BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2671|
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THIRD READING
Bill No: AB 2671
Author: Assembly Jobs, Economic Development and the
Economic
Committee
Amended: 8/21/12 in Senate
Vote: 21
SENATE BUSINESS, PROF. & ECON. DEV. COMMITTEE : 8-0, 7/2/12
AYES: Price, Corbett, Correa, Hernandez, Negrete McLeod,
Strickland, Vargas, Wyland
NO VOTE RECORDED: Emmerson
SENATE APPROPRIATIONS COMMITTEE : 7-0, 08/16/12
AYES: Kehoe, Walters, Alquist, Dutton, Lieu, Price,
Steinberg
ASSEMBLY FLOOR : 75-0, 5/21/12 - See last page for vote
SUBJECT : Small business financial development
corporations: loans
and loan guarantees
SOURCE : Author
DIGEST : This bill extends, until January 1, 2018, the
sunset date on the maximum allowable leverage of reserve
funds necessary under Small Business Loan Guarantee Program
(SBLGP).
ANALYSIS :
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Existing law:
1. Enacts the California Small Business Financial
Development Corporation Law (CSBFDC Law) which
authorizes the formation of small business financial
development corporations (FDCs) to grant loans or loan
guarantees for the purpose of stimulating small business
development. (The program which this law creates is
referred to as the "Small Business Loan Guarantee
Program" and is administered by the Business,
Transportation and Housing Agency.)
2. Establishes a Small Business Development Board with
specified duties and responsibilities to carry out the
legislative intent of the CSBFDC Law.
3. Provides for a Director to be designated by the
Secretary of Business, Transportation and Housing Agency
with duties and powers as specified.
4. Defines "corporation" as any nonprofit California small
business financial development corporation (FDC) created
pursuant to the CSBFDC Law.
5. Creates within the State Treasury the California Small
Business Expansion Fund (Expansion Fund) for the purpose
of retaining the moneys which separately capitalize the
SBLGP and paying out defaulted loan guarantees issued
under the SBLGP. The amount of guarantee liability
outstanding at any one time shall not exceed five times
the amount of funds on deposit in the Expansion Fund
plus other funds as specified. This provision shall
become inoperative and be repealed on January 1, 2013,
and the same provision which becomes operative on that
date would require that the amount of the guarantee
liability outstanding at any one time shall not exceed
four times the amount of funds on deposit in the
Expansion Fund.
6. Authorizes the Director to:
A. Reallocate monies between individual
accounts based on which corporations most
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effectively use the guarantee funds.
B. Recommend whether the Expansion Fund and
individual FDC trust fund accounts are to be
leveraged, and if so, how much the funds may be
leveraged.
1. Requires a corporate guarantee to be backed by funds on
deposit in the corporation's trust fund account, or by
receivables due from the corporation's trust fund
account to another fund in state government, as
specified. Loan guarantees shall be secured by a
reserve of at least 20 percent to be determined by the
Director. This provision shall become inoperative and
repealed on January 1, 2013, and the same provision
which becomes operative on that date would require that
the loan guarantee shall be secured by a reserve of at
least 25 percent to be determined by the Director.
2. Specifies that it is the intent of the Legislature that
the corporations make maximal use of their statutory
authority to guarantee loans and surety bonds, including
the authority to secure loans with a minimum loan loss
reserve of only 20 percent, so that the financing needs
of small business may be met as fully as possible within
the limits of corporation's loan loss reserves. This
provision shall inoperative and repealed on January 1,
2013, and the same provision which becomes operative on
that date would specify the minimum loss reserve as 25
percent.
3. Requires the former Trade and Commerce Agency to
contract with an entity to conduct an independent
statewide assessment of capital needs in California
pertaining to the programs established under the CSBFDC
Law, and to establish minimum standards for the siting
of small business financial development corporations, to
be completed no later than June 30, 1998.
This bill:
1. Extends, until January 1, 2018, indefinitely the
provision in Item # 6) above, limiting the amount of
guarantee liability outstanding from exceeding five
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times the amount of funds on deposit in the expansion
fund, as specified.
2. Extends, until January 1, 2018, the provision in Item #
7) above, that loan guarantees on a corporation's trust
fund account shall be secured by a reserve of at least
20 percent to be determined by the Director.
3. Extends, until January 1, 2018, the provision in Item #
8) above, that minimum loss reserve be 20 percent rather
than 25 percent.
4. Repeals the obsolete requirement for a study and
assessment by the now abolished Trade and Commerce
Agency, as specified in Item # 9) above.
Background
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
percent of all businesses, and are responsible for
employing more than 37 percent of all workers in the state.
Among other advantages, small 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. California's small
businesses comprised 96 percent of the state's 60,000
exporters in 2009, which accounted for over 44 percent of
total exports in the state. Nationally, small businesses
represented only 31.9 percent of total exports. These
numbers include the export of only goods and not services.
