BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1247| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 1247 Author: Medina (D) and Bocanegra (D), et al. Amended: 9/6/13 in Senate Vote: 27 - Urgency SENATE GOVERNMENTAL ORGANIZATION COMMITTEE : 11-0, 6/25/13 AYES: Wright, Nielsen, Berryhill, Calderon, Cannella, Correa, De León, Galgiani, Hernandez, Lieu, Padilla SENATE GOVERNANCE & FINANCE COMMITTEE : 7-0, 7/3/13 AYES: Wolk, Knight, Beall, DeSaulnier, Emmerson, Hernandez, Liu SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 ASSEMBLY FLOOR : 70-0, 5/16/13 (Consent) - See last page for vote SUBJECT : Business investments: Small Business Financial Assistance Act of 2013 SOURCE : Author DIGEST : 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), and a program manager designated by I-Bank's executive director. Also describes the transition CONTINUED AB 1247 Page 2 of oversight of the Small Business Loan Guarantee Program (SBLGP) from BTH to I-Bank and compliance with federal and state requirements. Senate Floor Amendments of 9/6/13 (1) add an uncodified section clarifying that nothing in this bill alters or impairs any control or oversight of GO-BIZ relative to federal funds received by the state pursuant to the federal State Small business Credit Initiative Act of 2010; (2) authorize establishment of a holding account within the expansion fund or trust fund for money that the program manager has withdrawn for cause from a corporation; (3) require the annual audit and examination of a corporation; (4) add flexibility to how a program manager may reallocate funds, based on ability to utilize the funds effectively; (5) add-co-authors; and (6) make technical and conforming changes. ANALYSIS : Existing law: 1. Creates the California Small Business Board as an advisory board to the I-Bank Board; and specifies the duties and membership of the Board. 2. Creates the California Small Business Expansion Fund solely for the purpose of receiving state, federal, or local government monies, and other public or private money to make loans, guarantees, and restricted investments. 3. Authorizes the formation of small business FDCs to grant loans from, or guarantee loans made by a financial institution or financial company, as defined, against, monies awarded to the corporation from the expansion fund for the purpose of stimulating small business development. 4. Authorizes a director designated by the Secretary of the BTH to perform specified duties under the California Small Business FDC Law. This bill transfers the administration of the small business FDC managed programs from the BTH to the I-Bank within GO-Biz. Specifically, this bill: CONTINUED AB 1247 Page 3 1. Repeals and recasts the statutes 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 Governor's Reorganization Plan No. 2 (GRP 2) directs 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 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. Modifies and expands the membership of the California Small Business Board by two FDC representatives and two additional Governor appointments. 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. CONTINUED AB 1247 Page 4 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. Adds technical changes requiring 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 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 monies, which is consistent with existing I-Bank policy. Currently, the program manager has to get the Department of Finance approval. 13.Authorizes the I-Bank to adopt other financial products and activities 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. 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. 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. 17.Expands the mandatory criteria the program manager uses to CONTINUED AB 1247 Page 5 allocate or transfer monies between the FDC trust fund accounts by allowing the consideration of the number of jobs created or retained by the FDC's financial activities and the number and amount of other financial activities. Existing law only provides for the mandatory consideration of the FDC's default rate and the number and amount of loans, loan guarantees, and surety bond guarantee activity of the FDC. The program manager may include other information in making the performance based allocation. 18.Allows an exception to the preclusion against mixing separate FDC trust fund accounts when the program manager has designated a shared trust fund account with multiple FDCs. 19.Adds an uncodified section clarifying that nothing in this bill alters or impairs any control or oversight of GO-Biz relative to federal funds received by the state pursuant to the Federal State Small Credit Initiative Act of 2010. 20.Authorizes establishment of a holding account within the expansion fund or trust fund for money that the program manager has withdrawn for cause from a corporation. 21.Requires the annual audit and examination of a corporation. 22.Adds flexibility to how a program manager may reallocate funds, based on ability to utilize the funds effectively. 23.Makes other conforming and technical changes in the definitions and administrative functions of the finance programs within the I-Bank. Background SBLGP . 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. GO-Biz . 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 CONTINUED AB 1247 Page 6 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 BTH. 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. FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes Local: Yes ASSEMBLY FLOOR : 70-0, 5/16/13 AYES: Achadjian, Alejo, Ammiano, Atkins, Bigelow, Bloom, Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley, Dahle, Daly, Dickinson, Donnelly, Fong, Fox, Frazier, Garcia, Gatto, Gomez, Gordon, Gorell, Gray, Hagman, Hall, Harkey, Roger Hernández, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein, Mansoor, Medina, Mitchell, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Salas, Skinner, Ting, Torres, Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, John A. Pérez NO VOTE RECORDED: Allen, Buchanan, Eggman, Beth Gaines, Grove, Holden, Melendez, Morrell, Stone, Vacancy MW:d 9/9/13 Senate Floor Analyses SUPPORT/OPPOSITION: NONE RECEIVED **** END **** CONTINUED