BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                         AJR 14


                                                                        Page  1





       Date of Hearing:   May 22, 2015


          ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY


                                Eduardo Garcia, Chair


       AJR 14  
       (Chu) - As Introduced May 7, 2015


       SUBJECT:  Export-Import Bank of the United States: reauthorization.


       SUMMARY:  Memorializes the Legislature's desire for the U.S. Congress  
       to support legislation reauthorizing the Export-Import Bank of the  
       United States (Ex-Im Bank). Specifically, this resolution:   





       1)Makes findings and declarations that, among other things, state:



          a)   The Ex-Im Bank is the official export credit agency of the U.S.  
            and exists for the purposes of financing and insuring foreign  
            purchases of U.S. goods for customers unable or unwilling to  
            accept the credit risk;  



          b)   The Ex-Im Bank has supported more than $400 billion in U.S.  
            exports in the past 70 years and helps to cover critical trade  
            finance gaps by providing loan guarantees, export credit  
            insurance, and direct loans for U.S. exports in developing markets  
            where commercial bank financing is unavailable or insufficient.  







                                                                         AJR 14


                                                                        Page  2





            For fiscal year 2014, the Ex-Im Bank provided $20.5 billion in  
            loan guarantees which leveraged $27.5 billion in exports while  
            supporting 164,000 United States jobs; 



          c)   The Ex-Im Bank is a self-sustaining agency, which operates at  
            no cost to the taxpayer and over the last three fiscal years has  
            generated more than $3 billion in fees from its foreign customers  
            which were deposited in the U.S. Treasury to reduce the U.S.  
            deficit and indebtedness; and 



          d)   Over the past five years, the Ex-Im Bank has assisted more than  
            967 California companies to export their products. Nearly 200 of  
            those companies are owned by women or minorities and over 700 are  
            small businesses. These companies export their products and  
            services around the globe totaling more than $21 billion in sales.  
            Fifty-two of the 53 congressional districts in California had  
            companies benefit from the Ex-Im Bank loans;



          e)   Legislation is pending before the 114th U.S. Congress that  
            would continue the Ex-Im Bank's capacity for creating jobs while  
            also making its practices more accountable and transparent, as  
            well as making the bank more solvent and self-sufficient.



       2)Resolves that the California Legislature desires the U.S. Congress to  
         support the reauthorizing of the Ex-Im Bank.



       3)Directs the Chief Clerk to transmit copies of this resolution to the  
         President and Vice President of the U.S., to the Speaker of the House  
         of Representatives, to the Majority Leader of the Senate, and to each  
         Senator and Representative from California in the Congress of the  







                                                                         AJR 14


                                                                        Page  3





         United States.



       FISCAL EFFECT:  None


       POLICY ISSUE FRAME:


       The Ex-Im Bank is operating on a short-term extension of its charter,  
       which expires on June 30, 2015.  The Ex-Im Bank's mission is to assist  
       U.S. companies in exporting goods and services to international  
       markets.  California benefits through jobs, tax dollars, and related  
       development associated with being a strategic business location within  
       the global economy.

       Ex-Im Bank has shown over its 80 years of operations to be an important  
       tool for U.S. companies interested in doing business in other  
       countries.  The Ex-Im Bank does not compete with private sector lenders  
       but provides export financing products that fill gaps in trade  
       financing. It assumes credit and country risks that the private sector  
       is unable or unwilling to accept.  It also helps to level the playing  
       field for U.S. exporters by matching the financing that other  
       governments provide to their exporting businesses.



       Although the Ex-Im Bank's charter has been extended numerous times, in  
       the last several years its actions have come under criticism by  
       conservative groups relative to the appropriateness of its role in  
       aiding private businesses in their export activities.   Many business  
       groups, including the U.S. Chamber of Commerce, strongly support the  
       Ex-Im Bank for its ability to meet unmet business transaction needs,  
       which serves to level the playing field for U.S. firms exporting into  
       markets where their foreign competitors receive similar government  
       supported assistance.  This resolution seeks state legislative support  
       for federal advocacy to support the reauthorization of the Ex-Im Bank.   
        With California businesses being one of the largest users of Ex-Im  
       Bank programs, California's opinion on reauthorization has particular  







                                                                         AJR 14


                                                                        Page  4





       merit in the national debate.   





