerland, and the EU contributed over 80% of FDI inflows to the U.S.
- Requires GO-Biz to establish a process for accepting letters of interest from public and private entities that are interested in partnering with the State of California in operating a trade and investment office in a foreign country. At a minimum, the letter of interest is required to include:
- The proposed location of the trade and investment office;
- A preliminary market analysis of the proposed location, including export and import opportunities that would benefit California businesses;
- A list of resources and services which could be made available to California businesses and potential California investors at this location;
- A description of how the activities of the trade and investment office are aligned with the international trade and foreign investment strategy, as specified;
- An outline of a proposed management structure, including a description of staffing levels and the positions needed to operate the international trade and investment office;
- A list of potential key stakeholder partnerships that will support the operations and activities of the international trade and investment office;
- Potential funding opportunities; and
- A preliminary first and second year budget.
- Requires letters of interest be reviewed by GO-Biz and determined to be complete within 30 days of submittal. Missing information may be submitted to GO-Biz, as specified.
- Authorizes GO-Biz to facilitate discussions between key stakeholder groups in order to support the development of a letter of interest and other trade and investment purposes, as specified.
- Requires GO-Biz to meet with each entity that submits a complete letter of interest. GO-Biz is authorized to request additional information prior to, during, or following this meeting.
- Requires GO-Biz to make a determination within 90 calendar days of receiving a compete letter of interest as to whether to request a full proposal.
- Requires GO-Biz, after receiving the full proposal, to make a determination as to whether to move forward with the establishment of the trade and investment office, as specified.
- Authorizes a prospective donor to submit letters of interest more than once.
EXISTING STATE LAW:
- Establishes GO-Biz within the Governor's Office for the purpose of serving as the state's principal entity for issues relating to international trade and foreign investment, excluding agricultural issues. GO-Biz is led by a director, which is appointed by the Governor.
- Authorizes the Director of GO-Biz to establish and terminate trade offices outside the U.S., as he or she determines as appropriate and specific requirements are met. These requirements include:
- Making a determination that the country where an international trade and investment office would be located is among those with the greatest potential for direct foreign investment in California, export growth, or both;
- Inclusion of the new international trade and investment office in GO-Biz' annual program budget, strategy, and business plan, as specified.
- Authorizes trade offices to be funded in whole or in part by nonstate funds.
- Authorizes GO-Biz to contract with a nonprofit entity to operate an international trade and investment office. The contract shall, among other provisions, require the nonprofit entity to provide GO-Biz with information sufficient to satisfy the donor reporting requirements, as specified. Appropriate reporting is required within 30 days of receipt by the nonprofit entity of each donation used to fund an international trade and investment office.
- Requires that the International Trade and Investment Program's annual budget, strategy and business plan, and review of the prior year's activities be submitted to specified legislative offices in the Assembly and the Senate, including the Chief Clerk in each House, the Office of the Speaker and pro Tempore, and the standing committee in each House with international trade oversight responsibilities.
FISCAL EFFECT: Unknown
POLICY FRAME: Trade and foreign investment play an important role within California's $2.6 trillion economy. Since the elimination of the state's foreign trade offices in 2003, the public and Members of the Legislature have expressed interest in their re-establishment. Current law provides GO-Biz with the authority to establish foreign offices and specifies which actions GO-Biz is to take once a determination to move forward has been made. Existing law, however, is silent as to how outside economic development entities can recommend and propose the establishment of jointly administered foreign trade offices. While GO-Biz has testified that they are very flexible in how proposals can be brought forward, stakeholder groups testify that confusion remains and that more structure would be useful.
AB 1715 provides a framework for filing an initial letter of interest, discussing its applicability with GO-Biz, and then receiving a determination as to whether a full proposal should be developed and submitted. In doing so, the bill clarifies the level of specificity and funding commitments that need to be in place in order to engage with GO-Biz. Nothing in the bill limits the authority of GO-Biz to select partners, locations, or open foreign trade and investment offices.
