BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1116| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ UNFINISHED BUSINESS Bill No: SB 1116 Author: Leno (D) Amended: 6/27/12 Vote: 21 SENATE BANKING & FINANCIAL INST. COMM. : 6-0, 4/11/12 AYES: Vargas, Blakeslee, Evans, Kehoe, Liu, Padilla NO VOTE RECORDED: Walters SENATE ENVIRONMENTAL QUALITY COMMITTEE : 6-0, 4/23/12 AYES: Simitian, Strickland, Hancock, Kehoe, Lowenthal, Pavley NO VOTE RECORDED: Blakeslee SENATE APPROPRIATIONS COMMITTEE : 7-0, 5/24/12 AYES: Kehoe, Walters, Alquist, Dutton, Lieu, Price, Steinberg SENATE FLOOR : 39-0, 5/29/12 AYES: Alquist, Anderson, Berryhill, Blakeslee, Calderon, Cannella, Corbett, Correa, De León, DeSaulnier, Dutton, Emmerson, Evans, Fuller, Gaines, Hancock, Harman, Hernandez, Huff, Kehoe, La Malfa, Leno, Lieu, Liu, Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio, Simitian, Steinberg, Strickland, Vargas, Walters, Wolk, Wright, Wyland, Yee NO VOTE RECORDED: Runner ASSEMBLY FLOOR : 79-0, 8/16/12 (Consent) - See last page for vote CONTINUED SB 1116 Page 2 SUBJECT : California Pollution Control Financing Authority SOURCE : State Treasurer Bill Lockyer DIGEST : This bill decreases, until April 1, 2017, the minimum contribution required of borrowers who participate in the Capital Access Loan Program (CalCAP) from 2% to 1% of the principal amount of the loan, and increases the length of time that a financial institution has in which to apply to the California Pollution Control Financing Authority (CPCFA) to enroll a qualified loan in CalCAP. Assembly Amendments provide that the Executive Director of the CPCFA may authorize an additional five days for a financial institution to submit the written notification to the CPCFA on a loan-by-loan basis for a reason limited to conditions beyond the reasonable control of the financial institution. ANALYSIS : Existing law provides for CalCAP, administered by the California Pollution Control Financing Authority (Health and Safety Code Section 44559 et seq.), authorizes the Authority to contract with eligible financial institutions for the purpose of allowing those financial institutions to participate in CalCAP, requires the Authority to establish a loss reserve account for each financial institution with which the Authority enters into a contract, requires participating borrowers and participating financial institutions to pay the same amount into the lender's loan loss reserve account, and caps the amount that may be deposited by any single participating financial institution into any individual loan loss reserve account over a three-year period, in connection with any single borrower or any group of borrowers among which a common enterprise exists, at $100,000. This bill: 1. Decreases the minimum contribution required to be paid into a CalCAP loan loss reserve account by a qualified business borrower from 2% of the principal amount of the loan to 1% of the principal amount of the loan. The CONTINUED SB 1116 Page 3 maximum required borrower contribution would remain at 3.5% of the principal amount of the loan. 2. Sunsets Item #1 above on April 1, 2017. 3. Increases the length of time that a participating financial institution has in which to enroll a qualified loan in CalCAP, from 10 to 15 days after the date on which the loan is made. 4. Provides that the Executive Director of the CPCFA may authorize an additional five days for a financial institution to submit the written notification to the CPCFA on a loan-by-loan basis for a reason limited to conditions beyond the reasonable control of the financial institution. Background CalCAP was authorized in 1994, to help small businesses obtain loans for which they would otherwise be ineligible. CalCAP is run by the Authority, and, until 2010, had received all of its funding from the sale of bonds by the Authority. In 2010, the program was augmented with a $6 million infusion of General Fund money (AB 1632, J. Perez, Chapter 731, Statutes of 2010) and with $84 million in federal funds, via the aforementioned Small Business Credit Initiative Act of 2010. CalCAP is a loan loss insurance program, rather than a direct lending program. Small businesses that fall outside of traditional lending or underwriting criteria can apply for CalCAP loans from participating financial institutions. The participating financial institutions establish all of the terms and conditions of CalCAP loans (i.e., these terms and conditions are not set by the Authority, nor in statute). The maximum loan amount currently available under CalCAP is $2.5 million, although no loan of that size has been made since 2008, and most loans are far smaller (the average size loan in 2010 was $82,500, and the largest loan was $1 million). Loans may be short- or long-term, have fixed or variable rates, be secured or unsecured, and carry any type CONTINUED SB 1116 Page 4 of amortization schedule. Loan proceeds may be used to provide working capital, finance the acquisition of land, construct or renovate buildings, purchase equipment, or for other capital projects. Once it decides to approve a CalCAP loan, a participating financial institution establishes a loan loss reserve account. Funds in the loan loss reserve account are available for use by the financial institution to backfill itself for possible losses resulting from the loan. Borrowers, lenders, and the authority are all required to contribute to each CalCAP loan loss reserve account. Amounts contributed by borrowers and lenders are identical, are established by the lender, and currently range from 2% to 3.5% of the loan amount, depending on the lender's perception of the borrower's creditworthiness. The amount contributed by the Authority equals or slightly exceeds the contributions made by the lender and borrower (higher amounts may be contributed by the Authority, if the loan qualifies for federal funds Ýnot all loans do], or if the loan is being made in a "severely affected community"). The authority's contributions currently range from 4% to 7% if the loan qualifies for federal funds and is not in a severely affected community (from 6% to 10.5% if the loan qualifies for federal funds and is in a severely affected community). The Authority's contributions are lower, if the source of funds for its contribution comes only from state funds (3% to 5.25% in non-severely affected communities, and 5% to 8.75% in severely affected communities). Once the Authority contributes to an individual loan loss reserve account, it has no further financial exposure in connection with the loan; any losses experienced by a financial institution, which are not covered by the loan loss reserve account, are borne by the financial institution. Under existing law, a wide range of financial institutions, both depository and non-depository, are eligible to apply to the Authority for approval as participating CalCAP financial institutions. As of March 22, 2012, 63 financial institutions were on the authority's list of approved CONTINUED SB 1116 Page 5 CalCAP lenders, ranging from small community development centers and community development financial institutions, to small community banks and credit unions, to large, multinational banks. To date, the Authority has enrolled over 10,300 loans into CalCAP. Comments This bill is sponsored by the State Treasurer's Office (STO), to increase borrower participation in CalCAP, and enable the STO to expend the full amount of its $84 million allotment of federal funds for CalCAP from the federal State Small Business Credit Initiative Act of 2010. Any portion of those federal funds which California fails to spend by the end of 2016 will revert to the federal government. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee: Minor and absorbable costs to the STO 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. SUPPORT : (Verified 8/16/12) State Treasurer Bill Lockyer (source) California Bankers Association ASSEMBLY FLOOR : 79-0, 8/16/12 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, CONTINUED SB 1116 Page 6 Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines, Galgiani, Garrick, Gatto, Gordon, Gorell, Grove, Hagman, Halderman, Hall, Harkey, Hayashi, Roger Hernández, Hill, Huber, Hueso, Huffman, Jeffries, Jones, Knight, 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: Lara JJA:m 8/17/12 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED