California Direct Financial Incentives 2010
California's economic development, finance and tax organizations provide a range of incentive programs to initiate new business and commercial investment. Specific programs include an Employment Training Panel, Industrial Development Bonds, and the Beverage Container Recycling Grant Program.
• $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 to 30 percent below conventional financing rates.v • 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.
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 *Logistics
* 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 firstname.lastname@example.org.
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.
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.
California Alternative Energy & Advanced Transportation Authority (CAEATFA):
Sales & Use Tax Exemptions for Zero Emission Vehicle (ZEV) Manufacturing Under CAEATFA's authorizing statute, the authority's purpose is to provide industry in California with alternative methods of financing alternative energy and advanced transportation technologies. The statute defines advanced transportation as "emerging, commercially-competitive, transportation-related technologies identified by the authority as capable of creating long-term, high value-added jobs for Californians while enhancing the state's commitment to energy conservation, pollution reduction, and transportation efficiency." (California Public Resources Code Section 26002.3(d)). The CAEATFA Board has directed authority staff to explore proposals for providing sales and use tax exemptions for the purchase of ZEV manufacturing equipment. The goal of this new ZEV program is to create a strong new ZEV industry within California that reduces green house gas emissions and creates new long-term high value-added jobs. This exemption is created through a sales-leaseback approach where CAEATFA purchases specified equipment (tangible personal property, not real property) on behalf of company X. CAEATFA finances this purchase through a bond or loan. Company X then leases the equipment from CAEATFA, with the lease payments paying for the bond or loan. As envisioned, the lease would stay in existence only from the time of the equipment purchase until the equipment is placed in use. By statute, CAEATFA does not have to pay sales tax on the equipment it purchases. The Board of Equalization (BOE) oversees state sales and use tax issues and would be consulted in the process.
Pollution Control Financing:
The CPCFA provides tax-exempt bond financing for pollution control projects. Their Tax-Exempt Bond Financing Program gives California businesses help with acquisition or construction of qualified pollution control, waste disposal or waste recovery facilities, and the acquisition and installation of new equipment. They also offer a Sustainable Communities Grant and Loan Program that assists communities implementing "smart growth strategies," and the CalReUSE Program that offers low-interest, forgivable loans to assist public and private partners in redeveloping contaminated "brownfields." The California Capital Access Program (CalCAP) helps small business borrowers obtain loans.
The term of the loan guarantee may extend up to seven years:
• Interest rates are negotiated between the borrower and the lender. The FDC may charge a guarantee fee of up to two percent for guarantee amounts up to $150,000, and three percent for guarantee amounts over $150,000, plus a documentation fee of $250.
• Processing time takes three to five weeks, depending on how quickly the applicant provides the necessary information and documentation, and on the lender's responsiveness.
• Collateral is generally required, but each transaction is tailored to meet the borrower's financial situation.
Market Development and Expansion Grant Program:
The Department of Conservation provides up to $20 million annually to increase beverage container recycling in California and to improve processing and manufacturing with recycled aluminum, glass and plastic. It encourages projects that advance environmentally and economically sustainable containers, packaging and other products. The program supports research and development of new technologies and helps reduce greenhouse gas emissions by strengthening green industries in the state.
Specific objectives include:
• Creating market opportunities for new sustainable products or packaging.
• Expanding market-related activities for existing recycled-content products.
• Improving the quality and supply of beverage container material feedstock for use in manufacturing sustainable products or packaging. • Creating market opportunities for sustainable beverage packaging.
For more information, visit the Department of Conservation's website at:
Beverage Container Recycling Grant Program:
The Department of Conservation provides funding annually in the form of grants for beverage container recycling and litter reduction programs. The Department typically seeks projects that provide convenient beverage container recycling opportunities in California. However, the focus may change with each new solicitation. Grant proposals are evaluated on criteria set forth in each year's Grant Solicitation. There are no restrictions on who can apply for the grants. For more information, visit the Department of Conservation's website at
https://www.conservation.ca.gov/dor/grants/Pages/bcrg.aspx or call 1-800-RECYCLE.