Historically, small businesses have functioned as economic
engines, especially in challenging economic times. During
the nation's economic downturn from 1999 to 2003,
microenterprises (businesses with fewer than five
employees) created 318,183 new jobs or 77 percent 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,
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accounting for nearly 64 percent of all new employment
growth. More recently, the federal Small Business
Administration's Small Business Economy 2011, states that
small businesses nationally outperformed large firms in net
job creation nearly three out of four times from 1992
through 2010 when private-sector employment rose.
During this current economic downturn, however, small
business owners have been especially hard hit. Equifax has
reported that bankruptcies in California rose by 81 percent
in 2009, as compared to 44 percent nationally. This trend
continued in 2010 where the Equifax report stated that
while in general bankruptcies were down across the nation
including some regions in the west, small business
bankruptcies in California accounted for almost 20 percent
of all small business bankruptcies in the nation.
Small Business Loan Guarantee Program . The SBLGP enables a
small business to obtain a term loan or line of credit when
it cannot otherwise qualify for a loan on its own. The
state, working through 11 FDCs, offers direct loans or loan
guarantees that a qualifying small business borrower could
not otherwise obtain.
Applicants must meet the definition of a small business
(100 or fewer employees) with the specific market rate loan
terms and interest rates being negotiated between the
borrower and the lender. Proceeds of the loan must be used
primarily in California for any standard business purpose
applicable to the applicant's business. The guarantee
program provides guarantees covering up to 90 percent of
the loan, but not exceeding $500,000. The guarantee
program allows a business to not only obtain a loan but to
also establish credit with a lender. The business is then
more likely to obtain additional financing on its own.
In 2010-11, approximately $5 million was made available for
loan guarantees under the SBLGP, which leveraged $13
million in small business loans. During this period, 99
guarantees were provided, creating and/or retaining 595
jobs. As noted in these numbers, 2010-11 was a slow year
in providing guarantees; in the current year (2011-12),
however, the program has demonstrated higher volume with 38
guarantees within the first quarter.
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As of the close of the first quester of 2011-12, the
outstanding loan portfolio was $37 million in total
reserves covering $ 215 million in total loans,
representing 1,548 in outstanding guarantees.
Reorganization of SBLGP . The Governor's 2012-13 proposed
budget included a discussion on how the state would be
better served if certain state programs, departments and
agencies were reorganized. On March 30, 2012, the Governor
submitted the reorganization plan that was outlined in his
proposed budget to the Little Hoover Commission, which
included a number of proposals of importance to the
economic development community. According to the
Governor's Office, the reorganization plan is far-reaching
and represents his continued commitment to streamline state
government. Among other items, the reorganization plan
proposes:
Dismantling BTH and the State and Consumer Services
Agency (SCS) and moving programs to other existing and
new agencies. Overall, the number of state agencies is
reduced from 12 to 10.
Moving the following programs to the Governor's Office of
Business and Economic Development:
o Small Business Loan Guarantee Program (SBLGP);
o The California Travel and Tourism Commission;
o The California Film Commission;
o The Film California First Program; and
o The Infrastructure and Economic Development Bank
(I-Bank).
The Little Hoover Commission (Commission) had 30 days to
analyze the Plan and submit its recommendations to the
Governor and Legislature. The Legislature has until July
3, 2012 (60 days) to consider the Plan. The Plan will go
into effect on July 3rd unless the Legislature takes an
action pursuant to a resolution to disapprove the Plan with
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a majority of the Members in each house voting.
On April 23 to April 25, 2012, the Commission held a series
of public hearings and received written testimony,
interviewed experts and reviewed analyses of the
departments involved, including its own previous work when
relevant. On April 25, May 11 and May 22, 2012, the
Commission also held three public hearings to develop and
discuss its report and recommendation to the Legislature.
In regards to relocating the SBLGP to GO-Biz, and other
changes as mentioned, the Commission stated, "These moves
are consistent with the Commission's previous
recommendations, and the Commission endorses them as they
should bolster the state's economic development efforts."
As further stated by the Commission: "The functions of the
entities that would become part of GO-Biz are a natural fit
for economic and business development. They are not
physically relocating but are virtually becoming a part of
GO-Biz, similar to what the Commission envisioned."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee, estimated
$445,200 annually in increased guarantee liability from the
Small Business Expansion Fund.
SUPPORT : (Verified 8/21/12)
Association of Financial Development Corporations
California Association for Local Economic Development
California Association for Micro Enterprise Opportunity
ASSEMBLY FLOOR : 75-0, 5/21/12
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, Fong, Fuentes, Furutani, Beth Gaines,
Galgiani, Garrick, Gatto, Gordon, Grove, Hagman,
Halderman, Hall, Harkey, Hayashi, Hill, Huber, Hueso,
Huffman, Jeffries, Jones, Knight, Lara, Logue, Bonnie
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Lowenthal, Ma, Mansoor, Mendoza, Miller, Mitchell,
Monning, Morrell, Nestande, Nielsen, Norby, Olsen, Pan,
V. Manuel Pérez, Portantino, Silva, Skinner, Smyth,
Solorio, Swanson, Torres, Valadao, Wagner, Wieckowski,
Williams, Yamada, John A. Pérez
NO VOTE RECORDED: Donnelly, Fletcher, Gorell, Roger
Hernández, Perea
JJA:d 8/21/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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