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Air Quality Improvement.
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This initiative measure is submitted to the people in accordance with the provisions of Article II, Section 8 of the California Constitution.

This initiative measure amends and adds sections to various codes; therefore, existing provisions proposed to be deleted are printed in strikeout type and new provisions proposed to be added are printed in italic type to indicate that they are new.

PROPOSED LAW

CALIFORNIA AIR QUALITY IMPROVEMENT ACT

SECTION 1. This act shall be known and may be cited as the California Air Quality Improvement Act of 1998.

SEC. 2. Part 10 (commencing with Section 44475.1) is added to Division 26 of the Health and Safety Code, to read:

PART 10. CALIFORNIA AIR QUALITY
IMPROVEMENT PROGRAM

Chapter 1. Findings, Definitions, and Purposes

44475.1. The people of the State of California hereby find and declare all of the following, and state that to achieve and implement these findings and declarations is the intent and purpose of this measure:

(a) Air quality standards have been adopted to protect public health and the quality of life in California. In the interest of protecting every Californian's health and quality of life, it is necessary that California public agencies improve air quality by offering incentives for meeting mandated air quality standards as expeditiously as possible.

(b) Californians are acting now, by enacting this part, to encourage innovative programs that will help pay for the improvements necessary to improve California's air quality.

(c) Using tax credits to pay for the incremental costs of improved air pollution control technology that is not otherwise required by law or regulation is a cost-effective way to improve public health and environmental quality.

(d) California must substantially reduce air pollution from existing heavy-duty trucks and buses; construction, marine, and farming equipment; engines; locomotives; vessels; wildfires; outdoor burning of agricultural waste and rice straw; wood smoke from inefficient stoves and fireplaces; and ambient ground-level air pollution. Unless these existing sources of air pollution are reduced, the air quality improvements accomplished through the gradually increased use of new cleaner vehicles and equipment will not be sufficient to clean up California's air quickly enough to protect public health.

(e) Public transportation improves air quality. It is appropriate to protect and maintain funding for public transportation.

(f) Advanced technologies, like fuel cells, with great potential for improving air quality and reducing energy consumption, deserve public support in order to enter the market. Voluntary, incentive-based programs are needed to introduce these technologies.

(g) Notwithstanding the enactment of this part, the existing authority and duty of the State Air Resources Board and air quality districts continues to be to adopt technologically feasible and cost-effective control measures to reduce emissions from all sources subject to the jurisdiction of the state board or the districts, including sources described in this part, in order to achieve state and federal air quality standards as expeditiously as possible and to gain the air quality improvements so urgently needed by all Californians.

44475.2. As used in this part, the following terms have the following meanings:

(a) "Agricultural waste" means any vegetative materials grown pursuant to agricultural practices that otherwise would be burned in an outdoor, unenclosed situation. "Agricultural waste" does not include waste from forests or waste from timber harvesting governed by the Z'berg-Nejedly Forest Practices Act of 1973 (Chapter 8 (commencing with Section 4511) of Part 2 of Division 4 of the Public Resources Code).

(b) "District" means a district as defined in Section 39025.

(c) "Emissions reduction" means the reduction or elimination of emissions as compared to a baseline emissions rate, and the reduction, elimination, or removal of pollutants from the atmosphere.

(d) "Emissions" means emissions of pollutants into the air.

(e) "Engine" means an engine or a motor.

(f) "Entitlement" means a contract, franchise, license, permit, or other authorization granted by a local public agency to a person providing an essential public service.

(g) "Heat exchanger" means equipment that transfers heat and provides cooling, including an air conditioner unit, radiator, refrigeration unit, or similar air cooling device.

(h) "Light rail" means an urban rail transit system that is powered from overhead catenary wires.

(i) "Local public agency" means a city, county, or city and county; a public transit or transportation district or other transportation agency; a school district; or any other special-purpose district other than a district as defined in subdivision (b).

(j) "NOx" means oxides of nitrogen regulated under state or federal law.

(k) "Person" means a person as defined in Section 19.

(l) "Pollutant" means any substance for which the state board or the United States Environmental Protection Agency has adopted an ambient air quality standard, or a precursor to a substance for which an ambient air quality standard has been adopted. For the purposes of this part only, this definition supersedes the definition of "air pollutant" in Section 39013.

(m) "Project" means a purchase, retrofit, repower, or operational change to cause an emissions reduction.

(n) "Repower" or "repowering" means replacing an engine with a cleaner engine. The term generally refers to replacing an older engine without pollution control with a new, emissions-certified engine, although repowering may include replacing an older emissions-certified engine with a newer engine certified to lower emissions standards.

(o) "Retrofit" means making modifications to an existing engine, emission control system, exhaust system, heat exchanger, or fuel system so that the retrofitted engine or equipment has significantly lower emissions than the original engine or equipment, or removes pollutants from the atmosphere.

(p) "State board" means the State Air Resources Board created pursuant to Part 2 (commencing with Section 39500) of this division.

(q) "Toxic air contaminant" means toxic air contaminant as defined in Section 39655.

(r) "Vessel" means every type of watercraft, as defined in subdivision (a) of Section 9840 of the Vehicle Code, that is not required to be registered pursuant to the Vehicle Code because that vessel has a valid marine document issued by the United States Bureau of Customs or any successor federal agency. "Vessel" does not mean a vessel of the United States, of any other state or political subdivision thereof, or of a municipality of another state. For the purpose of this part only, the definition in this subdivision supersedes the definition of "marine vessel" in Section 39037.1. The state board may expand this definition by regulation to include categories of vessels that are subject to registration pursuant to the Vehicle Code if the state board determines that making the tax credit available would be a cost-effective method of reducing emissions from those vessels.

Chapter 2. Administration of the Program

44475.5. (a) The state board shall administer this part, and shall adopt all necessary regulations to implement this part, which creates a program for awarding tax credits and issuing certificates pursuant to Section 17052 or 23630 of the Revenue and Taxation Code to provide incentives for reducing emissions. The state board shall adopt regulations for selecting projects pursuant to this part, consistent with the intent, purpose, and requirements of this part.

(b) The state board may delegate to any district, pursuant to regulation or a memorandum of understanding, all or a specific part of its authority to award tax credits pursuant to Sections 44475.23, 44475.25, 44475.26, 44475.28, 44475.29, 44475.30, and 44475.33. Any district that is delegated this authority shall comply with this part and the state board's regulations to ensure that the district awards tax credits consistently with the requirements of this part and applicable provisions of the Revenue and Taxation Code. All tax credit certificates shall be issued solely by the state board. The state board shall assure that districts comply with the limits on tax credits that may be awarded pursuant to Section 44475.57 and with the other provisions of this part. The state board may rescind its delegation on finding that a district has not met any of the requirements of this part.

(c) The state board may authorize districts to assist in implementing this part, including, but not limited to, conducting local inspections, monitoring, and promoting the tax credit program.

(d) Consistent with the allocation of tax credits in Section 44475.57, the state board may, in its regulations, establish priorities and criteria for the reduction of emissions based on the specific air quality attainment needs of each district.

(e) Any regulation required by this part shall be initially adopted no later than June 1, 1999, and may be amended by the state board from time to time thereafter.

(f) Notwithstanding any other provision of law, the state board, when adopting initial regulations pursuant to this part that are subject to the deadline specified in subdivision (e), may, after at least one public hearing, adopt the regulations without review by the Office of Administrative Law if the state board makes a finding that the deadlines created by this part necessitate the adoption of the regulations within exceptionally short time periods during which review by the Office of Administrative Law would be impracticable and would prevent the timely implementation of this part in accord with the expectations of the voters and taxpayers that the tax credits authorized by this part will be available in the 1998-99 fiscal year.

(g) Except as provided in subdivision (f), any other regulation or order of repeal adopted pursuant to this part shall be otherwise subject to review by the Office of Administrative Law pursuant to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.

(h) The state board may use existing regulations to implement this part to the extent that they meet the requirements of this part.

44475.6. (a) The state board shall develop simple, standardized application packages for tax credits authorized by this part. The application packages shall include an application form, a brief description of the program, project eligibility criteria, the dollar value of tax credits available, descriptions of the selection criteria and evaluation process, specification of the documentation required, and a sample of the contract that applicants will be required to execute before being awarded a tax credit. The state board shall establish procedures to simplify and make understandable the application process for those seeking tax credits. The application package shall also explain how to obtain additional information about the program from the state board.

(b) Each applicant shall describe its project in sufficient detail, and submit any necessary information and supporting documentation not already in the possession of, or otherwise readily available to, the state board, for the state board properly to calculate the emissions reductions expected from the project and to evaluate the project using applicable project selection criteria. The applicant shall specify the dollar value of the tax credit needed for the applicant to undertake the project. An applicant may voluntarily provide any additional information about the emissions reduction potential of the project.

(c) The state board shall minimize the amount of information required to be submitted, and the amount of information required shall be related to the size, complexity, and uniqueness of the project. To minimize information required from applicants, the state board may rely on information from manufacturers, distributors, suppliers, and installers; test data; and reasonable estimates of average emissions reductions.

(d) The first application packages shall be finalized and available for distribution by the state board not later than June 1, 1999.

(e) For categories of projects with substantially uniform emission and cost characteristics and large numbers of potential applicants, the state board shall establish standardized applications that simplify filing by those applicants.

44475.7. (a) Unless otherwise specified in this part, a manufacturer, distributor, supplier, installer, purchaser, or end user may apply for the tax credit authorized by this part. The state board may by regulation further define and clarify categories of eligible applicants.

(b) A tax credit for a single project may be awarded once and only to a single applicant, even though the project may have involved the participation of several potential applicants in the course of manufacturing, distributing, supplying, installing, and using the project. For each project for which a tax credit is awarded pursuant to this part, the state board shall specify in the certificate the California taxpayer awarded the tax credit.

(c) Notwithstanding subdivision (b), a conversion facility utilizing agricultural waste or rice straw shall be the only entity that may apply for a tax credit pursuant to Section 44475.30 or 44475.33, as the case may be.

(d) Notwithstanding any other provision of law, any tax credit awarded pursuant to this part may be used by any member of the taxpayer's unitary group.

44475.8. The state board shall require a manufacturer, installer, authorized dealer of the manufacturer, or distributor of vehicles or equipment eligible for a tax credit pursuant to this part to provide a reasonable warranty for the vehicles or equipment, if a warranty is reasonably necessary to protect the consumers or users of the vehicles or equipment.

44475.9. (a) No project is eligible under this part if it is required pursuant to the Federal Energy Policy Act of 1992, or by any local, state, or federal air quality statute, rule, or regulation in effect on the date the tax credit is to be awarded.

(b) Notwithstanding subdivision (a), the state board may award a tax credit for an otherwise qualified application even if the State Implementation Plan assumes that the project will occur, so long as the project is not required by a statute or regulation in effect on the date the tax credit is to be awarded.

(c) Emissions reductions resulting from a project awarded a tax credit pursuant to this part may not be used under any local, state, or federal emissions averaging or trading program to offset or reduce any emissions reduction obligation of any person effective at the time the tax credit was awarded. Emissions reductions resulting from a project awarded a tax credit pursuant to this part may not be banked under any local, state, or federal emissions banking program.

