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 








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          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 








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          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.