BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   AB 901|
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                                 THIRD READING


          Bill No:  AB 901
          Author:   V. Manuel Pérez (D)
          Amended:  8/30/11 in Senate
          Vote:     21

           
           SENATE BANKING & FINANCIAL INST. COMMITTEE  :  7-0, 7/6/11
          AYES:  Vargas, Blakeslee, Evans, Kehoe, Liu, Padilla, 
            Walters
           
          SENATE APPROPRIATIONS COMMITTEE  :  9-0, 8/25/11
          AYES:  Kehoe, Walters, Alquist, Emmerson, Lieu, Pavley, 
            Price, Runner, Steinberg
           
          ASSEMBLY FLOOR  :  71-7, 6/2/11 - See last page for vote


           SUBJECT  :    Economic development:  small business

            SOURCE  :     Assembly Jobs, Economic Development and the 
                        Economy Committee


           DIGEST  :    This bill revises the definition of a financial 
          institution for purposes of the Capital Access Loan Program 
          for small business.

           ANALYSIS  :    Existing law provides for the Capital Access 
          Loan Program (CalCAP), administered by the California 
          Pollution Control Financing Authority (Authority) (Health 
          and Safety Code Section 44559 et seq.), authorizes the 
          Authority to contract with eligible financial institutions 
          for the purpose of allowing the financial institutions to 
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          participate in CalCAP, requires the Authority to establish 
          a loss reserve account for each financial institution with 
          which the Authority makes a contract, and caps the amount 
          that may be deposited by any single participating financial 
          institution into any individual loss reserve account over a 
          three-year period, in connection with any single borrower 
          or any group of borrowers among which a common enterprise 
          exists, at $100,000.  

          This bill:

          1. Amends the definition of a financial institution for 
             purposes of the California Capital Access Fund to 
             additionally include a small business financial 
             development corporation or microbusiness lender that 
             meets standards established by the Authority, and an 
             insured depository institution, insured credit unions, 
             or community development financial institutions.

          2. Augments the items that must be included in the CalCAP 
             annual report, which the Authority must send to the 
             Governor and Legislature, to additionally include all of 
             the following for all loans outstanding on the date the 
             report is issued and for new loans issued since the 
             prior report: the total number of businesses served, 
             jobs created, jobs retained, the geographic distribution 
             of the loans, and the breakdown of businesses served by 
             industry sector. 

          3. Defines, for purposes of economic development law, 
             "microbusiness lender" as a nonprofit or nonbank lender 
             that serves very small business in low- and moderate- 
             income communities that experience barriers in accessing 
             capital.

           Background
           
           CalCAP Program  .  The CalCAP Program was authorized in 1994, 
          to help small businesses obtain loans for which they would 
          otherwise be ineligible.  CalCAP is run by the Authority, 
          and, until last year, had received all of its funding from 
          the sale of bonds by the Authority.  Last year, the program 
          was augmented with a $6 million infusion of General Fund 
          money (AB 1632 ÝJ. Perez], Chapter 731, Statutes of 2010).

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          CalCAP is a loan guarantee program, rather than a direct 
          lending program.  Small businesses that fall outside of 
          traditional lending or underwriting criteria can apply for 
          CalCAP loans from participating financial institutions.  
          The participating financial institutions establish all of 
          the terms and conditions of the CalCAP loans (i.e., these 
          terms and conditions are not set by the Authority, nor in 
          statute). 

          The maximum loan amount currently available under the 
          CalCAP program is $2.5 million, although no loan of that 
          size has been made since 2008, and most loans are far 
          smaller (the average size loan in 2010 was $82,500, and the 
          maximum loan was $1 million).  Loans may be short- or 
          long-term, have fixed or variable rates, be secured or 
          unsecured, and carry any type of amortization schedule.  
          Loan proceeds may be used to finance the acquisition of 
          land, construct or renovate buildings, purchase equipment, 
          or for other capital projects or working capital.  

          Once it decides to approve a CalCAP loan, a participating 
          financial institution establishes a loan loss reserve 
          account, whose size it sets based on the creditworthiness 
          of the borrower.  Funds in the loan loss reserve account 
          are available for use by the financial institution to 
          backfill itself for possible losses resulting from the 
          loan.  Borrowers, lenders, and the Authority are each 
          required to contribute to each CalCAP loan loss reserve 
          account.  Amounts contributed by borrowers and lenders are 
          identical, are established by the lender, and currently 
          range from two percent to 3.5 percent of the loan amount, 
          depending on the lender's perception of the borrower's 
          creditworthiness.  The amount contributed by the Authority 
          equals or slightly exceeds the contributions made by the 
          lender and borrower (higher amounts may be contributed by 
          the Authority, if the loan is being made in a "severely 
          affected community").  The Authority's contributions 
          currently range from two percent to 3.5 percent of the loan 
          amount in areas not deemed to be severely affected 
          communities, and from three percent to 5.25 percent in 
          severely affected communities.  

          Once the Authority contributes to an individual loan loss 

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          reserve account, it has no further financial exposure in 
          connection with the loan; any losses experienced by a 
          financial institution, which are not covered by the loan 
          loss reserve account, are borne by the financial 
          institution.  

           California Small Business Development Center (SBDC) 
          Program  .  California SBDCs are private entities funded 
          through a combination of federal, state, and private 
          moneys, which exist to help entrepreneurs grow their 
          businesses.  The work of the centers is organized around 
          six geographic regions, each of which is headed by an 
          administrative lead center.  Each lead center, in turn, has 
          a director who oversees a group of local service centers.  
          There are 35 service centers in California, each of which 
          provides consulting and training out of their center, and 
          which also provides outreach services to a variety of 
          smaller communities.  In total, California SBDCs provide 
          services to 105 communities in California.  Each year, they 
          serve over 50,000 small business owners through one-on-one 
          consulting, mentoring, and workshops. 