(d) Tax credits may not be awarded pursuant to this part for projects that are recipients of grants, loans, or other tax credits for the same costs paid for through any other government programs. However, in order to provide adequate incentives for projects, the state board may authorize the awarding of tax credits in combination with other government assistance programs if it determines that the recipient is a public agency and that the financial assistance was for a purpose other than emissions reduction, or if it determines that the dollar value of the tax credit that otherwise would be awarded pursuant to this part can be reduced in proportion to the dollar value of the financial assistance provided by the other government program. This subdivision does not prohibit the awarding of tax credits for the operation or improvement of existing structures, facilities, vehicles, or equipment whose construction or purchase was undertaken with government financial assistance.

(e) Because other regulatory requirements apply to conversion facilities that utilize agricultural waste and rice straw, and are an effective substitute for the requirements of subdivisions (a) and (c), subdivisions (a) and (c) do not apply to projects for the utilization of agricultural waste or rice straw that meet the requirements of Section 44475.30 or 44475.33.

44475.10. (a) The state board shall develop standard-form long-term contracts for awarding tax credits for agricultural waste or rice straw conversion facilities that meet the requirements of Section 44475.30 or 44475.33 and for other categories of projects that the state board determines should be awarded tax credits pursuant to a long-term contract. If the facility or project is awarded a tax credit, the state board shall enter into a long-term contract with the applicant for the tax credit for the facility or project to assure stability for a term sufficient to encourage long-term presence in the market. The term of the long-term contract for agricultural waste or rice straw conversion facilities shall be for up to 10 years. The long-term contract shall specify the conditions applicable to the award of the tax credit and shall obligate the recipient of the tax credit to take the actions described in the application.

(b) The state board shall develop a simple contract for the award of tax credits for categories of projects for which a long-term contract is not necessary. The contract shall specify the conditions applicable to the award of the tax credit and shall obligate the recipient of the tax credit to take the actions described in the application.

(c) Once a tax credit certificate is issued, it may not be disallowed or revoked for the sole reason that the change in equipment, vehicles, or operations for which the tax credit had been awarded, is later required by statute or regulation.

44475.11. (a) This part does not require any person or local public agency to use the tax credit program established by this part. Any participation in the tax credit program shall be voluntary.

(b) The state board shall institute an outreach program to inform potential participants, technology suppliers and vendors, engine and equipment dealers and distributors, vehicle fleet operators, industry organizations and publications, local public agencies, rail and port organizations, and the public of the availability of tax credits pursuant to this part and of the requirements and objectives of the program. The state board shall vigorously recruit potential applicants and publish examples of successful projects.

44475.12. No later than June 1, 1999, and prior to the award of any tax credits pursuant to this part, the state board shall adopt regulations establishing procedures to monitor whether the emissions reductions for which tax credits were awarded are actually being achieved. Monitoring procedures may include a requirement, as part of the contract between the state board and the tax credit recipient, that the manufacturer, distributor, or installer of the relevant vehicle or equipment, or the recipient of the tax credit provide the state board with information about the project on an annual basis. The costs of monitoring may be included in the amount of the tax credit. Information required from tax credit recipients shall be minimized and the format for reporting the information shall be made simple and convenient. Monitoring requirements included in a contract signed pursuant to the award of a tax credit may be changed only pursuant to an amendment to the contract that is agreed to by the state board and the person awarded the tax credit. The state board may revise the program monitoring procedures as appropriate to enhance program effectiveness and the enforcement of this section.

44475.13. The tax credits awarded pursuant to this part are not gifts of public funds to private parties, but, rather, are awarded in consideration of emissions reductions and benefits to public health and the environment that otherwise would not be realized in a timely manner, without regard to whether the ownership of the vehicles, engines, or equipment is public or private.

44475.14. Notwithstanding any other provision of law, the sum of four million three hundred fifty thousand dollars ($4,350,000) is hereby appropriated from the General Fund to the state board in each fiscal year, commencing with the 1998-99 fiscal year and concluding with the 2010-11 fiscal year, for the administration of this part, including allocations of funds to any district delegated responsibility under this part and allocations for the purposes of Section 42314.6. The program responsibility conferred by this part on the state board is entirely new and in addition to the existing responsibilities of the state board and the districts and may not be financed, wholly or partly, by the reduction or reallocation of funds appropriated to support those existing responsibilities.

Chapter 3. Project Eligibility Criteria

44475.15. (a) The state board shall establish a standard of cost-effectiveness for each category of project included in this chapter, expressed in dollars per ton of emissions reduced or pollutants removed from California's atmosphere, calculated pursuant to this section.

(b) The state board shall establish by regulation reasonable methodologies for evaluating project cost-effectiveness, taking into account the degree to which the emissions reductions can be quantified with certainty, the durability and reliability of emissions reductions, timeliness and availability of projects, a fair and reasonable discount rate or time value of public funds, and other factors necessary to achieve the intent and purposes of this part. Where applicable, these methodologies shall be consistent with cost-effectiveness methodologies already published or used by the state board. For projects in the same category that provide reductions of more than one pollutant or that reduce different pollutants, the state board shall establish methodologies for evaluating the total cost-effectiveness of the projects based on the relative public health and environmental importance of reducing each pollutant. The state board shall assess the emissions of toxic air contaminants from each project. Between projects that have similar cost-effectiveness in emissions reduction, the state board shall give preference to projects with greater reductions in emissions of toxic air contaminants.

(c) Subdivisions (a) and (b) do not apply to research and development projects as described in Section 44475.27, pilot and demonstration projects for which tax credits are authorized pursuant to subdivision (b) of Section 44475.57, or agricultural waste and rice straw utilization projects as described in Sections 44475.30 and 44475.33.

(d) Cost-effectiveness calculations shall be made by the state board as part of the evaluation of each application and may not be required as a part of the application for a tax credit. However, an applicant may voluntarily submit cost-effectiveness information. The cost-effectiveness calculations shall be based on the dollar value of the tax credits requested by the applicant, and the state board and the applicant may not recalculate or revise the dollar value of tax credits from the amount requested in the application.

(e) The state board shall establish by regulation reasonable methodologies for evaluating project cost-effectiveness for projects eligible for a tax credit pursuant to Section 44475.30 or 44475.33, which shall be measured by the decrease in the number of tons of material diverted from agricultural waste or rice straw burning per dollar of tax credit, taking into account the degree to which the emissions reductions can be quantified with certainty, the durability and reliability of emission reductions, timeliness and availability of projects, a fair and reasonable discount rate or time value of public funds, and other factors necessary to achieve the intent and purposes of this part. Where applicable, these methodologies shall be consistent with cost-effectiveness methodologies already published or used by the state board. The state board shall give preference to projects that have the greatest decrease in number of tons of material from agricultural waste or rice straw burning per dollar of tax credit accepted by the agricultural waste or rice straw conversion facility receiving the tax credit and that maximize the reduction of outdoor, unenclosed burning of agricultural waste or rice straw. The state board shall take into account the incentives needed to transport the waste from farms to the facility.

(f) For categories of projects with substantially uniform emission and cost characteristics and large numbers of potential applicants, the state board shall establish standardized tax credit allocations based on estimates of average cost-effectiveness for all or a portion of the projects within a category that meet criteria specified by the state board. The standardized tax credit allocations shall meet the requirements of subdivision (b) and be designed to maximize the reduction in emissions from each category of projects consistent with the amount of tax credits allocated pursuant to Section 44475.57. Standardized tax credit allocations may not be established for research and development projects, as described in Section 44475.27, or for pilot and demonstration projects, as described in subdivision (b) of Section 44475.57.

(g) In calculating cost-effectiveness pursuant to this section, the state board may use reasonable estimates of emissions reductions in the absence of in-use or test data. In determining baseline emissions levels for vehicles or equipment, the state board shall use actual in-use emissions data whenever possible, but may use reasonable estimates of in-use emissions, or certification levels if sufficient in-use emissions data are not available. The state board shall accept and consider public comments in developing acceptable estimating methods for the purposes of this subdivision.

(h) Draft regulations implementing this section shall be issued no later than February 1, 1999.

44475.16. Commencing with the 1999-2000 biennium and no less frequently than every two years thereafter, the state board shall review technical data for stationary and portable equipment, engine, vehicle, and other technologies that are eligible for the award of tax credits to determine whether the criteria for projects eligible to be awarded tax credits should be revised to adjust the required amount of reduction in emissions compared with baseline equipment, engines, or vehicles certified as meeting prevailing emissions standards. After completing its review of available emission reduction technologies and their costs, the state board may revise the standard for cost-effectiveness by amending the regulations adopted pursuant to Section 44475.15 to improve the ability of the tax credits to serve as an incentive for the use of those technologies. A change in the standard of cost-effectiveness made pursuant to this section may not require a change in, or affect the validity of, any contract already entered into by the state board or a district.

44475.17. The dollar value of a tax credit awarded pursuant to this part may be prorated by the state board to reflect an estimate of the amount of time the vehicle or equipment is actually operated in California, relative to its total estimated operating time. The state board may require owners or operators of vehicles or equipment awarded tax credits pursuant to this part to certify to the state board their compliance with this section, using fuel purchase receipts or other documentation required by the state board.

44475.20. (a) (1) To expedite the acquisition of cleaner buses and other heavy-duty fleet vehicles with cleaner engines that are owned by or used pursuant to a contract or other entitlement entered into with or granted by a local public agency, the local public agency or person providing an essential public service pursuant to the contract or other entitlement may apply to the state board for the award of a tax credit for the purchase or lease of buses or other heavy-duty fleet vehicles that emit substantially less pollutants than those vehicles whose emissions equal those allowable under current emissions standards as specified in paragraph (2). Up to 10 percent of the tax credits authorized for allocation pursuant to this section may be used to purchase or lease light rail vehicles. Tax credits may not be awarded for projects to acquire rights-of-way, install track, provide power systems, or acquire or construct any other infrastructure to support light rail transit.

(2) The state board shall establish the standard for cost-effectiveness, determined pursuant to Section 44475.15, to expedite the purchase or lease pursuant to this section of the cleanest vehicles that are feasible. The vehicles shall be able to meet normal safety and other requirements and practices for the intended use of the vehicles. To be eligible, each application for a tax credit shall document to the satisfaction of the state board an NOx emissions reduction of at least 50 percent and no increase in particulate emissions beyond a negligible amount, or a particulate emissions reduction of at least 50 percent and no increase in NOx emissions beyond a negligible amount, or a combined reduction in NOx and particulate emissions of at least 60 percent.

(3) The state board shall award the tax credit to either the person selling or leasing the vehicles to the local public agency, the person selling the vehicles to the person that has the contract or other entitlement from the local public agency, or the person that has the contract or other entitlement from the local public agency.

(b) (1) To expedite the retrofit and repower of buses and other heavy-duty fleet vehicles owned by or used pursuant to a contract or other entitlement entered into with or granted by a local public agency, the local public agency or person providing an essential public service pursuant to the contract or other entitlement may apply to the state board for the award of a tax credit for the retrofit or repower of buses or other heavy-duty fleet vehicles to substantially reduce emissions of pollutants from those vehicles as specified in paragraph (2).

