BILL ANALYSIS �
AB 1247
Page 1
Date of Hearing: April 23, 2013
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
Jose Medina, Chair
AB 1247 (Medina) - As Amended: April 17, 2013
SUBJECT : Business investments: Small Business Financial Assistance
Act of 2013
SUMMARY : Transfers the administration of the small business financial
development corporation (FDC) managed programs from the Business,
Transportation and Housing Agency (BTH) to the California
Infrastructure and Economic Development Bank (I-Bank) within the
Governor's Office of Business and Economic Development (GO-Biz), as
well as clarifying a number of administrative and programmatic
elements to improve program delivery. Specifically, this bill :
1)Repeals and recasts the statues related to the establishment,
operations and oversight of the FDC managed programs from BTH to the
I-Bank, which is relocated to GO-Biz. No additional substantive
changes are proposed.
2)Repeals and recasts the statutes related to the small business
finance programs administered by the FDCs from the Corporations
Code, as overseen by BTH to the Government Code, as overseen by the
I-Bank.
3)Changes the name of the lead person overseeing the FDC administered
finance programs from a director at BTH to a program manager at the
I-Bank.
4)Transfers and modifies the membership of the California Small
Business Board from a free-standing board at BTH to a subcommittee
of the I-Bank board of directors.
5)Expands the list of eligible financial institutions and entities,
that an FDC may offer a loan guarantee to include credit unions,
community development financial institutions and microlenders.
6)Clarifies that FDCs have the authority to offer direct loans.
EXISTING LAW
1)Authorizes the approval of 11 FDCs by BTH for the purpose of
administering a number of small business finance programs including
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the Small Business Loan Guarantee Program (SBLGP), direct loans,
disaster assistance loans and surety bond guarantees.
2)Establishes the SBLGP for the purpose of assisting small businesses
in obtaining long-term loans or lines of credit from conventional
financial institutions, which small businesses would not otherwise
qualify for without the guarantee. Under this program, FDCs act as
financial intermediaries between the state, the small business, and
the financial institution.
3)Establishes the California Small Business Expansion Fund (Expansion
Fund) for the purpose of retaining the moneys which separately
capitalize the SBLGP and paying out defaulted loan guarantees issued
under the SBLGP. Each account within the Expansion Fund is legally
separate and is prohibited from securing loan guarantees or other
obligations of another FDC. The state is not liable or obligated
beyond the funds allocated and deposited in an individual trust fund
account within the Expansion Fund.
FISCAL EFFECT : Unknown
COMMENTS :
1)Framing the Policy Issue : This measure transfers the authority for
the FDC programs to the I-Bank, which is then moving under the
auspicious of GO-Biz. These transfers further consolidate the
state's economic development programs into a single location and
strengthen the I-Bank's business development tool kit.
The bill also separates the FDC-managed programs from the FDC-
incorporation provisions to more effectively leverage the programs
within the state's existing network of programs. The analysis
includes information on California's small business economy, the
SBLGP, the federal Small Business Jobs Act, and related legislation.
2)California Small Business : California's dominance in many economic
areas is based, in part, on the significant role small businesses
play in the state's $1.9 trillion economy. Businesses with less
than 100 employees comprise nearly 98% of all businesses, and are
responsible for employing more than 37% of all workers in the state.
Among other advantages, small businesses are crucial to the state's
international competitiveness and are an important means for
dispersing the positive economic impacts of trade within the
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California economy. California small businesses comprised 96% of
the state's 60,000 exporters in 2009, which accounted for over 44%
of total exports in the state. Nationally, small businesses
represented only 31.9% of total exports. These numbers include the
export of only goods and not services.
Historically, small businesses have functioned as economic engines,
especially in challenging economic times. During the nation's
economic downturn from 1999 to 2003, microenterprises (businesses
with fewer than five employees) created 318,183 new jobs or 77% of
all employment growth, while larger businesses with more than 50
employees lost over 444,000 jobs. From 2000 to 2001,
microenterprises created 62,731 jobs in the state, accounting for
nearly 64% of all new employment growth. More recently, the federal
Small Business Administration's Small Business Economy 2011 report
stated that small businesses nationally outperformed large firms in
net job creation nearly three out of four times from 1992 through
2010 when private-sector employment rose.
During the recent economic downturn, however, small business owners
were been especially hard hit. Equifax reported that bankruptcies
in California rose by 81% in 2009, as compared to 44% nationally.
This trend continued in 2010 where the Equifax report stated that
while in general bankruptcies were down across the nation including
some regions in the west, small business bankruptcies in California
accounted for almost 20% of all small business bankruptcies in the
nation.
3)Small Business Loan Guarantee Program : The SBLGP enables a small
business to obtain a term loan or line of credit when it cannot
otherwise qualify for a loan on its own. The state, working through
11 FDCs, offers direct loans or loan guarantees that a qualifying
small business borrower could not otherwise obtain.
Applicants must meet the definition of a small business (100 or
fewer employees) with the specific market rate loan terms and
interest rates being negotiated between the borrower and the lender.
Proceeds of the loan must be used primarily in California for any
standard business purpose applicable to the applicant's business.
The guarantee program provides guarantees covering up to 90% of the
loan, but not exceeding $500,000. The guarantee program allows a
business to not only obtain a loan but to also establish credit with
a lender. The business is then more likely to obtain additional
future financing on its own.
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In 2011-12, approximately $5.7 million was made available for loan
guarantees under the state SBLGP, which leveraged $9.9 million in
small business loans from financial institutions. During this
period 178 guarantees were provided, creating and/or retaining over
1,200 jobs. There are currently 1,046 loans being guaranteed under
the state program.
