BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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                              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


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           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 

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             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 

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          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 

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          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, 

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            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

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