(2) The state board shall establish the standard for cost-effectiveness determined pursuant to Section 44475.15, to expedite pursuant to this section the cleanest feasible retrofit or repower of vehicles. The vehicles shall be able to meet normal safety and other requirements and practices for the intended use of the vehicles. Until June 30, 2004, each application for a tax credit shall document to the satisfaction of the state board an NOx emissions reduction of at least 40 percent and no increase in particulate emissions beyond a negligible amount, or a particulate emissions reduction of at least 20 percent and a decrease in NOx emissions of at least 20 percent. On and after July 1, 2004, each application shall document to the satisfaction of the state board an NOx emissions reduction of at least 50 percent and no increase in particulate emissions beyond a negligible amount, or a particulate emissions reduction of at least 50 percent and no increase in NOx emissions beyond a negligible amount, or a combined reduction in NOx and particulate emissions of at least 60 percent.

(3) The state board shall award the tax credit to either the person retrofitting or repowering the vehicles for the local public agency, or the person retrofitting or repowering the vehicles for the person that has the contract or other entitlement from the local public agency, or the person that has the contract or other entitlement from the local public agency.

(c) In awarding pilot and technology demonstration tax credits pursuant to this section and subdivision (b) of Section 44475.57, the state board shall give preference to projects that develop technologies that deliver substantial reductions in emissions of multiple pollutants and that offer the greatest likelihood of commercial viability.

44475.21. (a) (1) Notwithstanding subdivision (a) of Section 44475.11, to expedite the acquisition of cleaner state agency heavy-duty fleet vehicles, all state agencies authorized to purchase or lease heavy-duty fleet vehicles shall apply to the state board for tax credits, on behalf of vendors and lessors, for the purchase or lease of state vehicles that emit substantially less pollutants than those vehicles in the existing operating fleet of comparable vehicles whose emissions equal those allowable under current emissions standards that apply to those vehicles.

(2) The state board shall establish the standard for cost-effectiveness determined pursuant to Section 44475.15, to expedite pursuant to this section the purchase or lease of the cleanest vehicles that are feasible. The vehicles shall be able to meet normal safety and other requirements and practices for the intended use of the vehicles. To be eligible, each application for a tax credit shall document to the satisfaction of the state board an NOx emissions reduction of at least 50 percent and no increase in particulate emissions beyond a negligible amount, or a particulate emissions reduction of at least 50 percent and no increase in NOx emissions beyond a negligible amount, or a combined reduction in NOx and particulate emissions of at least 60 percent.

(3) The state board shall award the tax credits to the persons selling or leasing the vehicles to the state agencies.

(b) (1) Notwithstanding subdivision (a) of Section 44475.11, to expedite the retrofit and repower of heavy-duty fleet vehicles operated by state agencies, state agencies shall apply to the state board for tax credits, on behalf of persons retrofitting or repowering state vehicles, to substantially reduce emissions of pollutants from those vehicles as specified in paragraph (2).

(2) The state board shall establish the standard for cost-effectiveness determined pursuant to Section 44475.15, to expedite pursuant to this section the cleanest feasible retrofit or repower of vehicles. The vehicles shall be able to meet normal safety and other requirements and practices for the intended use of the vehicles. Until June 30, 2004, each application for a tax credit shall document to the satisfaction of the state board an NOx emissions reduction of at least 40 percent and no increasein particulate emissions beyond a negligible amount, or a particulate emissions reduction of at least 20 percent and a decrease in NOx emissions of at least 20 percent. On and after July 1, 2004, each application shall document to the satisfaction of the state board an NOx emissions reduction of at least 50 percent and no increase in particulate emissions beyond a negligible amount, or a particulate emissions reduction of at least 50 percent and no increase in NOx emissions beyond a negligible amount, or a combined reduction in NOx and particulate emissions of at least 60 percent.

(3) The state board shall award the tax credits to the persons retrofitting or repowering the vehicles for state agencies.

44475.22. (a) The state board shall award tax credits to expedite the retrofit or repower of the vehicles and equipment described in subdivision (b).

(b) The following vehicles and equipment are eligible for a tax credit pursuant to this section:

(1) Motorized implements of husbandry, as defined in Division 16 (commencing with Section 36000) of the Vehicle Code, farm labor vehicles, and other motor vehicles, motorized equipment, and engines used in agricultural operations and not operated on highways.

(2) Buses that are not eligible for a tax credit pursuant to Section 44475.20 or 44475.21.

(3) Heavy-duty trucks with engines that have been certified under the heavy-duty engine standards of the state board or the United States Environmental Protection Agency.

(4) Motor vehicles, motorized equipment, and engines used in grading, excavation, and construction and not operated on highways.

(c) If certification of the retrofit kit or repower qualifications for a replacement engine is required by other provisions of law, the retrofit kit or repower qualifications shall be certified for sale and operation in California. The state board shall act on a certification application for a new retrofit kit or repower qualifications within one year after application by the manufacturer if at all feasible. Any certification otherwise required shall include certification for durability, which may be estimated based on reasonable criteria established by the state board.

(d) The reductions in emissions in each vehicle shall be as specified in this subdivision. Until June 30, 2004, each application for a tax credit shall document to the satisfaction of the state board an NOx emissions reduction of at least 40 percent and no increase in particulate emissions beyond a negligible amount, or a particulate emissions reduction of at least 20 percent and a decrease in NOx emissions of at least 20 percent. On and after July 1, 2004, each application for a tax credit shall document to the satisfaction of the state board an NOx emissions reduction of at least 50 percent and no increase in particulate emissions beyond a negligible amount, or a particulate emissions reduction of at least 50 percent and no increase in NOx emissions beyond a negligible amount, or a combined reduction in NOx and particulate emissions of at least 60 percent.

44475.23. (a) To encourage conversion, retrofit, and repower of existing equipment at and near California ports that reduce emissions, the state board shall award tax credits for installing new, and retrofitting or repowering existing, engines and motorized equipment, or, pursuant to subdivision (b), changing operations of existing motorized equipment or vessels within a port.

(b) To the extent that operational changes in the speed or method of arriving at or departing from a port can be demonstrated to reduce emissions in a verifiable way, the state board may by regulation make those operational changes eligible for a tax credit pursuant to this section. For operational changes, tax credits shall be awarded for a period of up to one year to the operator of the vessel on the basis of the cost-effectiveness of the operational change as determined pursuant to Sections 44475.15 and 44475.55.

44475.24. (a) To encourage the purchase of new, or the retrofit or repower of existing, locomotive engines and related equipment and to encourage operational changes that reduce emissions, the state board shall award tax credits based on the reduction of emissions resulting from the operational changes or the use of new, retrofit, or repowered locomotives or related equipment in California.

(b) The tax credit shall be awarded for the purchase of new, retrofit, or repowered locomotive engines and related equipment that are cleaner than comparable engines and equipment that meet existing federal standards.

(c) For operational changes in the use of existing locomotive engines and equipment, tax credits shall be awarded for a period of up to one year to the operator on the basis of cost-effectiveness of the operational change, as determined pursuant to Sections 44475.15 and 44475.55, and the operational changes shall be demonstrated to the satisfaction of the state board to reduce emissions in a verifiable way.

44475.25. (a) The purpose of this section is to reduce smoke and other visible emissions, particulates, and other emissions from hearth products, and to conserve energy.

(b) To expedite upgrading to clean burning and efficient hearth products and the retrofit of existing wood-fueled fireplaces and stoves, as described in subdivision (d), the state board shall award tax credits for the purchase of natural gas or propane-fueled hearth products; pellet-fueled hearth products; extremely clean, wood-fueled fireplace inserts, stoves, and built-in fireplaces; and extremely clean oil-fueled hearth products.

(c) A hearth product described in subdivision (d), when taken out of service and replaced by a hearth product described in subdivision (e), is eligible for a tax credit pursuant to this section.

(d) To qualify for the tax credit, the existing hearth product shall be taken out of service and traded in, and shall meet the following requirements:

(1) It is either a free-standing stove or fireplace insert or a "wood heater," as defined by the United States Environmental Protection Agency pursuant to the New Source Performance Standards for Residential Wood Heaters (40 C.F.R. Part 60, Subpart AAA), that is designed for the burning of cordwood or coal and was manufactured prior to 1988.

(2) It is still in usable condition.

(3) It will be disposed of to a metal recycler by the retailer offering the trade-in.

(e) To qualify for the tax credit, the new hearth product shall be one of the following types:

(1) An extremely clean wood-fueled stove, fireplace insert, or built-in fireplace that is certified by the United States Environmental Protection Agency.

(2) An extremely clean wood-fueled fireplace that meets the emissions standards established by the United States Environmental Protection Agency.

(3) A prefabricated wood-fueled fireplace that is a "nonaffected facility", as defined by the Environmental Protection Agency pursuant to 40 C.F.R. Part 60, Subpart AAA, and which demonstrates emissions at and below those approved by the Environmental Protection Agency.

(4) Any stove, fireplace, or built-in hearth product that is pellet-fueled.

(5) Any natural gas or propane-fueled stove, fireplace insert, or built-in fireplace with glass fronts for viewing the fire certified by the California Energy Commission as meeting one or more of the following test standards:

(A) Vented or direct vent gas room heater.

(B) Vented or direct vent gas wall furnace--gravity.

(C) Vented or direct vent gas wall heater--fan type.

(6) Any extremely clean oil-fueled hearth product that meets the federal efficiency standard for oil-fueled room heaters and provides a view of the fire.

(f) Hearth products described in paragraphs (1), (2), and (3) of subdivision (e) shall have at least a 10-year warranty for the combustion chamber and components affecting combustion emissions. At the discretion of the manufacturer, the warranty need not include paint, door gasket, glass window, and blower; abuse or misuse; or damage resulting from the use of inappropriate fuels, as determined by the manufacturer. If the product includes a catalytic converter, the warranty is not required to cover the catalytic converter, but the consumer of the product shall be given a spare catalytic converter at the time of sale.

(g) The state board shall give first priority to providing tax credits to accomplish the purposes of subdivision (c). If there is insufficient demand for tax credits pursuant to subdivision (c) in any fiscal year, the state board shall allocate the remaining tax credits from that fiscal year to the following two programs in the subsequent fiscal year:

(1) The conversion to, or replacement of existing wood-fueled fireplaces with, products listed in subdivision (e). Conversion of fireplaces by use of a wood, pellet, natural gas or propane, or oil-fueled insert shall include permanent conversion with an appropriate flue liner system listed by a nationally accredited third party recognized independent testing laboratory. The flue liner system shall connect from the hearth product to chimney termination.

(2) The installation of wood, pellet, natural gas or propane, or oil-fueled fireplaces or wood-fueled heaters in new construction if the hearth product meets the requirements of subdivision (e).

44475.26. The state board shall award tax credits for the purchase of new engines used in lawnmowers and other motorized landscaping or gardening equipment when the purchase is made in conjunction with trading in older, polluting two- and four-stroke engines used in lawnmowers and other landscaping or gardening equipment. The state board shall establish minimum standards to qualify for tax credits pursuant to this section to maximize emission reductions. The tax credit shall be sufficient to induce consumer participation in the program, but shall be awarded for less than the full cost of the new equipment. Tax credits may be awarded only if old equipment is traded in and taken out of service. The old equipment shall be disposed of to a recycler.

