BILL ANALYSIS Ó AB 901 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 901 (V. Manuel Pérez) As Amended August 30, 2011 Majority vote ----------------------------------------------------------------- |ASSEMBLY: |71-7 |(June 2, 2011) |SENATE: |39-0 |(September 1, | | | | | | |2011) | ----------------------------------------------------------------- Original Committee Reference: B. & F. SUMMARY: Expands the definition of financial institutions eligible to participate in the California Capital Access Program (CalCAP) and increases CalCAP reporting requirements. Specifically, this bill: 1)Defines "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. 2)Establishes that a financial institution includes an insured depository institution, insured credit union or community development financial institution. 3)Adds, to the definition of financial institution, small business financial development corporation or microbusiness lender that meets standards established by the CPCFA. 4)Requires that when a financial institution contracts with the CPCFA to use the North American Industry Classification System, in addition, report the number of jobs created and the number of jobs retained. 5)Requires the CPCFA to include in their annual report to the Governor and Legislature the programmatic results which shall include: a) All outstanding loans on the date the report is issued; b) New loans issued since the report from the prior year; AB 901 Page 2 c) Total number of businesses served; d) Jobs created; e) Jobs retained; f) The geographic distribution of the loans; and, g) The breakdown of businesses served by the industry sector. The Senate amendments add the definition of a "microbusiness lender" and clarifies that a financial institution includes depository institutions, insured credit union or a community development financial institution. EXISTING FEDERAL LAW enacted the Small Business Jobs Act (H.R. 5297) on September 27, 2010, which creates the Small Business Lending Fund Program to direct the Secretary of the Treasury to make capitol investment in eligible institutions in order to increase the availability of credit for small businesses and to amend the Internal Revenue Code of 1986 to provide tax incentives for small business job creation (15 U.S.C. Sec. 631 et seq.). EXISTING STATE LAW: 1)Defines the "California Capital Access Fund" as a fund created within the CPCFA to be used for purposes of the program (Health and Safety Code Section 44559.1). 2)Defines "financial institution" as a federal- or state-chartered bank, savings association, credit union, not-for-profit community development financial institution certified under Part 1805 (commencing with Section 1805.100) of Chapter XVIII of Title 12 of the Code of Federal Regulations, or a consortium of these entities. A consortium of those entities may include a nonfinancial corporation if the percentage of capitalization by all nonfinancial corporations in the consortium does not exceed 49% (Health and Safety Code Section 44559.1). 3)Defines, "financial institution" as a lending institution that has executed a participation agreement with the Small Business Administration under the guaranteed loan program pursuant to AB 901 Page 3 Part 120 (commencing with Section 120.1) of Chapter I of Title 13 of the Code of Federal Regulations and meets the requirements of Section 120.410 of Chapter I of Title 13 of the Code of Federal Regulations, and a small business investment company licensed pursuant to Part 107 (commencing with Section 107.20) of Chapter I of Title 13 of the Code of Federal Regulations. For loans where all or part of the fees and matching contributions are paid by an entity participating in the program pursuant to subdivision (e) of Section 44559.2, "financial institution" also includes financial lenders, as defined in Financial Code Section 22009, making commercial loans, as defined in Financial Code Section 22502 (Health and Safety Code Section 44559.1). 4)Requires the CPCFA to annually prepare a report to the Governor and the Legislature that describes the financial condition and programmatic results of the capital access loan program for small businesses (Health and Safety Code Section 44559.6). 5)Establishes the California Small Business Financial Development Corporation Law (Corporations Code Sections 14000-14091). AS PASSED BY THE ASSEMBY, this measure is substantially similar to the measure passed by the Senate. FISCAL EFFECT: According to the Assembly Appropriations Committee, minor and absorbable costs to the CPCFA. COMMENTS: This bill is one of seven measures sponsored by the Assembly Jobs, Economic Development and the Economy (JEDE) Committee. AB 901(V. Manuel Pérez) expands the definition of financial institutions to include a small business financial development corporation or microenterprise development organization that meets the standard established by the CPCFA. This bill will give small business financial development corporations and microbusiness lenders access to the $6 million allocated in AB 1632 (Assembly Budget Committee), Chapter 731, Statutes of 2010. Neither of these entities will have access to funding allocated in the federal Small Business Jobs Act since this act does not apply to these entities. According to the California Association for Micro Enterprise AB 901 Page 4 Opportunity (CAMEO), a microenterprise is a business that generally requires $35,000 or less in start-up capital and often does not have access to the traditional commercial banking sector. CAMEO reports that 85% of all businesses in the U.S. are microenterprises. These very small firms generate close to 25% of all jobs in our economy. The measure adds a definition of microbusiness lenders which is a nonprofit or nonbank lender that serves very small businesses in low- and moderate-income communities that experience barriers in accessing capital. These businesses are often owned by minorities, immigrants, women, and persons with disabilities. Microbusiness lenders generally provide loans under fifty thousand dollars ($50,000) and offer business technical assistance, both preloan and postloan, to improve an applicant's ability to qualify and successfully repay a loan. Under California law, a small business financial development corporation is a nonprofit corporation. When Corporations Code Section 14002 was enacted it was the intent of the Legislature "to promote the economic development of small businesses by making available capital, general management assistance, and other resources, including loan services, personnel, and business education to small business entrepreneurs, including women and minority owned businesses, for the purpose of promoting the health, safety, and social welfare of the citizens of California, to eliminate unemployment of the economically disadvantaged of the state, and to stimulate economic development, employment, minority group, women, and disabled persons entrepreneurship" (Corporations Code Section 14002). This bill deletes the Standard Industrial Classification (SIC) and replaces it with the North American Industry Classification System (NAICS). This is a necessary change since SIC was replaced by the NAICS in 1997, but several data sets are still available with SIC-based data. Both SIC and NAICS classify establishments by their primary type of activity. NAICS is the standard used by federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy. NAICS was developed under the auspices of the Office of Management and Budget (OMB). It was developed jointly by the U.S. Economic Classification Policy Committee (ECPC), Statistics AB 901 Page 5 Canada, and Mexico's Instituto Nacional de Estadistica y Geografia, to allow for a high level of comparability in business statistics among the North American countries. This bill also expands reporting requirements placed on the CPCFA. The CPCFA is already required to report to the Governor and Legislature annually regarding CalCAP but this bill provides more detailed information that needs to be required in the report. Related legislation. AB 981 (Hueso) of 2011 would make various changes to the California Capitol Access Loan Program with the intention of making it easier to implement the Federal Small Business Jobs Act. Previous legislation. AB 1632 (Blumenfield), Chapter 731, Statutes of 2010, transfers $32.4 million from the General Fund to support four small-business and jobs programs that exist in current law. More importantly, AB 1632 appropriates $6 million to triple the size of CalCAP and provide statutory flexibility to access federal funding in the Small Business Jobs Act. According to the State Treasurer's office, who administers this program, this appropriation potentially leverages over $135 million in loans, serving 1,000 businesses and creating or retailing 3,200 jobs. Analysis Prepared by: Kathleen O'Malley / B. & F. / (916) 319-3081 FN: 0002460