BILL ANALYSIS Ó
AB 484
Page 1
Date of Hearing: April 21, 2015
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Eduardo Garcia, Chair
AB 484
Gipson - As Amended April 14, 2015
SUBJECT: California Infrastructure and Economic Development Bank:
insurance
SUMMARY: This bill expands the types of financial products the Small
Business Finance Center may offer to include insurance and
co-insurance for the purpose of increasing small business export
activities. Specifically, this bill:
1)Authorizes the Small Business Finance Center, administered through
the California Infrastructure and Economic Development Bank
(I-Bank), to include insurance, coinsurance, and other forms of
surety among the types of financial products included in programs
administered by the I-Bank.
2)Requires the I-Bank to adopt implementing directives and
requirements should the I-Bank choose to activate this program.
3)Requires a participating small business to:
a) Have less than 250 employees (consistent with other I-Bank
programs);
b) Be an exporter or plan to become an exporter of California
products including agricultural products, as specified;
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c) Demonstrate that the business could not otherwise access the
surety product under reasonable terms and conditions;
d) Demonstrate their ability to fully make the payments covered
by the surety; and
e) Have a minimum equity interest in the business, as set by the
I-Bank.
4)Requires the I-Bank to adopt collateral or security requirements to
ensure the solvency of any insurance, coinsurance, or surety
extended under this bill.
5)Authorizes the I-Bank to charge the applicant or financial
institution an insurance origination fee or other fee on all
instruments made by the I-Bank, as specified.
6)Authorizes the I-Bank to act as agent for creditworthy California
exporters, to sell approved and insured accounts receivable to
qualified parties and function as a clearinghouse for the collection
and disbursement of funds relative to those sales.
7)Specifies the amount of insured liability outstanding at any one
time shall be secured by no less than a 25% reserve amount of funds
on deposit in the California Small Business Expansion Fund plus any
receivables due from the funds loaned from the California Small
Business Expansion Fund to another fund in state government, as
specified.
EXISTING LAW:
1)Establishes GO-Biz for the purpose of serving as the lead state
entity for economic strategy and
marketing of California on issues related to business development,
private sector investment, and economic growth.
2)Establishes the I-Bank, within GO-Biz, to administer a range of
programs including the Small Business Finance Center, the State
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Infrastructure Revolving Loan Fund, and to serve as a conduit bond
issuer.
3)Establishes the Small Business Finance Center for the purpose of
assisting businesses seeking new capital resources including:
a) Loan guarantees and other credit enhancements;
b) Direct loans and other debt instruments;
c) Disaster loan guarantees; and
d) Surety bond guarantees.
FISCAL EFFECT: Unknown
POLICY ISSUE FRAME:
Prior to the elimination of the Technology, Trade, and Commerce Agency
in 2003, the California Export Finance Office (CEFO) served as the
state's primary point-of-contact for small businesses seeking
technical assistance and capital for expanding into foreign markets.
Since that time, California's economic and business development
framework has changed considerably. The central point of the state's
programs and services is GO-Biz and the economic development entities
under its purview including the I-Bank and the Small Business Finance
Center.
Last year, the Assembly Jobs Committee heard and passed SB 511 (Lieu),
which reestablished two components of the CEFO programs within the
I-Bank: The Export Finance Advisory Board and gap insurance authority
for exporting small businesses. SB 511 was held in the Assembly
Appropriations Committee.
AB 484 proposes to implement one portion of the prior legislation,
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that being the expansion of the financial offerings of the California
Small Business Finance Center. With the implementation of AB 484,
California small business could have access to the same types of
finance export assistance as previously offered through the CEFO.
Unlike state programs offered through other departments, I-Bank
program authority is permissive. This means that activation of the
new insurance authority would be dependent on the I-Bank Bank
determining that the program was necessary to meet an unmet market
need, that there was sufficient capital to back an insurance program,
and that the I-Bank was confident that an appropriate administrative
structure was in place to successfully deliver the program.
The Comment Section of the bill analysis includes information on the
role and structure of GO-Biz and the I-Bank, California's trade-based
economy, and related legislation.
COMMENTS:
1)Author's Purpose: According to the author's statement, "By giving
the California Small Business Finance Center another financial tool
aimed at trade promotion, AB 484 will help drive economic growth and
raise living standards throughout California by supporting and
creating new jobs."
