BILL ANALYSIS                                                                                                                                                                                                    

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          AB 1247 (Medina and Bocanegra)
          As Amended  September 6, 2013
          2/3 vote.  Urgency
          |ASSEMBLY:  |70-0 |(May 16, 2013)  |SENATE: |39-0 |(September 11, |
          |           |     |                |        |     |2013)          |
           Original Committee Reference:    J., E.D. & E.

          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).  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.   

          2)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.

          3)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.

          4)Includes an urgency clause allowing the bill to take effect  
            immediately upon enactment.

           The Senate amendments  :

          1)Modify and expand the membership of the California Small  
            Business Board by adding two FDCs and two small business  

          2)Shift 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.  


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          3)Specify 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.

          4)Clarify that a corporation that has been suspended from the  
            state's access to capital programs remains a nonprofit benefit  
          5)Exempt 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;

          6)Authorize 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 the  
            Department of Finance approval.

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

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

          9)Remove 25% limitation on the total amount of funds that can be  
            sued by a FDC to make loans and the $50,000 individual loan  
            limit, and instead, requires that limitations be set by the  
            I-Bank Board through adopted directives and requirements.

          10)Provide program flexibility to the allocation or transfer of  
            moneys between FDC trust fund accounts.

          11)Allow an exception to the preclusion against mixing separate  
            FDC trust fund accounts when a program manager has designated  
            a shared trust fund account which multiple FDCs.

          12)Add an uncodified section that clarifies that nothing in the  
            bill alters or impairs any control or oversight of GO-Biz  
            relating to federal funds received by the state under the  
            State Small Business Credit Act of 2010.

          13)Authorize the establishment of a holding account within the  
            expansion fund or trust fund for moneys that the program  


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            manager has withdrawn from a corporation for cause.

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

          15)Add an urgency clause allowing the bill to take effect  
            immediately upon enactment.

           EXISTING LAW  :

          1)Authorizes the approval of 11 FDCs by BTH for the purpose of  
            administering a number of small business finance programs  
            including the Small Business Loan Guarantee Program (SBLGP),  
            direct loans, disaster assistance loans and surety bond  

          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.  

           FISCAL EFFECT  :  According to the Senate Appropriations  
          Committee, pursuant to Senate Rule 28.8, negligible state costs.

           COMMENTS  :  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.

          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  


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          all businesses, and are responsible for employing more than 37%  
          of all workers in the state.  

          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  

          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. 

          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.   
          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.    

          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.

          Analysis Prepared by  :    Toni Symonds / J., E.D. & E. / (916)  

                                                               FN: 0002727 


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