44475.27. The state board shall award tax credits for research on, and development and commercialization of, technologies that would facilitate emissions reductions from sources of pollutants described in this part and to persons who make contributions of money to publicly financed or nonprofit institutions to perform that research, development, and commercialization. Projects that are likely to reduce more than one pollutant and also improve energy efficiency shall be given highest priority. The technologies may include those subject to an experimental permit in California. To be eligible for the tax credit, the research, development, or commercialization shall have the potential to result in demonstrable public health or environmental benefits, or both.

44475.28. The state board shall award tax credits for the retrofit of existing, or the acquisition of new, stationary or portable equipment such as pumps and generators. New equipment shall have substantially lower emissions than required by current standards. Retrofit equipment shall emit substantially less emissions as a result of the retrofit. The tax credit shall be sufficient to induce consumer participation in the program, but shall be awarded for less than the full cost of the new equipment. The state board shall establish minimum standards to qualify for tax credits pursuant to this section to maximize emission reductions.

44475.29. To encourage the installation of equipment or devices to reduce ambient air pollution such as ozone from the atmosphere, the state board shall award tax credits for the installation or retrofitting of ambient air pollution destruction technology on heat exchangers. The state board shall establish reasonable methodologies for evaluating the cost-effectiveness of ambient air pollution destruction technology, taking into account the air quality benefits of ambient air pollution reductions considering population exposure.

44475.30. (a) The intent of this section is to reduce or eliminate smoke and other emissions resulting from the outdoor, unenclosed burning of agricultural waste. The state board shall award tax credits for agricultural waste conversion facilities that will either gasify the agricultural waste, convert it to usable chemicals or other products, or utilize it for the generation of electrical energy. The state board shall award tax credits to the facilities that utilize agricultural waste in an amount sufficient to cover, but not to exceed, the full reasonable cost of collection, sizing, delivery, and storage of this material. As provided in subdivision (c) of Section 44475.7, tax credits may be awarded only to the facilities described in this section. Tax credits may not be awarded for any land application of agricultural waste. In entering into a long-term contract for agricultural waste conversion projects, the state board may set a maximum tax credit per ton of agricultural waste delivered to the facility, and may establish different maximum amounts for different categories of agricultural waste. The state board shall calculate the full reasonable cost of collection, sizing, delivery, and storage of the agricultural waste to the closest operating facility. The amount of the tax credit shall be based on the tonnage of agricultural waste delivered to the facility and the amount of tax credit available for each ton.

(b) The state board shall develop criteria for selecting agricultural waste conversion projects based on the reduction or elimination of emissions from outdoor, unenclosed burning compared to the emissions at the agricultural waste conversion facility and associated transportation emissions. In ranking applications for tax credits to be awarded pursuant to this section, the state board shall first consider applications from those facilities using best available control technologies such as bag houses for particulate control and combustion technologies that minimize other emissions. The application for a tax credit pursuant to this section shall certify that the agricultural waste would otherwise have been burned outdoors, and not in any enclosure.

44475.31. To encourage the purchase of cleaner, new, heavy-duty trucks, motor vehicles, and engines of 50 horsepower or greater, the state board shall award tax credits for the purchase in California of a new heavy-duty truck, motor vehicle, or engine that has lower emissions than required by state or federal law on the basis of cost-effectiveness, as determined pursuant to Sections 44475.15 and 44475.55, subject to the following requirements:

(a) Applications for projects involving the purchase of new advanced technology engines or vehicles shall document to the satisfaction of the state board an NOx emissions reduction of at least 37.5 percent and no increase in particulate emissions beyond a negligible amount, or an NOx emissions reduction of at least 25 percent and particulate emissions reduction of at least 25 percent compared to the emissions of a new engine or vehicle certified to the applicable baseline emissions standard for that engine or vehicle.

(b) On-road vehicles shall be greater than 14,000 pounds gross vehicle weight to be eligible for tax credits.

(c) All engines and vehicles shall be certified to the heavy-duty engine standards and test procedures specified by the state board.

(d) Engines and motor vehicles other than trucks shall be rated at 50 horsepower or more.

(e) For purposes of this section only, and notwithstanding Section 39033, "heavy-duty" means having a gross vehicle weight of greater than 14,000 pounds.

44475.32. To encourage the purchase of cleaner, new, off-road nonrecreational motor vehicles, and the replacement and retirement of older, more polluting, off-road nonrecreational motor vehicles, the state board shall award tax credits for the purchase of off-road nonrecreational motor vehicles in California on the basis of cost-effectiveness as determined pursuant to Sections 44475.15 and 44475.55. The state board shall establish minimum standards to qualify for tax credits to maximize emissions reductions. Only nonrecreational motor vehicles of less than 50 horsepower may qualify for tax credits pursuant to this section. The retired nonrecreational motor vehicle shall be disposed of to a recycler.

44475.33. (a) The intent of this section is to reduce or eliminate smoke and other emissions resulting from the outdoor, unenclosed burning of rice straw. The state board shall award tax credits for rice straw conversion facilities that will either gasify the rice straw, convert it to usable chemicals or other products (such as paper, livestock feed, or building materials), or utilize it for the generation of electrical energy. The state board shall award tax credits to facilities that utilize rice straw in an amount sufficient to cover, but not to exceed, the full reasonable cost of collection, delivery, sizing, and storage of the rice straw. As provided in subdivision (c) of Section 44475.7, tax credits may be awarded only to the facilities described in this section. Tax credits may not be awarded for any land application of rice straw. In entering into a long-term contract for rice straw conversion projects, the state board may set a maximum tax credit per ton of rice straw delivered to the facility. The state board shall calculate the full reasonable cost of collection, delivery, sizing, and storage of the rice straw to the closest operating facility. The amount of the tax credit shall be based on the tonnage of rice straw delivered to the facility and the amount of tax credit available for each ton.

(b) The state board shall develop criteria for selecting rice straw conversion projects based on the reduction or elimination of emissions from outdoor, unenclosed burning compared to the emissions at the rice straw conversion facility and associated transportation emissions. In ranking applications for tax credits to be awarded pursuant to this section, the state board shall first consider applications from those facilities using best available control technologies such as bag houses for particulate control and combustion technologies that minimize other emissions. The application for a tax credit pursuant to this section shall certify that rice straw otherwise would have ultimately been burned outdoors, and not in any enclosure, and that, consistent with the requirements of subdivision (d) of Section 44475.9, awarding the tax credit will reduce air pollution by assisting in the implementation of Section 41865 and Chapter 4.5 (commencing with Section 39750) of Part 2.

Chapter 4. General Program Requirements

44475.40. Before a tax credit may be awarded pursuant to this part, the state board shall approve the capability of the particular retrofit technology, vehicle, engine, equipment, or product to meet the criteria for each specified in Chapter 3 (commencing with Section 44475.15). Any certification of vehicles or equipment necessary for operation in California shall be pursuant to the applicable state or federal law.

44475.41. To maintain eligibility for a tax credit, any motor vehicle, vehicle, or implement of husbandry that is required by the Vehicle Code to be registered, and that has been awarded tax credits pursuant to this part, shall have in force at all times a valid registration for operation in California.

44475.42. Subject to the cost-effectiveness requirements of this part, the state board may award tax credits for up to the incremental costs of a project, including incrementally higher operating and lease costs as well as incremental capital costs, as well as for any necessary incentives to encourage the acquisition of new vehicles and equipment, the retrofitting of existing vehicles and equipment, or the adoption of innovative technologies by users.

44475.43. (a) The state board shall by regulation establish procedures to assure that any equipment or vehicles traded in pursuant to this part shall have a reasonable remaining service life, and that the equipment or vehicles are scrapped after trade-in or retirement and not rebuilt or resold. Equipment and vehicles that are traded in or retired shall be destroyed, and the metal parts shall be recycled.

(b) The state board may require evidence that the vehicles or equipment eligible for a tax credit pursuant to this part will have a reasonable expected useful life.

44475.44. The state board and the districts, as appropriate, shall take all appropriate and necessary actions to ensure that emissions reductions achieved pursuant to this part are credited by the United States Environmental Protection Agency to emissions reduction objectives in the State Implementation Plan.

44475.45. In addition to the requirements of Section 44475.16, after study of available emissions reduction technologies and after public notice and comment, the state board may reduce the minimum percentage NOx and particulate reduction criteria for purchase, retrofits, and add-on equipment stated in Sections 44475.20, 44475.21, 44475.22, and 44475.31 if necessary to maximize emissions reductions from the purchase, retrofit, or repowering of vehicles and equipment pursuant to those sections.

44475.46. The state board may specify conditions of use and other terms with respect to the purchase of vehicles and equipment and the operation of equipment acquired pursuant to this part.

44475.47. The state board may consider ways to increase the flexibility and effectiveness of this program, especially with respect to increasing the usability of the tax credits authorized by this part, and may propose legislation to improve the program. This section does not authorize the Legislature to amend this part.

Chapter 5. Award of Tax Credits

44475.50. The state board or district, as the case may be, has sole discretion to determine the sufficiency and completeness of any application and may determine that an application for a tax credit is not in compliance with this part, and its intent and purposes, and may reject the application.

44475.51. The state board or district, as the case may be, shall expedite the processing of applications and awarding of tax credits to the greatest extent possible.

44475.52. (a) Consistent with the other requirements of this part, the state board shall adopt regulations to award tax credits to projects within each project category set forth in Section 44475.57. Consistent with the other requirements of this part, including, but not limited to, Section 44475.55, the state board may adopt selection criteria to allocate tax credits within each project category to projects with equivalent cost-effectiveness rankings.

(b) Within each category of tax credits listed in Section 44475.57, if equivalent applications are submitted, the state board or district shall first select the application from an applicant that did not receive a tax credit within that category in the previous quarter. This subdivision does not prevent the state board or a district from awarding long-term contracts for tax credits. For purposes of this subdivision, "equivalent applications" means applications that are equally cost-effective and equal with respect to other criteria required by this part or by regulations adopted pursuant to this part.

44475.53. The state board may award tax credits pursuant to this part for projects that conform with the requirements of this part and with applicable regulations of the state board, even if the projects are initiated after the effective date of this part, but before the regulations implementing this part are adopted.

44475.54. (a) The state board or district, as the case may be, shall evaluate each application for consistency with the content requirements of Section 44475.6 and the other requirements ofthis part and the regulations of the state board, shall determine the emissions reductions that will result from implementation of each project or category of projects using the methodology established pursuant to Section 44475.15, and shall apply the procedure for ranking projects set forth in Section 44475.55. The state board shall award tax credits to eligible applicants in accordance with the evaluations and determinations made pursuant to this section and Section 44475.55.

(b) Any project that does not meet the cost-effectiveness standard established by the state board pursuant to Section 44475.15, as determined by the state board or district in its sole discretion, shall not be eligible for a tax credit.

44475.55. In each calendar quarter, for any category of project specified in Section 44475.20 (public fleet vehicles), 44475.21 (state heavy-duty fleet vehicles), 44475.22 (retrofit), 44475.23 (ports), 44475.24 (locomotives), 44475.28 (stationary and portable equipment), 44475.29 (ambient air pollution destruction technology), 44475.30 (agricultural waste), 44475.31 (new heavy-duty vehicles), 44475.32 (off-road vehicles), or 44475.33 (rice straw) for which one or more applications meet the cost-effectiveness standard established by the state board, the state board shall rank the qualifying proposed projects in order from the most cost-effective to the least cost-effective. The state board shall award tax credits according to this ranking until all credits available for the particular category of project for that quarter have been awarded or no qualifying projects remain. If the state board is unable to rank two or more projects because they have similar cost-effectiveness in emissions reductions, the state board shall give preference to the project with greater reductions in emissions of toxic air contaminants, in accordance with the procedure in subdivision (b) of Section 44475.15. This section does not apply to projects included in the standardized tax credit allocations established pursuant to subdivision (f) of Section 44475.15. In categories in which districts have been delegated authority to award tax credits, the districts shall cooperate with the state board in implementing this section.