       In deliberating the appropriateness of this resolution, Members may  
       wish to consider the importance of trade within the California economy,  
       the continuing need for programs to assist businesses in accessing  
       capital and new markets, and the demonstrated ability of the federal  
       government to operate the Ex-Im Bank without ongoing costs to the  
       public.   


       COMMENTS:  


       1)Background on the Bank:  The Ex-Im Bank is a wholly owned U.S.  
         government corporation, which was established by the U.S. Congress to  
         provide market-oriented public services and to produce revenues to  
         meet its expenditures.  The Ex-Im Bank provides a variety of  
         financial and insurance products that are designed to fill gaps in  
         private export financing.  Its charter was last extended through a  
         federal FY 2015 continuing resolution which expires June 30, 2015.   
         The Ex-Im Bank operates at no cost to American taxpayers and over the  
         past two decades the Bank has generated nearly $7 billion more than  
         the cost of its operations.
         In the federal fiscal year (FFY) 2014, the Ex-Im Bank approved $20.5  
         billion in financial authorizations, which supported an estimated  
         $27.5 billion in export sales and approximately 164,000 U.S. jobs.   
         Since 2009, the Ex-Im Bank has supported nearly 1.3 million private  
         sector jobs. 


         Of the total transactions in 2014, approximately 89% (3,347) of the  
         financial transactions were with small business for a total of $5.9  
         billion.  Of that $5.9 billion in small business transactions, more  
         than $5 billion were for direct support of small businesses and $700  
         million were attributed to small business inputs within the supply  
         chains of larger U.S. exporting companies.  One in five Bank  







                                                                         AJR 14


                                                                        Page  5





         authorizations made in FFY 2014 were for a woman- or minority-owned  
         business.


         Between 2012 and 2015, $7 billion in financial authorizations went to  
         704 California exporters, which supported $14 billion in exports.  Of  
         those exporters, 533 were small businesses, 90 were minority-owned  
         businesses, 63 were women-owned businesses, 10 were businesses in  
         renewable energy, and 34 were environmentally beneficial.  The three  
         top export destinations for California products were Mexico, Germany,  
         and Singapore. More businesses in California used the Ex-Im Bank than  
         in any other state except Texas, 704 vs. 955.  However, of those  
         businesses, California has a higher number of small businesses, 533  
         vs. 516.  California Ex-Im Bank users represented the highest number  
         of women-owned firms, renewable energy-related firms, and  
         environmentally beneficial-related firms in the nation.


         Other accomplishments in the past several years include an enhanced  
         risk management approach which materially reduced defaults since the  
         financial crisis.  The default rate as of September 30, 2014, was  
         0.175%.  Fred Hochberg, the Chair and President of the Ex-Im Bank  
         attributes the low default rate to the Bank's continued prudent  
         oversight and due diligence standards.  Key changes identified in  
         Congressional testimony include modernizing the Bank's credit  
         monitoring techniques, creating a special assets unit to address  
         emerging credit issues, improving underwriting, and enhancing credit  
         loss modeling with qualitative factors.  In preparation for  
         reauthorization, the Ex-Im Bank has met all its reporting  
         requirements including the preparation of a current business plan,  
         publication of a small business report, and submittal of quarterly  
         reports on its default rate.   


         *Information for this comment came from a variety of sources  
         including, but not limited to, written testimony before the U.S.  
         Senate Committee on Banking, Housing, and Urban Affairs (January 28,  
         2014), and the Ex-Im Bank website.









