BILL ANALYSIS                                                                                                                                                                                                    Ó

                                                       Bill No:  AB  
                       Senator Roderick D. Wright, Chair
                           2013-2014 Regular Session
                                 Staff Analysis

          AB 1247  Author:  Medina
          As Amended:  June 18, 2013
          Hearing Date:  June 25, 2013
          Consultant:  Paul Donahue


           Business investments: Small Business Financial Assistance  
                                  Act of 2013

          This bill 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). 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.  The GRP 2 directed the transfer of  
            the I-Bank and the FDC administered programs to GO-Biz.

          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. This includes  
            the small business loan guarantee, disaster loan  
            guarantee, surety bond guarantee, and the authority to  
            make direct loans.

          3)Revises the title of the person responsible for managing  


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            the guarantee and direct loan programs from "director" to  
            "executive director;"  

          4)Transfers the California Small Business Board from a  
            free-standing board at BTH to an advisory board to the  
            I-Bank board of directors, the I-Bank executive director,  
            and the guarantee and direct loan program manager. The  
            bill and expands the membership of the California Small  
            Business Board by two FDC representatives.

          5)Modifies the designation and appeals process by placing  
            the I-Bank Board as the final authority rather than the  
            California Small Business Board.

          6)Deletes the requirement for the program manager to  
            approve amendments to a corporation's articles of  
            incorporation. The program manager still receives a copy  
            and has the authority to take action should the amendment  
            cause harm to the program. 

          7)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.

          8)Shifts finance programs from regulations to directives  
            and requirements adopted by the I-Bank Board at a public  
            meeting. This is consistent with other I-Bank activities.  

          9)Specifies that any prior regulations adopted by BTH will  
            remain in effect until the I-Bank Board adopts directives  
            and requirements. In no case, however, can this extension  
            go beyond June 1, 2015.

          10)Clarifies that a corporation that has been suspended  
            from the state's access to capital programs remains a  
            nonprofit benefit corporation. This is consistent with  
            existing law. The bill also adds technical amendments  
            from the Secretary of State that require an FDC that has  
            been terminated from administering the programs to amend  
            its articles of incorporation to reflect its new  
            diminished status.

          11)Exempts the annual contract between the state and the  
            FDCs from the state's general procurement process. Under  


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            the statute, the FDCs serve as a pre-selected pool of  
            local nonprofits to administer the finance programs;

          12)Authorizes the I-Bank to make investment decisions about  
            Expansion Fund moneys, which is consistent with existing  
            I-Bank policy. Currently, the program manager has to get  
            DOF approval.

          13)Authorizes the I-Bank to adopt other financial products  
            related to debt instruments and credit enhancements. This  
            is consistent with existing I-Bank operational practice.

          14)Places similar program conditions for direct loans and  
            disaster guarantees as with loan guarantees. Existing law  
            is silent.

          15)Clarifies that FDCs may make direct loans, regardless of  
            the geographic area and reduces the minimum loan  
            guarantee coverage from 90% to 80%, which is consistent  
            with federal guarantee products. The bill also removes  
            specific statutorily set loan limit to a limit set by the  
            I-Bank board through adopted directives and requirements.

          16)Adds the FDC disaster finance programs to the general  
            list of small business assistance programs the Governor  
            can activate in case of disaster; and 

          17)Makes other conforming and technical changes in the  
            definitions and administrative functions of the finance  
            programs within the I-Bank. 

           1)Purpose  : This bill 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). 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. 


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           2)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. 

           3)Governor's Office of Business and Economic Development  :   
            GO-Biz was established through the enactment of AB 29 (J.  
            Pérez), Chapter 475, Statutes of 2011, to serve as the  
            primary executive agency responsible for economic  
            development and job creation efforts. GO-Biz offers a  
            range of services to business owners including:  
            attraction, retention and expansion services, site  
            selection, permit streamlining, small business  
            assistance, international trade development and  
            assistance with the government requirements. Prior to the  
            creation of GO-Biz, economic development programs were  
            administered through a number of state entities including  

           4)Governor's Reorganization Plan 2 (GRP 2)  :  In 2012,  
            Governor Brown proposed, with the approval of the  
            Legislature, a comprehensive reorganization plan (GRP 2)  
            of state agencies and programs. Among other changes, the  
            GRP 2 reduces the number of state agencies by eliminating  
            five agencies and merging their responsibilities into  
            three new agencies: Government Operations; Business,  
            Consumer Services and Housing; and Transportation.
                            PRIOR/RELATED LEGISLATION
          AB 780 (Bocanegra), 2013-2014 Session.  Would provide  
          additional administrative funds for the eleven financial  
          development corporations (FDCs) through the state who serve  
          as the regional vehicles for California's Small Business  
          Loan Guarantee Program. (Pending in Senate B.P. & E.D.  

          AB 2671 (V. Manuel Perez), Chapter 648, Statutes of 2012.  
          Extended the sunset date for the authority of Financial  
          Development Corporations (FDCs) to secure loans with a  
          minimum loss reserve of 20% to January 1, 2018. In 2007,  
          the leverage ratio was increased from 4 to 1, to 5 to 1. 


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          SB 727 (Berryhill), 2011-2012 Session. Would have removed  
          the requirement that public works financed under the  
          Bergeson-Peace Infrastructure and Economic Development Bank  
          Act comply with the prevailing wage requirements. (Held in  
          Senate Labor and Industrial Relations Committee)

          AB 29 (J. Perez), Chapter 475, Statutes of 2011. Created  
          "GO Biz" within the Governor's Office for the purpose of  
          serving as the lead entity for economic strategy and  
          marketing California on issues relating to business  
          development, private sector investment and economic growth.  

          AB 1047 (V. Manuel Perez), 2009-2010 Session. Would have  
          established a new program within the State Infrastructure  
          Bank (I-Bank) that would use bond proceeds to assist small  
          and rural communities to obtain bond financing for  
          infrastructure projects. The technical support could  
          include drafting of strategic plans, writing grants,  
          applying for public and private loans and obtaining funding  
          for infrastructure projects. (Held in Assembly  


          None on file


          None on file

           TRIPLE REFERRAL:   Senate Governance and Finance Committee &  
          Senate Banking and Financial Institutions Committee
          FISCAL COMMITTEE:   Senate Appropriations Committee



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