BILL ANALYSIS Ó AB 1247 Page 1 CONCURRENCE IN SENATE AMENDMENTS 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 representatives. 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. AB 1247 Page 2 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 corporation.
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 AB 1247 Page 3 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 guarantees. 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 AB 1247 Page 4 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 obtain. 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) 319-2090 FN: 0002727 AB 1247 Page 5