                                                                         AJR 14


                                                                        Page  6





       2)Reauthorization Challenges:  According to a November 2014 report by  
         the Congressional Research Service (CRS), the central debate over the  
         Ex-Im Bank reauthorization comes down to the question, what is the  
         appropriate role for government relative to the promotion of an  
         individual business' export activities?  In summarizing this debate,  
         the CRS report states, "Congressional and stakeholder views on Ex-Im  
         Bank vary. Proponents contend that the Bank supports U.S. exports and  
         jobs by addressing shortfalls in private sector financing and helping  
         U.S. exporters compete against foreign companies backed by their  
         governments' export credit agencies. Critics assert that it crowds  
         out private sector activity, picks winners and losers through its  
         support, operates as a form of "corporate welfare," and poses a risk  
         to taxpayers."



         The CRS report also notes that while the Ex-Im Bank debate has been  
         long-standing, the U.S. Congress has renewed Ex-Im Bank's authority  
         many times, generally on a bipartisan basis and under both Republican  
         and Democratic administrations.  Helping to fuel the debate in recent  
         years are differing views on which businesses benefit the most from  
         Ex-Im Bank activities.  Supporters of the program point to the  
         significant percentage of small businesses being served - nearly 90%  
         of the bank's 2014 deal-flow, representing more than $5 billion of  
         the $20 million of Ex-Im Bank's financing and insurance during that  
         term.  Program opponents argue that those same numbers show that it  
         is really the larger size businesses that benefit.  Proponents of the  
         program counter, that that $5 million represents export activities  
         that would not otherwise happen and that the Ex-Im Bank assistance  
         for all size businesses merely offsets government-backed services and  
         financial products offered to their foreign competitors.





         Further complicating this year's reauthorization discussions,  
         according to a Wall Street Journal article (5/20/2015), are the U.S.  
         Congress' deliberations over providing the U.S. President with  
         fast-track trade authority.  While fast-track and Ex-Im Bank  







                                                                         AJR 14


                                                                        Page  7





         reauthorization are separate issues with differing coalitions, the  
         article notes that the timing of the reauthorization makes it  
         vulnerable to becoming a potential policy hostage within the other  
         highly controversial trade-related debate.    





       3)California's Trade-Based Economy:  International trade and foreign  
         investment serve as critical components of California's $2.2 trillion  
         economy.  If California were a country, it would be the 31st largest  
         exporter and the 15th largest importer in the world.  Merchandise  
         exports from California ($174.1 billion) accounted for over 10.7% of  
         total U.S. exports in goods, shipping to over 220 foreign  
         destinations in 2014.  



         California's land, sea, and air ports of entry served as key  
         international commercial gateways for the $577 billion in products  
         entering and exiting the U.S. in 2014.  Statewide, 4.4 million  
         California jobs are dependent on foreign trade.  Over 602,800  
         California workers benefit from jobs with foreign-owned firms, which  
         accounts for 4.8% of all private sector jobs in the state.  


         The importance of trade to the California economy is increasing as a  
         percentage of California jobs tied to trade more than doubled from  
         1992 to 2013, 10.6% v. 21.8%.  Most recently, the value of  
         trade-related work, as a component of the broader economy was the  
         subject of a study by the Brookings Institute and JP Morgan Chase,  
         Export Nation 2013.  The report found that between 2003 to 2012  
         exports drove post-recession growth in the 100 largest metro areas  
         including Los Angeles, San Diego, and the Inland Empire.  The study  
         is unique in that it collects data by origin of production rather  
         than origin of export movement, as is the case with the U.S.  
         Department of Commerce export data.  
         Using the Export Nation methodology, total California exports for  
         goods and services in 2012 was $252 billion, as compared to the U.S.  







