BILL ANALYSIS ----------------------------------------------------------------- |Hearing Date:April 13, 2009 |Bill No: SB | | |358 | ----------------------------------------------------------------- SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Gloria Negrete McLeod, Chair Bill No: SB 358Author:Ducheny As Amended: April 13, 2009 Fiscal: Yes SUBJECT: Indian tribes: economic development. SUMMARY: Creates within the Business, Transportation and Housing Agency (BT&H), the Native American Business Revolving Loan and Guarantee Program to fund non-gaming business projects for members of Indian tribes and creates the Native American Business Finance Council to review applications for program funding. Existing law: 1)Promotes the economic self-sufficiency of California Indian tribes. 2)Establishes the Business, Transportation and Housing Agency to oversee and coordinate the activities of various departments, offices, and economic development programs. 3)Creates in the State Treasury a special fund called the "Indian Gaming Revenue Sharing Trust Fund" (RST Fund) for the receipt and deposit of moneys derived from gaming device license fees that are paid into the fund pursuant to the terms of tribal-state gaming compacts for the purpose of making distributions to non-compact tribes. 4)Provides that the administration and distribution of RST Fund moneys to qualifying tribes that do not have gaming, or operate less than 350 machines, is to be carried out by the California Gambling Control Commission pursuant to the terms of the tribal-state gaming compacts ratified and in effect as provided in subdivision (f) of Section 19 of Article IV of the SB 358 Page 2 California Constitution. This bill: 1)Requires the Secretary of BT&H (Secretary) to create the Native American Business Revolving Loan and Guarantee Program for the purpose of providing non-gaming business loans and loan guarantees to federally recognized, non-compacted, and revenue sharing tribes who are based in California. 2)Creates the Native American Business Revolving Loan and Guarantee Program Account within the California Small Business Expansion Fund for the purpose of receiving state, federal, or local government moneys, other public or private moneys, and tribal government contributions. 3)Defines the following terms: a) "Account" means the Native American Business Revolving Loan and Guarantee Program Account. b) "Applicant" means an applicant for a loan or loan guarantee pursuant to the bill. c) "Council" means the Native American Business Finance Council. d) "Program" means the Native American Business Grant and Revolving Loan Program. e) "Qualified Indian tribe" means a federally recognized tribe located in the state that receives payments from the Indian Gaming Revenue Sharing Trust Fund. 4)Stipulates that the program and the implementation steps necessary to make it operative shall not be undertaken until the Secretary determines that funds of a sufficient amount to create a loan pool and pay program administrative costs have been received into the account. 5)Requires the Secretary to select a Director to coordinate and manage the program and requires the Director to do the following: a) Provide for the development and implementation of the application review process for the program, including defining the eligibility standards and rating and ranking SB 358 Page 3 criteria, which shall then be approved by the Council. b) Seek to maximize the ability of applicants to leverage other public and private funding opportunities to the extent the addition of these funds furthers the purposes of the program. c) Routinely seek the advice of the Council on matters related to the management and operation of the program. d) Report annually on the activities of the program to the Secretary. e) Submit to the Governor and the Legislature the results of an audit of the program undertaken by an independent entity no later than January 1, 2011. 6)Establishes the following eligibility criteria for applicants for a loan or loan guarantee under the program: a) Applicant must be a federally recognized Indian tribe that has or wants to start, acquire, expand, or supply working capital to a non-gaming business on Native American or state lands. b) The maximum loan limit is set at one million dollars ($1,000,000). c) Applicant must provide matching funding in an amount equal to one-half of the loan requested. d) Applicant must be the majority owner of the business during the term of the loan or loan guarantee. e) Applicant must demonstrate that they will have reasonable access to business and management technical assistance during the term of the loan or loan guarantee. f) A qualified Indian tribe shall not be eligible to apply for funds unless any funds previously loaned to the tribe pursuant to this article have been repaid in full. 7)Requires projects funded by this program to provide for the general welfare of a non-gaming tribe and its members by promoting long-term tribal economic development that creates or retains jobs, provides work skills and business SB 358 Page 4 development, and training and education for tribe members. 8)Allows BT&H to contract with one or more corporations to make loans and loan guarantees pursuant to this bill. 9)Creates the Native American Business Finance Council (Council), consisting of nine members who are appointed by and serve at the pleasure of the Governor, and who are responsible for the final approval of funding subject to the following requirements: a) The Council must include six members of federally recognized Indian tribes in California, three representing tribes from northern California and three representing tribes from southern California. b) The Council must include one member with expertise in each of the following areas: tribal government, business finance, and economic development related to the purposes of the program. c) Prohibits a Council member from voting on the application of his or her own tribe. d) Specifies five members constitute a quorum and a member prohibited from voting on his or her application shall not be included in the quorum count for a particular application. FISCAL EFFECT: Unknown. This bill is keyed "fiscal" by Legislative Counsel. COMMENTS: 1.Purpose. According to the Sponsor, the California Tribal Business Alliance , this measure would boost the opportunities for California Indian tribes to establish a firm economic base for their members' future. They assert that many tribes