BILL ANALYSIS Ó
AB 981
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Date of Hearing: May 3, 2010
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Pérez, Chair
AB 981 (Hueso) - As Introduced: February 18, 2011
SUBJECT : California Pollution Control Financing Authority:
Capital Access Loan Program.
SUMMARY : Makes changes to the California Capital Access Program
(CalCAP), administered through the California Pollution Control
Finance Authority (CPCFA), for the purpose of encouraging
greater financial institution participation in the small
business credit program. Specifically, this bill :
1)Expands the financial institution definition to include
insured depository institutions, insured credit unions, and
for profit community development financial institutions.
2)Authorizes the CPCFA to withdraw a portion, rather than all of
the interest credited to an individual loss reserve account at
a participating financial institution.
3)Requires the CPCFA to contribute an amount not less than 150%
of the amount of the fees paid by the participating financial
institution, if the business is located within a severely
affected community, as defined.
EXISTING LAW :
1)Establishes the CalCAP for the purpose of providing a small
business loss reserve account program through participating
financial institutions.
2)Requires CPCFA to establish a loss reserve account for each
financial institution, specifies that the account is fee
driven and that all moneys in the account are the exclusive
property of CPCFA.
3)Requires the CPCFA to transfer to the loss reserve account an
amount equal to 150% of the amount of the fees paid by the
participating financial institution, if the business is
located in a severely affected community.
4)Requires the CPCFA to report to the Governor and Legislature
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describing the financial condition and programmatic results of
the CalCAP.
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose of the Bill : According to the author, the California
Capital Access Program (CalCAP) recently received $84 million
in funding from the federal Small Business Lending Act of
2010. This funding will greatly increase the lending ability
of the CalCAP and increase access to capital for California
businesses. In fact, this funding is expected to help provide
loan portfolio insurance for an additional $1.5 to $2 billion
in loans.
The proposed changes in AB 981 will expand access to the
benefits of CalCAP by aligning CalCAP's regulations to the
federal capital access program. This alignment will allow
CalCAP to maximize the use of the $84 million allocated to
CalCAP by U.S. Treasury. Additionally, AB 981 will help
encourage lending in high unemployment areas and other
distressed communities.
2)Definitions : It appears that the definitions in current law
and those being added by AB 981 are similar. Last year
through the federal Small Business Jobs Act of 2010 (Act),
CalCAP received $84 million, and the Treasurer's office wants
to ensure that California maximizes its usage of these added
federal moneys by mirroring federal statute.
3)California Capital Access Program for Small Businesses:
CalCAP was established by legislation enacted in 1994. The
program assists small businesses in obtaining loans through
participating financial institutions through a loss reserve
account model, which is described in the following comment.
The objective of the program is to incentivize financial
institutions to provide small businesses with the capital to
maintain and grow their business. Loans can be used to
finance the acquisition of land, construction or renovation of
buildings, the purchase of equipment, other capital projects
and working capital. There are limitations on real estate
loans and loan refinancing.
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The maximum loan amount is $2.5 million. The maximum premium
lenders will pay is $100,000 (per borrower). Lenders set the
terms and conditions of the loans and decide which loans to
enroll into CalCAP. Loan fees, which are used to capitalize
the loan reserve account, are set by the lender and are in the
range of 2% to 3.5% of the total loan amount. Loans can be
short- or long-term, have fixed or variable rates, be secured
or unsecured, and bear any type of amortization schedule.
Moneys to operate CalCAP originally came from excess program
fees charged to applicants working with CPCFA relative to the
issuance of private activity bonds. In 2009, CalCAP enrolled
523 loans to California small business owners, 335 of which
were made to microenterprises totaling $4.7million. However,
all CalCAP loans in made 2009 totaled $45.8 million and they
created/affected 1,620 jobs in California.
As of December 31, 2009, the total number of loans enrolled
in the program since 1994 is 7,858. CalCAP lenders have
cumulatively loaned over $1.35 billion since the program's
inception in 1994
4)CalCAP loss reserve account : Under the loan reserve account
model, CalCAP enrolls financial institutions into the program
and agree to match loss reserve account premiums (fees) paid
by borrowers and lenders on eligible loans. As an example, if
the lender and the borrower each contribute an amount equal to
2% of the loan amount, CalCAP would contribute 4% into the
loan reserve account. For eligible loans in "severely
affected areas," CalCAP contributes an additional
contribution.