44475.56. (a) Upon the determination of the state board to award a tax credit, the successful applicant shall execute a long-term or short-term contract, as the case may be, as provided in Section 44475.10.

(b) With respect to any tax credit that may be claimed in more than one taxable or income year, the state board shall allocate the entire dollar value of that tax credit to the fiscal year in which the applicant executed the contract. The applicant may thereafter claim portions of the unused amount of the tax credit in subsequent taxable or income years until the total amount of the tax credit is exhausted. The unused amount that may be claimed is not at any time subject to the operation of subdivision (b) of Section 44475.58.

(c) In lieu of the procedure authorized in subdivision (b), at the election of the applicant, the long-term contract may provide that the dollar value of the tax credit may be allocated in equal allotments to two or more fiscal years, up to a total of 10 fiscal years, designated by the applicant. A single long-term contract shall be entered into for multiyear allotments, but, at the time the contract is signed, the state board shall issue a separate tax credit certificate for each allotment. In any taxable or income year in which an allotment may be claimed, the applicant may elect to claim less than the full dollar value of the allotment and may thereafter claim the unused portion of that allotment in subsequent taxable or income years until the total amount of the allotment is exhausted. The unused portion of an allotment may be claimed in the same taxable or income year for which a new allotment is allocated. In any fiscal year in which subdivision (b) of Section 44475.58 is implemented, the dollar value of the allotment of the tax credit allocated to that fiscal year may not be reduced.

44475.57. (a) The state board shall award tax credits in each fiscal year in accordance with the following schedule:

Tax Credits  Section      Category
In Millions
Of Dollars
  $35        44475.20(a)  New public fleet vehicles
  $ 5        44475.20(b)  Retrofit and repower public fleet vehicles 
  $10        44475.21(a)  New state heavy-duty fleets 
  $ 5        44475.21(b)  Retrofit and repower state heavy-duty vehicles 
  $34        44475.22     Retrofit of older, heavy-duty trucks and equipment 
  $15        44475.23     Ports 
  $10        44475.24     Locomotives 
  $10        44475.25     Hearth products 
  $ 5        44475.26     Lawn and garden equipment 
  $20        44475.27     Research and development 
  $ 3        44475.28     Stationary and portable equipment 
  $15        44475.29     Ambient air pollution destruction technology 
  $17        44475.30     Agricultural waste conversion facilities 
  $25        44475.31     New heavy-duty and 50|m+ HP motor vehicles 
  $ 3        44475.32     New off-road, nonrecreational motor vehicles
  $ 6        44475.33     Rice straw conversion facilities 

(b) (1) The state board shall allocate up to 10 percent of the dollar value of tax credits authorized in each category listed in subdivision (a), except Section 44475.20, for pilot or technology demonstration projects that develop technologies to reduce pollutants from the source identified in each section. The state board shall award tax credits pursuant to this subdivision to the extent that qualified applications are received, up to the 10-percent limit specified in this paragraph.

(2) In implementing this subdivision, highest priority shall be given to projects that may substantially reduce emissions of more than one air pollutant and have the greatest likelihood of commercial viability. Projects that will meet such criteria as durability, safety, reliability, and reduction of actual in-use emissions also shall be given high priority. To be eligible for tax credits, advanced technologies shall have the potential to substantially reduce emissions of pollutants.

(3) This subdivision does not apply to Section 44475.27.

(4) Notwithstanding paragraph (1), the state board shall allocate up to 12 percent of the dollar value of tax credits authorized in subdivision (a) for pilot or technology demonstration projects undertaken pursuant to Section 44475.20 that develop technologies to reduce pollutants from the source identified in that section. The state board shall award tax credits pursuant to this paragraph to the extent that qualified applications are received, up to the 12-percent limit specified in this paragraph. The total dollar value of tax credits allocated by this paragraph from Section 44475.20 may be used for pilot and demonstration projects pursuant to the purposes of subdivision (a) of Section 44475.20.

44475.58. (a) (1) To the extent that applications have been submitted for eligible projects, the state board or district shall award tax credits pursuant to this part at least once per calendar quarter for each category of project specified in Chapter 3 (commencing with Section 44475.15).

(2) In any fiscal year for which there are insufficient qualified tax credit applications in a particular category set forth in the schedule in Section 44475.57, or in the event of a reduction in the tax credits allowed due to the operation of subdivision (b), the state board shall retain the tax credits not awardedpursuant to Section 44475.57 for award in that category for use in a subsequent fiscal year. In awarding tax credits retained from previous years, the state board shall seek to allocate the tax credits in equal allotments throughout the remaining years of the program, to reduce the impact of the award of the deferred tax credits in any single fiscal year.

(b) The Department of Finance may reduce the total amount of tax credits to be awarded in a fiscal year following a fiscal year in which General Fund receipts were lower than General Fund receipts in the previous fiscal year. The Department of Finance may also reduce the total amount of tax credits to be awarded within a fiscal year if General Fund receipts in that fiscal year are lower from July 1 to March 31 of that fiscal year compared to the same period in the previous fiscal year. In addition, the Department of Finance may reduce the total amount of tax credits to be awarded in each of the 1998-99 and 1999-2000 fiscal years if General Fund receipts did not increase, compared to the previous fiscal year, in an amount to equal the amount of tax credits to be awarded in each of those fiscal years. In the event of any reductions made by the Department of Finance pursuant to this subdivision, the state board shall allocate the reductions in the same proportion as the tax credits are allocated pursuant to Section 44475.57. Tax credits awarded as part of a long-term contract, or pursuant to the carryover provisions set forth in Sections 17052 and 23630 of the Revenue and Taxation Code, may not be reduced.

44475.59. (a) An annual audit shall be performed to determine whether this part is being carried out in accordance with the intent, purposes, and requirements of this part. The audit shall include review of the administration of the program and expenses incurred pursuant to Section 44475.14, taking into account the costs of beginning the program. The Department of Finance shall contract with a private auditing firm to conduct the audit. On completion of the audit, the Department of Finance shall immediately report the results of the audit to the Governor, the Legislature, the state board, and the public. The state board shall report to the Governor, the Legislature, and the public its response to the results and recommendations of the audit within 90 days of completion of the audit. If the audit recommends a reduction in the cost of administering the program, the state board shall reduce its administrative costs or provide a written explanation to the Governor and the Legislature as to why the administrative expenses cannot be reduced.

(b) The first audit shall be for the 1998-99 fiscal year. The Legislature shall appropriate sufficient funds for each fiscal year from the General Fund to the Department of Finance to pay for the audit.

44475.60. The Franchise Tax Board shall calculate the aggregate amount of tax credits awarded by the state board and districts and claimed by taxpayers, as reported pursuant to subdivision (b) of Section 44475.62, and shall report that amount to the Controller, the Director of Finance, and the State Department of Education for each fiscal year. That amount shall represent the total amount of tax credits approved and claimed pursuant to this part for purposes of determining the amount of "General Fund revenues which may be appropriated pursuant to Article XIII B", as that phrase is used in paragraph (1) of subdivision (b) of Section 8 of Article XVI of the California Constitution, and in calculating moneys to be applied by the state for the support of school districts and community college districts. Notwithstanding any other provision of law, the amount of the tax credits shall be added to General Fund revenues otherwise considered in making those calculations required by Section 8. The Legislature may amend this section to better achieve its intent, which is to assure that this part does not diminish funding for school districts or community college districts to a level below what would be required absent the tax credits authorized by this part.

44475.61. Notwithstanding any other provision of law, tax credits approved pursuant to this part shall be considered "General Fund revenues which may be appropriated pursuant to Article XIII B", as that phrase is used in paragraph (1) of subdivision (b) of Section 8 of Article XVI of the California Constitution, and in calculating moneys to be applied by the state for the support of school districts and community college districts. Those tax credits shall be added to General Fund revenues otherwise considered in making those calculations required by Section 8. The Legislature may amend this section to better achieve its intent, which is to assure that this part does not diminish funding for school districts or community college districts to a level below what would be required absent the tax credits authorized by this part.

44475.62. (a) After the end of each quarter, the state board shall publish a list of all projects awarded tax credits under this program during the previous quarter by the state board and any participating district. The report shall include for each project a description of the project, the amount of annual emissions reductions estimated to result from the project, the number of vehicles or pieces of equipment involved, the cost-effectiveness of the project, and other items considered relevant by the state board. The report shall be transmitted to the Governor, the Legislature, and the public.

(b) The state board shall furnish a list to the Franchise Tax Board after the end of each quarter, in the form and manner agreed upon by the Franchise Tax Board, containing the names, taxpayer identification numbers (including taxpayer identification numbers for each partner or shareholder, as applicable), a description of the tax credit awarded, and the total amount of credit approved for each person awarded a tax credit in that quarter.

44475.63. (a) In the event that the recipient of the tax credit or operator of the equipment, vehicles, locomotives, off-road nonrecreational motor vehicles, or vessels purchased or operated pursuant to the award of the tax credit violates the terms of the contract pursuant to which the tax credit was awarded, the state board may initiate an action to rescind the contract, invalidate the dollar value of any unused tax credit, and recover from the recipient an amount of money equal to the dollar value of the tax credit used, together with interest as computed on deficiency assessments.

(b) Any money recovered pursuant to this section shall be available for appropriation for the purposes of Section 44475.27, and for no other purpose.

(c) Any unused tax credit invalidated pursuant to this section shall be available for award in a subsequent fiscal year by the state board for the same category for which the tax credit originally was awarded.

(d) The state board shall notify the Franchise Tax Board of every action initiated pursuant to this section. The initiation of an action pursuant to this section does not preclude the imposition of any fine, forfeiture, or other penalty or undertaking an administrative enforcement action pursuant to any other provision of law or regulation.

44475.64. Personal services and consulting contracts entered into pursuant to this part are not subject to approval by the Department of General Services if the state board does all of the following:

(a) Designates a state board officer as responsible and directly accountable for the state board's contracting program.

(b) Establishes written policies and procedures and a management system ensuring that state board's contracting activities comply with applicable provisions of law and regulations and that it has demonstrated the ability to carry out these policies and procedures and to implement the management system.

(c) Establishes a plan for ensuring that contracting personnel are adequately trained in contract administration and contract management.

(d) Conducts an audit every two years of the contracting program and reports to the Department of General Services as the department may require.

(e) Establishes procedures for reporting to the Legislature on the contracting program.

Chapter 6. Repeal

44475.70. Section 44475.57 shall continue in effect until January 1, 2011, and is repealed as of that date. The state board and districts may award no further tax credits after January 1, 2011, unless Section 44475.57 is reenacted and becomes effective on or after that date. The Legislature may reenact Section 44475.57 by majority vote. The reenacted section shall take effect on or after January 1, 2011.