          California's SBDCs receive a total of $12 million in 
          funding from the federal Small Business Administration 
          annually.  The lead centers then work together to secure 
          the non-federal funds required of these entities (a portion 
          of the federal funds must be returned, if the SBDCs are 
          unable to raise at least $6 million annually through 
          non-federal sources).  Through 2002, these non-federal 
          matching funds were provided by the state.  Since that 
          time, California SBDCs have had to cobble together funding 
          from local entities, corporate sponsorships, competitive 
          one-time grants, and one-time contracts with state 
          entities.  In 2010, $6 million in funding for SBDCs was 
          included in AB 1632 (Perez), Chapter 731, Statutes of 2010. 
           

           Prior/Related Legislation 
           
          AB 981 (Hueso), 2011-12 Session, modifies the CalCAP 
          program by revising the definition of a financial 
          institution to additionally include insured depository 
          institutions, insured credit unions, and for-profit 
          community development financial institutions; authorize the 

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          Authority to withdraw a portion, rather than all of the 
          interest credited to an individual loss reserve account at 
          a participating financial institution; and increase the 
          amount contributed by the Authority to businesses located 
          in severely affected communities.  The bill is sponsored by 
          the State Treasurer's Office.  

          AB 796 (Blumenfield), 2011-12 Session, increases the amount 
          that can be deposited by a financial institution 
          participating in the CalCAP program into a loan loss 
          reserve account to $200,000, over a three-year period, as 
          specified, if the matching contribution made by the 
          Authority is funded exclusively from funds made available 
          pursuant to the federal Small Business Jobs Act of 2010.  
          The bill also creates the Clean Energy and Jobs Incentive 
          Program, as specified.  

          SB 225 (Simitian), 2011-12 Session, authorizes the 
          Authority to establish CalCAP loss reserve accounts for the 
          purposes of terminal rental adjustment clause leasing, if 
          funds are available for contribution into the loss reserve 
          account from any source other than the Authority.  

          AB 1632 (J. Perez), Chapter 731, Statutes of 2010, 
          transfers a total of $32.4 million from the General Fund to 
          the California Small Business Expansion Fund, California 
          Capital Access Fund, and the California Economic 
          Development Fund, to support small businesses and 
          facilitate matching funds that would ensure a full 
          complement of federal funding for these programs.  

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  No

          According to the Senate Appropriations Committee:

                         Fiscal Impact (in thousands)

           Major Provisions      2011-12     2012-13     2013-14     Fund  

          SBDC Program                  $43                 $85     
                              $85       General
          administration
          SBDC regulations              $100-$150                   

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                                        General
          State matching funds          Annual cost pressures of 
          $6,000              General/
                                                                    
                                                            Special

          CalCAP expansion    minor and absorbable costs       
          Special*
          CPCFA reporting               minor costs to collect and 
          report new          Special*
                                                  data on annual 
          report 

          * California Capital Access Fund

           SUPPORT :   (Verified  8/25/11)

          Assembly Jobs, Economic Development and the Economy 
            Committee (source)
          BinderUp Investments, Inc.
          Book Pointe Solutions
          Bouchard Business Services
          CALASIAN Chamber of Commerce
          California Association for Micro Enterprise Opportunity
          California SBDC
          California SBDC at Cabrillo College
          California SBDC Northern CA Regional Network, Solano
          California SBDC Orange County/Inland Empire Regional 
          Network
          California SBDC University of California Merced Regional 
          Network
          California SBDC, City College of San Francisco
          California SBDC, North Coast Center
          California SBDC, San Diego and Imperial Regional Network
          California SBDC, Silicon Valley
          CDC Small Business Finance
          City of Watsonville
          Gibson House
          Healings in Motion
          Inland Empire Economic Partnership
          Kendra Renee Handmade Jewelry
          Long Beach Community College 
          Northern California SBDC, San Joaquin Delta College
          SBDC Los Angeles Regional Network 

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          Siskiyou County Economic Development
          Star Employment Agency
          Woodland Chamber of Commerce
          Yuba County - District 2 Supervisor
          Yuba Sutter Economic Development Corporation
          Yuba-Sutter Indo American

           OPPOSITION  :    (Verified  8/25/11)

          Department of Finance


           ASSEMBLY FLOOR  :  71-7, 6/2/11
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Charles Calderon, Campos, 
            Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson, 
            Eng, Feuer, Fletcher, Fong, Fuentes, Furutani, Beth 
            Gaines, Galgiani, Garrick, Gatto, Gordon, Hagman, Harkey, 
            Hayashi, Roger Hernández, Hill, Huber, Hueso, Huffman, 
            Jeffries, Knight, Lara, Logue, Bonnie Lowenthal, Ma, 
            Mendoza, Miller, Mitchell, Monning, Nestande, Nielsen, 
            Olsen, Pan, Perea, V. Manuel Pérez, Portantino, Silva, 
            Skinner, Smyth, Solorio, Swanson, Torres, Valadao, 
            Wagner, Wieckowski, Williams, Yamada, John A. Pérez
          NOES:  Donnelly, Grove, Halderman, Jones, Mansoor, Morrell, 
            Norby
          NO VOTE RECORDED:  Gorell, Hall


          JJA:kc  8/30/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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