California Direct Financial Incentives 2011
California's economic development, finance, and tax organizations provide a range of incentive programs to initiate new business and commercial investment. Specific programs include industrial development bonds, customized training, and enterprise zones.
Area Development Research Desk (March 2011)
Industrial Development Bonds:
• $10 million: maximum amount that can be borrowed as a tax-exempt industrial development bond.
• $20 million: limit on the company's capital expenditures for the three years before and after the bond issuance (intended to target the program to small- and medium-sized manufacturers).
• Low interest rate: 20-30 percent below conventional financing rates.
• Primary business activity: Manufacturing, processing or fabrication. Examples include but aren't limited to meat processing, vegetable dehydration, machine fabrication, car and truck parts manufacturing, wine-making and lithographers. Distribution is not an eligible use.
• Primary use of bond funds: acquisition, construction, rehabilitation and equipping.
• Comprehensive funding: the funds can be used for construction and/or takeout to finance land, buildings and equipment.
• No pre-payment penalty.
• Repayment: If the company qualifies for a conventional bank loan, it should be able to qualify for a bank Letter of Credit.
• Federal and state requirements: because the bond financing provides a benefit to business, borrowers must meet certain public benefit criteria, as well as general eligibility requirements. The project financed by the bonds must meet certain public benefit criteria established by the California Debt Limit Allocation Committee (CDLAC), located in the California's Treasurer's Office, which include, among other things, the creation or retention of jobs. The IDB financing process can generally be completed within 150 days. The conduit issuer's staff and a financing team, which typically consists of an underwriter, bond counsel and financial advisor, will assist the applicant through each stage of the process. www.ibank.ca.gov www.treasurer.ca.gov
Employment Training Panel
A skilled workforce is key to a company's ability to remain competitive. The Employment Training Panel (ETP) assists employer efforts to effectively train workers and maintain skilled workforces capable of responding to changing business and industry needs. ETP-funded training works because employers make decisions about their own training programs, training investments help companies become more profitable and performance-based contracting ensures success. ETP job training funds are available to all California manufacturing companies, companies that face out-of-state competition and businesses that are expanding or relocating to California from other states or countries. In addition to the manufacturing industry, and, of course, California's small business employers, the Panel also prioritizes:
• Biotechnology and Life Sciences
• Goods Movement and Transportation
• Aerospace and Defense
• Advanced Technology Information Services
For more information regarding ETP, visit their website at www.etp.ca.gov or e-mail them at email@example.com.
Businesses located within the boundaries of an Enterprise Zone are eligible for tax credits. The first major Enterprise Zone tax credit is equivalent to the sales and use tax paid on the first $1 million personal income tax or $20 million Corporate Tax Payers of qualified new or used manufacturing equipment purchased each year. Qualified machinery is machinery or parts used to:
• Manufacture, process, fabricate or otherwise assemble a product.
• Produce renewable energy resources.
• Control air or water pollution.
The definition of "qualified property" has been expanded to include data processing and communications equipment including, but not limited to, computers, CAD systems, copy machines, telephones systems and faxes. Equipment must be purchased in California unless equipment of comparable price and quality cannot be found in California. The second major Enterprise Zone benefit takes the form of a credit equal to a percentage of the wages paid to a qualified employee. The credit is based on the lesser of the actual hourly wage or 150 percent of the state-established minimum wage. The credit is provided over a five-year period with 50 percent of the wages creditable in the first year of employment, 40 percent the second year, 30 percent the third year, 20 percent the fourth year, and 10 percent the fifth year. If the employee stays with the company for the entire five-year period, the company receives credits totaling nearly $37,440 per qualified employee. If the employee is terminated prior to 270 days of employment, the credit is recaptured. Other Enterprise Zone benefits that may apply in certain cases include:
• A 15-year carryover of up to 100 percent of net operating losses.
• Expensing of certain depreciable property.
• Lender interest income from loan to zone businesses is deductible. www.hcd.ca.gov/fa/cdbg/ez
LAMBRAs, MEAs, and TTAs are detailed in the above link. LAMBRA Zones are a companion to Enterprise Zones. The most notable differences in incentives include enhanced equipment purchase eligibility under the sales and use tax credit, an annual wage limitation of $2 million per year under the hiring tax credit and redefinition of qualified employees to include displaced military or civilian employees of the former base. www.hcd.ca.gov/fa/cdbg/ez/lambra/