                                                                         AJR 14


                                                                        Page  8





         Census Bureau's 2012 number of $162 billion for goods only, as  
         measured by origin of movement.  In 2012, exports represented 8.8% of  
         California GDP, based on the Export Nation methodology.  The top five  
         metro areas in California include:  (1) Los Angeles (37.1%); (2) San  
         Francisco (15%); (3) San Jose (13.7%); (4) San Diego (11.5%), and (5)  
         the Inland Empire (9.2%).  Chart 1 includes more specific data on  
         selected California exports of goods and services, as expressed in  
         2012 dollars (adjusted for inflation) and based on the Export Nation  
         methodology.





          ------------------------------------------------------------------ 
         |         Chart 1 - Southern California Largest Metro Areas        |
         |                                                                  |
         |                                                                  |
         |      Exports (2007-2012)(in millions, adjusted for inflation)    |
         |                                                                  |
         |                                                                  |
          ------------------------------------------------------------------ 
         |---------------------+------+------+-----+-------+------+---------|
         |     Metropolitan    | 2003 | 2012 |Expor|Export |Export|Annualize|
         |   Statistical Area  |Export|Export|  t  |  in   |  in  |    d    |
         |                     |  s   |  s   |Share| Goods |Servic|2009-2012|
         |                     |(milli|(milli|  of | 2012  |  es  |  Growth |
         |                     | ons) | ons) | GDP |       | 2012 |   in    |
         |                     |      |      |     |       |      |Manufactu|
         |                     |      |      |     |       |      |  ring   |
         |                     |      |      |     |       |      |         |
         |                     |      |      |     |       |      |         |
         |                     |      |      |     |       |      |(Post-Rec|
         |                     |      |      |     |       |      |ession)  |
         |                     |      |      |     |       |      |         |
         |                     |      |      |     |       |      |         |
         |---------------------+------+------+-----+-------+------+---------|
         |El Centro, CA        |432.79|586.87|9.3% |456.594|130.27|  8.9%   |
         |Metropolitan         |  54  |  08  |     |   6   |  62  |         |
         |Statistical Area     |      |      |     |       |      |         |







                                                                         AJR 14


                                                                        Page  9





         |                     |      |      |     |       |      |         |
         |                     |      |      |     |       |      |         |
         |---------------------+------+------+-----+-------+------+---------|
         |Los Angeles-Long     |62850.|93871.|12.0%|56462.3|37409.|  4.0%   |
         |Beach-Santa Ana, CA  |  51  |  65  |     |   9   |  26  |         |
         |Metropolitan         |      |      |     |       |      |         |
         |Statistical Area     |      |      |     |       |      |         |
         |                     |      |      |     |       |      |         |
         |                     |      |      |     |       |      |         |
         |---------------------+------+------+-----+-------+------+---------|
         |Oxnard-Thousand      |3997.9|6462.6|15.2%|4822.01|1640.6|  3.8%   |
         |Oaks-Ventura, CA     |  9   |  74  |     |   6   |  58  |         |
         |Metropolitan         |      |      |     |       |      |         |
         |Statistical Area     |      |      |     |       |      |         |
         |                     |      |      |     |       |      |         |
         |                     |      |      |     |       |      |         |
         |---------------------+------+------+-----+-------+------+---------|
         |Riverside-San        |7999.8|13128.|9.2% |8407.37|4720.6|  5.9%   |
         |Bernardino-Ontario,  |  25  |  07  |     |   3   |  97  |         |
         |CA Metropolitan      |      |      |     |       |      |         |
         |Statistical Area     |      |      |     |       |      |         |
         |                     |      |      |     |       |      |         |
         |                     |      |      |     |       |      |         |
         |---------------------+------+------+-----+-------+------+---------|
         |San                  |11996.|21613.|11.5%|13702.5|7910.9|  7.2%   |
         |Diego-Carlsbad-San   |  96  |  47  |     |   2   |  54  |         |
         |Marcos, CA           |      |      |     |       |      |         |
         |Metropolitan         |      |      |     |       |      |         |
         |Statistical Area     |      |      |     |       |      |         |
         |                     |      |      |     |       |      |         |
         |                     |      |      |     |       |      |         |
         |---------------------+------+------+-----+-------+------+---------|
         |San                  |15417.|38046.|12.5%|23306.1|14740.|  -0.7%  |
         |Francisco-Oakland-Fre|  44  |  75  |     |   2   |  64  |         |
         |mont, CA             |      |      |     |       |      |         |
         |Metropolitan         |      |      |     |       |      |         |
         |Statistical Area     |      |      |     |       |      |         |
         |                     |      |      |     |       |      |         |
         |                     |      |      |     |       |      |         |
         |---------------------+------+------+-----+-------+------+---------|







