SB 777 (Bradford) — Assembly Committee on Jobs, Economic Development, and the Economy (June 21, 2022)
Summary
This is an Assembly Committee on Jobs, Economic Development, and the Economy analysis of SB 777 (Bradford), as amended June 14, 2022, for a hearing on June 21, 2022 before Chair Sabrina Cervantes. The Senate vote is listed as 38-0. The bill establishes the California Jumpstart Act, which authorizes the allocation of up to $300 million in tax credits to Relief Funds, applied against gross premiums tax liability beginning January 1, 2025, and before January 1, 2030. Applicants must pay a nonrefundable $10,000 application fee, and the credit is nonrefundable and nontransferable. The California State Treasurer is listed as sponsor with registered support from several business groups, and the California Teachers Association is listed in opposition.
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Date of Hearing: June 21, 2022
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Sabrina Cervantes, Chair
SB 777 (Bradford) – As Amended June 14, 2022
SENATE VOTE: 38-0
SUBJECT: Insurance taxation: credit: California Jumpstart Act
POLICY FRAME: Responding to the coronavirus pandemic has required the state to take extreme and
rapid steps to protect the health and safety of Californians. Within one week in March 2020, the state
went from open-for-business to implementing a strict stay-at-home order for everyone not directly
engaged in what the government considered an essential and critical business activity. Since March 2020,
27.3 million unemployment insurance claims have been filed with the state’s Employment Development
Department, claims for initial and extended benefits included.
Even before the coronavirus emergency, however, when California enjoyed 120 straight months of
financial growth, there were significant economic forces driving income inequality. Between 1979 and
2017, earnings for the top 0.1% of households increased by 343.2%, as compared to the earnings of the
bottom 90% of households, which experienced an increase of only 22.2%. Given these divergent income
outcomes, it is not a surprise that California ranks within the top tier of states relative to household
poverty.
While California’s recovery from the economic consequences of the pandemic has surpassed those of
every state in the US, the economic recovery has been unequal, and many areas of the state and groups of
individuals remain significantly impacted. Focused financial interventions are urgently needed to
readdress historic economic disparities and provide new capital to communities and businesses most
impacted by the COVID-19 pandemic.
SB 777 proposes the establishment of a new method for raising community development capital in
exchange for tax credits that may be applied against an insurance company’s gross premium tax.
The policy committee analysis includes information on the growing income inequality in California,
California’s small business economy, and targeting of Relief Fund investments. This bill is assigned to
two policy committees, and should it pass this committee, it will be referred to the Assembly Committee
on Revenue and Taxation for further policy considerations. Opposition to the bill is described in
Comment 2. Suggested amendments are included in Comment 7, which, if accepted, would need to be
taken in a subsequent committee or on the Assembly Floor.
SUMMARY: SB 777 establishes the California Jumpstart Act, which authorizes the allocation of up to
$300 million in tax credits to Relief Funds to provide for an inclusive long-term recovery by attracting
private sector investment into historically overlooked and underinvested communities and small
businesses. Taxpayers may apply the credits against gross premiums tax liability beginning January 1,
2025, and before January 1, 2030. Specifically, this bill:
1) Makes legislative findings and declarations, including, but not limited to, the following:
a) California continues to face unprecedented challenges from the COVID-19 pandemic, and the
realities are stark. Total small business revenue in California in November 2020 has decreased by
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27.9% compared to January 2020, according to a new report from Opportunity Insights. The total
unemployment benefits providing support for California workers and local economies have now
hit $101 billion in just seven months. Almost $55 billion of that is regular state provided
Unemployment Insurance benefits, which is more than double what was paid in the three worst
years of the Great Recession combined, according to October 2020 data from the Employment
Development Department.
b) Black men have recovered fewer than 40% of their jobs lost. This is the worst of any
demographic group, other than Black women, while Hispanic men have recovered about 47% of
their lost jobs, according to new research from the Washington Post.
c) The economic collapse sparked by the ongoing global pandemic is triggering the most unequal
recession in modern US history. California’s small businesses and workers are in a prolonged
battle for survival and stability, a struggle with geographic, economic, and racial disparities.
d) Even before the COVID-19 crisis, many California small businesses, particularly those owned by
people of color or located in economically disadvantaged and historically underserved areas of the
state, still had not fully recovered from the Great Recession. Their economic condition has only
grown direr amid the extended pandemic devastation.
e) Achieving a more equitable recovery begins with creating more equitable flows of capital.
Comprehensive, targeted, and transparent economic policies with strong safeguards will catalyze
small business growth and entrepreneurial activity as California rebuilds.
f) The COVID-19 pandemic’s lessons are clear and simple. Policymakers’ response to these deep,
rapid revenue losses will have important consequences in the coming months and years. A
targeted response that accounts for the investment gaps in disproportionately impacted businesses
and communities, enables small business growth, and generates job creation that can minimize the
harm and accelerate California’s equitable economic recovery.
2) New Tax Credit: Authorizes a tax credit that may be applied against premium taxes for taxable years
beginning on or after January 1, 2025, and before January 1, 2030, as specified.
a) The aggregate amount of investment authority certified is $375 million dollars.
b) The aggregate amount of allocated credits $300 million.
c) The total amount of credits that may be claimed per year is $75 million during the taxable years
containing the third through sixth anniversaries of the closing date.
d) If requests for investment authority and credits exceed the limitations in (a) and/or (b), CPCFA
shall proportionally reduce the investment authority and credits certified for each approved
application as necessary to avoid exceeding the limit.
3) Applying the Credit Against to Tax Liability:
a) Credit Certificate: Requires the submittal of a copy of a specified tax credit certificate with the
taxpayer’s return for each taxable year for which the credit is claimed.
b) Ongoing Limitation on Implementation: Limits implementation of the Jump Start Act to only
taxable years for which an appropriation is made for its purposes in the annual Budget Act or other
statute.
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c) Carry-Forward: Allows any unused portion of the tax credit to be applied toward the taxpayer’s
tax liability in the succeeding five years, if necessary until the credit is exhausted. However, in no
case may the credit be carried forward after the 2030 taxable year.
d) Nonrefundable and Nontransferable: Specifies that the credit is not refundable and may not be
sold, transferred, or allocated to an entity other than an affiliate, as specified.
4) Applying for the Certification of the Relief Fund: Investment Authority which Establishes the
Basis for the Credit:
a) Application: Requires CPCFA to begin accepting applications for certification of a relief fund
within 90 days after the enactment of this bill. The bill requires the submitted application to
include all of the following:
i) The dollar amount of relief investment authority sought by the applicant.
ii) Evidence, as specified, that the applicant meets all of the following criteria:
(1) The applicant, or an affiliate of the applicant, is a federally approved or licensed rural
business investment company or a small business investment company, as specified.
(2) The approval or license is in effect when the application is submitted.
(3) At least one principal or similar officer of the applicant is, and has been for at least four
years, an officer or employee of the applicant or an affiliate of the applicant.