have benefited from tribal gaming, but just as many are not geographically located in a market that can sustain a casino operation and those tribes are struggling to develop non-gaming enterprises with funds they receive from the Indian Gaming Revenue Sharing Trust Fund (RST Fund). The Alliance states that a revolving loan fund would help them maximize their RST Funds and a program to provide expert business advice will help those tribes get sustaining enterprises off SB 358 Page 5 the ground. The Author argues that without access to capital, both Indian tribes and individuals have difficultly breaking cycles of poverty, fostering business activity, and achieving personal and community economic prosperity. For that reason, it is in the best interests of California to help non-gaming Indian tribes achieve economic independence through the Native American Business Revolving Loan and Guarantee Program. The Author also suggests that while this measure as a whole creates a mechanism for the Native American Business Revolving Loan and Guarantee Program, the program's implementation remains conditional on the presence of sufficient funds in the account. 2.Background. According to an article published by the Harvard Project for American Indian Economic Development, a U.S. Department of Treasury study found that Native Americans lack access to capital and financial services, which is a key barrier to economic advancement. In that study, 66 percent of Native Americans reported that private equity is difficult or impossible to obtain for Native American business owners. Although the article found that the problem can be attributed to trust-land issues, jurisdictional disputes and cultural misunderstandings, it identified access to capital as an important factor to the lack of economic advancement for Native Americans. According to U.S. Census data, California Indian reservation income growth rates vary dramatically and in 2000, the income inequality between gaming and non-gaming reservations was the largest income gap in the nation. There was even substantial variation in growth rates among gaming tribes. Additionally, the data demonstrates the average income for American Indians in California remains well below the national average. In 1990, it was 42 percent of the national average and by 2000, it increased to 53 percent. In certain respects this program is similar to the State of Minnesota Indian Business Loan Program. The Minnesota Indian Business Loan Program supports the development of Indian-owned and operated businesses and promotes economic opportunities for Native American people in that state. Eligible applicants must be enrolled members of the federally recognized Minnesota-based band or tribe. Businesses may be located anywhere in the state, although most of the loans are SB 358 Page 6 made to businesses on a reservation. 3.The Business, Transportation and Housing Agency. The mission of the Secretary for Business, Transportation and Housing is to oversee and coordinate the activities of 13 departments and several important economic development programs and commissions. These entities seek to improve California's place in the global marketplace by leveraging the state's advantages to promote job and business growth, improving transportation mobility, and increasing affordable housing opportunities while promoting environmental quality and safe communities. The Secretary manages the following economic development programs: California Film Commission (CFC) is the state's primary liaison between the film production community and all levels of government. The CFC's number one goal is to support California's vital film production industry and to increase the number of film and TV productions by offering support services and providing filmmakers with low cost alternatives when filming in the state. California Travel and Tourism Commission (CTTC) was created in 1996 to help increase leisure-travel volume, market share and revenue to California. Infrastructure and Economic Development Bank (I-Bank) is a state financing authority that provides low-cost financing to public agencies, manufacturing companies, nonprofit organizations and other entities eligible for tax-exempt financing. International Trade Promotion The International Trade Program (ITP) was created in 2006 to establish a mechanism for monitoring international trade activities. The State of California has not had an official international trade capacity since the state Legislature eliminated the Technology, Trade and Commerce Agency and foreign trade offices effective January 1, 2004. Office of Military and Aerospace Support (OMAS) acts as the official liaison to the U.S. Department of Defense and is the SB 358 Page 7 state's leader on issues involving military base retention, conversion and reuse. OMAS is focused on maintaining California's prominence both as a national military resource and contributor to the state's economy. Small Business Loan Guarantee Program provides guarantees on bank loans to small businesses that would otherwise not be made. A network of 11 Small Business Financial Development Corporations, who are working closely with small business borrowers and local community banks, issues the guarantees on behalf of the state. The guarantees are backed by a trust fund that can be leveraged four times. 4.Indian Gaming Revenue Sharing Trust Fund (RST Fund). In 1999, the state created the RST Fund to provide monetary assistance to non-gaming tribes. The money generated from the gaming license fees is deposited in the fund and dispersed to non-compact tribes. By law, payments to non-compact tribes are required to be $1.1 million a year. Since it was created, the RST Fund has lacked sufficient funds to cover the cost of the payments and other funds have been used to address the shortfall. 5.Previous Legislation. SB 1200 (Ducheny, 2008) would have established the Native American Business Revolving Loan Program (NABRLP) for the purpose of promoting the long-term economic viability of tribal communities by providing capital to create or retain jobs, offer business development and employment training, and provide general education to tribal members. The measure was held in the Assembly Appropriations Committee. SUPPORT AND OPPOSITION: Support: California Tribal Business Alliance (Sponsor) California Communities United Institute Numerous Individuals SB 358 Page 8 Opposition: None on file as of April 6, 2009 Consultant:Yuliya Zeynalova