BILL ANALYSIS                                                                                                                                                                                                    




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  AB 1247                     HEARING:  7/3/13
          AUTHOR:  Medina                       FISCAL:  Yes
          VERSION:  6/18/13                     TAX LEVY:  No
          CONSULTANT:  Grinnell                 

           SMALL BUSINESS FINANICAL ASSISTANCE ACT OF 2013 (URGENCY)
          

          Enacts the Small Business Financial Assistance Act of 2013.


                           Background and Existing Law  

          Last year, the Legislature codified in law the Governor's  
          Office of Business and Economic Development (GO-Biz) (AB  
          29, Perez, 2012).  Under Governor Brown's Governor's  
          Reorganization Plan #2 (GRP#2), GO-Biz now houses the  
          Infrastructure Bank (I-Bank), the California Film  
          Commission, the California Tourism Commission, Small  
          Business Centers (Small Business Development Centers), and  
          the Small Business Loan Guarantee Program (SBLGP),  
          effective July 1, 2013.  I-Bank was previously an  
          independent agency whilst the Business, Transportation, and  
          Housing Agency administered the SBLGP

          SBLGP, working through 11 Financial Development Centers  
          (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  
          percent of the loan, but not exceeding $500,000.  A $33  
          million trust fund capitalizes both loan guarantees and  
          direct loans, and SBLGP can only guarantee a total amount  
          of loans equal to five times the amount in the trust fund,  
          until 2018, when the limit reverts to its long-standing  
          four times the trust fund.  The State's General Fund only  
          backs small business disaster loans; if defaults exceed the  
          amount of the trust fund for any other program, the bank  
          doesn't have recourse to the state.  FDCs also administer  




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          disaster assistance loans and surety bond guarantees on  
          behalf of the state.

















































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                                   Proposed Law  

          Senate Bill 1247 reorganizes and rearranges law guiding  
          SBLGP by repealing the current law in place and replacing  
          it, including placing SBLGP under the I-Bank and within  
          GO-Biz.  The measure also makes programmatic changes to  
          SBLGP, including:
                 Creates the program manager to administer the  
               SBLGP, and imports the duties that are currently  
               performed by the Small Business Board Executive  
               Director.  
                 As part of considering whether to shift funds from  
               one FDC to another, the project manager must consider  
               the number of jobs created or retained by the  
               financial product activity.
                 Changes the Small Business Board to:
                  o         Make it an advisory board to the Governor  
                    and the Small Business Advocate on specified  
                    issues, and removes its legal responsibility to  
                    perform the tasks the bill assigns to the program  
                    manager,
                  o         Changes the composition from an  
                    eleven-member Board with the BTH Secretary as  
                    Chair with six gubernatorial appointments, plus  
                    one appointee each from the Assembly and Senate  
                    with specific qualifications, and one member each  
                    from the Assembly and the Senate, to an  
                    eleven-member board composed of the Director of  
                    Finance, the Director of the Office of the Small  
                    Business Advocate, the Treasurer, two FDC  
                    representatives, plus one appointee each from the  
                    Assembly and Senate with the same qualifications,  
                    and one member each from the Assembly and Senate.
                 Provides that I-Bank can continue programs under  
               the Small Business Expansion Fund, including loan  
               guarantees, credit enhancements, direct loans, other  
               debit instruments, disaster loan guarantees, and  
               surety bond programs in a complementary but not  
               competitive with commercial lenders and other state  
               and federal programs.  
                 Places the responsibility to approve new FDCs with  
               the I-Bank Board based on criteria that the Small  
               Business Board currently applies, including its role  
               to direct the program manager to establish new FDCs  
               pursuant to its directives and requirements, including  
               that small businesses in all areas of the state have  





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               reasonable access to the I-Bank financial products.
                 Directs I-Bank to adopt directives and requirements  
               to implement the program that replace regulations  
               adopted for the previous program, but allows the  
               regulations to remain effective until I-Bank adopts  
               the directives and requirements.  
                 Requires an FDC's articles of incorporation to  
               allow removal of officers only by 2/3 vote of the  
               directors.
                 Provides a process for and allows FDCs to appeal  
               the program manager's suspension decision and fund  
               transfers to I-Bank's Executive Director, and to the  
               I-Bank Board, if necessary.  
                 Allows an exception to the preclusion against  
               mixing separate accounts when the program manager  
               designates a trust fund account as shared by multiple  
               corporations, and for more than one-third of a trust  
               fund account to be allocated to a bond guarantee  
               account.

