BILL ANALYSIS Ó
Bill No: AB
981
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2011-2012 Regular Session
Bill Analysis
AB 981 Author: Hueso
As Introduced: February 18, 2011
Hearing Date: June 14, 2011
Consultant: Paul Donahue
SUBJECT : California Pollution Control Financing Authority
SUMMARY : Modifies the California Capital Access Program
(CalCAP), administered through the California Pollution
Control Finance Authority (CPCFA), in order to encourage
greater participation by financial institutions in the
small business credit program.
Existing law :
1) Establishes the CalCAP, which operates 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.<1>
4) Requires the CPCFA to report to the Governor and
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<1> A "severely affected community" is any area classified
as an enterprise zone pursuant to the Enterprise Zone Act,
any area, designated by the executive director, and any
other comparable economically distressed geographic area so
designated by the executive director from time to time.
(Health and Safety Code § 44559.1)
AB 981 (Hueso) continued
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Legislature on the financial condition and programmatic
results of the CalCAP.
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.
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.<2> This funding will greatly
increase the lending ability of 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 author notes that the proposed changes in this bill
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 the U.S. Treasury.
Additionally, the bill will help encourage lending in high
unemployment areas and other distressed communities.
2) California Capital Access Program for Small Businesses :
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<2> The Act creates the Small Business Lending Fund Program
to direct the Secretary of the Treasury to make capital
investment in eligible institutions in order to increase
the availability of credit for small business 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.)
AB 981 (Hueso) continued
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CalCAP was established by legislation enacted in 1994.
Unlike other small business loan assistance programs,
CalCAP provides a form of portfolio insurance for
participating lenders. CalCAP will contribute funds to a
loan loss reserve account associated with a lender. The
lender and borrower also contribute funds. These funds are
pooled and can then be used to cover losses associated with
any enrolled loan that is charged off.
Loans to small businesses under the program 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 established
limitations on real estate loans and loan refinancing.
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 fixed
by the lender and range from 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.
In 2009, CalCAP enrolled 523 loans to California small
business owners, 335 of which were made to microenterprises
totaling $4.7million. CalCAP loans in made 2009 totaled
$45.8 million.<3>
3) Background : CalCAP has traditionally been funded using
fee revenues charged by the California Pollution Control
Financing Authority (CPCFA) to private companies that
receive the benefit of tax-exempt bonds. These revenues
were adequate to sustain the CalCAP program through 2006.
However, increased use of the program in combination with
declining revenues led to necessary statutory and
regulatory changes to constrain the program. The changes
allowed CalCAP to continue at a reduced level as compared
to prior years.
One of the statutory changes allowed CalCAP to reduce the
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<3> As of December 31, 2009, the total number of loans
enrolled in the program is 7,858. CalCAP lenders have
cumulatively loaned over $1.35 billion since the inception
of the program in 1994.
AB 981 (Hueso) continued
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amount contributed to loan loss reserves from the combined
lender and borrower contribution to a minimum of just the
lender contribution (SB1311, 2008). Prior to the change,
the lender and borrower would contribute between 2 and 3.5%
and CalCAP would contribution 4% to 7% of loan value.
Under the statutory change, the CalCAP minimum was dropped
to 2%. Health and Safety Code 44559.4(d) sets the CalCAP
contribution at 150% of the lender contribution in severely
affected communities.
The CalCAP statute (Health and Safety Code 44559.1(d))
allows Community Development Financial Institutions to be
lenders in the program. However, the state statute limits
CDFIs to non-profit CDFIs. The federal Small Business Jobs
Act of 2010 (HR 5297) provided funds for state level loan
assistance programs such as CalCAP. HR 5297 uses a
definition of small business lenders that does not
distinguish between for-profit and non-profit CDFIs. By
regulation, CalCAP is authorized to adapt to the federal
definition when federal funds are used. CalCAP has done
this. With the regulation change, for-profit CDFIs are now
allowed to use federal funds flowing through CalCAP, but
are not allowed to use state funds for loans that don't fit
the federal criteria and they are not allowed to receive
added benefits in severely affected communities. Examples
of loans not fitting federal criteria are loans for
non-profit organizations and assistance for the un-covered
portion of SBA loans.
4) Support : According to the State Treasurer, "AB 981
would do three things: it would allow CalCAP to provide
added incentives for loans to businesses in high
unemployment areas and other distressed communities, would
allow CalCAP to make more lenders eligible to provide
assistance-specifically, for-profit community development
financial institutions, and would allow CalCAP to reduce
the amount of interest it takes from loan loss reserve
accounts to cover program costs."
In addition, the Treasurer states, "Over the next few
years, CalCAP is projected to create over $1.3 billion in
small business lending. AB 981 makes changes that will
allow CalCAP to attract new lenders and better assist small
businesses in our most distressed communities."
5) Related legislation :
AB 981 (Hueso) continued
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SB 225 (Simitian, 2011) 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. (Pending in
Assembly)
AB 901 (Pérez, 2011) 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. (Pending in Senate Rules Committee)
AB 1632 (Blumenfield) Stats. 2010, ch. 731 specifies that
severely affected communities includes areas with
unemployment above 110% of the statewide average for
purposes of expending allocated funds. Also allows CalCAP
to establish regulations necessary for participation in
programs associated with funds from other sources.
SB 1311 (Simitian) Stats. 2008, ch. 401 permits CalCAP to
contribute an equal amount to an enrolled loan's loss
reserve account as the lender, and to withdraw all accrued
interest from enrolled loss reserve accounts to assist with
administrative cost.
SB 1119 (Alarcon) Stats. 1999, ch. 756 authorized CPCFA to
issue revenue bonds to assist responsible parties pay their
liability toward the clean-up of federal Superfund sites.
It also made other changes to improve small businesses'
access to capital under CPCFA's program.
AB 253 (Bronshvag) Stats. 1994, ch. 1163 expanded the
CalCAP program to all small businesses instead of only
those industries with operations that adversely affected
the environment. Also, it provided greater risk coverage
for loans made to small businesses located in geographic
areas affected by military base closures or aerospace
downsizing.
SUPPORT:
Bill Lockyer, California State Treasurer
AB 981 (Hueso) continued
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OPPOSE:
None on file
FISCAL COMMITTEE: Senate Appropriations Committee
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