The Comment section of this analysis includes information on GO-Biz, the establishment and demise of California trade offices, and the importance of trade to the California economy. Technical amendments are suggested in Comment 6.
COMMENTS:
- The Governor's Office of Business and Economic Development: In California, the primary state agency responsible for state trade and foreign investment activity (excluding agriculture) is GO-Biz. Initially established in 2011, international trade responsibility was transferred from the Business, Transportation, and Housing Agency to GO-Biz in 2012. Among GO-Biz' business development assets are the Office of the Small Business Advocate, the Permit Assistance Unit, the Office Foreign Trade and Investment, and the Business Investment Services Unit. [AB 29 (John A. Pérez), Chapter 475, Statutes of 2011 and AB 2012 (John A. Pérez), Chapter 294, Statutes of 2012]
A Governor's Reorganization Plan transferred a number of additional economic development related entities under the purview of GO-Biz in 2012, including the California Travel and Tourism Commission, the California Infrastructure and Economic Development Bank (IBank), and the California Film Commission. In 2013, the Innovation Hub Program, the California Competes Tax Credit, and the EB-5 investment visa program were codified under the administration of GO-Biz. Also in 2013, a Small Business Finance Center was established within the IBank, and debt and credit enhancement programs administered through a network of 11 small business financial development corporations were transferred to GO-Biz under the auspices of the new Center. The Office of Permit Assistance was codified in 2016. [AB 93 (Assembly Committee on Budget), Chapter 69, Statutes of 2013; AB 250 (Holden and V. Manuel Pérez), Chapter 530, Statutes of 2013; AB 1067 (Medina), Chapter 535, Statutes of 2013; AB 1247 (Medina and Bocanegra), Chapter 537, Statutes of 2013; AB 2605 (Nazarian), Chapter 78, Statutes of 2016.]
As the state's lead agency on trade and foreign investment, GO-Biz is tasked with the development of a state International Trade and Investment Strategy, which sets policies and priorities for the state's activities. GO-Biz also operates a number of key programs to facilitate business development, in general, and trade and foreign investment, specifically, including the State Trade and Export Promotion (STEP) Program, EB-5 investment visa activities, export finance support through the Small Business Finance Center, data reports and tracking of foreign trade trends, and the China Trade Office.
STEP has been provided through a trade and investment initiative authorized by the federal Small Business Jobs Act of 2010. The program is regionally administered through a partnership between GO-Biz and the California Community Colleges through a network of Centers for International Trade and Development (CITDs). The primary purpose of the program is to create jobs by increasing the number of, and the volume of, small businesses exporting.
The California Trade and Investment Office in Shanghai is self-funded through private contributions and operates under a cooperative agreement between GO-Biz and the Bay Area Council, a San Francisco-headquartered nonprofit business organization. Opened in October 2012, the purpose of the Trade Office is to provide California companies with increased access to Chinese business contacts, Chinese investors with access to California projects, and to spur new investment and trade growth between California and China. In order to expand the Offices' outreach, GO-Biz later entered into a memorandum of understanding (MOU) with additional California-China trade partners including the California Asian Pacific Chamber of Commerce; World Trade Center Los Angeles; and the City of Sacramento.
- Establishment of Foreign Trade Offices: Over the past several decades, the state has used a variety of methods for establishing trade offices. In 2003, when the Legislature and the Governor agreed to eliminate the Technology, Trade, and Commerce Agency (TTCA), the state directly operated or contracted for the operation of 12 trade offices including offices in Shanghai, Mexico City, Buenos Aires, London, Frankfurt, Jerusalem, Johannesburg, Seoul, Tokyo, Hong Kong, Taipei, and Singapore. With the closure of TTCA, nearly all related programs were removed from statute including the authority to engage in international trade activities and operate trade offices. One trade office remained, that being a "self-supporting" office in Armenia, which had been established through a separate statute, SB 1657 (Scott), Chapter 863, Statutes of 2002, and later extended through SB 897 (Scott), Chapter 604, Statutes of 2005.
