BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   AB 981|
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                                 THIRD READING


          Bill No:  AB 981
          Author:   Hueso (D)
          Amended:  9/2/11 in Senate
          Vote:     21

           
           SENATE GOVERNMENTAL ORGANIZATION COMM.  :  12-0, 6/14/11
          AYES:  Wright, Anderson, Calderon, Cannella, Corbett, De 
            León, Evans, Hernandez, Padilla, Strickland, Wyland, Yee
          NO VOTE RECORDED:  Berryhill
           
          SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8

           ASSEMBLY FLOOR  :  75-0, 5/26/11 (Consent) - See last page 
            for vote


           SUBJECT  :    California Pollution Control Financing 
          Authority:  Capital 
                      Access Loan Program

           SOURCE  :     State Treasurer Bill Lockyer 


           DIGEST  :    This bill provides additional incentives within 
          the California Capital Access Program to encourage lenders 
          to lend to small businesses.  Specifically, this bill (1) 
          expands the financial institution definition to include 
          insured depository institutions, insured credit unions, and 
          community development financial institutions, (2) 
          authorizes the California Pollution Control Financing 
          Authority (CPCFA) to withdraw a portion of the interest or 
          other income that has been credited to the loss reserve 
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          account, and (3) requires CPCFA to contribute an amount not 
          less than 150 percent of the amount of the fees paid by the 
          participating financial institution if the business is 
          located within a severely affected community. 

           Senate Floor Amendments  of 9/2/11 insert provisions to 
          avoid chaptering out conflicts between this bill and AB 90 
          (V. Manuel Perez).

           ANALYSIS  :    

          Existing law:

          1. Establishes the California Capital Access Program 
             (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 CPCFA to transfer to the loss reserve account 
             an amount equal to 150 percent of the amount of the fees 
             paid by the participating financial institution, if the 
             business is located in a severely affected community.

          4. Requires CPCFA to report to the Governor and Legislature 
             on the financial condition and programmatic results of 
             CalCAP.

          This bill provides additional incentives within CalCAP to 
          encourage lenders to lend to small businesses.  
          Specifically, this bill:

          1. Expands the financial institution definition to include 
             insured depository institutions, insured credit unions, 
             and community development financial institutions.

          2. Authorizes CPCFA to withdraw a portion of the interest 
             or other income that has been credited to the loss 
             reserve account.








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          3. Requires CPCFA to contribute an amount not less than 150 
             percent of the amount of the fees paid by the 
             participating financial institution if the business is 
             located within a severely affected community. 

           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 
          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 contribute 4% to 7% of loan value.  
          Under the statutory change, the CalCAP minimum was dropped 
          to 2%.  Health and Safety Code Section 44559.4(d) sets the 
          CalCAP contribution at 150 percent of the lender 
          contribution in severely affected communities. 

          The CalCAP statute (Health and Safety Code Section 
          44559.1(d)) allows community development financial 
          institutions to be lenders in the program.  However, the 
          state statute limits community development financial 
          institutions to non-profit community development financial 
          institutions.  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 community development financial 
          institutions.  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 community development financial institutions are 
          now allowed to use federal funds flowing through CalCAP, 
          but are not allowed to use state funds for loans that don't 







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          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 Small Business Administration loans.

           Comments  

           Purpose of the bill  .  According to the author's office, 
          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 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's office 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 United 
          States Treasury.  Additionally, the bill will help 
          encourage lending in high unemployment areas and other 
          distressed communities.

           CalCAP  .  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 







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          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.

           Related Legislation
           
          AB 1632 (Blumenfield), Chapter 731, Statutes of 2010, 
          specifies that severely affected communities includes areas 
          with unemployment above 110 percent 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), Chapter 401, Statutes of 2008, 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), Chapter 756, Statutes of 1999, 
          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), Chapter 1163, Statutes of 1994, 
          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.

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







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           SUPPORT  :   (Verified  8/16/11)

          State Treasurer Bill Lockyer (source)


           ARGUMENTS IN 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 State 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."


           ASSEMBLY FLOOR  :  75-0, 5/26/11
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Charles Calderon, Carter, 
            Chesbro, Conway, Cook, Dickinson, Donnelly, Eng, Feuer, 
            Fletcher, Fong, Fuentes, Furutani, Beth Gaines, Galgiani, 
            Garrick, Gatto, Gordon, Grove, Hagman, Halderman, Hall, 
            Harkey, Hayashi, Roger Hernández, Hill, Huber, Hueso, 
            Huffman, Jeffries, Knight, Lara, Logue, Bonnie Lowenthal, 
            Ma, Mansoor, Mendoza, Miller, Mitchell, Monning, Morrell, 
            Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel 
            Pérez, Portantino, Silva, Skinner, Smyth, Solorio, 
            Swanson, Torres, Valadao, Wagner, Wieckowski, Williams, 
            Yamada, John A. Pérez
          NO VOTE RECORDED:  Campos, Cedillo, Davis, Gorell, Jones


          PQ:mw  9/6/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE








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