BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 901| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 CONTINUED AB 901 Page 2 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). CONTINUED AB 901 Page 3 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 CONTINUED AB 901 Page 4 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 CONTINUED AB 901 Page 5 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 CONTINUED AB 901 Page 6 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 CONTINUED AB 901 Page 7 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 **** END **** CONTINUED