BILL ANALYSIS Ó SB 225 Page 1 Date of Hearing: August 17, 2011 ASSEMBLY COMMITTEE ON APPROPRIATIONS Felipe Fuentes, Chair SB 225 (Simitian) - As Amended: July 13, 2011 Policy Committee: Banking and Finance Vote: 11-0 JEDE 6-0 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill authorizes the California Pollution Control Financing Authority (CPCFA) to establish a loss reserve accounts program for the purpose of financing truck leases. Specifically, this bill: 1)Authorizes the establishment of loss reserve accounts for the purpose of including the terminal rental adjustment clause (TRAC) leasing mechanism within California Capital Access Loan Program's (CalCAP) group of loss reserve account programs, which will enable the lease purchase of 2007 or newer heavy duty diesel trucks by small businesses. 2)Prohibits the use of CPCFA funds for the TRAC leasing program. 3)Authorizes the executive director to establish conditions for the TRAC leasing loss reserve accounts program. FISCAL EFFECT This bill will not have a significant fiscal impact. COMMENTS 1)Purpose of the bill : According to the author, "SB 225 makes TRAC leases, used by small trucking businesses, eligible for CalCAP. In so doing SB 225 expands financing for upgrades that improve air quality and are required by Air Resources Board (ARB) regulations." SB 225 Page 2 2)Background-what is a TRAC? In general, a TRAC provision provides that at the end of the lease term the total rental payment for the vehicle can be adjusted upward or downward, depending upon the condition of the vehicle at the end of the lease, in order to make up for any difference between the projected value of the vehicle estimated at the beginning of the lease and the actual value of the vehicle upon lease termination. 3)CalCAP. CalCAP was established by legislation enacted in 1994 and the program makes it easier for small businesses to obtain financing through participating financial institutions. CalCAP maintains a loan loss reserve account. With the funds in the loan loss reserve accounts available, financial institutions are more comfortable lending to small businesses and typically offer more favorable terms than would normally be offered to a specific business. 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. 4)The need for truck leasing. In 2008, the California Air Resources Board (ARB) approved a new regulation to significantly reduce emissions from existing diesel vehicles operating on California's roads. The regulation requires affected trucks and buses to meet performance requirements between 2011 and 2023. By January 1, 2023 all vehicles must have a 2010 model year engine or equivalent. In addition, the ARB developed a regulation to reduce greenhouse gas emissions produced by heavy-duty tractors that pull 53-foot or longer box-type trailers by making them more fuel efficient. The CalCAP program is working with the ARB to make it easier for truck owners to obtain financing to meet the new requirements. The maximum loan amount is $1.5 million. Businesses that are eligible must have 100 or fewer employees and $10 million or less in annual revenues and business with 40 or fewer heavy-duty diesel vehicles in the fleet. The business must meet the lending criteria established by financial institutions but the availability of CalCAP funding should make it easier for financial institutions to approve a loan. SB 225 Page 3 Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081