BILL ANALYSIS Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair 358 (Ducheny) Hearing Date: 4/27/2009 Amended: 4/13/2009 Consultant: Bob Franzoia Policy Vote: B,P&ED 8-1 _________________________________________________________________ ____ BILL SUMMARY: SB 358 would require the Secretary of Business, Transportation and Housing to establish the Native American Business Revolving Loan and Guarantee Program for the purpose of providing nongaming business and loan guarantees to qualified Indian tribes. This bill would create the Native American Business Revolving Loan and Guarantee Program Account solely for the purpose of receiving state, federal, or local government moneys, other public or private moneys, and tribal government contributions. This bill would continuously appropriate the moneys in the account to the director of the program, appointed by the secretary, for the purpose of implementing and administering the program. This bill would specify the maximum amount of a loan or loan guarantee and would require a tribe to provide matching funds. A nine member Native American Business Finance Council would provide policy and program guidance regarding the development and operation of the program. The program would be subject to annual reporting requirements and independent audits. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2009-10 2010-11 2011-12 Fund Loan and guarantee program Unknown, major costs ongoing* Special/ Other** Program administration $125 $250 $250 Special/ Other** * The program would not become operative until it is determined sufficient funds to create a loan pool and pay program administrative costs have been received. ** Special funds, federal funds, local government funds, other public and private moneys, tribal contributions. _________________________________________________________________ ____ STAFF COMMENTS: This bill meets the criteria for referral to the Suspense File. This analysis estimates the program would need a minimum of two staff to review applications, serve as a liaison, and work with the council. Loans and loan guarantees provided by the program would be for nongaming business and shall be used to start or expand a business or to supply working capital to a business. Federally recognized tribes located in the state that receive payments from the Indian Gaming Revenue Sharing Trust Fund (RSTF) would be eligible for the program. This fund was created by Chapter 874/1999 (AB 1385, Battin) to assist non gaming tribes. Gaming license fees are deposited in the fund and payments to non compact tribes (tribes with fewer than 350 slot machines) are required to be $1.1 million annually. Page 2 SB 358 (Ducheny) Since its inception, however, the RSTF has lacked sufficient funds to cover the costs of these payments. In prior years, the Legislature has appropriated funds from the Indian Gaming Special Distribution Fund (SDF), another account that receives payments from the 1999 compact tribes, to cure the shortfall. Chapter 858/2003 (SB 621, Battin), specifies that funding the RSTF shortfall is the first priority use of SDF funds, followed in descending order by other allowed uses of SDF funds: problem gambling prevention programs, casino regulatory costs of the California Gambling Control Commission and the Department of Justice, and grants to local governments affected by tribal casinos. While the required $77 million was paid to 71 non-compact tribes in 2007-08, due to amendments to three recent compact, the General Fund has an obligation to cover the RSTF annual shortfall if the SDF cannot. The LAO notes the SDF is projected to run a $57 million deficit in 2008-09. The State Business Expansion Fund was created for the purpose of receiving state money to make guarantees with investors to indemnify them against the risk of loss in investment in a minority small business investment company, (2) enter into agreements with financial intuitions to indemnify such institutions' investments in securities in return for the institutions expanding their small business loan activity and (3) provide assistance to small businesses in the acquisition and development of agricultural lands with respect to financing managerial and technical assistance. These programs are carried out by agreements with regional nonprofit job creation corporations that are formed to promote the economic development of small businesses. The state's obligations and liabilities are limited to the amount appropriated from the General Fund to the fund and allocated by the Small Business Development Board. Under the proposed program, the maximum loan limit would be $500,000 and the maximum loan guarantee would be 90 percent of the loan amount, not to exceed $500,000. A qualified tribe would provide matching funds equal to one half the amount of the loan requested and may include in-kind contributions though in-kind contributions would be limited to one quarter the value of the requested loan. Staff notes it is unclear whether the director or the council has the final authority to approve an application for a loan. A 4/13/2009 amendment appears to limit the use of General Funds. However, the bill permits the use of public moneys which can be General Funds. Staff recommends the bill be amended to state that no General Funds may be used to make loans or loan guarantees. It appears the only special fund moneys that could be used for this program would be the RSTF or the SDF. SB 1200 (Ducheny) 2008 proposed a business grant and loan program for persons who were members of a nongaming Indian tribe. That bill was held in Assembly Appropriations.