BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair SB 1116 (Leno) - California Pollution Control Financing Authority: Capital Access Loan Program. Amended: April 26, 2012 Policy Vote: B&FI 6-0, EQ 6-0 Urgency: No Mandate: No Hearing Date: May 24, 2012 Consultant: Marie Liu SUSPENSE FILE. Bill Summary: SB 1116 would reduce the minimum contribution paid by financial institutions and borrowers from two to one percent of the loan into a loan loss reserve account under the California Capital Access Program (CalCAP) until April 2, 2007. This bill would also extend the time that financial institutions have to enroll a loan into CalCAP. Fiscal Impact: Minor and absorbable costs to the California Treasure's Office from the California Capital Access Fund (General Fund/special fund/federal funds) beginning in 2013-14 through 2015-16 for the administration of CalCAP. Unknown, but potentially in the hundreds of thousands of dollars or more, cost pressures to state funds within the California Capital Access Fund (General Fund/special fund/federal funds) beginning in 2013-14 through 2015-16 for increased participation in CalCAP. Background: Existing law authorizes the California Capitol Access Program (CalCAP), which is administered by the California Pollution Control Financing Authority (CPCFA), within the State Treasurer's Office. CalCAP is a loan loss insurance program that aims to help small businesses obtain loans for which they would otherwise be ineligible. Participating financial institutions establish all the terms and conditions of CalCAP loans. Once the financial institution approves a CalCAP loan, it establishes a loan loss reserve account and has 10 days to notify CPCFA of the loan. The financial institution and the borrower pay an equal amount to the reserve account that is equal to 2-3.5%, of the loan value, depending on the lender's perception of the borrower's creditworthiness. CPCFA's contribution to the reserve account depends on whether the project is also eligible for SB 1116 (Leno) Page 1 federal funds and whether the borrower is located within a severely affected community (such as areas with high unemployment and enterprise zones) and can vary between 3 and 10.5% of the loan value. When the project is eligible for federal funds, the federal funds replace most, if not all, of the state's contribution, except for the increase associated with severely affected communities, which comes from state funds only. The state's contribution comes from the California Capital Access Fund which has revenues from the General Fund, other special funds, and fee revenues from CPCFA programs. If the financial institution sustains a loss resulting from the loan, it may apply to CPCFA to have these losses covered by the reserve account. CPCFA has no financial exposure in the loan other than what it contributes to the reserve account. Losses that exceed the reserve account are borne by the financial institution. As part of the Small Business Credit Initiative Act of 2010, $168 million of federal funds are available to the state for the benefit of small business in obtaining loans, $84 million through CalCAP and $84 million through the Small Business Loan Guarantee Program. All funds must be used by 2016 or it will revert to the federal government. Proposed Law: This bill would lower the minimum contribution to the loan loss reserve account from financial institutions from two to one percent under CalCAP. Additionally this bill would give financial institutions 15 instead of 10 days to notify CPCFA that a CalCAP loan is being issued. Staff Comments: The intent of this bill is to lower the minimum contribution to the reserve account to increase participation in CalCAP in order to attract more borrowers and thus draw down more federal dollars under the Small Business Credit Initiative Act. However, staff notes that this bill reduces the minimum contributions for all loans eligible under CalCAP, not just those loans which are eligible for federal funding. To the extent that this bill increases participation in CalCAP, there will be increased cost pressures on state funds, especially if the loan is not eligible for federal funding and if the borrower is in a severely affected community. The California Treasure's Office, the sponsor of the bill, predicts that this bill can increase participation but it does not have an estimate on the SB 1116 (Leno) Page 2 extent to which this might happen. The ultimate cost of this bill is uncertain given that the state cost share of the program is variable dependent on the level of participation and type of project. However, given that the average loan amount is $60,000 and there was an average of 1,200 loans enrolled in 2010 and 2011, staff estimates that the cost impact of this bill could be in the hundreds of thousands of dollars or more. Staff further notes that recent expansions to the program under AB 901 (V. Manual Perez) Chapter 483/2011 and AB 981 (Hueso) Chapter 484/2011 are likely to increase cost pressures to the California Capital Access Fund beginning this year. The State Treasurer's Office indicates that lowering the minimum contribution to the reserve account would not increase costs to administer the program.