(4) The applicant and its affiliates have invested more than $100 million in nonpublic
companies organized under US laws, as specified. These invested companies are not
required to have principal business operations in California.
iii) A signed certification, as specified, of the amount each investor commits to make in the relief
fund. The total amount of these contributions are required to be an amount that is at least 80%
of the total investment authority sought by the applicant.
iv) A nonrefundable application fee of ten thousand dollars ($10,000).
v) A detailed inclusive outreach plan intended to increase investment sourcing opportunities
under the program in impact businesses.
vi) A signed certification from an executive officer of the applicant attesting that:
(1) No senior managers of the fund are under indictment.
(2) The information provided in the application is true and correct.
vii) The disclosure and description of any pending or resolved litigation in which an applicant or
an affiliate of the applicant is a party, as well as any violations, citations, fines, or penalties
relating to any violations of state labor law, employment law, or environmental law within the
last 10 years.
viii) Evidence from the applicant’s previous experience in undertaking all of the following:
(1) Improving economic outcomes and net job creation in low-income communities with high
unemployment and poverty directly resulting from its investments in small businesses.
(2) Generating improved economic outcomes that would not have occurred but for its
investments in small businesses.
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(3) Promoting high-quality jobs for workers, including, but not limited to, paying wages in
excess of the minimum wage, and promoting full-time employment with health and
retirement benefits.
b) Verification: Authorizes CPCFA to request information from an applicant related to the
information provided in the application prior to allocating investment authority to that applicant.
c) Evaluation of Applications: Requires CPCFA to do all of the following:
i) Issue application criteria consistent with the purposes of this act, and rank applicants based on
those criteria.
ii) Specifies that applications received by the CPCFA on the same day shall be deemed to have
been received simultaneously.
iii) Post the criteria, its rankings of applications, and the amount of tax credits allocated to each
applicant on its internet website.
iv) Deny an application submitted under this section if any of the following apply:
(1) The application is incomplete.
(2) The application fee is not paid in full.
(3) The application does not satisfy all the threshold criteria, as specified.
(4) The maximum amount of relief investment authority and relief contributions have been
exceeded.
(5) The applicant fails to submit affidavits equal to 80% of the relief investment authority
sought.
(6) The applicant did not supply evidence of its experience, as specified.
5) Certifying the Relief Fund and Investment Authority: Requires CPCFA to issue a written notice
to selected applicants certifying all of the following:
a) The applicant is a Relief Fund.
b) The amount of the applicant’s investment authority.
c) The relief contributions required from each investor that submitted an affidavit with the
application.
6) Retrieving the Investment Commitments: Requires the Relief Fund to do all of the following
within 60 days after receiving certification, as specified:
a) Collect relief contributions from an entity subject to insurance premium tax equal to the certified
amount from each investor whose certification was included in the application.
b) Collect additional investments of cash that, when added to the investor contributions, equal the
full amount of Relief Fund’s investment authority.
c) Requires that at least 5% of the Relief Fund’s investment authority shall consist of direct or
indirect equity investments from affiliates of the Relief Fund, including employees, officers, and
directors of the affiliates.
7) Confirmation of Investments to CPCFA: Requires the Relief Fund to provide documentation to
CPCFA of the required investments within 65 days of receiving certification of the Relief Fund and
investment authority, as specified.
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8) Revoking Certification: Requires CPCFA to revoke the Relief Fund’s investment authority
certification if the Relief Fund fails to collect the required funds or submit the required
documentation. CPCFA is required to provide written notice to the Relief Fund of the revocation.
9) Issuance of Tax Credit with Conditions: Requires CPCFA, upon receipt of required documentation
to establish a process in consultation with the Department of Insurance to issue to each investor or
affiliate a notice of the amount and utilization schedule of the tax credits allocated to that investor or
affiliate as a result of its contribution to the Relief Fund, as specified
a) CPCFA, in consultation with the Department of Insurance, is required to issue the tax credit
certificate for one-fourth of the relief contributions made by the investor for each of the taxable
years containing the third through sixth anniversaries of the closing date.
b) CPCFA, in consultation with the Department of Insurance, is prohibited from issuing a tax credit
certificate if the relief fund does not invest 70% of its investment authority in investments within
one year of the closing date and 100% of its relief investment authority in relief investments
within two years of the closing date. These investment requirements may also be met through a
specified cure period process.
c) Specifies that taxpayer receiving a credit for a qualified relief investment pursuant to this program
is prohibited from being eligible for any other credit, as specified, with respect to that investment.
d) CPCFA is required to notify the Department of Insurance of the name of any insurance company
allocated tax credits under this article and the amount of those credits.
10) Funding Ongoing Compliance: Authorizes CPCFA to require additional information to ensure the
Relief Fund’s compliance with this article. In addition, the bill requires:
a) The payment of an annual fee to CPCFA of $150,000 prorated amongst all relief funds that have
not exited the program, as specified.
b) The payment of the initial annual fee be paid to CPCFA within 60 days after receiving
certification from the Relief Fund and investment authority.
c) The payment of the annual fee before the anniversary date of the closing date.
d) The application and annual fees paid are to be deposited in the Treasury Relief Investment Fund,
which is established by this act.
11) Credit Recovery and Revoked Certificates:
a) Conditions: Requires CPCFA, in consultation with the Department of Insurance, to recover tax
credits claimed and revoke tax credit certificates issued if CPCFA determines that any of the
following occur:
i) The Relief Fund fails to invest 100% of its investment authority in relief investments within
two years of the closing date.
ii) The Relief Fund fails to maintain that level of investment until the sixth anniversary of the
closing date, as specified.
(1) An investment is considered maintained even if the investment is sold or repaid as long as
the Relief Fund reinvests an amount equal to the capital returned or recovered (exclusive of
any profits realized) in other relief investments within one year of the receipt of such
capital.
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(2) Regularly scheduled principal payments on a loan that is a relief investment shall be
deemed continuously invested in a relief investment if the amounts are reinvested in one or
more relief instruments by the end of the following calendar year.
iii) The Relief Fund makes a distribution or payment that results in the fund having less than
100% of its relief investment authority invested in relief investments or in cash or marketable
securities available for investment in relief investments.
iv) The Relief Fund makes a relief investment in a small business that directly or indirectly
through an affiliate owns, has the right to acquire an ownership interest, makes a loan to, or
makes an investment in the relief fund, an affiliate of the fund, or an investor in the relief fund,
excluding investments in publicly traded securities by a small business or an owner or affiliate
of a small business.
v) The Relief Fund makes an investment in a small business that is not a qualifying small
business, as defined.
b) Due Process and Cure Period: Requires CPCFA, in consultation with the Department of
Insurance, to notify the Relief Fund of the reasons for the pending recovery and revocation prior to
recovering tax credits or revoking a tax credit certificate.
i) Prohibits the recovery of tax credits or revoking the tax credit certificate:
(1) If the Relief Fund corrects the violations to the satisfaction of the CPCFA within 90 days.
(2) If the violation occurred after decertification, as specified.
c) Reallocation of Credit and Investment Authority:
i) Excludes from the statutory limitations on the aggregate value of tax credits, investment
authority, or investor contributions any amount of revoked or recovered tax credits, as well as
the associated investment authority and investor contributions, as specified.
ii) Requires CPCFA to award reverted investment authority within 15 days of reversion to each
Relief Fund that was awarded less than the requested investment authority for which it applied.
The awards are to be distributed on a pro-rata basis. Any remaining investment authority may
be allocated to new applicants before January 1, 2030.
