SACRAMENTO -- Hoping to spur job creation, Gov. Arnold Schwarzenegger is proposing a corporate tax break that could potentially siphon millions of dollars from the beleaguered state treasury.
And although Democrats typically cringe at such ideas, they are taking a close look at the sales tax exemption because it targets the environmentally friendly "green economy."
The proposal already is a winner with Valley business leaders, who hope to lure equipment manufacturers to a region emerging as a solar farm hotbed.
The tax break "definitely changes our ability to attract someone to Fresno County or the Valley," said Steve Geil, president of the Fresno County Economic Development Corp.
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Under Schwarzenegger's proposal, plant equipment purchased by manufacturers of alternative energy components would be exempt from the state sales tax. Parts needed to make solar panels or wind turbines, for instance, might qualify. The program would be limited to investments that are found to create enough economic activity -- such as new jobs -- that would eventually replace or outpace the lost tax revenue.
The proposal is supported by state Treasurer Bill Lockyer, a Democrat who serves on a state financing authority that would be charged with approving the tax breaks. An early version of the legislation by state Sen. Alex Padilla, D-Los Angeles, recently cleared a Senate committee on a bipartisan vote.
Yet it is not clear whether Democratic leaders are fully on board with the proposal, which could take revenues from a state budget that already has a nearly $20 billion deficit.
"It's a difficult year. We need more information on how the state is going to pay for a new spending program like this." said Alicia Trost, spokeswoman for Senate Leader Darrell Steinberg, D-Sacramento.
Bill supporters -- who include Bay Area solar companies and venture capital firms -- do not have an estimate on the potential lost revenue. A draft of the bill would require the Treasurer's Office to notify the Legislature once total sales tax breaks reach $100 million.
Lenny Goldberg, executive director of the California Tax Reform Association, a union-backed advocacy group, said he would support the proposal because it would spur investment -- but only if the state removes other corporate tax breaks. Lawmakers should do this in a "revenue-neutral manner," he said.
California from 1994 through 2003 offered tax credits on a wide array of manufacturing equipment. The law expired because job-creation targets were not met. Republicans and business groups who complain about the state's business climate have tried for years to reinstate the tax breaks. They see the governor's proposal as the first step.
"I wish we were expanding it across the spectrum," said Assembly Member Mike Villines, R-Clovis. "Why are we saying yes to only ... green technology?"
Lockyer countered that "we're being more targeted because sales tax loss gets to be very big very fast if it's across the board."
So-called green manufacturing is a small but growing slice of the state's economy. The industry accounts for 21% of all green jobs -- or 33,390 -- most of them involving energy products such as solar panels or wind turbines, according to a study published by Next 10, which funds research on innovation.
The Fresno area, with its wide-open spaces and abundant sunshine, is emerging as a draw for solar farms, including a 40-acre field under construction in Mendota. But so far, the region has been unable to lure solar equipment providers, which provide most of the good jobs in the industry, Geil said.
Chinese solar product maker Suntech Power recently considered the region, but instead decided to open its first American plant in the Phoenix area. The Arizona Legislature last year passed a new law giving tax credits and property tax breaks to renewable energy equipment factories that locate in the state.
Debate has long simmered over the power of such incentives. Studies have indicated that labor supply and proximity to markets play larger roles, according to a 2002 review of California's now-defunct manufacturing investment tax credits by the nonpartisan Legislative Analyst's office.
Yet sales tax breaks could prove vital to the state's solar manufacturing industry because parts often account for a larger share of costs than labor, said Mark Stout, vice president of renewable technology at Cleantech America, a solar developer in San Francisco.
Santa Clara County in the heart of Silicon Valley holds the greatest promise as an alternative energy manufacturing hotbed, with the potential to lure $6 billion in investment and 21,405 jobs, according to a study by the Renewable Energy Policy Project, a research firm founded by the U.S government and private foundations. Fresno County ranks 10th, at $335 million and 1,742 jobs.
The Valley's greatest hope is diversifying existing industries, said Stout, who lives in Fresno. For instance, metal fabricators could also make the racks that hold panels on solar farms. Said Stout, "There's a lot of opportunities for Valley-based metals companies."