It was not until 2006, that the Governor and Legislature were able to come to agreement about a new trade framework, which was included in SB 1513 (Romero), Chapter 663, Statutes of 2006. As a condition for re-granting the Governor's authority to open trade offices, the Legislature required the Governor to obtain its pre-approval in the form of a resolution or statute and to have the five-year International Trade Investment Strategy be reviewed by the Legislature prior to its implementation. With the 2012 enactment of AB 2012, however, the Legislature's pre-approval authority and mandatory strategy review were eliminated.
In April 2013, Governor Brown opened a trade office in Shanghai, China, which is the first trade office opened under the AB 2012 rules. The Shanghai trade office was established pursuant to a public-private partnership between the state and the Bay Area Council. The operation of the China Office is dependent on private donations and the collection of those donations is the responsibility of the Bay Area Council and other nonprofit partners that are parties the MOU with GO-Biz.
- Path Forward for New Offices: AB 2012 made significant changes to California statute from the perspective of what actions GO-Biz was to take once a decision was made to open a trade office. Statute is relatively silent, however, as to how an outside public or private organization would approach GO-Biz about establishing a new trade office.
While this lack of specificity was likely designed to encourage innovation and flexibility, the current statutory structure has not resulted in a vibrant public process nor new trade offices (aside from the initial office for which AB 2012 had been crafted to authorize). Every session, legislation is introduced to open one or more trade offices. Beyond legislation, various constituency groups approach Members of the Legislature to help present their case to GO-Biz about opening trade offices.
AB 1715 is consistent with the process used to establish the China Office and advances policy objectives discussed at several committee hearings about the need to make the application process better understood by stakeholders. Nothing in the bill limits GO-Biz' existing authority to make a determination as to whether the opening of the office is of benefit to California.
- State's Diverse Population as a Trade Advantage: New globally-based models for innovation and technology have brought great changes in how world economies work. The emerging economies of China, India, and Singapore, just to name a few, have been and are committed to continuing massive investments in research and development. While these dynamics may pose challenges to some existing technology centers, California's diverse population provides the state with a key trade and investment advantage over other states and nations.
Due to strong past immigration from other nations, more than one-in-four of California's current residents (9.5 million people) were born outside the U.S., compared to just over one-in-ten nationally. About half of foreign-born Californians are from Latin America, and another third are from Asia. Regionally, 36% of the population in Los Angeles is foreign-born, as is 27% of the Bay Area. It is estimated that 40% of the entrepreneurs in the Silicon Valley are foreign born. For many immigrant groups, California represents the single largest gathering of their brethren outside their native lands.
- California's Global Economy: International trade and foreign investment are important components of California's $2.6 trillion economy supporting over 4 million California jobs. The importance of trade to the California economy is increasing as reflected in the percentage of California jobs tied to trade more than doubled from 1992 to 2011, 10.6% vs. 22.0%.
California's largest industry sector by employment is Trade, Transportation, and Utilities, which encompasses everything from major retail outlets, to import-export businesses, to transportation and warehousing. Workers in trade-related jobs earn on average 13% to 28% higher wages than the national average. California leads the nation in export-related jobs. The U.S. Department of Commerce estimates that 775,320 jobs were directly supported by the export of products in 2014, including 665,000 manufacturing jobs.
California's land, sea, and air ports of entry served as key international commercial gateways for the $573.5 billion in products entering and exiting the U.S. in 2016. If California were a country, it would be the 28th largest exporter and the 10th largest importer in the world, based on 2016 trade numbers. Exports out of California were valued at $163.5 billion and represented 11.3% of total U.S. exports in 2016. Imports into California were valued at $410 billion and represented 18.7% of total U.S. imports in 2016.
The Chart below shows export data on the state's top six trade partners, based on origin of movement. Mexico has been California's top trade partner since 1999. Other top-ranking export destinations, not shown on the chart, include Hong Kong, Taiwan, Germany, the Netherlands, and the United Kingdom.