                                                                         AJR 14


                                                                        Page  10





         |San                  |21384.|34641.|23.8%|26418.3|8222.8|  10.9%  |
         |Jose-Sunnyvale-Santa |  90  |  22  |     |   9   |  31  |         |
         |Clara, CA            |      |      |     |       |      |         |
         |Metropolitan         |      |      |     |       |      |         |
         |Statistical Area     |      |      |     |       |      |         |
         |                     |      |      |     |       |      |         |
         |                     |      |      |     |       |      |         |
          ------------------------------------------------------------------ 
          ------------------------------------------------------------------ 
         |   Source:  Export Nation 2013, Global Cities Initiative, a joint |
         |project of Brookings Institute and JP Morgan Chase                |
         |                                                                  |
         |                                                                  |
          ------------------------------------------------------------------ 



         Trade and foreign investment support new job creation, bring new  
         technologies and skills to California workers, generate local and  
         state revenues, and generally strengthen the state's economic base.   
         In the future, California's economy will become increasingly reliant  
         on accessing foreign markets where a majority of global economic  
         growth is expected to occur.  


       4)Related Legislation:  Below is a list of legislation from the current  
         and prior legislative sessions.



          a)   AB 311 (V. Manuel Pérez) Bi-National Infrastructure and  
            Economic Development Bank:  This bill would have expanded the role  
            of the I-Bank to include facilitating infrastructure and economic  
            development financing activities within the California and Mexico  
            border region.  Status:  Held in the Assembly Committee on  
            Appropriations, 2013.

          b)   AB 886 (Allen) Export and Import Credit:  This bill would have  
            established a capped and allocated tax credit for importers and  
            exporters that increase cargo through California air and sea  







                                                                         AJR 14


                                                                        Page  11





            ports, hire additional staff, or incur capital costs at a  
            California cargo facility.  Status:  Held in the Assembly  
            Committee on Appropriations, 2013.



          c)   AB 1247 (Medina and Bocanegra) Small Business Finance Center:   
            This bill establishes the Small Business Finance Center within the  
            California Infrastructure and Economic Development Bank for the  
            purpose of establishing a one-stop-shop for small businesses  
            interested in utilizing state loan and credit program including  
            export finance guarantees.  Status:  Signed by the Governor,  
            Chapter 537, Statutes of 2013. 

          d)   AJR 37 (Muratsuchi) Reauthorization of the Export-Import Bank:   
            This bill memorializes the Legislature's desire for the U.S.  
            Congress to support legislation reauthorizing the Export-Import  
            Bank of the United States.  Status:  Resolution Chapter 72,  
            Statutes of 2014.
       


       REGISTERED SUPPORT / OPPOSITION:





       Support


       Antelope Valley Board of Trade


       California Chamber of Commerce


       California Manufacturers and Technology Association









                                                                         AJR 14


                                                                        Page  12





       Huntington Beach Chamber of Commerce


       LAX Coastal Chamber of Commerce


       Long Beach Area Chamber of Commerce


       Orange County Business Council


       San Diego Regional Chamber of Commerce 


       Southwest California Legislative Council


       The Boeing Company


       


       Opposition


       None Received








       Analysis Prepared by:Toni Symonds / J., E.D., & E. / (916) 319-2090










                                                                         AJR 14


                                                                        Page  13