12) Small Business Investment Limitations: Disqualifies, for the purpose of meeting the required
amount of relief investments, any amount of investments over $7.5 million which are made by the
same Relief Fund in the same small business, as specified.
13) Exiting the Program: Authorizes a Relief Fund to apply to exit the program and CPCFA’s oversight
on or after the sixth anniversary of the closing date, if the Relief Fund has invested 100% of its
required relief investment authority in eligible relief investments.
a) Requires CPCFA to either approve or deny the application to exist the program within 30 days.
b) Prohibits the denial of an application unless there is a reasonable basis for the denial. The
recovery of credits with respect to the decertifying of a Relief Fund is sufficient evidence to
demonstrate eligibility for exiting the program.
c) Requires notice of CPCFA’s determination with respect to decertification and reasons for denial,
if applicable, to be sent to the Relief Fund requesting exit.
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14) Pre-Certification of Potential Qualified Investments: Authorizes a Relief Fund to request a written
opinion from CPCFA on whether a prospective business qualifies as a small business. In making the
request, the Relief Fund is required to provide evidence that the business satisfies the definition of a
small business and a certification by an executive officer of the business attesting that the business
satisfies such definition. CPCFA is required to issue a written opinion to the fund within 15 business
days of receiving the request.
15) Annual Reporting by Relief Funds: Requires each Relief Fund to submit a report to CPCFA on or
before the 15th day of each April following the end of the calendar year that includes the certification
closing date.
a) Required that the report provide an itemization of the Relief Fund’s relief investments and all of
the following documents and information:
i) Audited financial statements evidencing each relief fund’s relief investments.
ii) The name, location, and industry classification of each business that received a relief
investment from the fund, evidence that the business qualified as a small business at the time
the investment was made, as specified.
iii) For each small business receiving a relief investment, the number of full-time employees, as
defined, at each small business at the time the investment was made.
iv) A certification executed by an executive officer of each business attesting the number of jobs
created and job retained as a result of each relief investment.
v) The number of relief investments made in impact businesses, disaggregated by classifications
based on information voluntarily provided by businesses that identify as an impact business
and in accordance with state law.
vi) A certification that the relief fund has not violated any of the grounds for revocation and
recovery of credits, as specified.
vii) Any other information required by the CPCFA, as specified.
b) Requires each fund shall to submit a report to CPCFA on or before the fifth business day after the
first and second anniversaries of the closing date that provides documentation to prove that the
fund has met the required investment thresholds and has not implicated any of the other recovery
provisions, as specified.
16) Outreach to Impact Businesses: Requires CPCFA to undertake outreach activities to encourage
investment in impact businesses, including, but not limited to, partnering with organizations
representing persons and business enterprises from underrepresented groups, in a manner that will
inform and educate members of these organizations on investment opportunities through the Jump
Start Act.
17) Treasury Relief Investment Fund: Establishes the Treasury Relief Investment Fund (TRI Fund) in
the State Treasury, which is administered by CPCFA for purposes of the Jump Start Act.
a) Provides that all moneys in the TRI Fund are continuously appropriated.
b) Requires all moneys accruing to the CPCFA pursuant to the Jump Start Act to be deposited into
the TRI Fund.
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c) Authorizes CPCFA to use the proceeds in the TRI Fund for purposes of administrative costs
relating to the program.
d) Authorizes CPCFA to direct the Treasurer to invest moneys in the TRI Fund that are not required
for its current needs, as specified.
e) Authorizes CPCFA to direct the Treasurer to deposit moneys in interest-bearing accounts in state
or national banks or other financial institutions having principal offices located in the state. The
CPCFA may alternatively require the transfer of moneys in the TRI Fund to the Surplus Money
Investment Fund for investment.
f) Prohibits moneys in the TRI Fund from being subject to transfer to any other fund, excepting the
Surplus Money Investment Fund.
18) Adoption of Emergency Regulations: Authorizes CPCFA to adopt regulations to implement the
Jump Start Act using the state’s emergency regulatory process thereby exempting the adoption,
amendment, repeal, or re-adoption of said regulations using the regular State Administrative
Procedures Act.
19) Section 41 – Tax Credit Accountability: Specifies, that for the purposes of complying with Section
41 of the Revenue and Taxation Code, the Legislature finds as follows:
a) The specific goals, purposes, and objectives of the credit, also known as the California Jumpstart
Act, is to attract private sector investment into underinvested and underserved small businesses
and communities in California and provide a long-term recovery solution.
b) The purpose of the credit is also to incentivize and mobilize rapid and scalable private sector
investment that encourages economic growth beyond the initial relief provided under the federal
small business stimulus programs, enabling small business growth, job creation, and relief for
families in communities where such economic assistance is needed the most.
c) To measure whether the credit achieves its intended purpose, CPCFA shall, by June 30 of each
year, submit an electronic report, to the Legislature containing all of the following performance
indicators:
i) The name, location, and industry classification of each business that received a relief
investment from the relief fund and notification that evidence was collected that the business
qualified as a small business at the time the investment was made.
ii) The number of jobs created and retained as a result of each relief investment.
iii) The cumulative amount of relief investments made in each small business as a result of this
credit.
iv) The number of relief investments made in impact businesses of interest, disaggregated by
classifications based on information voluntarily provided by businesses that identify as an
impact business and in accordance with state law.
v) Any recommendations for improving the effectiveness, transparency, and accountability of the
California Jumpstart Act, or CPCFA’s administration of the California Jumpstart Act.
vi) A list of any penalties imposed during the prior 12-month period against the Relief Fund.
vii) Data collection requirements include:
(1) The amount of tax credits issued in the year.
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(2) The number of jobs created and retained as a result of qualified relief investments.
(3) The number of operating businesses located in a relief zone that receive qualified
investments.
(4) 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.
d) Beginning on January 1, 2025, and in each annual report thereafter while the Jump Start Act is in
effect, the CPCFA is required to include the following additional information in its annual
electronic report submitted pursuant to this bill:
i) An evaluation of the outcomes of the program on low-income communities with high
unemployment and poverty directly resulting from investments in small businesses made
under the California Jumpstart Act, including a description of the methodology used to make
the evaluation.
ii) An assessment of whether the economic outcomes resulting from investments in small
businesses would have occurred but for the California Jumpstart Act.
iii) Based on the CPCFA’s calculations for actual unique jobs created and tax credits allocated, a
calculation of the amount of foregone revenue in the form of tax credits allocated pursuant to
the California Jumpstart Act per unique job created but for the California Jumpstart Act.
e) CPCFA may require a Relief Fund to provide information necessary in a format it prescribes to
complete the report.
f) CPCFA is required to submit the electronic report required to the Senate Committee on Budget
and Fiscal Review, the Assembly Committee on Budget, the Senate and Assembly Committees on
Appropriations, the Senate Committee on Governance and Finance, the Assembly Committee on
Revenue and Taxation, the California Legislative Black Caucus, the California Latino Legislative
Caucus, the California Asian Pacific Islander Legislative Caucus, the California Legislative
Women’s Caucus, and the California Legislative LGBTQ Caucus.