SEC. 3. Section 17039 of the Revenue and Taxation Code is amended to read:

17039. (a) Notwithstanding any provision in this part to the contrary, for the purposes of computing tax credits, the term "net tax" means the tax imposed under either Section 17041 or 17048 plus the tax imposed under Section 17504 (relating to lump-sum distributions) less the credits allowed by Section 17054 (relating to personal exemption credits) and any amount imposed under paragraph (1) of subdivision (d) and paragraph (1) of subdivision (e) of Section 17560. Notwithstanding the preceding sentence, the "net tax" shall not be less than the tax imposed under Section 17504 (relating to the separate tax on lump-sum distributions), if any. Credits shall be allowed against "net tax" in the following order:

(1) Credits that do not contain carryover or refundable provisions, except those described in paragraphs (4) and (5).

(2) Credits that contain carryover provisions but do not contain refundable provisions.

(3) Credits that contain both carryover and refundable provisions.

(4) The minimum tax credit allowed by Section 17063 (relating to the alternative minimum tax).

(5) Credits for taxes paid to other states allowed by Chapter 12 (commencing with Section 18001).

(6) Credits that contain refundable provisions but do not contain carryover provisions.

The order within each paragraph shall be determined by the Franchise Tax Board.

(b) Notwithstanding the provisions of Sections 17053.5 (relating to the renter's credit), 17061 (relating to refunds pursuant to the Unemployment Insurance Code), and 19002 (relating to tax withholding), the credits provided in those sections shall be allowed in the order provided in paragraph (6) of subdivision (a).

(c) (1) Notwithstanding any other provision of this part, no tax credit shall reduce the tax imposed under Section 17041 or 17048 plus the tax imposed under Section 17504 (relating to the separate tax on lump-sum distributions) below the tentative minimum tax, as defined by Section 17062, except the following credits, but only after allowance of the credit allowed by Section 17063:

(A) The credit allowed by former Section 17052.4 (relating to solar energy).

(B) The credit allowed by former Section 17052.5 (relating to solar energy).

(C) The credit allowed by Section 17052.5 (relating to solar energy).

(D) The credit allowed by Section 17052.12 (relating to research expenses).

(E) The credit allowed by former Section 17052.13 (relating to sales and use tax credit).

(F) The credit allowed by Section 17052.15 (relating to Los Angeles Revitalization Zone sales tax credit).

(G) The credit allowed by Section 17053.5 (relating to the renter's credit).

(H) The credit allowed by former Section 17053.8 (relating to enterprise zone hiring credit).

(I) The credit allowed by Section 17053.10 (relating to Los Angeles Revitalization Zone hiring credit).

(J) The credit allowed by former Section 17053.11 (relating to program area hiring credit).

(K) For each taxable year beginning on or after January 1, 1994, the credit allowed by Section 17053.17 (relating to Los Angeles Revitalization Zone hiring credit).

(L) The credit allowed by Section 17053.33 (relating to targeted tax area sales or use tax credit).

(M) The credit allowed by Section 17053.34 (relating to targeted tax area hiring credit).

(N) The credit allowed by Section 17053.49 (relating to qualified property).

(O) The credit allowed by Section 17053.70 (relating to enterprise zone sales or use tax credit).

(P) The credit allowed by Section 17053.74 (relating to enterprise zone hiring credit).

(Q) The credit allowed by Section 17057 (relating to clinical testing expenses).

(R) The credit allowed by Section 17058 (relating to low-income housing).

(S) The credit allowed by Section 17061 (relating to refunds pursuant to the Unemployment Insurance Code).

(T) Credits for taxes paid to other states allowed by Chapter 12 (commencing with Section 18001).

(U) The credit allowed by Section 19002 (relating to tax withholding).

(V) The credit allowed by Section 17052 (relating to reductions in emissions of air pollutants).

(2) Any credit that is partially or totally denied under paragraph (1) shall be allowed to be carried over and applied to the net tax in succeeding taxable years, if the provisions relating to that credit include a provision to allow a carryover when that credit exceeds the net tax.

(d) Unless otherwise provided, any remaining carryover of a credit allowed by a section that has been repealed or made inoperative shall continue to be allowed to be carried over under the provisions of that section as it read immediately prior to being repealed or becoming inoperative.

(e) (1) Unless otherwise provided, if two or more taxpayers (other than husband and wife) share in costs that would be eligible for a tax credit allowed under this part, each taxpayer shall be eligible to receive the tax credit in proportion to his or her respective share of the costs paid or incurred.

(2) In the case of a partnership, the credit shall be allocated among the partners pursuant to a written partnership agreement in accordance with Section 704 of the Internal Revenue Code, relating to partner's distributive share.

(3) In the case of a husband and wife who file separate returns, the credit may be taken by either or equally divided between them.

(f) Unless otherwise provided, in the case of a partnership, any credit allowed by this part shall be computed at the partnership level, and any limitation on the expenses qualifying for the credit or limitation upon the amount of the credit shall be applied to the partnership and to each partner.

(g) (1) With respect to any taxpayer that directly or indirectly owns an interest in a business entity that is disregarded for tax purposes pursuant to Section 23038 and any regulations thereunder, the amount of any credit or credit carryforward allowable for any taxable year attributable to the disregarded business entity shall be limited in accordance with paragraphs (2) and (3).

(2) The amount of any credit otherwise allowed under this part, including any credit carryover from prior years, that may be applied to reduce the taxpayer's "net tax," as defined in subdivision (a), for the taxable year shall be limited to an amount equal to the excess of the taxpayer's regular tax (as defined in Section 17062), determined by including income attributable to the disregarded business entity that generated the credit or credit carryover, over the taxpayer's regular tax (as defined in Section 17062), determined by excluding the income attributable to that disregarded business entity. No credit shall be allowed if the taxpayer's regular tax (as defined in Section 17062), determined by including the income attributable to the disregarded business entity, is less than the taxpayer's regular tax (as defined in Section 17062), determined by excluding the income attributable to the disregarded business entity.

(3) If the amount of a credit allowed pursuant to the section establishing the credit exceeds the amount allowable under this subdivision in any taxable year, the excess amount may be carried over to subsequent taxable years pursuant to subdivisions (c) and (d).

SEC. 4. Section 17052 is added to the Revenue and Taxation Code, to read:

17052. (a) For each taxable year beginning on or after January 1, 1999, there shall be allowed as a credit against the amount of "net tax," as defined in Section 17039, an amount equal to the tax credit awarded pursuant to Part 10 (commencing with Section 44475.1) of Division 26 of the Health and Safety Code.

(b) The aggregate amount of tax credits granted to all taxpayers pursuant to this section and Section 23630 may not exceed two hundred eighteen million dollars ($218,000,000) for each fiscal year, plus the amount of tax credits that are retained pursuant to paragraph (2) of subdivision (a) of Section 44475.58 of the Health and Safety Code.

(c) In the case where the credit allowed by this section exceeds the "net tax," the excess may be carried over to reduce the "net tax" in the following year and succeeding years until the credit has been exhausted.

(d) The State Air Resources Board shall do all of the following:

(1) Certify that the taxpayer has been awarded the tax credit as specified in subdivision (a).

(2) Issue tax credit certificates in an aggregate amount that shall not exceed the limit specified in subdivision (b).

(3) Furnish each year a list to the Franchise Tax Board, in a form or manner agreed upon by the Franchise Tax Board and the State Air Resources Board, of the qualified taxpayers that were issued tax credit certificates. If possible, the list shall be in a computer readable form.

(4) Provide the taxpayer with copies of the tax credit certificate.

(5) Obtain the taxpayer's identification number; or, in the case of an organization taxed as a partnership, the taxpayer's identification number of each partner; or, in the case of a Subchapter S corporation, the taxpayer's identification number of each shareholder.

(6) No later than 60 days following the close of each fiscal year within which the credit under this section is available, provide to the Legislature a report with respect to that fiscal year that includes all of the following:

(A) The number of tax credit certificates requested and issued.

(B) The types of taxpayers receiving the tax credit certificates.

(e) To be eligible for the tax credit, the taxpayer shall do all of the following:

(1) As part of the taxpayer's request for a tax credit, provide the State Air Resources Board with documents, as deemed necessary by the State Air Resources Board, verifying that the requirements of this section and Part 10 (commencing with Section 44475.1) of Division 26 of the Health and Safety Code have been met.

(2) Retain a copy of the tax credit certificate issued by the State Air Resources Board as specified in subdivision (d).

(3) Provide a copy of the tax credit certificate to the Franchise Tax Board upon request.

(4) Provide the State Air Resources Board with the taxpayer's identification number; or, in the case of an organization taxed as a partnership, the taxpayer identification numbers of each partner; or, in the case of a Subchapter S corporation, the taxpayer's identification number of each shareholder.

(5) If the taxpayer fails to comply with the requirements of this subdivision, no credit may be awarded to that taxpayer until the taxpayer complies.

(f) Any credit allowed pursuant to this section shall be in lieu of any other credit otherwise allowable pursuant to this part for the same purchase, retrofit, repower, or operational change that is the basis for the tax credit under this section. In addition, any deduction for the same purchase, retrofit, repower, or operational change that is the basis for the tax credit under this section shall be reduced, on a pro rata basis, by the part of the purchase, retrofit, repower, or operational change that was paid for by the credit awarded pursuant to this section.

SEC. 5. Section 23036 of the Revenue and Taxation Code is amended to read:

23036. (a) (1) The term "tax" includes any of the following:

(A) The tax imposed under Chapter 2 (commencing with Section 23101).

(B) The tax imposed under Chapter 3 (commencing with Section 23501).

(C) The tax on unrelated business taxable income, imposed under Section 23731.

(D) The tax on S corporations imposed under Section 23802.

(2) The term "tax" does not include any amount imposed under paragraph (1) of subdivision (e) of Section 24667 or paragraph (2) of subdivision (f) of Section 24667.

(b) For purposes of Article 5 (commencing with Section 18661) of Chapter 2, Article 3 (commencing with Section 19031) of Chapter 4, Article 6 (commencing with Section 19101) of Chapter 4, and Chapter 7 (commencing with Section 19501) of Part 10.2, and for purposes of Sections 18601, 19001, and 19005, the term "tax" shall also include all of the following:

(1) The tax on limited partnerships, imposed under Section 17935 or Section 23081, the tax on limited liability companies, imposed under Section 17941 or Section 23091, and the tax on registered limited liability partnerships and foreign limited liability partnerships imposed under Section 17948 or Section 23097.

(2) The alternative minimum tax imposed under Chapter 2.5 (commencing with Section 23400).

(3) The tax on built-in gains of S corporations, imposed under Section 23809.

(4) The tax on excess passive investment income of S corporations, imposed under Section 23811.

(c) Notwithstanding any other provision of this part, credits shall be allowed against the "tax" in the following order:

(1) Credits that do not contain carryover provisions.

(2) Credits that, when the credit exceeds the "tax," allow the excess to be carried over to offset the "tax" in succeeding taxable years. The order of credits within this paragraph shall be determined by the Franchise Tax Board.

(3) The minimum tax credit allowed by Section 23453.

(4) Credits for taxes withheld under Section 18662.