In 2008, CPCFA realized it could not sustain the program at
the traditional contribution levels of CalCAP matching the
total contributions of the lender and borrower. Legislation
was enacted that reduced the minimum CalCAP contribution to an
amount equal to the lender contribution. Thus, each of the
three entities (CalCAP, lender and borrower) would contribute
between 2% and 3.5% to the loss reserve account. The language
in the 2008 bill allowed CalCAP to make a higher contribution
rate if CPCFA chose to do so. However, for severely affected
communities, the CalCAP contribution would be 150% of the
amount of the lender contribution.
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In late 2010, the legislation passed (AB 1632, Chapter 731,
Statutes of 2010) to provide additional funds to CalCAP and to
expand the definition of severely affected communities to
include communities with high unemployment. With the $6
million in additional state, and later $84 million in, federal
funds the CPCFA Board approved increasing the contributions to
pre-2008 levels to encourage more small business lending.
However, due to the earlier legislation saying that CalCAP
contributions would be set at 150% of lender contributions in
severely affected communities, CalCAP faced an odd dilemma.
CalCAP could raise the loss reserve contributions to historic
levels using state funds, but would have to provide a lower
contribution in severely affected communities. Specifically,
CalCAP could be raised to 200% of lender contribution outside
of severely affected communities and 150% of lender
contributions inside severely affected communities.
The language in AB 981 seeks to address these challenges by
providing flexibility depending on available funds. If
funding is tight, CPCFA will be able to reduce the
contributions in the program to equal contributions from
borrower, lender, and limit the amount of contribution in
severely affected communities to 150% of the lender
contributions. However, when additional funds are available,
or when CPCFA wants to augment federal funds to encourage more
lending in severely affected communities, CalCAP will be able
to provide additional support. The chart below provides a
summary of contribution levels described above, as well as the
amounts likely to be used if this bill passes.
---------------------------------------------------------
| Comparison of CalCAP Contributions |
---------------------------------------------------------
|------------------------------+--------+--------+--------|
| | Lender |Borrower| CalCAP |
| |Contribu| |Contribu|
| | tion |Contribu| tion |
| | | tion | |
|------------------------------+--------+--------+--------|
|Pre-SB 1311 | 2-3.5% | 2-3.5% | 4-7% |
|------------------------------+--------+--------+--------|
|Pre-SB 1311 SAC | 2-3.5% | 2-3.5% |6-10.5% |
|------------------------------+--------+--------+--------|
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| | | | |
|------------------------------+--------+--------+--------|
|SB 1311 (2008-late 2010) | 2-3.5% | 2-3.5% | 2-3.5% |
|------------------------------+--------+--------+--------|
|SB 1311 SAC | 2-3.5% | 2-3.5% |3-5.25% |
|------------------------------+--------+--------+--------|
| | | | |
|------------------------------+--------+--------+--------|
|Current State Funds | 2-3.5% | 2-3.5% |3-5.25% |
|------------------------------+--------+--------+--------|
|Current State Funds SAC | 2-3.5% | 2-3.5% |3-5.25% |
|------------------------------+--------+--------+--------|
| | | | |
|------------------------------+--------+--------+--------|
|State Funds with AB 981 | 2-3.5% | 2-3.5% | 4-7% |
|------------------------------+--------+--------+--------|
|State Funds with AB 981 SAC | 2-3.5% | 2-3.5% |6-10.5% |
|------------------------------+--------+--------+--------|
| | | | |
|------------------------------+--------+--------+--------|
|Current Federal Funds | 2-3.5% | 2-3.5% | 4-7% |
|------------------------------+--------+--------+--------|
|Current Federal Funds SAC | 2-3.5% | 2-3.5% | 4-7% |
|------------------------------+--------+--------+--------|
| | | | |
|------------------------------+--------+--------+--------|
|Federal Funds with AB 981 | 2-3.5% | 2-3.5% |6-10.5% |
|using state funds for added | | | |
|SAC amount | | | |
---------------------------------------------------------
---------------------------------------------------------
|SAC stands for Severely Affected Community |
|---------------------------------------------------------|
|Source: California Treasurer's Office |
---------------------------------------------------------
5)Background on the Act : The federal Small Business Jobs Act
provides millions of new dollars for California small
businesses. Some of these moneys will be administered through
federal agencies, such as the Small Business Administration,
while others will be awarded to states and implemented through
existing state programs. In addition to the new federal
funds, the Assembly proposed and the Governor signed a $30
million state Small Business Act. Collectively, these two
measures will offer unique new financing and technical
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assistance opportunities to California's small businesses.
The state's challenge is how best to leverage the various
federal and state programs.