20) Definitions: Defines terms used in the implementation of the Jump Start Act, including but not
limited to the following:
a) “Affiliate” means an entity that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with another entity. For purposes of this
subdivision, an entity is “controlled by” another entity if the controlling entity holds, directly or
indirectly, the majority voting or ownership interest in the controlled entity or has control over the
day-to-day operations of the controlled entity. For selling, transferring, and allocating a credit, an
“affiliate” shall include taxpayers that satisfy this definition on the date the relief fund submitted
its application only.
b) “Flexible term” means any of the following:
i) Deferral of interest payments for at least one year.
ii) Deferral of principal payments for at least one year.
iii) Convertible into equity.
c) “Full-time employee” means an employee that works at least 30 hours per week throughout the
year or meets the customary practices accepted by an industry as full-time. The number of a small
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business’s full-time employees is determined by dividing the total hours for which the small
business pays wages to all employees during the year by the number of employee work hours per
year. The standard calculation for employee work hours per year is 2080: calculated by
multiplying 52 weeks by 40 hours per week.
d) “Impact business” means a small business of more than 50% owned by minorities, women,
disabled veterans, lesbian, gay, bisexual, or transgender persons.
e) “Jobs retained” means, employment positions that are located in this state, require at least 30 hours
of work each week, and existed before the initial relief investment in the small business and would
have been lost or moved out of this state had a relief investment in the small business not been
made, as certified in writing by an executive officer of the small business. The number of jobs
retained by a small business is calculated each year based on the monthly average of employment
positions for that year. The monthly average of employment positions for a year is calculated by
adding the number of employment positions existing on the last day of each month of the year and
dividing that sum by 12.
f) “Principal business operations” means the location that meets either of the following
requirements:
i) At least 60% of the business’s employees work at the location and at least 60% of the
business’s payroll are employees who work at the location.
ii) A business that has agreed to use the proceeds of a relief investment to establish its principal
business operations in the state shall be deemed to have its principal business operations in a
relief zone within 180 days after receiving a relief investment, as specified.
g) “Relief contribution” means an investment of cash, by an entity subject to premium taxes in this
state, in a relief fund that equals the amount specified on a notice of tax credit allocation issued by
the CPCFA under subdivision (c) of Section 12267 and that is used to purchase an equity interest
in the relief fund or to purchase, at par value or premium, a debt instrument issued by the fund that
meets both of the following requirements:
i) Has an original maturity date of at least five years after the date of issuance.
ii) Has a repayment schedule that is not faster than a level of principal amortization over five
years.
h) “Relief investment” means:
i) Any capital or equity investment in a small business or any loan to a small business with a
stated maturity of at least two years.
ii) A senior secured loan is a relief investment only if it has an interest rate of less than 4 percent
plus the effective federal funds rate on the date of the relief investment, as measured and
published by the New York Federal Reserve Bank and has a flexible term.
iii) Any other loan is a relief investment only if it has an interest rate of less than 9 percent plus
the federal funds rate on the date of the relief investment and has a flexible term.
iv) An equity investment is a relief investment only if the relief fund does not acquire a majority
investment in the small business as an initial investment in the small business.
v) Notwithstanding the above, a “relief investment” does not include any transaction that includes
an origination fee.
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i) “Relief zone” means any of the following locations in this state:
i) A census tract in the state meeting either of the following requirements according to the 2020
United States Census:
(1) The census tract has a poverty rate greater than 30%.
(2) The census tract has a median family income that does not exceed the following:
(a) If the census tract is not located in a metropolitan area, 60% of the county or statewide
median family income, whichever is less.
(b) If the census tract is located in a metropolitan area, 60% of the lesser of the statewide
median family income and the metropolitan area median family income.
(3) Relief investments made in a location described in this paragraph shall be verified by
CPCFA using a federal New Markets Tax Credit mapping tool it designates that is
accessible from its public internet website and is subject to the requirements of Section
11546.7 of the Government Code.
ii) A census tract within the state that is determined by the Department of Finance to have a
civilian unemployment rate that is within the top 25% of all census tracts within the state and
has a poverty rate within the top 25% of all census tracts within the state, as specified.
iii) Within a city, county, or city and county designated as a full or partial High Unemployment
Area in the state as designated by the Employment Training Panel no more than 120 days
before the date the relief investment is made.
j) “Small business” means any business that, at the time a relief fund initially invests in the business,
meets all of the following requirements:
i) The total number of employees the business employs does not exceed 250.
ii) The business has gross receipts, less returns and allowances reportable to the state, of less than
$10 million during the previous taxable year.
iii) The business has its principal business operations in a relief zone in the state.
iv) The business is engaged in North American Industry Classification System sector 11, 22, 23,
31, 32, 33, 42, 44, 45, 48, 49, 51, 54, 56, 62, 71, or 72, or if not engaged in those industries,
the CPCFA determines that the investment will create desirable economic outcomes in line
with the goals of this article.
v) “Small business” shall not include any business whose operations violate state law.
21) Includes a crimes and infractions disclaimer.
EXISTING LAW:
1) Establishes the California Pollution Control Financing Authority for the purpose of:
a) Providing an alternative method of financing in providing, acquiring, enlarging, or installing
facilities for establishing pollution control, providing supplies of clean water, and producing
energy from alternative or renewable sources, as specified.
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b) Assisting economically distressed counties and cities to develop and implement growth policies
and programs that reduce pollution hazards and the degradation of the environment or promote
infill development.
c) Financing the costs of assessment, remedial planning and reporting, technical assistance, and the
cleanup, remediation, or development of brownfield sites, or other similar or related costs.
2) Imposes on insurers admitted to transact insurance business in California a 2.35% gross premiums tax
(GPT) (California Constitution, Article XIII, Section 28).
a) Provides that the GPT tax takes the place of all other state and local taxes on insurance, with some
exceptions.
b) Measures the tax based on the amount of gross premiums received, less returned premiums.
c) Provides that the Board of Equalization, the California Department of Tax and Fee Administration
(CDTFA), the Department of Insurance (CDI) and the State Controller's Office jointly administer
the tax.
FISCAL EFFECT: Unknown
COMMENTS:
1) Challenges to Accessing Capital: Access to debt and equity financing is critical for promoting the
efficient operation and expansion of small businesses. Small businesses rely on adequate short-term
debt (working capital) and long-term debt as well as equity financing to purchase new equipment,
replenish inventories, fund ongoing operations, and market their services long before those activities
generate revenue. While financial institutions routinely provide financing to established, larger
businesses, smaller businesses are often bypassed because they lack the collateral or establishment
history, or need too small of a loan.
The same dynamic occurs when small businesses attempt to access equity financing, with investment
funds often bypassing smaller businesses because they lack the operating history and revenue
generating track record of larger businesses. The situation often results in a “chicken or the egg”
scenario whereby businesses are told they need to grow in order to access financing, while
simultaneously being denied access to the financing they need to grow.
For business owners of color, women, and located in historically undercapitalized areas, including
rural, the challenges to accessing capital are even greater. In a May 2022 community development
research brief from the Federal Reserve Bank of San Francisco, one of several key findings found that
respire state programs to lower lenders’ risk, lenders and investors continued to find raising capital for
small business lending difficult. Further, meeting the financial needs of small businesses often
required loan structures and conditions different than mainstream lending. However, holding a
portfolio of non-standardized loans also created long-term liquidity issues for the financial institution.