(d) Notwithstanding any other provision of this part, each of the following shall be applicable:

(1) No credit shall reduce the "tax" below the tentative minimum tax (as defined by paragraph (1) of subdivision (a) of Section 23455), except the following credits, but only after allowance of the credit allowed by Section 23453:

(A) The credit allowed by former Section 23601 (relating to solar energy).

(B) The credit allowed by former Section 23601.4 (relating to solar energy).

(C) The credit allowed by Section 23601.5 (relating to solar energy).

(D) The credit allowed by Section 23609 (relating to research expenditures).

(E) The credit allowed by Section 23609.5 (relating to clinical testing expenses).

(F) The credit allowed by Section 23610.5 (relating to low-income housing).

(G) The credit allowed by former Section 23612 (relating to sales and use tax credit).

(H) The credit allowed by Section 23612.2 (relating to enterprise zone sales or use tax credit).

(I) The credit allowed by Section 23612.6 (relating to Los Angeles Revitalization Zone sales tax credit).

(J) The credit allowed by former Section 23622 (relating to enterprise zone hiring credit).

(K) The credit allowed by Section 23622.7 (relating to enterprise zone hiring credit).

(L) The credit allowed by former Section 23623 (relating to program area hiring credit).

(M) For each income year beginning on or after January 1, 1994, the credit allowed by Section 23623.5 (relating to Los Angeles Revitalization Zone hiring credit).

(N) The credit allowed by Section 23625 (relating to Los Angeles Revitalization Zone hiring credit).

(O) The credit allowed by Section 23630 (relating to reductions in emissions of air pollutants).

(P) The credit allowed by Section 23633 (relating to targeted tax area sales or use tax credit).

(P)

(Q) The credit allowed by Section 23634 (relating to targeted tax area hiring credit).

(Q)

(R) The credit allowed by Section 23649 (relating to qualified property).

(2) No credit against the tax shall reduce the minimum franchise tax imposed under Chapter 2 (commencing with Section 23101).

(e) Any credit which is partially or totally denied under subdivision (d) shall be allowed to be carried over to reduce the "tax" in the following year, and suceeding years if necessary, if the provisions relating to that credit include a provision to allow a carryover of the unused portion of that credit.

(f) Unless otherwise provided, any remaining carryover from a credit that has been repealed or made inoperative shall continue to be allowed to be carried over under the provisions of that section as it read immediately prior to being repealed or becoming inoperative.

(g) Unless otherwise provided, if two or more taxpayers share in costs that would be eligible for a tax credit allowed under this part, each taxpayer shall be eligible to receive the tax credit in proportion to its respective share of the costs paid or incurred.

(h) Unless otherwise provided, in the case of an S corporation, any credit allowed by this part shall be computed at the S corporation level, and any limitation on the expenses qualifying for the credit or limitation upon the amount of the credit shall be applied to the S corporation and to each shareholder.

(i) (1) With respect to any taxpayer that directly or indirectly owns an interest in a business entity that is disregarded for tax purposes pursuant to Section 23038 and any regulations thereunder, the amount of any credit or credit carryforward allowable for any income year attributable to the disregarded business entity shall be limited in accordance with paragraphs (2) and (3).

(2) The amount of any credit otherwise allowed under this part, including any credit carryover from prior years, that may be applied to reduce the taxpayer's "tax," as defined in subdivision (a), for the income year shall be limited to an amount equal to the excess of the taxpayer's regular tax (as defined in Section 23455), determined by including income attributable to the disregarded business entity that generated the credit or credit carryover, over the taxpayer's regular tax (as defined in Section 23455), determined by excluding the income attributable to that disregarded business entity. No credit shall be allowed if the taxpayer's regular tax (as defined in Section 23455), determined by including the income attributable to the disregarded business entity is less than the taxpayer's regular tax (as defined in Section 23455), determined by excluding the income attributable to the disregarded business entity.

(3) If the amount of a credit allowed pursuant to the section establishing the credit exceeds the amount allowable under this subdivision in any income year, the excess amount may be carried over to subsequent income years pursuant to subdivisions (d), (e), and (f).

SEC. 6. Section 23630 is added to the Revenue and Taxation Code, to read:

23630. (a) For each income year beginning on or after January 1, 1999, there shall be allowed as a credit against the amount of "tax," as defined in Section 23036, an amount equal to the tax credit awarded pursuant to Part 10 (commencing with Section 44475.1) of Division 26 of the Health and Safety Code.

(b) The aggregate amount of tax credits granted to all taxpayers pursuant to this section and Section 17052 may not exceed two hundred eighteen million dollars ($218,000,000) for each fiscal year, plus the amount of tax credits that are retained pursuant to paragraph (2) of subdivision (a) of Section 44475.58 of the Health and Safety Code.

(c) In the case where the credit allowed by this section exceeds the "tax," the excess may be carried over to reduce the "tax" in the following year and succeeding years until the credit has been exhausted.

(d) The State Air Resources Board shall do all of the following:

(1) Certify that the taxpayer has been awarded the tax credit as specified in subdivision (a).

(2) Issue tax credit certificates in an aggregate amount that shall not exceed the limit specified in subdivision (b).

(3) Furnish each year a list to the Franchise Tax Board, in a form or manner agreed upon by the Franchise Tax Board and the State Air Resources Board, of the qualified taxpayers that were issued tax credit certificates. If possible, the list shall be in a computer readable form.

(4) Provide the taxpayer with copies of the tax credit certificate.

(5) Obtain the taxpayer's identification number; or, in the case of an organization taxed as a partnership, the taxpayer's identification number of each partner; or, in the case of a Subchapter S corporation, the taxpayer's identification number of each shareholder.

(6) No later than 60 days following the close of each fiscal year within which the credit under this section is available, provide to the Legislature a report with respect to that fiscal year that includes all of the following:

(A) The number of tax credit certificates requested and issued.

(B) The types of businesses receiving the tax credit certificates.

(e) To be eligible for the tax credit, the taxpayer shall do all of the following:

(1) As part of the taxpayer's request for a tax credit, provide the State Air Resources Board with documents, as deemed necessary by the State Air Resources Board, verifying that the requirements of this section and Part 10 (commencing with Section 44475.1) of Division 26 of the Health and Safety Code have been met.

(2) Retain a copy of the tax credit certificate issued by the State Air Resources Board as specified in subdivision (d).

(3) Provide a copy of the tax credit certificate to the Franchise Tax Board upon request.

(4) Provide the State Air Resources Board with the taxpayer's identification number; or, in the case of an organization taxed as a partnership, the taxpayer identification numbers of all partners; or, in the case of a Subchapter S corporation, the taxpayer's identification number of each shareholder.

(5) If the taxpayer fails to comply with the requirements of this subdivision, no credit may be awarded to that taxpayer until the taxpayer complies.

(f) Any credit allowed pursuant to this section shall be in lieu of any other credit otherwise allowable pursuant to this part for the same purchase, retrofit, repower, or operational change that is the basis for the tax credit under this section. In addition, any deduction for the same purchase, retrofit, repower, or operational change that is the basis for the tax credit under this section shall be reduced, on a pro rata basis, by the part of the purchase, retrofit, repower, or operational change that was paid for by the credit awarded pursuant to this section.

(g) Notwithstanding any other provision of law, any tax credit awarded pursuant to this section may be used by any member of the taxpayer's unitary group.

SEC. 7. Section 42314.6 is added to the Health and Safety Code, to read:

42314.6. (a) Wildfires in California forests and wildlands release substantial emissions into the air. These emissions currently average almost 600,000 tons of pollutants annually. These emissions adversely affect public health and environmental quality. Emissions from wildfires not only adversely affect air quality in areas where they occur but also are transported to other air basins.

(b) A study of an air quality market-based incentive program for prescribed burning projects is hereby authorized, and shall be paid for by an allocation of funds by the State Air Resources Board pursuant to Section 44475.14. The study shall consider policies, regulations, or standards which could be incorporated into air pollution control requirements that allow the sale, purchase, trade, or substitution of emissions reduction credits among sources of air pollution. As used in this section, "emissions reduction credits" means surplus emissions reductions that represent a net decrease in emissions from the level that otherwise would have been required by federal, state, or local pollution control requirements.

(c) The State Air Resources Board and the affected districts shall conduct the study to assess the feasibility of the program. The study shall be completed by January 1, 2001, and shall include the following:

(1) A methodology for establishing baselines for emissions from wildfire and from prescribed burning projects.

(2) The assessment and development of a methodology for calculating the emissions from prescribed burning projects to reduce anticipated emissions expected to occur from wildfires once the baselines are established.

(3) An assessment of emissions reduction techniques that can be applied to prescribed burning projects, and a methodology for calculating expected emissions reductions, including smoke management techniques that have the greatest potential to limit population exposure to smoke.

(d) The study shall consider the possibility of implementing the program on lands owned by, or where fire is managed by, the California Department of Forestry and Fire Protection, California Department of Fish and Game, the United States Forest Service, the United States Bureau of Land Management, the National Park Service, and the United States Fish and Wildlife Service.

(e) The study shall assume that the following requirements will be met by eligible projects:

(1) The project complies with federal, state, and district air pollution control requirements governing agricultural or nonagricultural burning.

(2) The project will result in cost-effective emissions reductions that satisfy federal and state market-based air pollution control requirements.

(3) The project will result in a net emissions reduction or air quality benefit when used to offset increased emissions from other sources.

(4) The purpose of the project is not to improve forest health, or to convert one ecosystem or habitat type to another ecosystem or habitat type.

(5) The project will meet any additional requirements that, as determined by the State Air Resources Board, will be necessary for this program to meet applicable state and federal requirements governing market-based incentive programs and emissions trading, including the development of technical calculation protocols and procedures that are specific to quantifying the emissions reduction benefits from prescribed burning projects. In estimating the potential emissions value of the credit, the study shall apply modeling data and actual or historic emissions data provided by the Department of Forestry and Fire Protection and approved by the State Air Resources Board.

(f) Because of the transportability of air pollutants generated by wildfires, the study shall consider whether emissions reduction credits for prescribed burning projects within any air basin could be used for offsets, and at what ratio for nonattainment pollutants if within the same air basin, and at what ratio if between adjacent air basins if the State Air Resources Board determines that the upwind area contributes measurably to downwind area emissions.

(g) This section does not authorize any transaction involving emissions reduction credits, nor does it affect the application of existing law authorizing credits for reduced open field burning.

SEC. 8. Article 4 (commencing with Section 4495) is added to Chapter 7 of Part 2 of Division 4 of the Public Resources Code, to read:

Article 4. Prescribed Burning Projects:
Air Pollution Reduction

4495. (a) All money recovered pursuant to Section 13009 of the Health and Safety Code for fire suppression costs and received in the fiscal year following the fiscal year in which the costs were incurred or in a subsequent fiscal year, all money recovered in the foreclosure of any lien for the abatement of fire and other hazards and nuisances pursuant to Article 7 (commencing with Section 4170) of Chapter 1, and any other money recovered, forfeited, or otherwise obtained pursuant to statute or any legal action to offset costs incurred in fire suppression shall be expended by the department to implement the prescribed burning elements of the California Fire Plan, as adopted by the State Board of Forestry, that reduce air pollution caused by wildland fires, forest fires, uncontrolled fires, and other wildfires. This subdivision does not apply to any money paid or credited to the department by another public agency in connection with the suppression of fire or the discharge of the department's responsibilities for fire prevention and fire hazard abatement.

