California treasurer defends state's tax break program for clean energy companies as 'wise and needed,' despite failure of Solyndra; while program has inherent risk, not having it would be 'bigger risk' because state would miss out on jobs, investment

Rachel Carter

SACRAMENTO, California , October 20, 2011 (Associated Press) – The state treasurer on Wednesday called California's tax break program for clean energy companies a "wise and needed one" despite the failure of its most high-profile recipient -- the solar startup Solyndra.

Treasurer Bill Lockyer told a panel of state lawmakers that the program is intended to promote the growth of alternative energy manufacturing plants in California and complements the state's push for renewable energy.

He said nearly 70 percent of all businesses do not make it past eight years, and that risk extends to clean energy companies such as Solyndra.

"We take some risks by having this policy in place, and we probably take a bigger risk by never having the tax exclusion because the jobs and investments don't come to California," Lockyer said Wednesday. "That's a bigger risk and, one we need to be very concerned about."

Sen. Alex Padilla, D-Los Angeles, and Sen. Lois Wolk, D-Davis, called a joint Senate committee hearing to find out if regulations need to be changed after the state awarded $25 million in sales tax breaks to the failed Fremont solar startup. Padilla said while the program might need to be tweaked, he believed it should continue because it provides an incentive that could help businesses expand in the state.

Sen. Bob Huff, R-Diamond Bar, said the program doesn't appear to run the state as much risk as other incentives that could be considered tax giveaways.

"Well, there's not a whole lot of risk," Huff said. "If they don't invest, they're not paying anything anyway. And maybe we help them become more viable."

Then-Gov. Arnold Schwarzenegger signed Padilla's bill, SB71, in March 2010, when the Republican governor was in the midst of an ambitious push to move California to the forefront in developing alternative energy. The bill passed with overwhelming bipartisan support.

The California Alternative Energy and Advanced Transportation Financing Authority has approved 33 applicants for $104 million in sales tax exemptions under the roughly year-old program, according to the state treasurer's office. The law allows qualified companies to waive the state sales tax when purchasing manufacturing equipment in California.

Last month, the treasurer suspended the program to new applicants while the authority reviewed its application process.

Solyndra was among 11 companies that have claimed some of those tax breaks. The company closed its doors Aug. 31 and has filed for bankruptcy protection. It also is the subject of congressional inquiries because it received a $528 million federal loan that has become an embarrassment to the Obama administration.

Padilla opened the hearing Wednesday by saying California's tax-break program should be assessed now that it has been in effect for a year. He wants to know whether the program is helping create jobs in the state and promoting the clean-energy industry, or is just giving away tax money that otherwise would come to the state.

"How's it going? What's working? What's maybe not working?" Padilla said. "Naturally we will have a lot of questions about Solyndra. Should we have handled it differently?"

California is one of a few states that require businesses to pay sales tax on manufacturing equipment, which business and manufacturing groups say puts the state at a competitive disadvantage.

Lockyer said the tax-break program is unusual because it is one of the only ones that tries to assess whether the benefits to California outweigh the cost of the tax subsidy. California offers 86 other tax breaks that result in $43 billion a year less coming to the state.

"My conclusion is SB71 was a wise and needed one," Lockyer said.

While the goal of the program is to create more manufacturing jobs in the state, Lockyer cautioned that it would be imprudent to try to decide which companies should get the sales tax break by trying to assess each company's financial viability. That's a job better left to investors, he said.

Lockyer said it's also not the right approach to police a company based on how many jobs they create in the state. "That just poisons the relationship with these businesses," he said.

Two companies testified Wednesday about California's tax exemption program and showed mixed results for the state.

One company decided to build in Mississippi despite being approved for California's sales tax exemption and another picked California over Oregon because of the manufacturing sales tax exemption.

Melissa Zucker, vice president of human relations at Solaria Corp., said California's tax program enabled the Fremont-based solar module company to avoid the state's use tax when it shipped manufacturing equipment to California from offshore. Solaria was also courted by Oregon, which does not have a use tax.

Zucker said Solaria has so far used about one-third of the tax exemptions it has been approved for and has already reached two-thirds of the jobs it anticipated to create.

"We have been going through an exhaustive process ourselves on where we would expand further our manufacturing capacity," Zucker said. "At this point we are focused on California and SB71 has been very integral to our process."

Frank Yang, senior director of business development for Stion Corp., said the solar company built a manufacturing plant in Mississippi because local economic development leaders offered a comprehensive incentive package, from research to real estate. Yang said the San Jose-based business still supports California's program.

"In terms of why we haven't officially conveyed any of this equipment (in California)," Yang said, "we've been fairly conservative in our planning as a company and didn't want to make any claims or go forward with any project plans until it's completely set in stone."

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