2)Traded Industries and Economic Growth: California's $2.2 trillion
economy naturally functions as an independent economic power within
the global economy. In fact, compared to other nations, California
has one of the 10 largest economies in the world, in part, due to it
being a top-tier trade partner, a best-in-class investment location,
a high quality producer of goods and services, and serving as the
home and key access point for a massive consumer-base. In 2014,
California exported $174 billion in products to over 220 foreign
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countries. While California was significantly impacted by the
recession, exports continued to increase in almost every quarter
from 2010 through 2014.
The value of trade-related industries, 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 collected data by origin of
production rather than origin of export movement, as is the case
with the U.S. Department of Commerce export data reported above.
Using the Export Nation methodology, total California exports for
goods and services in 2012 was $252 billion, as compared to the U.S.
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 Export
Nation data. The top five California metro areas with the highest
concentration of export-related GDP in the report period 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 of dollars, adjusted for |
| inflation) |
| |
| |
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--------------------------------------------------------------
|------------------+------+------+-----+------+------+---------|
|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% |456.59|130.27| 8.9% |
|Metropolitan |54 |08 | |46 |62 | |
|Statistical Area | | | | | | |
| | | | | | | |
| | | | | | | |
|------------------+------+------+-----+------+------+---------|
|Los Angeles-Long |62850.|93871.|12.0%|56462.|37409.| 4.0% |
|Beach-Santa Ana, |51 |65 | |39 |26 | |
|CA Metropolitan | | | | | | |
|Statistical Area | | | | | | |
| | | | | | | |
| | | | | | | |
|------------------+------+------+-----+------+------+---------|
|Oxnard-Thousand |3997.9|6462.6|15.2%|4822.0|1640.6| 3.8% |
|Oaks-Ventura, CA |9 |74 | |16 |58 | |
|Metropolitan | | | | | | |
|Statistical Area | | | | | | |
| | | | | | | |
| | | | | | | |
|------------------+------+------+-----+------+------+---------|
|Riverside-San |7999.8|13128.|9.2% |8407.3|4720.6| 5.9% |
|Bernardino-Ontario|25 |07 | |73 |97 | |
|, CA Metropolitan | | | | | | |
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|Statistical Area | | | | | | |
| | | | | | | |
| | | | | | | |
|------------------+------+------+-----+------+------+---------|
|San |11996.|21613.|11.5%|13702.|7910.9| 7.2% |
|Diego-Carlsbad-San|96 |47 | |52 |54 | |
| Marcos, CA | | | | | | |
|Metropolitan | | | | | | |
|Statistical Area | | | | | | |
| | | | | | | |
| | | | | | | |
|------------------+------+------+-----+------+------+---------|
|San |15417.|38046.|12.5%|23306.|14740.| -0.7% |
|Francisco-Oakland-|44 |75 | |12 |64 | |
|Fremont, CA | | | | | | |
|Metropolitan | | | | | | |
|Statistical Area | | | | | | |
| | | | | | | |
| | | | | | | |
|------------------+------+------+-----+------+------+---------|
|San |21384.|34641.|23.8%|26418.|8222.8| 10.9% |
|Jose-Sunnyvale-San|90 |22 | |39 |31 | |
|ta Clara, CA | | | | | | |
|Metropolitan | | | | | | |
|Statistical Area | | | | | | |
| | | | | | | |
| | | | | | | |
--------------------------------------------------------------
--------------------------------------------------------------
| Source: Export Nation 2013, Global Cities Initiative, a |
| joint project of Brookings Institute and JP Morgan Chase|
| |
| |
--------------------------------------------------------------
According to research by the California Employment Development
Department, the state's future economic growth will be strongly
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correlated to the strength of its trade-related industry sectors
including advanced manufacturing, information technology, and
professional services. The high growth potential of these industry
sectors is based on their links to external markets, as well as to
internal markets in the U.S. and California.
3)California Export Activities: 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.
Mexico has been California's top trading partner since 1999 and in
2014, California exported $25.4 billion (14.5%) in goods. Chart 2
shows export data on the state's top five trade partners, based on
origin of movement. Other top-ranking export destinations not shown
on the chart include Hong Kong, Taiwan, Germany, the Netherlands,
and the United Kingdom.