Tax credit programs like those proposed in SB 777 can help raise the type of flexible capital needed to
meet the uneven economic recovery from COVID-19. SB 777-raised investments build on the
economic principle that targeting significant incentives to lower-income communities will allow these
communities to more effectively compete for new businesses and retain existing businesses that have
remained open. These targeted investments in small businesses result in increased tax revenues, less
reliance on social services, and lower public safety costs. Residents and businesses in these areas also
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directly benefit from these more sustainable economic conditions through improved neighborhoods,
business expansion, and job creation.
2) Opposition to SB 777: The California Teachers Association (CTA) is opposed to SB 777 for the
following reasons:
“According to the Department of Finance, the state provided over $81 billion in General Fund tax
expenditures in 2021-22, and this figure continues to grow each year. This revenue would have
otherwise gone to the General Fund, of which approximately 40 percent would have been applied
to Proposition 98 (Prop 98) for K-14 education. This means that approximately $32 billion is
redirected away from schools and community colleges each year.
“While we understand this bill is well intended, CTA does not support this approach, as it would
reduce overall funding for education. Despite having the 5th largest economy in the nation,
California continues to rank near the bottom of the states in the nation in per-pupil funding.
According to the Education Law Center’s Making the Grade report, California was ranked 30th in
per-pupil expenditures, adjusted for regional cost differences for the 2019 fiscal year (the most
recent data available). CTA believes that Prop 98 should be protected from reductions through the
creation of new or expanding existing tax expenditures.”
3) The Challenge of Income Inequality during COVID-19: While California’s dominance in
innovation-based industries is unquestionable, the divide between the middle- and lower-income
households and the top-income earners is accelerating. Even when California’s unemployment rate
was at historic lows pre-pandemic, unemployment within certain geographic regions and population
groups remained significantly higher, as did the number of people in the state who were not
participating in the core economy.
The coronavirus has deepened California’s income inequality, with the state’s most vulnerable being
at the greatest risk for poor health outcomes, having the least amount of savings to survive its
economic impacts, and being most likely to work in low-paid and least protected essential businesses.
A closer look at disaggregated employment data reveals a bifurcated economic recovery. In March
2020, California reported an unemployment rate of 5.1% as compared to the US rate of 4.5%. From
the employment side, this represents 18.1 million people in California, with 82.5% being employed in
full-time work (based on a 12-month moving average). During this same period, three of California’s
58 counties had unemployment, below 3.0%, with San Mateo County reporting the lowest at 2.5%
(based on not seasonally adjusted data). Colusa County (21.4%) was reported as having the highest
unemployment rate among counties in March 2020.
Two years later (March 2022), statewide unemployment is 4.9%, just slightly lower than 5.1%
reported in March 2020. As noted in the prior comment, employment by industry sector is up in every
sector, and three of the 11 sectors having recovered all jobs. However, the disparities have grown.
Chart 1 – Selected Data on Unemployment shows geographic and demographic unemployment-
related information for the year the World Health Organization announced that the COVID-19 was a
global pandemic and the following two years.
Chart 1 - Selected Data on Unemployment (March 2020, 2021, and 2022)
Unemployment Rate (Not Seasonally Adjusted)
Unemployment Rate (Not Seasonally Adjusted)
(12 month moving average)
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March March March March March March
2020 2021 2022 2020 2021 2022
California California
5.1% 8.2% 4.2% 4.1% 11.1% 6.3%
(comparable rate) (comparable rate)
Colusa County 21.4% 15.4% 12.5% Blacks 5.2% 13.9% 10.5%
Imperial County 20.4% 15.7% 12.3% Hispanics 4.7% 12.5% 6.9%
Los Angeles County 5.6% 10.9% 4.9% Whites 4.0% 10.8% 5.9%
Orange County 4.19% 7.0% 3.1% 16 to 19 years old 15.1% 24.5% 13.6%
Riverside County 4.7% 7.7% 4.3% 20 to 24 years old 7.6% 17.5% 10.1%
Sacramento County 4.3% 7.4% 4.0% 25 to 34 years old 4.1% 11.7% 6.1%
San Bernardino County 4.4% 7.8% 4.3%
San Francisco City & *The Employment Development Department reports
3.5% 6% 2.5%
County a March 2021 (12-month moving average) Labor
San Mateo County 2.5% 5.0% 2.3% Participation Rate (LPR) of 61.8%. The LPR for
veterans is 43.2% vs nonveterans LPR of 64.6%.
Tulare County 13.2% 11.6% 8.4%
Source: www.edd.ca.gov
As illustrated in Chart 1, the disparities among population groups continued, and most cases increased
for certain areas of the state and individuals from certain demographics. For example, unemployment
among Blacks in March 2020 was at a historic low of 5.2%, which was still above the state average of
4.1%. One year into COVID-19 and the disparity between the rate of Black unemployment and the
statewide rate substantially increased (13.9% compared to 11.1%). Two years since the beginning of
the pandemic, the unemployment rate for Blacks is reported as 10.5% versus 6.3% for the workforce
as a whole. From the beginning of the pandemic to March 2022, the disparity between the
unemployment rate for Blacks has grown from 1.1% in March 2020 to 2.8% in March 2021 to 4.2% in
March 2022.
Reports on May 2022 unemployment continued along similar trends, with overall state unemployment
down 0.5% from March (4.6%) and 42,900 jobs being added. San Mateo had the lowest
unemployment rate of 1.7%, and Imperial County the highest at 11.0%. For Blacks, however,
unemployment was only down to 9.6%, and 6.0% was reported for Hispanic workers. [The
comparable unemployment rate for demographic comparisons was 5.5%.] Again, the highest
unemployment was among 16-19 and 20-24 year olds.
The disparities shown in these charts are driven by and also influence a range of poor economic and
societal outcomes, including, but not limited to, limited educational attainment, economic insecurity,
poor health outcomes, negative engagements with law enforcement, and lack of a safety net for the
elderly and individuals with special needs. COVID-19 magnified these effects, further putting strains
on already struggling low-wage workers, particularly in the Black and Latinx communities.
The California Latino Economic Institute released a policy brief in December 2020, which provides
further data on the disparate and growing negative impact of COVID-19 on Latinos in California.
Among other findings, the briefing noted the following:
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Latinos are overrepresented among California’s COVID-19 cases and deaths—59% of cases and
49% of the state’s deaths.
Latino overrepresentation in California’s cases has increased since April 2020.
Nearly 12% of California Latinos are currently uninsured—double the rate of other groups.
Latino unemployment rates are double those from the same time last year.
Nearly two-thirds of California Latinos report experiencing a loss of employment income since
March 2020.
Over 40% of Latinos currently report that it is somewhat or very difficult to pay their usual
household expenses in the last seven days.
Over three-quarters of California small business owners report that COVID-19 has had a moderate
to large effect on their businesses.
This and other reports have highlighted the many of the contributing factors to these health disparities,
including the impact of low household incomes and lack of employment security. During COVID,
Latinos and Blacks have comprised a significant component of the state’s essential workforce. While
a majority of White workers held jobs that allow them to work from home and decrease potential
COVID-19 exposure, Latinos and Blacks, more commonly held jobs in high-risk environments.