California Exports 2011 to 2016 (billions of dollars) | |||||||
Partner | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | |
World | 159.4 | 161.7 | 168.0 | 174.1 | 165.3 | 163.5 | |
1 | Mexico | 25.8 | 26.3 | 23.9 | 25.4 | 26.7 | 25.2 |
2 | Canada | 17.2 | 17.4 | 18.8 | 18.2 | 17.2 | 16.1 |
3 | China | 14.2 | 13.9 | 16.2 | 16.0 | 14.3 | 14.3 |
4 | Japan | 13.1 | 13.0 | 12.7 | 12.2 | 11.7 | 11.7 |
5 | Hong King | 7.6 | 7.8 | 7.7 | 8.5 | 8.7 | 9.6 |
6 | South Korea | 8.4 | 8.2 | 8.3 | 8.6 | 8.6 | 8.2 |
Source: International Trade Administration, accessed 04/11/2017 | |||||||
In today's globally linked economy, manufacturing utilizes products from across the U.S., as well as from other nations. In 2012, 61% ($1.3 trillion) of the products imported into the U.S. were inputs and components intended for use by American producers. In addition, U.S. exports often include components. The Wilson Center estimates that Mexican imports contain 40% U.S. components, respectively. The Chart below shows the top 16 California exports from California to Mexico in 2016, many of which include components and partially assembled items.
California Trade with Mexico 2016 (Top 16 Products) | ||||
NAICS Code – Product Type | Export Value in Dollars ($) | NAICS Code – Product Type | Export Value in Dollars ($) | |
334-Computer And Electronic Products | $5,476,371,388 | 331-Primary Metal Mfg | $1,193,660,535 | |
336-Transportation Equipment | $3,117,953,937 | 339-Miscellaneous Manufactured Commodities | $1,124,692,912 | |
333-Machinery, Except Electrical | $2,015,808,955 | 324-Petroleum & Coal Products | $850,162,918 | |
325-Chemicals | $1,729,665,250 | 322-Paper | $710,612,810 | |
335-Electrical Equipment, Appliances & Components | $1,690,572,638 | 111-Agricultural Products | $644,940,769 | |
326-Plastics & Rubber Products | $1,504,925,195 | 315-Apparel Manufacturing Products | $486,734,238 | |
332-Fabricated Metal Products, Nesoi | $1,314,190,485 | 313-Textiles & Fabrics | $459,895,716 | |
311-Food Manufactures | $1,267,539,270 | 321-Wood Products | $318,459,088 | |
Total Exports - All Products | $25,266,104,804 | |||
Source: International Trade Administration http://tse.export.gov/TSE/ChartDisplay.aspx | ||||
In addition to exporting goods and services, the California economy benefits from foreign-owned firms. The federal International Trade Administration estimates that in 2013 over 631,500 California workers benefit from jobs with foreign-owned firms, which accounts for 10.3% of all jobs in foreign-owned firms in the U.S. California has had the highest level of employment in foreign-owned firms in the nation since at least 1997. In 2013, jobs in California foreign-owned firms represented 4.1% of all private sector jobs in the state. Along with employment, foreign-owned firms own more property, plants, and equipment in California than in any other state.
- Proposed Amendments: Below is a technical amendment the Committee may wish to consider:
- Make a technical correction to subdivision (g) of section 13996.43, which should relate to a "potential partner in the operation of a foreign trade and investment office" and not a "donor."
- Related Legislation: Below is a list of bills from the current and prior sessions.
- AB 29 (John A. Pérez, Feuer and V. Manuel Pérez) Office of Business and Economic Development:* This bill establishes the Governor's Office of Business and Economic Development (GO-BIZ), to be administered by a director appointed by the Governor. The bill would also move the Office of the Small Business Advocate to the Office of Economic Development. Status: Signed by the Governor, Chapter 475, Statutes of 2011.
