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
AB 1247 - 6/18/13 -- Page 2
disaster assistance loans and surety bond guarantees on
behalf of the state.
AB 1247 - 6/18/13 -- Page 3
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,
AB 1247 - 6/18/13 -- Page 5
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,
AB 1247 - 6/18/13 -- Page 6
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
AB 1247 - 6/18/13 -- Page 7
Support and Opposition (6/27/13)
Support : Unknown.
Opposition : Unknown.