Beverage Container Recycling Infrastructure Loan Guarantee Program:
The Department of Conservation provides continuous funding in the form of loan guarantees for up to $10 million for capital expenditures for new infrastructure that would add recycling capacity, re-use and/or remanufacture beverage container materials into new products. Uses: equipment costs, building and facilities, rent and utilities, travel, contractual services, salaries and benefits, other operating and non-operating costs. Private companies, non-governmental organizations, governmental agencies, manufacturers and trade associations are eligible to apply. For more information, visit the Department of Conservation's website at
Recycling Market Development Zone Revolving Loan Program:
The Recycling Market Development Zone (RMDZ) Revolving Loan Program makes capital available for California manufacturers located in RMDZ's. The program provides direct loans to eligible businesses that manufacture recycled raw materials, produce new recycled products, or that reduce waste from the manufacture of a product. These loans promote market development for post consumer and secondary waste materials and divert waste from non-hazardous California landfills. Funds may be used to acquire equipment, make leasehold improvements, purchase recycled raw materials and inventory, or acquire real property. Applicants may borrow a maximum of 75 percent of the cost of a project, or $2 million. Terms are generally 10 years, and low interest rates are fixed.
SBA 504 Loans:
SBA (Small Business Administration) 504 loans are marketed, processed, closed and serviced by Certified Development Corporations (CDC). Through the SBA 504 Program, CDC's provide up to 90 percent of fixed-asset financing costs. The second mortgage, long-term, fixed-rate financing nature of the program allows banks to participate in business expansion by reducing risk exposure. The benefit to the borrower is a lower down payment requirement (10 percent) and a longer-term, fixed-rate loan, which translates into reduced monthly payments. The maximum SBA debenture is $1,500,000 when meeting the job creation criteria or a community development goal. Generally, a business must create or retain one job for every $50,000 provided by the SBA except for "Small Manufacturers" which have a $100,000 job creation or retention goal. Individual job goals can be somewhat flexible if the CDC's overall portfolio meets the requirements. At that point, community impact and public policy goals can be mitigating factors. Eligible 504 loan uses include the purchase of land, existing buildings, new construction, and the acquisition of machinery and equipment with a 10-year useful life. The private sector participant finances 50 percent of the project cost and takes a first lien on assets pledged as collateral. The SBA takes a second lien on assets and finances up to 40 percent of the project cost, up to $1 million in some cases. Borrowers inject 10 percent in the form of cash or equity in real estate. For more information on SBA 504 loans, call the California Statewide Certified Development Corporation toll free at (800) 348-6258.
USDA Rural Development:
The U.S. Department of Agriculture sponsors "Business & Industry" guaranteed loans in rural communities. USDA guarantees up to 80 percent on loans from $750,000 to $5 million, and up to 70 percent on loans up to $10 million. Rates are fixed or variable and negotiated between lender and business. Terms are typically seven years for working capital, 15 years on equipment and 30 years on real estate. Lenders negotiate their own fees and the USDA charges two percent of the guaranteed amount as a one-time fee. Most types of businesses qualify, but the project must be in a rural area beyond the urbanized periphery surrounding a city of 50,000 or more. Communities that have grown beyond 50,000 since the 2000 census may still be eligible.
Local Revolving Loan Funds:
Enterprising communities throughout California have recognized that Revolving Loan Funds (RLF) are important economic development tools. The United States Economic Development Administration, Department of Agriculture, and Housing and Urban Development's Community Development Block Grant Program typically capitalize RLF's. Their proceeds often provide critical capital to deserving small businesses, which in turn provide needed jobs in urban and rural areas throughout California. Certain businesses may be targeted for assistance and most often the loan will be provided as part of an overall package in the form of gap financing. RLF's are guided by policies that outline loan or loan guarantee sizes, uses, rates, terms, special conditions and participation levels. The goals, objectives and priorities of the program are weighed against the portfolio's requirements, and loans are approved or denied by a Loan Administration Board. Conventional lending is required, with the RLF taking a second or third mortgage position. Personal and/or corporate guarantees are required. Contact your local city or county for more information.
Various forms of financial assistance are available through local redevelopment agencies in California. Business may benefit through direct financial assistance, land assemblage, bond issuance and/or construction of public improvements. Redevelopment is funded through incremental property tax revenue increases that are a direct result of private investment and increased property values. Assistance may be in the form of fee reductions, infrastructure improvements, land cost reductions, mortgage interest reductions, rehabilitation/demolition/clearance of existing structures and utility tax rebates. Legislation enables the redevelopment agency to provide financing for manufacturing projects under certain conditions. Capital financing or long-term operating leases may also be permitted. Contact your local redevelopment agency or the California Department of Housing and Community Development at https://www.hcd.ca.gov/contact.html
California State Contact:
California Business Investment Services
801 K Street, 21st Floor
Sacramento, CA 95814
Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.
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