-----------------------------------------------------------
| Chart 2 - California Exports 2011 to 2014 (billions of |
| dollars) |
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-----------------------------------------------------------
|---+---------+-----------+-----------+-----------+----------|
| | Partner | 2011 | 2012 | 2013 | 2014 |
|---+---------+-----------+-----------+-----------+----------|
| |World | 159.4 | 161.7 | 168.0 | 174.1 |
|---+---------+-----------+-----------+-----------+----------|
|1 |Mexico | 25.8 | 26.3 | 23.9 | 25.4 |
|---+---------+-----------+-----------+-----------+----------|
|2 |Canada | 17.2 | 17.4 | 18.8 | 18.2 |
|---+---------+-----------+-----------+-----------+----------|
|3 |China | 14.2 | 13.9 | 16.2 | 16.0 |
|---+---------+-----------+-----------+-----------+----------|
|4 |Japan | 13.1 | 13.0 | 12.7 | 12.2 |
|---+---------+-----------+-----------+-----------+----------|
|5 |South | 8.4 | 8.2 | 8.3 | 8.5 |
| |Korea | | | | |
|---+---------+-----------+-----------+-----------+----------|
|6 |Hong | 7.6 | 7.8 | 7.7 | 8.5 |
| |Kong | | | | |
|---+---------+-----------+-----------+-----------+----------|
|7 |Taiwan | 6.2 | 6.3 | 7.5 | 7.4 |
|---+---------+-----------+-----------+-----------+----------|
|8 |Germany | 5.3 | 4.9 | 5.5 | 5.4 |
------------------------------------------------------------
-----------------------------------------------------------
| Source: International Trade Administration, accessed |
| 4/11/2015|
| |
| |
| |
| |
| |
-----------------------------------------------------------
California's largest industry sector by employment is Trade,
Transportation, and Utilities, which encompasses everything from
major retail outlets, to import-export businesses, to transportation
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and warehousing. California leads the nation in export-related
jobs. The U.S. Department of Commerce estimates that for every one
million dollars of increased trade activity, 11 new jobs are
supported. Workers in trade-related jobs earn on average 13% to 28%
higher wages than the national average.
In today's globally linked economy, manufacturing utilizes products
from across the U.S., as well as from other nations. In 2012, 61%
($1.3 trillion) of the products imported into the U.S. were inputs
and components intended for use by American producers. In addition,
U.S. imports often include components or have benefited from
services provided by U.S. firms, including many California
companies. The Wilson Center estimates that Mexican imports and
Canadian imports contain 40% and 20% U.S. components, respectively.
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)Export Competition: Domestic and Foreign: The California Center at
the Milken Institute released a study in 2012 that considered what
actions the state should consider in expanding export opportunities
for California businesses. The report's major recommendation called
for the state to develop and implement a comprehensive trade
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strategy that utilizes existing resources, leverages private sector
expertise, focuses on key export destinations, and includes a
detailed export promotion strategy. Top barriers to export
promotion (cited from a prior BTH study) included regulatory
problems, access to capital, difficulty in identifying foreign
business partners, lack of internal resources and market knowledge,
and the fragmented state of trade services offered by California.
--------------------------------------------
| Chart 3 - Export Growth: California v. |
| Selected States |
--------------------------------------------
|------------+-------------------------------|
| | Percent Growth (1998-2011) |
|------------+-------------------------------|
| United | 139% |
| States | |
|------------+-------------------------------|
| Texas | 217% |
|------------+-------------------------------|
| Alabama | 181% |
|------------+-------------------------------|
| Florida | 165% |
|------------+-------------------------------|
|Pennsylvania| 157% |
| | |
|------------+-------------------------------|
| California | 66% |
--------------------------------------------
--------------------------------------------
| Source: Strategies for Expanding |
| California's Exports, California Center, |
|Milken Institute, 2012 |
| |
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| |
| |
--------------------------------------------
As shown in Chart 3, the California Center at the Milken Institute
found that California's export growth fell far short of other
states. By comparison, the study noted, states that had
aggressively advanced trade promotion strategies were more
successful including Florida, Alabama, and Pennsylvania. These
strategies often included partnerships with private industry,
overseas trade promotion, and trade assistance to exporting
businesses. Other examples highlighted in the report included
Germany and South Korea who both implemented robust trade strategies
which included direct investment in export promotion. Germany also
offers loan guarantees to small and medium-sized businesses and
South Korea helps businesses identify growing markets for goods and
then assists companies to penetrate those markets.