This increased exposure to COVID-19, combined with the socio-economic impacts on underlying
health, resulted in a statistically higher number of cases and deaths compared to the group’s percent of
the population. Chart 2 provides information from the California Department of Public Health
relating to COVID-19 cases in California by race and ethnicity. Data is current as of June 13, 2022.
Chart 2 - COVID-19 Case Loads and Outcomes by Race and Ethnicity
Race/Ethnicity Percent Percent Percent CA
No. Deaths
Cases Deaths population
Latino 46.4% 39,479 43.7% 38.9%
White 24.9% 31,392 34.7% 36.6%
Asian 9.6% 9,8173 10.9% 15.4%
African American 5.3% 6,308 7.0% 6.0%
Multi-Race 1.1% 1,436 1.6% 2.2%
American Indian or Alaska Native 0.4% 445 0.5% 0.5%
Native Hawaiian & other Pacific Islander 0.7% 581 0.6% 0.3%
Other 11.6% 972 1.1% ---
Total with data 100% 90,430 100% 100%
Source: California Department of Public Health, accessed June 9, 2022
The chart above, All Cases and Deaths Associated with COVID-19 by Race and Ethnicity, represents
data from 9,106,031 total cases, with 19% of those cases missing race/ethnicity. There are a total of
91,006 deaths, with approximately 1% of those deaths missing race/ethnicity.
4) The Role of Small Businesses within the California Economy: California’s dominance in many
economic areas is based, in part, on the significant role small businesses play in the state’s $3.1
trillion economy. Two studies, one by the US Census Bureau and another by the Kaufman
Foundation, found that net job growth was strongest among businesses with less than 20 employees.
Among other advantages, small businesses are crucial in the state’s international competitiveness, and
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they are an important means for dispersing the economic positive impacts of trade within the
California economy.
In 2018 (most recent full set of data), of the 4.4 million firms in California, there were 3.4 million
nonemployer firms as compared to 954,632 employer firms.
Total revenues for nonemployer sole proprietorships, across all industry sectors, were $189 billion
in receipts in 2017.
Businesses with less than five employees are classified as microenterprises. In 2017, there were
473,641 microenterprises that had one or more employees.
Microenterprises, including both nonemployer and up-to-5-employee businesses, comprise the
single largest segment of the California business community, representing 89.0% (3.9 million) of
all businesses in the state.
Microenterprises have many unique features and provide important benefits to local communities,
according to a recent study from the Microenterprise Fund for Innovation, Effectiveness, Learning,
and Dissemination (FIELD) at the Aspen Institute. These benefits include:
Providing products and services tailored to meet local and neighborhood needs.
Stimulating an inflow of revenues to and within local communities.
Serving as catalysts for neighborhood reengagement.
Revitalizing neighborhoods that may otherwise have vacant storefronts.
Providing role models and support for future entrepreneurs.
Excluding sole proprietorships, businesses with less than 20 employees comprise over 88.6% of all
businesses and employ approximately 17.4% of all workers. Businesses with less than 100 employees
represent 97.3% of all businesses and employ 34.5% of the workforce.
The chart below displays 2018 data (the most recent full set of data) on California employer
businesses, including payrolls, employment, and number of firms, which may comprise one or more
establishments.
Chart 3 - 2018 Business Profile by Size (excludes nonemployer firms)
Area Employment Number Percent of Percent of Annual
Employees
Description Size of Firms Firms Jobs Payroll ($1,000)
United States Total 6,075,937 130,881,471 $7,097,310,272
12.8% 11.6%
California Total 779,825 15,223,664 $1,020,958,926
U.S. Firms U.S. Jobs
61.8% of 4.5% of
United States 0-4 3,757,163 5,967,955 $287,379,518
U.S. Firms U.S. Jobs
62.2% of 4.9% of
California 0-4 485,387 746,240 $46,663,550
CA Firms CA Jobs
89.0% of 16.3% of
United States <20 5,411,180 21,337,272 $898,874,051
U.S. Firms U.S. Jobs
88.7% of 17.4% of
California <20 692,139 2,650,204 $130,748,308
CA Firms CA Jobs
98.1% of 32.7% of
United States 0-99 5,962,057 42,918,809 $1,859,572,577
U.S. Firms U.S. Jobs
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97.4% of 34.2% of
California 0-99 759,654 5,214,752 $261,490,973
CA Firms CA Jobs
99.6% of 46.7% of
United States <500 6,055,421 61,244,031 $2,819,089,905
U.S Firms U.S. Jobs
99.1% of 48.2% of
California <500 773,386 7,339,390 $395,286,015
CA Firms CA Jobs
0.33% of 53.2% of
United States 500+ 20,516 69,637,440 $4,278,220,367
U.S. Firms U.S. Jobs
0.82% of 51.7% of
California 500+ 6,439 7,884,274 $625,672,911
CA Firms CA Jobs
Source: https://www.census.gov/data/tables/2018/econ/nonemployer-statistics/2018... l
These nonemployer and small employer firms create jobs, generate taxes, support important industry
sectors, and revitalize communities. While their small size allows them to be more flexible in meeting
niche foreign and domestic market needs, it also results in certain market challenges.
These challenges include having difficulty meeting the procedural requirements of the state’s complex
regulatory structure and the traditional credit and collateral requirements of mainstream financial
institutions. Specialized technical assistance, access to credit enhancements, and targeting of state
procurement activities help many small businesses overcome or at least minimize these difficulties.
5) Small Business Targeting Including Priority Industry Classifications: Definitions of small
businesses take many forms under state and federal laws. The federal Small Business Administration
uses a general definition of having under 500 employees. As shown in the chart in the prior comment,
this includes over 98% of all businesses in the US and 99% of all businesses in the state. For the
purpose of state procurement, a certified small businesses has under 100 employees, although
manufactures and businesses involved in public work projects may have more employees.
SB 777 defines a small business as a business with 250 or fewer employees, having gross receipts
under $10 million, and having a principal business operation within a Relief Zone. Relief Zones
include a number of geographic regions used by other community development programs. This
stacking of incentives is vital to the success of place-based economic development strategies.
Relief Zones authorized in SB 777 include:
A census tract with a poverty rate that is greater than 30%. (Federal New Market Tax Credit
priority area)
A census tract with a median family income that does not exceed 60% of the county or statewide
median family income, whichever is less. (Federal New Market Tax Credit priority area)
A census tract with an unemployment rate that is within the top 25% of all census tracts within the
state and has a poverty rate within the top 25% of all census tracts within the state, as specified.
(New Employment Credit and Target Area Contract Preference Area)
An area within a city, county, or city and county designated as a full or partial High
Unemployment Area by the Employment Training Panel
Finally, SB 777 targets investments in certain industry sectors, listed in Chart 4 along with the total
number of business in the industry in California. SB 777 limits investments to small businesses, as
noted above. The bill does allow the Authority to add additional target industry sectors if CPCFA
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determines that the investment creates desirable economic outcomes in line with the goals of
California Jump Start Act.