- AB 337 (Allen) Economic Development: International Trade and Investment Strategy: This bill adds specificity to the development and content of the state international trade and investment strategy (ITI Strategy), which is an existing report requirement of the Governor's Office of Business and Economic Development (GO-Biz). This bill requires the ITI Strategy to be based on current and emerging market conditions and the needs of investors, businesses, and workers. Specific new content requirements include the addition of a framework, which can be used by GO-Biz to evaluate the changing needs of business during the five-year term of the ITI Strategy. Status: Signed by the Governor, Chapter 776, Statutes of 2014.
- AB 1137 (V. Manuel Pérez) Small Business Assistance and Attracting Private Investment: This bill would have facilitated local economic development and job creation by assisting small businesses to access new export markets for their goods and services, updating the law relating to free trade zones, and authorizing the use of new federal funds under the Small Business Jobs Act of 2010. Status: Held in Senate Committee on Appropriations, 2012.
- AB 1409 (Jobs, Economic Development and the Economy Committee) International Trade and Investment Strategy: This bill, as it passed JEDE, would have required that the next update by Business, Transportation and Housing Agency, of the international trade and investment strategy to include policy goals, objectives and recommendations from the state Goods Movement Action Plan. The measure was amended in the Senate related another subject matter. Status: Held in Senate Rules Committee, 2012.
- AB 1727 (JEDE) Trade Omnibus Bill: This bill makes technical changes to update the content and the statutory placement of the codes relating to Foreign Trade Zones and the California Foreign Investment Program. Status: Signed by the Governor, Chapter 13, Statutes of 2017.
- AB 2012 (John A. Pérez) Economic Development Reorganization: This bill transfers the authority for undertaking international trade and foreign investment activities from the Business, Transportation and Housing Agency to the Governor's Office of Business and Economic Development. In addition, the bill transfers the responsibility for establishing an Internet-based permit assistance center from the Secretary of the California Environmental Protection Agency to GO-Biz. Status: Signed by the Governor, Chapter 294, Statutes of 2012.
- SB 357 (Hueso and De León) Mexico Trade Office: This bill would have required the establishment of a California foreign trade and investment office in Mexico City, Mexico. Status: Vetoed by the Governor, 2017. The veto message stated: "This bill directs the Governor's Office of Business and Economic Development to establish and operate a trade and investment office in Mexico City. California and Mexico have a proven partnership of trade, commerce, and the exchange of culture that runs long and deep. Our relationship with Mexico is fundamental to our mutual prosperity. Through memorandums of understanding, we are directly working with the Mexican government and business community on climate change, trade, transportation, tourism, and education. As I stated in 2014 when I vetoed a nearly identical bill, I remain unconvinced that California needs a legislatively-mandated trade office to continue our ongoing and enduring partnership with Mexico."
- SB 460 (Price) International Trade Marketing and Promotion: This bill would have required the Secretary of the Business, Transportation and Housing Agency to convene a statewide business partnership for international trade marketing and promotion. Status: Held on the Suspense File of the Assembly Committee on Appropriations, 2011.
- SB 928 (Correa and Huff) Mexico Trade Office: This bill would have required the establishment of a trade and investment office in Mexico City by January 1, 2016. Status: Vetoed by the Governor, 2017. The veto message stated: "This bill requires the Governor's Office of Business and Economic Development to open a trade and investment office in Mexico City. I agree that trade with Mexico is of significant economic importance which is why I led a trade mission to Mexico City in August and hosted the President of Mexico in Sacramento shortly afterwards. We are working directly with the Mexican government and the business community on increasing bilateral trade and other initiatives. I am not convinced we need a legislatively-mandated trade office to continue our growing partnership with Mexico."
REGISTERED SUPPORT / OPPOSITION:
Support
None on File
Opposition
None on File
Analysis Prepared by: Toni Symonds / J., E.D., & E. /
Discussed in Hearing
59SEC
Assembly Floor
2MIN
Senate Floor
1H
Senate Standing Committee on Appropriations
2MIN
Senate Standing Committee on Business, Professions and Economic Development
2MIN
Assembly Floor
21MIN
Assembly Standing Committee on Appropriations
Bill Co-Author(s):