In February 2014, GO-Biz issued the California International Trade
and Investment Strategy, which called for expanding the export of
California goods and services, and by increasing foreign direct
investment into the state. Based on these guiding policy goals, the
California strategy sets forth a comprehensive set of
recommendations around six strategic objectives:
a) Develop a comprehensive, coordinated and cohesive strategy
framework with a clear vision to expand trade and investment,
which includes other relevant state agencies, with input from
private and public sector stakeholders;
b) Implement more proactive outreach, awareness, education and
engagement programs both within the state for California-based
companies and through foreign partners and trade office(s);
c) Maximize China Trade Office resources and opportunities to
expand exports and investment;
d) Develop an action plan to address key challenges facing our
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ports and related infrastructure to ensure their competitiveness;
e) Re-engage and strengthen working relationships with the Office
of the U.S. Trade Representative and the state's Congressional
delegation to advocate California interests related to
international trade and investment; and
f) Develop and implement a more user-friendly, comprehensive,
interactive and useful website to assist California companies
wanting to export and to attract foreign investment.
AB 484 could assist in the implementation of these strategic
objectives and serve as a key facilitator for bringing resources
together into a comprehensive network to better serve the exporting
needs of smaller size businesses.
1)Related Legislation: Below is a list of bills from the current and
prior sessions.
a) AB 826 (Chau) Promotion of Foreign and Domestic Investments:
This bill strengthens the statutory framework for Governor's
Office of Business and Economic Development engagement on issues
related to California's position within the global economy.
Status: Scheduled to be heard in the Assembly Committee on Jobs,
Economic Development and the Economy on April 21, 2015.
b) AB 1067 (Medina) EB-5 Immigration Oversight: This bill
establishes the California Foreign Investment Program within the
Governor's Office of Business and Economic Development to oversee
the state's participation in the federal EB-5 foreign investment
visa program. Among other things, this office will set the terms
and conditions regarding the designation of Targeted Employment
Areas, as related to the EB-5 visas. Status: Signed by the
Governor, Chapter 535, Statutes of 2013.
c) AB 1545 (V. Manuel Pérez) Bi-National Infrastructure and
Economic Development Bank: This bill would have expanded the
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role of the California Infrastructure and Economic Development
Bank to include facilitating infrastructure and economic
development financing activities within the California and Mexico
border region. Status: Held on the Suspense File of the Senate
Committee on Appropriations, 2012.
d) AB 2012 (John A. Pérez) Economic Development Reorganization:
This bill transferred the authority for undertaking international
trade and foreign investment activities from the Business,
Transportation and Housing Agency to the Governor's Office of
Business and Economic Development. In addition, the bill
transferred the responsibility for establishing an Internet-based
permit assistance center from the Secretary of the California
Environmental Protection Agency to GO-Biz. Status: Signed by
the Governor, Chapter 294, Statutes of 2012.
e) AB 2713 (Quirk-Silva) Public Private Partnerships to Promote
Trade: This bill authorizes the Governor's Office of Business
and Economic Development to establish public-private partnerships
to help guide state activities related to the export of
California products and the attraction of employment-producing
foreign investment. The bill requires the establishment of a
subaccount to hold private donation for county and
industry-specific marketing activities. The bill also requires
the establishment of a partnership to support California trade
and investment within South Korea. Status: Pending in the
Senate Appropriations Committee.
f) SB 511 (Lieu) California Export Finance Office: This bill
would have re-established the California Export Finance Office
within the California Infrastructure and Economic Development
Bank and required the Governor's Office of Business and Economic
Development to convene a statewide business partnership to
discuss the promotion and greater utilization of California
ports. Status: Held on the Suspense File in the Assembly
Committee on Appropriations, 2014.
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REGISTERED SUPPORT / OPPOSITION:
Support
None received
Opposition
None received
Analysis Prepared by:Toni Symonds / J., E.D., & E. / (916) 319-2090