Chart 4 - Eligible Investment Industries by North American Industry Classification System (2018)
Code Industry Title Number of Total Employer Businesses in California
11 Agriculture, Forestry, Fishing and Hunting 2,020
22 Utilities 1,285
23 Construction 77,548
31-33 Manufacturing 37,433
42 Wholesale Trade 58,226
44-45 Retail Trade 106,420
48-49 Transportation and Warehousing 26,004
51 Information 26,339
54 Professional, Scientific, and Technical Services 130,204
Administrative and Support and Waste
56 45,650
Management and Remediation Services
62 Health Care and Social Assistance 115,242
71 Arts, Entertainment, and Recreation 28,167
72 Accommodation and Food Services 91,245
Source: https://www.naics.com/search/
6) California Pollution Control Financing Authority : The California Pollution Control
Financing Authority is governed by a three-member board, including the Director of Finance,
the State Controller, and the State Treasurer who serves as the Chair and appoints the Executive
Director.
CPCFA administers a range of programs, including bond programs to fund pollution control
facilities and equipment, the California Recycle Underutilized Sites (CALReUSE)
Program, California Capital Access Program Annual Reports, and the Sustainable Communities
Grant and Loan Program Annual Reports.
According to the CPCFA website, "CPCFA partners with sister state agencies to achieve the
state’s environmental policy objectives by administering high-impact financing programs
designed to assist regulated entities and other stakeholders with accessing private capital. As a
government agency that issues tax-exempt private activity bonds, CPCFA can facilitate low-cost
financing to qualified waste and recycling projects, and other projects to control pollution and
improve water supply." As part of its bond-related activities, CPCFA is issuing Green
Bonds for pollution control and other environmental projects meeting commonly accepted
standards for climate investments.
Currently, the largest program administered by CPCFA is the California Capital Access
Program (CalCAP). CalCAP for Small Business program was established through legislation
enacted in 1994 for the purpose of incentivizing financial institutions to provide small
businesses with the capital to maintain and grow their businesses. The program provides two
credit enhancements: a loss reserve and a collateral support.
The loss reserve uses a portfolio-based credit enhancement model, whereby a loss reserve
account is established to offset losses incurred in connection with small business loans enrolled
in the program. Funding in the loss reserve account consists of moneys paid by the participating
borrower and financial institution, with CPCFA matching these contributions.
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Unlike a loan guarantee that ensures payment on a certain percentage of the defaulted loan [ 80%
in the guarantee program], under the loss reserve fund model, the default payment amount is
based on the amount of funds available in the reserve account. This means a lender could
potentially recover 100% of the value of the defaulted loan, if sufficient moneys are in the
account. The model encourages lenders to maintain good underwriting practices because
utilization of the loss reserve too often can quickly draw-down the reserve, leaving little for
other potential defaults of enrolled loans within the portfolio.
Loans enrolled through CalCAP can be used for working capital and to finance
land acquisition, construction or renovation of buildings, purchase of equipment, and other
capital projects. CalCAP was initially funded through excess fees from the issuance of
CPCFA pollution control tax-exempt bonds. The Legislature appropriated $6 million in 2010 to
expand the program, and in 2011 CalCAP received approximately one -half of the state's $168
million SSBCI allocation based on a joint application to the US Treasury. Later, California
amended its SSBCI application to re-direct $65 million to a collateral support program. In
2022, CPCFA is anticipated to receive over $590 million from the federal State Small Business
Credit Initiative.
In 2017, CPCFA established the Collateral Support Program, which help small businesses obtain
private loans by making a cash deposit with a lender on behalf of a borrower. The lender holds
the funds as partial collateral against potential loss.
CPCFA also contracts with several state agencies, including the California Air Resources Board
and the California Energy Commission, to provide lenders with loan loss reserve accounts to
finance new, cleaner-burning, heavy-duty, diesel trucks and buses and the acquisition of electric
vehicle charging station equipment. According to the 2020 Annual Report, through the end of
December 2020, the total number of loans enrolled in each CalCAP program is as follows:
CalCAP for Small Business since 1994 is 23,209.
CalCAP/CARB since 2009 is 29,883.
Collateral Support Program (CalCAP/CSP or CSP) since 2013 is 329.
CalCAP Electric Vehicle Charging Station (EVCS) Financing Program (CalCAP/EVCS)
since 2015 is three.
California Seismic Safety Capital Access Loan Program (CalCAP/Seismic Safety) since
2016 is three.
CalCAP American with Disabilities Act Program has not enrolled any loans to date.
7) Transparency is Fundamental to Redressing Historic Underinvestment: Proposed amendments
call for the renaming of CPCFA as the “California Community Development Financing Authority”
and the public may wonder why a name could be so important. Simply put, it comes down intention
and representation.
When CPCFA was established, inclusive economic development was not its mission. It was intended
to provide a cost effective financing alternative for pollution control facilities. In 2022, things have
evolved and CPCFA is now on the verge of receiving nearly a billion dollars in new financing
dedicated to addressing historic underinvestment in low-income communities and diverse business-
owners.
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As noted in the analysis, CPCFA is scheduled to receive $590 million in federal funds to provide
credit enhancements for small business borrowers. In deploying this capital, business owners from
socially and economically disadvantaged groups and underserved communities will be prioritized. SB
777 is proposing that CPCFA take on a new role of allocating $300 million in tax credits to raise
private capital that will be invested in undercapitalized low-income communities. And, SB 625
(Caballero and Lemón) is proposing that CPCFA allocate $50 million in General Fund money as
grants to community development financial institutions (CDFI). These grants will serve an essential
role in increasing the capacity of CDFIs to address key issues in lower income communities, including
entrepreneurship and the development of affordable housing and health facilities. Each of these
expanded and new programs will require additional staffing and new stakeholder partnerships to be
formed.
The impact of the COVID-19 pandemic intensified and accelerated income disparities in California,
making community development financing too important of a mission to be a sideline. People know
things by their name and the renaming of the authority sets the clear intention that going forward
CPCFA will be a fully committed partner in the entire enterprise of community development. The
mantel of inclusive community development needs to placed front and center where programs and
funding can be easily identified.
With the expansion of scale and variety of CPCFA’s programs, it is imperative to look at the totality
of CPCFA’s responsibilities and rename the financing authority to better reflect the full scope of its
resources. These significant new tools require the authority to make itself known as a primary driver
of community development.
8) Proposed Amendments: Below is a list of amendments the committee members may wish to review
when considering the bill.
a) Change the name of the Financing Authority to the California Community Development
Financing Authority, effective January 1, 2024. Authorize the authority to continue to use the
name California Pollution Control Financing Authority for the issuance of bonds, federal
reporting, and the continuance of any contracts in force or under development on January 1, 2024.
b) Delete the special authority to adopt and amend regulations using emergency regulatory authority.
Retain the ability of the Authority to use the existing process for using emergency regulation
authority.
c) Modify the specific dates for the commencement of accepting applications and claiming of credits
to, instead, be triggered upon the Legislature approving full funding. Require the Authority to
notify the Department of Insurance when full funding is approved.
d) Authorize a Relief Fund to request a modification of the credit usage schedule to the extent that
the existing $75 million annual cap per Relief Fund is maintained.
e) Require the Authority to prepare a written outreach plan to encourage investment in impact
businesses. The mandate to undertake these activities is already in the bill, R&T Section 12275.
f) Require as a condition of receiving investment authority that the Relief Fund ask small businesses
to self-identify demographic data on business ownership. Specify that no business shall be
excluded from an investment due to a failure to provide this information.