4)Small Business Jobs Act and Federal Guarantee Program : In October
2010, Congress passed and the President signed the Small Business
Jobs Act (Act). Among other things, the Act created the State Small
Business Credit Initiative (SSBIC), which is authorized to expend up
to $1.5 billion for state sponsored small business finance programs.
Over the life of the program, every federal dollar must be matched
by $10 private sector dollars. September 2017 is the deadline for
using the funds. Funding for the administration, outreach, and
oversight of the program is primarily the responsibility of the
state.
Under the funding formula, California is eligible to receive up to
$168 million, which is the largest amount of any state. The next
highest award is $97 million for Florida, with every state that
applies receiving a minimum of $13.1 million. California uses its
moneys to capitalize the SBLGP administered through BTH and a loss
reserve program and collateral support program administered through
the California Pollution Control Financing Authority at the state
Treasurer's Office.
Funding is awarded to states in three tranches with participating
jurisdictions allowed to apply for the next round of funding when
80% of their current funds are expended. Nine of the 57
participating jurisdictions have received second round funding and
three states are into their third and final round.
Of the $68 million California received in the first round,
California has encumbered $16.6 million, with approximately $13.4
million set aside to cover loan guarantees under the federal portion
of the SBLG Program. Over 18, 600 jobs have been created or
retained by the close of 2012.
In 2011-12, approximately $36.2 million in guarantees were made
under the federal SBLGP, which leveraged $58.2 million in small
business loans from financial institutions. During this period, 203
guarantees were provided, creating or retaining 6,000 jobs through
guarantee activities.
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There are currently 297 loans being guaranteed under the federal
program, 85% have been to businesses in low- and moderate-income
areas. Approximately 19% of the loans since inception have been in
the accommodation and food services, 15% in construction, 9.5% in
real estate and leasing, and 9.2% in retail trade. Relative to size
of business, 46.7% have had 11 to 50 employees and 36.8% have had
less than 10 employees.
According to the FDCs, one impediment to getting the SBLGP portion
out is the lack of state administrative support. Repeated budget
actions have severally limited ongoing management funds and crippled
the state portion of the program, which allowed greater programmatic
flexibility in serving the needs of small businesses.
JEDE will hear three measures which are designed to enhance the
program and help to facilitate the drawdown of additional federal
dollars. AB 201 (Holden) encourages greater private financial
institution participation; AB 1247 (Medina) makes programmatic
changes to streamline the program; and, AB 780 (Bocanegra)
appropriates $2 million for FDC administrative costs.
5)Governor's Office of Business and Economic Development : GO-Biz was
established in 2010 to provide a one-stop-shop for serving the needs
of businesses and economic developers. While initially established
through Executive Order S-01-10, the office was later codified and
renamed as GO-Biz, in AB 29 (John A. P�rez), Chapter 475, Statues of
2010. In 2012, GO-Biz directly assisted 5,308 companies, resulting
in the creation and/or retention of 9,050 jobs and $1.45 billion in
investments.
Among other programs, GO-Biz provides permit and other business
assistance for new and expanding businesses, as well as
administering the California Innovation Hub Program under an initial
partnership with the statewide network of small business development
centers. GO-Biz also oversees the Office of the Small Business
Advocate.
In March 2012, the Governor initiated a reorganization process to
realign the state's administrative stricture. Key changes include
the dismantling of the BTH and the shifting of a number of key
programs and services to GO-Biz including:
The SBLGP;
The California Travel and Tourism Commission;
The California Film Commission;
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The Film California First Program; and
The Infrastructure and Economic Development Bank.
Programmatic approval of the reorganization was granted in July 2012
and will become effective July 2013. Legislation is also necessary
to statutorily reflect the reorganization changes. AB 1317 (Frazer)
is pending on the Assembly Floor. The changes AB 1247 would make
further programmatic enhancements to the reorganization.
1)Related Legislation : Below is a list of related legislation.
a) AB 29 (John A. P�rez) Codification of GO-Biz : This bill
establishes GO-Biz within the Governor's Office for the purpose
of serving as the lead entity for economic strategy and marketing
of California on issues relating to business development, private
sector investment and economic growth. The bill also transfers
the Office of the Small Business Advocate from BTH to GO-Biz.
Status: Signed by the Governor, Chapter 475, Statutes of 2011.
b) AB 201 (Holden) Financial Institution Participation in FDC
Programs : This bill requires the names of the financial
institutions and financing companies that make direct loans that
include credit enhancements offered by FDCs be posted on the
website of the Business and Consumer Services Agency. Status:
Pending in the Assembly Committee on Jobs, Economic Development
and the Economy.
c) AB 780 (Bocanegra) FDC Administrative Funds : This bill
Appropriates $2 million from the General Fund for the purpose of
providing administrative funding to the FDCs. Each FDC is
eligible to receive $150,000. The bill also states that it is
the Legislature's intent that the FDCs are to be under the
jurisdiction of GO-Biz Status: Pending in the Assembly Committee
on Jobs, Economic Development and the Economy.
d) AB 2523 (Hueso) Loan Participation Agreements and
Syndications : This bill would have authorized the I-Bank to enter
into participation and syndication loan agreements with financial
institutions for the purpose of expanding capital opportunities
for small businesses. Status: Held in the Senate Appropriations
Committee, 2012.
e) AB 2619 (V. Manuel P�rez) Start-Up California : This bill
would have established the Start-Up California Impact Investment
Venture Fund Program, administered through the I-Bank, for the
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purpose of providing equity investments to start-ups and small
businesses. Status: Held in the Assembly Committee on
Appropriations, 2012.
REGISTERED SUPPORT / OPPOSITION :
Support
None received
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916) 319-2090