On July 28, 2011, the California Department of Insurance announced that the Community Investment Tax Program is now a success. What is the Community Investment Tax Program you may ask? It is a program that has been in existence since 1996. The program is designed to assist under-served communities to obtain financing which the traditional lending institutions will not provide.
This is how the program worked this year: Farmers Insurance invested 7 million dollars, State Farm invested 2 million dollars, 2 million dollars was invested by Pacific Life Insurance Company and several other companies invested smaller amounts. This money was then invested with a zero percent interest return. In exchange for this investment the companies received a 20% State Tax Credit, which according to the California Department of Insurance web site is a 4.3% annual percentage rate of return, source: www.insurance.ca.gov/0400-news/011-press-releases/release099-11.cfm.
The money when received was deposited with the California Organized Investment Network members which are banks, credit unions and other lending institutions that are in turn members of the Community Development Financial Institutions program. What happened next was the evaluation of loan applications by these organizations, and subsequent loans being made to the individuals and organizations asking for help.
The recipients included micro loans being made of $500 to $5,000 to self-employed business owners, a mortgage loan to a non-profit alcoholic treatment facility, and a short-term loan to close escrow on housing for low income foster youth. These programs are very commendable and deserving of support for those who cannot help themselves.
I have two questions concerning this investment program, the first is this, would the insurance companies still front the money if there was not a 20% State Tax Credit available for them to invest their policyholders premium payments in to?
My second question is this, now that the Democratic Party is in control of all of the state elective offices, why are they cooperating with big business in selling tax breaks to them; why not just ask these large corporations for their help?
In a time when money is tight and worth a lot less than it once was, I believe the government of the State of California needs to consider more extensive State Tax Credit for those of us who still have a job even though we cannot affort to make 7 million dollar investments with a zero interest rate of return.