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g) Expand the definition of “flexible terms” to include a requirement that all terms and conditions of
a loan be fair, equitable, and transparent.
h) Require the dollar amount of the application fee, specified in Section 12266, and the annual fee,
specified in Section 12269.5, to be set by the Authority based on actual costs. The application fee
should not exceed the actual cost of developing and awarding investment authority. The annual
maintenance fee should not exceed the actual cost of monitoring and overseeing the program.
i) Authorize a 15-business day cure period for minor, nonsubstance errors and omissions in the
application.
j) Include the annual report, mandated pursuant to the bill’s Section 41 provisions, to also be
codified in the Revenue and Taxation Code and include the Assembly Committee on Jobs,
Economic Development and the Economy as one of the entities that receive a copy of the annual
report.
k) Update the legislative intent related to the impact of COVID-19 on Californians, in general, and
individuals of color, specifically.
l) Clarify the 15-day time period for the reallocation of revoked or recovered investment authority to
applicants who did not receive a full allocation means 15 business days.
9) Related Legislation: Below is a list of related bills proposing the establishment of a state New
Market Tax Credit, which uses a similar tax credit model to SB 777.
a) AB 185 (E. Garcia and Medina) State New Markets Tax Credit: This bill would have authorized
the creation of a New Markets Tax Credit for qualified investments made in low-income
communities beginning in the 2016 tax year. The NMTC Program would have been administered
through the Governor’s Office of Business and Economic Development. The bill would have
authorized $40 million in tax credits over a five-year period for a total program of $200 million in
credits. Total private investment raised was estimated at $512 million. Tax credit authority would
have come from the reallocation of the unused portion of the State Sales and Use Tax Exclusion
Program. Status: Returned to the Desk without action by the Assembly Committee on
Appropriations, 2016.
b) AB 305 (V. Manuel Pérez) State New Markets Tax Credit: This bill would have authorized the
creation of a New Markets Tax Credit for qualified investments made in low-income communities
which would have begun in the 2013 tax year. The NMTC Program would have been
administered through the California Tax Credit Allocation Committee. The bill would have
authorized $30 million in tax credits over a seven-year period for a total program of $200 million.
Tax credit authority would have come through the elimination of the underutilized Small Business
New Hire Credit. Status: Held in the Assembly Committee on Appropriations, 2013.
c) AB 643 (Davis and V. Manuel Pérez) California New Markets Tax Credit: This bill would have
created a New Markets Tax Credit for qualified investments made in low-income communities
which would have begun in the 2012 tax year. The State Treasurer’s Office would have
administered the new credit program and allocated credits of up to $50 million per year for a total
amount equal to $300 million over six years. Status: Held in the Assembly Committee on
Appropriations, 2012.
d) AB 1259 (L. Rivas, Cervantes, and E. Garcia) New Market Tax Credit: This bill would have
authorized the creation of a New Markets Tax Credit for qualified investments made in low-
income communities which would have begun in the 2020 tax year. The NMTC Program would
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have authorized $100 million in tax credits per year for five years. Status: Held in the Assembly
Committee on Appropriations, 2019.
e) AB 1399 (Medina and V. Manuel Pérez) State New Markets Tax Credit: This bill would have
authorized the creation of a New Markets Tax Credit for qualified investments made in low-
income communities which would have begun in the 2015 tax year. The NMTC Program would
have been administered through the Governor’s Office of Business and Economic Development.
The bill would have authorized $40 million in tax credits over a five-year period for a total
program of $200 million in credits. Total private investment raised was estimated at $512 million.
Tax credit authority would have come from the reallocation of the unused portion of the State
Sales and Use Tax Exclusion Program. Status: Vetoed by the Governor, 2013. The veto message
states, “This bill creates a New Markets tax credit that will cost – over time - $200 million. I
certainly endorse programs that result in private investments to help low-income areas, but a bill
to spend this much should be considered with other priorities during the annual budget.”
f) AB 1572 (JEDE) State New Market Tax Credit: This bill establishes the C-NMTC Program and
authorizes the awarding of $100 million in tax credits annually for five years, beginning in the
2023 tax year. The purpose of the C-NMTC Program is to attract new private capital to very low-
income neighborhoods in California. In general, the new state credit parallels the F-NMTC
Program. Status: Held on Suspense in the Assembly Committee on Appropriations, 2022.
g) AB 1715 (JEDE Committee) California New Markets Tax Credit: This bill would have
authorized the creation of a New Markets Tax Credit for qualified investments made in low-
income communities which would have begun in the 2018 tax year. Funding for the credit would
have come from the renegotiation of the Governor’s Economic Development Initiative (GEDI), an
underperforming initiative which was created to replace the California Enterprise Zone Program.
Status: Following discussions with Assembly Budget Subcommittee Four regarding the
reworking of GEDI tax incentives, the bill was used for another purpose, 2017.
h) AB 2037 (Davis and V. Manuel Pérez) California New Markets Tax Credit: This bill would
have authorized the creation of a New Markets Tax Credit for qualified investments made in low-
income communities which would have begun in the 2011 tax year. The NMTC Program would
have been administered through the California Tax Credit Allocation Committee. Tax credit
authority would have come through the elimination of the underutilized Small Business New Hire
Credit. Status: Held in the Assembly Committee on Appropriations, 2011.
i) AB 2647 (E. Garcia and Medina) California New Markets Tax Credit: This bill would have
established a $40 million tax credit program for five years for the purpose of attracting new private
capital to very low-income neighborhoods in California. In general, the new state credit would
have paralleled the federal New Markets Tax Credit (F-NMTC) Program. Status: Held in the
Assembly Committee on Appropriations, 2016.
j) AB 3101 (Blanca Rubio and Cervantes) New Markets Tax Credit: This bill would have
established the C-NMTC Program and authorizes the awarding of $50 million in tax credits
annually for five years, which would have begun in the 2021 tax year. The purpose of the C-
NMTC Program is to attract new private capital to very low-income neighborhoods in California.
In general, the new state credit would have paralleled the F-NMTC Program. Status: Held in the
Assembly Committee on Appropriations, 2020.
k) SB 1316 (Romero) California New Markets Tax Credit: This bill would have authorized the
creation of a New Markets Tax Credit for qualified investments made in low-income communities
which would have begun in the 2011 calendar year. The State Treasurer’s Office would have
SB 777
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administered the new credit program and allocated credits in an amount equal to the estimated
revenue gains that resulted from the temporary elimination of specified like-kind property
exchanges. Status: Died on the Senate inactive file, 2010.
10) Double Referral: The Assembly Committee on Rules has referred this measure to the Assembly
Committee on Jobs, Economic Development, and the Economy and to the Assembly Committee on
Revenue and Taxation (R&T). Should this measure pass the committee, it will be referred to R&T for
further policy consideration.
REGISTERED SUPPORT / OPPOSITION:
Support
California State Treasurer (sponsor)
Advantage Capital Partners
California African American Chamber of Commerce
California Asian Pacific Chamber of Commerce (CAPCC)
California Hispanic Chambers of Commerce
Enhanced Capital Partners
Los Angeles Urban League
National Association of Women Business Owners - California
National Federation of Independent Business - California
Small Business California
Stonehenge Capital Company, LLC
Opposition
California Teachers Association
Analysis Prepared by: Toni Symonds / J., E.D., & E. / (916) 319-2090
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