                 Provides that I-Bank directives and requirements  
               shall guide the maximum amount a corporation may  
               directly lend as a percentage of the trust fund,  
               erasing the 25% cap.
                 Allows a loan to a corporation to exceed the amount  
               of funds likely to be lent to the business in the next  
               three months for any kind of borrower, not just farm  
               borrowers, and removes the current $50,000 cap on  
               loans.  I-Bank will set loan amounts in the future.  
                 Repeals the position of Small Business Board  
               Executive Director, and its duties, as the bill vests  
               these responsibilities along with many of the Small  
               Business Board's duties with the executive director of  
               the I-Bank and the I-Bank Board.
                 Expands the definition of "financial company," to  
               include certified community development financial  
               institutions and microlenders for the loan guarantee  
               program.  
                 Exempts the annual contract between the state and  
               the FDCs from the state's general procurement process.  
                Under the statute, the FDCs serve as a pre-selected  
               pool of local nonprofits to administer the finance  
               programs.
                 Authorizes the I-Bank to make investment decisions  
               about small business expansion fund moneys, which is  
               consistent with existing I-Bank policy.  Currently,  





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               the program manager has to get DOF approval.
                 Changes references in the California Disaster  
               Assistance Act that allow the Governor to allocate  
               funds from the Disaster Recovery Loan Loss Reserve  
               Account from the old location in the Corporations Code  
               to the new location under the I-Bank statutes in the  
               Government Code, and makes other conforming changes.
                 Consolidates reporting requirements.
                 Adds intent language:
                  o         States that the Legislature finds that  
                    small business form the core of the California  
                    economy, and it is the interest of the state to  
                    increase opportunities for entrepreneurs, the  
                    self-employed, and microbusiness and small  
                    business owners.
                  o         Clarifies the Legislature's intent that  
                    the Small Business Finance Center include  
                    financial services as part of the resources it  
                    makes available,
                  o         Adds veteran businesses to the population  
                    served by the Center,
                  o         States that the Legislature intends to  
                    include federal, state, and local public  
                    resources, including private debt and equity  
                    investment as part of the resources it intends to  
                    provide,

          The bill would take effect immediately as an urgency  
          statute.



                               State Revenue Impact
           
          No estimate.


                                     Comments  

          1.   Purpose of the bill  .  According to the author, "In  
          2011, California received approval from the U.S. Treasury  
          to draw down up to $168 million in federal funds to assist  
          California's small businesses.  Approximately half of those  
          moneys will be administered through the state's Small  
          Business Loan Guarantee Program (SBLGP).  Among other  
          changes in the Governor's 2012 reorganization proposal,  





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          both the SBLGP and the I-Bank are transferred from  
          Business, Transportation and Housing Agency the Governor's  
          Office of Business and Economic Development.  AB 1247 makes  
          the technical changes to effectuate these transfers, and in  
          doing so, also modernizes the program structure to better  
          serve small businesses and efficiently use the federal  
          funding."
           
           2.   Shake it up  .  AB 1247 is a complex recasting of the  
          statutory provisions of the small business loan assistance  
          programs shifting from the Business, Transportation, and  
          Housing Agency to I-Bank and GO-Biz under GRP#2.  The  
          measure removes some limits, such as removing loan caps and  
          the limitation on direct loans only to farm borrowers,  
          instead leaving these rules to the I-Bank Board; however,  
          the bill does maintain caps on the overall risk of the  
          program to safeguard its ability to repay defaults.   As  
          such, the measure makes the appropriate statutory changes  
          without the potential for the state to assume excessive  
          risk.

          3.   Incoming  !  The Committee on Government Organization  
          approved AB 1247 unanimously at its June 25, 2013 hearing.   
          The Committee on Governance and Finance is hearing the  
          measure as the committee of second referral.

          4.   Technical  .  Committee staff suggests the following  
          amendment:
                 On Page 5, line 14, and Page 19, line 25, insert  
               the following, and renumber of the section:

               "Microbusiness lender" means a financial company as  
               defined in 13997.2 in the Government Code. 

           
                                Assembly Actions  

          Assembly Jobs, Economic Development & the Economy9 -0
          Assembly Appropriations                      17-0
          Assembly Floor                          70-0











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                         Support and Opposition (6/27/13)

           Support  :  Unknown.

           Opposition  :  Unknown.