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