To address this challenge, JEDE began facilitating a small
business network of government agencies, community and
financial intermediaries, legislative staff, and small
business and economic development trade associations. Three
meetings were hold over the course of five months, October
2010 through February 2011, to help strengthen the network and
monitor implementation.
Since October the network has grown organically. Many of the
participants are practitioners or have had program experience,
which supports the groups' goal to help facilitate the
successful and strategic implementation of the federal and
state programs. At the January meeting, the network decided
to hold monthly meetings in order to continue its work.
Accomplishments of the Small Business Network include:
a) Facilitated dozens of new private lenders to participate
in the expanded state small business guarantee programs;
b) Developed a comprehensive finance and technical
assistance marketing strategy;
c) Initiated cross training among small business lenders,
supported by the Small Business Development Centers a
coalition of CRA lenders; and
d) Established an on-line Small Business Calendar at
Governor's Office of Economic Development.
The network continues to work on implementation of new
federally funded programs, such as the International Trade
Program and the Small Business Fund Lending Program, as well
as federal and state regulatory reforms.
6)California Small Business : California's dominance in many
economic areas is based, in part, on the significant role
small businesses play in the state's $1.9 trillion economy.
Businesses with less than 100 employees comprise nearly 98% of
all businesses, and they are responsible for employing more
than 37% of all workers in the state.
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Small- and medium-sized businesses are crucial to the state's
international competitiveness and are an important means for
dispersing the positive economic impacts of trade within the
California economy. Of the over 57,461 companies that
exported goods from California in 2008, 96% were small- and
medium-sized enterprises (SME) with fewer than 500 employees.
These SMEs generated more than two-fifths (44%) of
California's exports in 2008. Nationally, SMEs represented
only 31% of total exports. These numbers include the export
of only goods and not services.
Small businesses function as economic engines, especially in
challenging economic times. During the nation's economic
downturn from 1999 to 2003, microenterprises (businesses with
less than five employees) created 318,183 new jobs or 77% of
all employment growth, while larger businesses with more than
50 employees lost over 444,000 jobs. From 2000 to 2001,
microenterprises created 62,731 jobs in the state, accounting
for nearly 64% of all new employment growth. According to a
2010 report from the California Senate Office of Research, in
2008 microenterprises employed four million people or 19% of
the state's employment. Common types of microenterprises
include engineering, computer system design, housekeeping,
construction, landscaping, and personnel services.
7)Related Legislation : Below is a list of related legislation
from current and previous legislative sessions:
a) AB 901 (V. Manuel Pérez) : This bill expands the
definition of financial institutions and increases
reporting requirements in the California Capital Access
Loan Program (CalCAP), which is one of the programs which
will be receiving multimillion dollars in federal and state
funding for small business through the federal and state
Small Business Jobs Act of 2010. Status: Pending in
Assembly Committee on Jobs, Economic Development and the
Economy, May 3, 2011.
b) AB 1632 (Blumenfield) : This bill provides the necessary
statutory changes in the area of job creation and small
business development in order to implement the 2010 Budget
Act. The bill transfers $32.4 million from the General
Fund to support four small-business and jobs programs that
exist in current law. The funding appropriated in this
bill goes to the Small Business Loan Guarantee Program ($20
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million); California Capital Access Fund ($6 million);
Small Business Development Centers ($6 million); and the
Federal Technology Centers ($350,000). Status: Signed by
the Governor, Chapter 731, Statutes of 2010.
c) SB 225 (Simitian) : This bill authorizes the authority
to establish 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. Status: Pending
in Assembly Rules Committee, April 2011.
d) SB 832 (Senate Committee on Environmental Quality) : This
bill revises, under the tax-related provisions, the terms
"project" and "pollution control facility", as defined in
the California Pollution Control Financing Authority Act
that are eligible for the sales and use tax (SUT) exclusion
and includes public agencies in the definition of
"participating parties" that are eligible for financial
assistance in connection with the projects designed to
control or eliminate environmental pollution. Status:
Signed by the Governor, Chapter 643, Statutes of 2009.
e) SB 1311 (Simitian) : This bill reduces the monetary
contribution of the California Pollution Control Financing
Authority (CPCFA) to an amount equal to the amount of fees
paid by a participating financial institution. Also
provides that CPCFA may withdraw from the loss reserve
account all interest or other income that has been credited
to that account for the purpose offsetting administrative
costs and contributions. Status: Signed by the Governor,
Chapter 401, Statutes of 2008.
REGISTERED SUPPORT / OPPOSITION :
Support
California State Treasurer's Office
Opposition
None received
Analysis Prepared by : Toni Symonds/ Mercedes Flores / J.,
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E.D. & E. / (916) 319-2090