BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                        AB 484


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       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