The Elk Grove EDC can meet with your firm to tailor a state incentive package to meet your business' specific needs.

Research and Development Tax Credit

Designed to encourage businesses to increase their basic research and development activities in California, the research and development tax credit allows companies to receive a 15 percent credit against their bank and corporation tax liability for qualified in-house research expenses, and a 24 percent credit for basic research payments to outside organizations.

Qualified research expenses generally include wages, supplies and contract research costs. To qualify, a taxpayer’s research must be conducted within California and include basic or applied research of scientific inquiry, original investigation for the advancement of scientific or engineering knowledge or improved function of a business component.

Net Operating Loss Carryover

California tax law allows businesses that experience a loss for the year to carry this loss forward to the next year in order to offset income in the following years. New businesses can carry over 100 percent of their losses for 10 years if the loss is in their first year of operation.

California 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.

The 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:

• Nanotechnology
• Biotechnology and Life Sciences
• Goods Movement and Transportation Logistics
• Aerospace and Defense
• Advanced Technology Information Services
• Multimedia/Entertainment
• Healthcare
• Construction
• Agriculture

Industrial Development Bonds

To promote investment in land, buildings and new equipment associated with domestic manufacturing and processing operations, Congress created tax-exempt Industrial Development Bond (“IDB”) financing. As a result of federal and state income tax exemptions, IDB financing may be the most competitive financing option available for the acquisition of manufacturing facilities and equipment. IDBs allow qualified private-sector entities to borrow at the low interest rates normally reserved only for state and local government entities.

The California Infrastructure and Economic Development Bank (I-Bank), several local Industrial Development Authorities (IDAs) and some Joint Powers Authorities (JPAs) issue IDBs on a “conduit” basis. A conduit revenue bond is an obligation issued by a governmental agency, but payable solely from the loan repayments received from the borrower. The bonds do not constitute an obligation of either the state or the issuer. Please review the following important features of IDBs:

Industrial Development Bonds (IDBs) are tax-exempt securities issued up to $10 million by a governmental entity to provide money for the acquisition, construction, rehabilitation and equipping of manufacturing and processing facilities for private companies. IDBs can be issued by the I-Bank, local Industrial Development Authorities, or by Joint Powers Authorities.

• Manufacturing Facility. The project financed by the bonds must be a facility used for the manufacturing, production or processing of tangible property (including the processing resulting in the change of such property). No more than 25% of the bond proceeds can be applied to ancillary office, warehouse or other space.
   
• Qualifying Costs. At least 95% of the bond proceeds must be spent on qualifying costs. Qualifying costs are generally capital expenditures such as land, building and equipment and other depreciable property (and can also include capitalized interest during construction).
   
• Used Equipment. If bond proceeds are used to acquire used equipment, 100% of the cost must be spent on rehabilitation of the equipment within a two-year period.
   
• $40,000,000 Aggregate Limitation. A borrower and certain users may not be the beneficiary of more than $40,000,000 of certain tax-exempt bonds regardless of the location of the projects; during a three year period after the facility being financed is placed in service.
   
• Land. No more than 25% of the bond proceeds can be used to acquire land.
   
• Acquisition of Existing Manufacturing Facilities. The acquisition of an existing facility can be financed if at least 15% of the portion of the bond amount used to purchase the facility is spent on rehabilitation of the building within a two-year period.
• Maturity. The average maturity of the bonds cannot exceed 120% of the average economic life of the assets financed.
• No Working Capital or Inventory. Bond proceeds cannot be used to finance working capital or inventory
   
• $20,000,000 Capital Expenditure Limitation.
  The capital expenditures for the project, when added to the company’s other capital expenditures in the same public jurisdiction as the project for the three years immediately preceding and three years following the closing of the financing of the project, cannot exceed $20,000,000.
   
• Public Benefits. The project financed by the bonds must meet certain public benefit criteria established by the California Debt Limit Allocation Committee (CDLAC), which include, among other things, the creation or retention of jobs. CDLAC’s criteria for IDBs and other types of private activity bonds can be obtained at www.treasurer.ca.gov/cdlac/.
   