(b) All money described in subdivision (a) shall be deposited in the Prefire Management Account, which is hereby created in the General Fund. Notwithstanding Section 13340 of the Government Code, all money in the account is hereby appropriated to the department without regard to fiscal years for expenditure for the purposes of this section.

(c) The department shall give preference to community conservation corps, as defined in Section 14507.5, in undertaking work financed pursuant to this section.

(d) Funds appropriated pursuant to this section shall be supplemental to other funds appropriated by the Legislature or obtained from other sources to implement the California Fire Plan, and may not displace those funds.

(e) Funds expended pursuant to this section may be spent only on the implementation of prescribed burns that are designed to reduce the generation of air pollution resulting from wildfires.

SEC. 9. Section 41202 of the Education Code is amended to read:

41202. The words and phrases set forth in subdivision (b) of Section 8 of Article XVI of the Constitution of the State of California shall have the following meanings:

(a) "Moneys to be applied by the State," as used in subdivision (b) of Section 8 of Article XVI of the California Constitution, means appropriations from the General Fund that are made for allocation to school districts, as defined, or community college districts. An appropriation that is withheld, impounded, or made without provisions for its allocation to school districts or community college districts, shall not be considered to be "moneys to be applied by the State."

(b) "General Fund revenues which may be appropriated pursuant to Article XIII B," as used in paragraph (1) of subdivision (b) of Section 8 of Article XVI, means General Fund revenues that are the proceeds of taxes as defined by subdivision (c) of Section 8 of Article XIII B of the California Constitution, including, for the 1986-87 fiscal year only, any revenues that are determined to be in excess of the appropriations limit established pursuant to Article XIII B for the fiscal year in which they are received. General Fund revenues for a fiscal year to which paragraph (1) of subdivision (b) is being applied shall include, in that computation, only General Fund revenues for that fiscal year that are the proceeds of taxes, as defined in subdivision (c) of Section 8 of Article XIII B of the California Constitution, and shall not include prior fiscal year revenues. Commencing with the 1995-96 fiscal year, and each fiscal year thereafter, "General Fund revenues that are the proceeds of taxes," as defined in subdivision (c) of Section 8 of Article XIII B of the California Constitution, includes any portion of the proceeds of taxes received from the state sales tax that are transferred to the counties pursuant to, and only if, legislation is enacted during the 1995-96 fiscal year the purpose of which is to realign children's programs. The amount of the proceeds of taxes shall be computed for any fiscal year in a manner consistent with the manner in which the amount of the proceeds of taxes was computed by the Department of Finance for purposes of the Governor's Budget for the Budget Act of 1986.

(c) "General Fund revenues which may be appropriated pursuant to Article XIII B," as used in paragraph (1) of subdivision (b) of Section 8 of Article XVI, includes tax credits approved pursuant to the California Air Quality Improvement Program, as set forth in Part 10 (commencing with Section 44475.1) of Division 26 of the Health and Safety Code, and in calculating moneys to be applied by the state for the support of school districts and community college districts. Notwithstanding any other provision of law, those tax credits shall be added to General Fund revenues otherwise considered in making these calculations as required by Section 8.

(d) "General Fund revenues appropriated for school districts," as used in paragraph (1) of subdivision (b) of Section 8 of Article XVI of the California Constitution, means the sum of appropriations made that are for allocation to school districts, as defined in Section 41302.5, regardless of whether those appropriations were made from the General Fund to the Superintendent of Public Instruction, to the Controller, or to any other fund or state agency for the purpose of allocation to school districts. The full amount of any appropriation shall be included in the calculation of the percentage required by paragraph (1) of subdivision (b) of Section 8 of Article XVI, without regard to any unexpended balance of any appropriation. Any reappropriation of funds appropriated in any prior year shall not be included in the sum of appropriations.

(d)

(e) "General Fund revenues appropriated for community college districts," as used in paragraph (1) of subdivision (b) of Section 8 of Article XVI of the California Constitution, means one sum of appropriations made that are for allocation to community college districts, regardless of whether those appropriations were made from the General Fund to the Controller, to the Chancellor of the California Community Colleges, or to any other fund or state agency for the purpose of allocation to community college districts. The full amount of any appropriation shall be included in the calculation of the percentage required by paragraph (1) of subdivision (b) of Section 8 of Article XVI, without regard to any unexpended balance of any appropriation. Any reappropriation of funds appropriated in any prior year shall not be included in the sum of appropriations.

(e)

(f) "Total allocations to school districts and community college districts from General Fund proceeds of taxes appropriated pursuant to Article XIII B," as used in paragraph (2) or (3) of subdivision (b) of Section 8 of Article XVI of the California Constitution, means the sum of appropriations made that are for allocation to school districts, as defined in Section 41302.5, and community college districts, regardless of whether those appropriations were made from the General Fund to the Controller, to the Superintendent of Public Instruction, to the Chancellor of the California Community Colleges, or to any other fund or state agency for the purpose of allocation to school districts and community college districts. The full amount of any appropriation shall be included in the calculation of the percentage required by paragraph (2) or (3) of subdivision (b) of Section 8 of Article XVI, without regard to any unexpended balance of any appropriation. Any reappropriation of funds appropriated in any prior year shall not be included in the sum of appropriations.

(f)

(g) "General Fund revenues appropriated for school districts and community college districts, respectively" and "moneys to be applied by the state for the support of school districts and community college districts," as used in Section 8 of Article XVI of the California Constitution, shall include funds appropriated for the Child Care and Development Services Act pursuant to Chapter 2 (commencing with Section 8200) of Part 6 and shall not include any of the following:

(1) Any appropriation that is not made for allocation to a school district, as defined in Section 41302.5, or to a community college district regardless of whether the appropriation is made for any purpose that may be considered to be for the benefit to a school district, as defined in Section 41302.5, or a community college district. This paragraph shall not be construed to exclude any funding appropriated for the Child Care and Development Services Act pursuant to Chapter 2 (commencing with Section 8200) of Part 6.

(2) Any appropriation made to the Teachers' Retirement Fund or to the Public Employees' Retirement Fund except those appropriations for reimbursable state mandates imposed on or before January 1, 1988.

(3) Any appropriation made to service any public debt approved by the voters of this state.

(g)

(h) "Allocated local proceeds of taxes," as used in paragraph (2) or (3) of subdivision (b) of Section 8 of Article XVI of the California Constitution, means, for school districts as defined, those local revenues, except revenues identified pursuant to paragraph (5) of subdivision (h) of Section 42238, that are used to offset state aid for school districts in calculations performed pursuant to Sections 2558, 42238, and Chapter 7.2 (commencing with Section 56836) of Part 30.

(h)

(i) "Allocated local proceeds of taxes," as used in paragraph (2) or (3) of subdivision (b) of Section 8 of Article XVI of the California Constitution, means, for community college districts, those local revenues that are used to offset state aid for community college districts in calculations performed pursuant to Section 84700. In no event shall the revenues or receipts derived from student fees be considered "allocated local proceeds of taxes."

(i)

(j) For the purposes of calculating the 4 percent entitlement pursuant to subdivision (a) of Section 8.5 of Article XVI of the California Constitution, "the total amount required pursuant to Section 8(b)" shall mean the General Fund aid required for schools pursuant to subdivision (b) of Section 8 of Article XVI of the California Constitution, and shall not include allocated local proceeds of taxes.

(k) The Legislature may not amend subdivision (c) except to better achieve the intent of that subdivision, which is to assure that the initiative measure that added that subdivision does not diminish funding for school districts and community college districts to a funding level below that required absent the tax credits authorized by that measure.

SEC. 10. Section 41204.2 is added to the Education Code, to read:

41204.2. Notwithstanding any other provision of law, for the purposes of applying paragraph (2) of subdivision (b) of Section 8 of Article XVI of the California Constitution, in the first fiscal year following approval of tax credits pursuant to the California Air Quality Improvement Program authorized by Part 10 (commencing with Section 44475.1) of Division 26 of the Health and Safety Code, and for each fiscal year thereafter, the Director of Finance shall adjust the amount required to ensure that allocations to school districts and community college districts, respectively, are not less than those allocations in the prior fiscal year, to reflect revenue derived from approval of tax credits in that fiscal year pursuant to Part 10 (commencing with Section 44475.1) of Division 26 of the Health and Safety Code, and to ensure that the proportional net fiscal effect reflects the allocation of such revenue to school districts and community college districts consistent with the manner in which the amount of the proceeds of taxes was computed by the Department of Finance for purposes of the Governor's Budget in the immediately preceding fiscal year.

The Legislature may amend this section to better achieve its intent, which is to assure that the initiative measure that enacted this section does not diminish funding for school districts and community college districts to a funding level below that required absent the tax credits authorized by that measure.

SEC. 11. Section 29531 of the Government Code is amended to read:

29531. (a) The board of supervisors shall continuously appropriate the money in such the local transportation fund for expenditure for the purposes specified in this article directly related to administration of the fund and the fund's revenue and the transportation and associated fund administration purposes specified in Chapter 4 (commencing with Section 99200) of Part 11 of Division 10 of the Public Utilities Code.

(b) The local transportation fund is a trust fund. Once the local transportation fund is created, it may not be abolished. The terms of the contract entered into pursuant to Section 29530 may not be modified in a manner inconsistent with the purposes and requirements of this section. Money in the fund or designated for transfer to the fund pursuant to Section 29530 may be allocated only to mass transportation, pedestrian and bicycle facilities, streets and roads, transportation planning, and fund administration purposes, as required by this article and by Chapter 4 (commencing with Section 99200) of Part 11 of Division 10 of the Public Utilities Code. Neither the county nor the Legislature may divert any moneys in the fund from these purposes to another purpose.

SEC. 12. (a) Prior to January 1, 2011, the Legislature may amend Sections 17039 and 23036 of the Revenue and Taxation Code if the amendments do not delete or alter the tax credits authorized by Sections 17052 and 23630 of the Revenue and Taxation Code. Prior to January 1, 2011, except where specifically authorized pursuant to this act, the Legislature may make no other amendments to this act and may not repeal or supersede any provision of this act.

(b) On and after January 1, 2011, the Legislature may amend or repeal any provision of this act if the amendments do not reduce or impair the ability of taxpayers to fully utilize tax credits after January 1, 2011, if the tax credits were awarded prior to January 1, 2011, and the taxpayers are eligible to use the carryover provisions of the Revenue and Taxation Code or use the tax credits pursuant to long-term contracts that meet the requirements of Section 44475.10 of the Health and Safety Code.

SEC. 13. It is the intent of the People of California in enacting this act that the operation of this act not reduce funding for school districts or community college districts.

SEC. 14. This act shall be liberally construed to further its purposes, especially with respect to being allowed to take effect.

SEC. 15. (a) This act shall take effect notwithstanding any other provision of law.

(b) It is the express intent of the People of California that this act shall take effect and become operative at 12:01 a.m. on November 4, 1998.

SEC. 16. If any provision of this act or the application thereof is held invalid, that invalidity does not affect other provisions or applications of the act that can be given effect without the invalid provision or application, and to this end the provisions of this act are severable.

SEC. 17. It is the intent of the People of California in enacting this act that it be carried out in the most expeditious manner possible, and that all state and local officials implement this act to the fullest extent of their authority.

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