• Prevailing Wage. The prevailing wage must be paid to workers involved in the construction or renovation of a facility financed with IDBs in compliance with Chapter 1 (commencing with Section 1720) of Part 7 of Division 2 of the Labor Code and implementing regulations. California Labor Code, Division 2, Part 7, Chapter 1, Article 1, Section 1720-1743 can be viewed at http://www.leginfo.ca.gov. No Pre-Payment Penalty.
   
• Credit Requirements. The borrower must generally secure a letter of credit in the amount of the bonds from a bank with a long-term credit rating of “A” or better. An unrated private placement with a Qualified Institutional Buyer is also possible under certain conditions.

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.

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 “Brownfield’s.” The California Capital Access Program (CalCAP) helps small-business borrowers obtain loans.
http://www.treasurer.ca.gov/cpcfa/

Small Business Loan Guarantee

California Small Business Loan Guarantee Program:

The Small Business Loan Guarantee Program allows a business to not only acquire a loan it could not otherwise obtain, but to establish a favorable credit history with a lender so that the business may obtain future financing on its own.

Eligible Applicants: Any small business as defined by the U. S. Small Business Administration (typically businesses that employ one hundred people or less). Eligible Uses: Proceeds must be used primarily in California and for any standard business purpose beneficial to the applicant’s business, such as expansion into new facilities or purchase of new equipment. Guarantee Amount: Guarantees can cover up to 90% of the loan amount, with the guaranteed portion of the loan not exceeding $500,000. The guaranteed percentage varies and subject to negotiation between the FDC and the lender.

Loan Information:

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 2% for guarantee amounts up to $150,000, and 3% 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.

http://www.calbusiness.ca.gov/cedpgyfasb1gp.asp

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, CDCs 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 longerterm, 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.

http://www.sba.gov/services/financialassistance/basiex.html

Recycling Market Development Zone Revolving Loan Program

The Recycling Market Development Zone (RMDZ) Revolving Loan Program makes capital available for California manufacturers located in RMDZs. 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% of the cost of a project or $2 million. Terms are generally 10 years and low interest rates are fixed.

http://www.ciwmb.ca.gov/rmdz/loans/

Capital Investment Incentive Payments

California has enabled cities and counties to negotiate property tax rebates with high-tech manufacturing companies. Under the law, local governments can cap the taxable value of any new high-tech manufacturing plant at $150 million annually for up to 15 years. The manufacturer is then charged an annual “community services fee” of approximately $2 million.

This program commenced in the 1998-99 fiscal year and can only be approved by a majority vote of the local governing body. The Business, Transportation & Housing Agency certifies that businesses described in Standard Industrial Classification (SIC) Codes 3500 to 3899 are eligible for the program. (California law still references the SIC codes. To identify the newer North American Industry Classification System (NAICS) code for these types of businesses, go to: http://www.census.gov/epcd/www/naicstab.htm.

Special districts and school districts may also participate in the payment of Capital investment incentive payments, although they may not make payment of an actual allocation. A Community Services Agreement (CSA) dictates community service fee remittances, in amounts equal to 25 percent of the capital investment incentive amount calculated for that project proponent for that fiscal year. This fee cannot exceed $2 million in any fiscal year. Employees at the facility specified in the CSA must be covered by an employer-sponsored health benefits plan and the average weekly wage, exclusive of overtime, cannot be less than the state average weekly wage. The “state average weekly wage” means the average weekly wage paid by employers to employees covered under unemployment insurance, as reported to the Employment Development Department for the last four calendar quarters.

Property Taxes

County government levies and administers property taxes. The State Board of Equalization performs an oversight role relative to county assessors’ activities. Property tax is levied on 100 percent of assessed valuation. The tax rate is 1 percent plus a component representing bonded indebtedness for the district in which the property is located on the lien date. The average property tax rate in California is 1.1 percent, but varies on a parcel basis.

Real property is appraised upon change of ownership or new construction, and then adjusted annually at the lower of 2 percent or the rate of inflation as measured by the Consumer Price Index. Assessed values on real property may be reduced if the value is higher than the current market value. Business personal property, including machinery, equipment, and fixtures is taxed at the same rate as real property, but is not subject to any special assessments. Unlike real property, business personal property is reappraised annually. Business owners must file a property statement with the county assessor each year detailing market value.

Finished goods and raw materials are not subject to property tax. Only finished goods held for use are assessed.

http://www.boe.ca.gov/proptaxes/proptax.htm